Buying or selling a business in the air freight and cargo sector

The air freight sector is among the most heavily controlled sectors in the whole of the UK economy. Entering or exiting the industry is fraught with regulatory burdens. Non-compliance can expose you or your business to criminal and civil liability. Thorough due diligence by a buyer of a business ahead of completion is critical. The Civil Aviation Authority (safety), the Department of Transport, HMRC (customs), and the Environment Agency (emissions and noise control) all have ongoing oversight over air freight operations. The process of transferring licences and consents needs to be planned as part of any deal so that these are in place for completion and any administrative or legal delays are factored into the transaction.

Disputes over price can jeopardise any commercial sale or acquisition, and getting an agreed valuation for an air freight business is particularly challenging. This is down to the unique factors at play in the sector, including the effect of regulation on staff resources and profit and ongoing geopolitical uncertainty affecting air traffic stability. The fact that the freight business is dependent on the security of multiple external entities, including airports and fleet maintenance facilities, also presents challenges for those valuing the business. From a legal perspective, some of the factors to consider when valuing the business include:

• How well the seller can demonstrate regulatory approval and compliance, including environmental standards compliance
• The strength and stability of the existing customer base. Is business spread across a sufficient number of airlines, for example? Are customers varied over multiple sectors? A detailed analysis of existing customer agreements should be carried out
• What agreements are in place with suppliers and other third parties? Is there a value to attach to these or any post-completion financial or legal exposure for the buyer that could affect price?
• High quality, long-term lease and other agreements with airports and storage facilities are valuable assets because of the scarcity of available property in and around most major UK airports. A review of existing leases should always be made
• What contractual arrangements are in place with staff?
• Does the business own any intellectual property, for example, relating to cargo handling systems or other technology?
• Is the business facing any legal claims that may have to be met by the buyer?

A successful transition of the freight business will depend on how ownership of the fleet is structured, and whether maintenance obligations, insurance, and other rights will continue post-sale. The buyer should expect to be able to operate the fleet immediately on purchase and the seller should do everything in its power to accommodate this. Often, this requires working closely with airport and other authorities to ensure a seamless transfer of any safety certifications and operating permits.

A full audit should be carried out to establish precise legal ownership of any aircraft, associated airside vehicles, and handling machinery included in the sale. It is not always straightforward to assign lease interests or transfer complex finance agreements or mortgages to a new owner. Finally, maintenance records should be obtained and scrutinised and all regulatory approvals and licences necessary to operate fleet equipment post-completion must be legally signed off.

Buyers and sellers of air freight businesses should understand the added legal complexities that surround ownership and leasing of land and buildings around UK airports and warehouses. Restrictions on use and occupation extend to warehouses and other properties used in connection with air freight operations. Security considerations means owners of airports and industrial units surrounding airfields will often insist on strict vetting of new freight business owners and their staff. It is essential that, if additional steps such as security clearance or consent to lease assignments are required, they are addressed early on and built into the transaction timeframe. Failure to do so could lead to delays in completion.

Finally, buyers should establish the level of service charges they will be responsible for when leasing airport buildings and what additional charges may be imposed by airport authorities, such as operational charges and levies for use of exclusive cargo terminals and other infrastructure.

All of these factors mean that, in many respects, legal input and expertise plays a bigger part in air freight-related property transactions than in other commercial real estate transactions.

The sale and purchase of any air freight and cargo business raises a whole host of contractual issues. Legally, the key objective is to establish clearly what contractual rights and obligations will end with the sale and which will survive the transition. The buyer should ensure they are comfortable with the level of responsibility they are assuming before proceeding. Certain contracts are required to remain in place, including many employee contracts and benefit schemes under the TUPE regulations. Other commercial agreements with suppliers, contractors, and freight customers may be assigned under the sale or be up for renegotiation. An assessment should be made, in particular, of any conditions the airport authorities may impose when consenting to the assignment of contracts. Because of the strict safety and security regulations existing in all UK airports, consent cannot always be guaranteed.

We have outlined five key areas to consider if you are thinking about buying or selling an air freight or cargo business. This is just a selection of issues you may have to tackle, however, depending on the size and nature of the deal, you will have to take account of the age and extent of the fleet being bought or sold. There will, inevitably, be a wide range of employment issues to appraise as well as multiple tech issues around cargo tracking, route planning, and data security to nail down.

DMH Stallard has the resources and expertise to draw all these matters together and ensure your transaction proceeds as smoothly as possible, despite the regulatory and other challenges we have outlined. Our team of expert Sales, Acquisitions and Mergers lawyers is backed up by others working in areas such as Commercial Real Estate, Employment, IT and Cyber Law. You can trust us to push things forward to a successful conclusion and quickly confront unforeseen obstacles when they arise. For an initial conversation get in touch.