Aviation ESOP Valuation and Adequate Consideration for FBOs, MROs, and Charter Operators

Executive Summary

The employee stock ownership plan has become one of the few credible succession options for the founder-owners of aviation service businesses: fixed base operators (FBOs), Part 145 maintenance-repair-and-overhaul (MRO) facilities, and Part 135 charter and management operators. A generation of proprietors is approaching retirement, and for most of them the only competing exit is a sale to a private-equity consolidation platform. Yet the transaction that makes employee ownership possible is governed by an unforgiving standard. Under Section 3(18) of the Employee Retirement Income Security Act (ERISA), an ESOP may pay no more than “adequate consideration,” defined as fair market value determined in good faith. Overpayment is not a pricing error. It is a prohibited transaction and a fiduciary breach, and the case law, culminating in the $29.8 million judgment affirmed in Brundle v. Wilmington Trust, shows that trustees and the appraisers they rely on bear personal exposure for valuations that cannot withstand scrutiny.

This paper argues that aviation service businesses present adequate-consideration risks that generic business-valuation practice systematically underestimates, because their enterprise value is entangled with non-transferable regulatory certificates, airport ground leaseholds subject to reversion and authority consent, extreme cyclicality, skilled-labor and key-person concentration, and environmental exposure. It introduces two frameworks. The Aviation ESOP Value Architecture (AEVA) decomposes enterprise value into transferable, encumbered, and person-dependent components. The Adequate Consideration Process Protocol for Aviation ESOPs (ACPP-A) is an aviation-specific extension of the Department of Labor’s GreatBanc process requirements. The regulatory context sharpens the stakes: the Department of Labor’s January 2025 adequate-consideration proposal was withdrawn within days of issuance, leaving the field, more than fifty years after ERISA, without a finalized valuation regulation.

1. The Succession Problem on the Ramp

The general aviation service sector is confronting a succession problem that has no precedent in its history. The founders who built the nation’s fixed base operators, its independent maintenance-repair-and-overhaul shops, and its charter and aircraft-management certificates in the decades after deregulation are now, in large numbers, approaching retirement. For most of them, the realistic exit menu contains exactly two items: sell to one of the private-equity-backed consolidation platforms that have swept through the FBO and MRO markets, or sell to the people who already run the business, the line technicians, the airframe-and-powerplant mechanics, the schedulers, and the pilots, through an employee stock ownership plan. When Vermont’s Heritage Aviation, an FBO and MRO at Burlington International Airport, became one hundred percent employee-owned in 2015, it demonstrated that the ESOP is not a theoretical option for aviation services but a working one. The model is spreading precisely because it solves the problem the consolidators cannot: it keeps the enterprise independent, rewards the workforce that created the value, and gives the departing owner a liquidity event on a defensible timetable.

But the transaction that delivers those benefits is built on a single, load-bearing valuation. Under Section 3(18) of the Employee Retirement Income Security Act of 1974 (ERISA), an employee benefit plan that acquires employer securities from a party in interest, which in the founding transaction is almost always the selling owner, may do so only for “adequate consideration.” For securities that are not publicly traded, adequate consideration means “the fair market value of the asset as determined in good faith by the trustee or named fiduciary” in accordance with regulations of the Secretary of Labor. The purchase of company stock by an ESOP is a prohibited transaction under ERISA Section 406. It is rescued from that prohibition only by the exemption in Section 408(e), and that exemption is available only if the plan pays no more than adequate consideration and no commission is charged. The consequence is stark and frequently misunderstood: if the ESOP overpays, the exemption evaporates, the purchase is a prohibited transaction, and the trustee who approved it has breached the duties of prudence and loyalty owed to the plan’s participants. The valuation is not documentation supporting a price that the parties negotiated. The valuation is the legal condition on which the entire transaction depends.

The stakes of getting that valuation wrong are not hypothetical. In Brundle v. Wilmington Trust, N.A., the United States Court of Appeals for the Fourth Circuit in 2019 affirmed a judgment of $29,773,250 against an institutional ESOP trustee that had approved the purchase of a private company’s stock at a price its financial advisor had, in the district court’s finding, overstated. The trustee had retained a national valuation firm, had obtained a written fairness opinion, and had, in the conventional sense, followed the process. It was nonetheless held liable, because the court found that it had failed to interrogate a contemporaneous valuation indicating a far lower value, had accepted management projections without adequate scrutiny, had permitted an unsupported control premium where the ESOP did not in fact acquire control, and had tolerated a valuation that rounded consistently in the seller’s favor. Brundle is the defining cautionary tale of the modern ESOP era, and its lesson is that neither the trustee nor the appraiser is insulated by the mere existence of a report.

This paper contends that aviation service businesses occupy the high-risk end of the adequate-consideration spectrum, and that the generic business-valuation practice ordinarily brought to bear on ESOP transactions systematically overstates the defensible enterprise value of an FBO, an MRO, or a charter operator. The reason is structural. The value of an aviation service enterprise is inseparable from a set of aviation-specific attributes that have no analog in the manufacturing, distribution, and professional-services companies from which ESOP valuation practice draws its guideline data: air agency and air carrier certificates that cannot be sold and that depend on the continued presence of specific certificated individuals; airport ground leaseholds that revert to the sponsor at expiration and that constrain the enterprise’s control over its own premises; cash flows that swing violently with the business-aviation cycle; workforce value concentrated in a handful of hard-to-replace technical personnel; and environmental liabilities arising from fuel handling and legacy contamination. An appraiser who capitalizes an aviation service company’s earnings using guideline multiples drawn from generically comparable service firms, and who does not discount for the fragility, non-transferability, and encumbrance of the assets producing those earnings, will hand the trustee a number that is too high, and will hand the plaintiffs’ bar a Brundle in waiting.

The regulatory backdrop compounds the difficulty. More than five decades after ERISA’s enactment, the Department of Labor has never finalized a regulation defining how good-faith fair market value is to be determined. The only regulatory text on point is a proposal issued in 1988 and never adopted. The SECURE 2.0 Act of 2022 directed the Department to issue acceptable standards and procedures for establishing good-faith fair market value. The Department responded, in the final days of the prior administration in January 2025, with a proposed adequate-consideration regulation and a companion prohibited-transaction class exemption, both of which were swept up in the incoming administration’s regulatory freeze and withdrawn before they were ever published in the Federal Register. As of the date of this writing in mid-2026, the aviation ESOP appraiser operates in a regulatory vacuum, guided by a proposal from 1988, a set of enforcement settlements that formally bind only their signatories, and a body of case law that punishes error after the fact.

This paper addresses the resulting gap with two structured contributions. The first, the Aviation ESOP Value Architecture (AEVA), adapts the going-concern separation logic developed for FBO real property appraisal to the ESOP fair-value context, decomposing enterprise value into transferable, encumbered, and person-dependent components and identifying the aviation-specific haircuts that each requires. The second, the Adequate Consideration Process Protocol for Aviation ESOPs (ACPP-A), extends the Department of Labor’s de facto process standard, the 2014 GreatBanc Trust agreement, with the aviation-specific diligence items that a defensible transaction requires. The sections that follow develop the adequate-consideration standard and its litigation backdrop, the five aviation-specific value drivers, the AEVA framework, the ESOP-specific adjustments, the ACPP-A protocol, the enforcement context, and a set of minimum practice standards.

2. The ESOP, Adequate Consideration, and the Regulatory Vacuum

2.1 The ESOP as an Aviation Succession Vehicle

An employee stock ownership plan is a qualified defined-contribution retirement plan designed to invest primarily in the securities of the sponsoring employer. In the transaction that matters for this paper, the leveraged buyout structure that characterizes most founding ESOP transactions, the plan borrows money, uses the loan proceeds to purchase shares from the departing owner at fair market value, and repays the loan over time out of tax-deductible employer contributions, with shares released to participant accounts as the debt amortizes. The structure delivers a confluence of advantages unusually well suited to the aviation service sector. The selling owner obtains liquidity and, if the transaction is structured under Section 1042 of the Internal Revenue Code, potential deferral of capital-gains tax. The company obtains a deduction for contributions used to repay both principal and interest. And an S-corporation ESOP owes no federal income tax on the ownership percentage held by the plan, a feature that materially improves the cash flow of a labor-intensive service business.

Aviation service businesses are, in several respects, natural ESOP candidates. They are labor-intensive and relationship-driven, so aligning the workforce’s incentives with ownership addresses a genuine operational problem. They are closely held, frequently by a single founder or family, so the succession problem is acute. And they operate in markets where the alternative buyer, the consolidation platform, extracts the independence and local character that many owners wish to preserve. Heritage Aviation’s transition to full employee ownership, and the broader presence of employee ownership in the wider aviation economy, reflect these structural fits. But the same features that make aviation services good candidates for employee ownership make the valuation on which the transaction depends unusually treacherous, as the remainder of this paper develops.

2.2 The Adequate Consideration Standard

ERISA Section 3(18), codified at 29 U.S.C. § 1002(18), defines “adequate consideration” for an asset other than a security for which there is a generally recognized market as “the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary.” The definition contains two distinct requirements that the case law and the Department of Labor have consistently treated as separate prongs. The first is a content requirement: the price must reflect fair market value, the familiar willing-buyer and willing-seller standard articulated for closely held securities in Internal Revenue Service Revenue Ruling 59-60. The second is a process requirement: that value must be determined in good faith, which the Department interprets to require a prudent and independent investigation into the merits of the transaction.

The two prongs are not redundant. A price can equal fair market value and still fail the good-faith prong if the fiduciary reached it through an uncritical or conflicted process. Conversely, a scrupulous process cannot rescue a price that materially exceeds fair market value, because the exemption in Section 408(e) is unavailable for a transaction that is not for adequate consideration in the first instance. This structure is what makes ESOP valuation categorically different from most valuation assignments. In an ordinary transaction, the appraisal informs a price that the parties are free to negotiate. In an ESOP transaction, the appraisal establishes a legal ceiling: the plan may pay fair market value, but not a dollar more, and the fiduciary must be able to demonstrate both that the price satisfied the ceiling and that a rigorous process produced it.

2.3 The Regulation That Never Came

The Secretary of Labor has never promulgated the regulation that Section 3(18) contemplates. In 1988, the Department issued a proposed regulation, designated 29 C.F.R. § 2510.3-18(b), that elaborated the two-prong structure and described the good-faith process in terms practitioners have relied upon ever since. That proposal was never finalized. It was never formally withdrawn either, leaving it in a peculiar limbo: the only regulatory text interpreting the adequate-consideration standard, yet without the force of a final rule.

The SECURE 2.0 Act of 2022, enacted as Division T of the Consolidated Appropriations Act, 2023, addressed this decades-long gap. Section 346 of that Act established an Employee Ownership Initiative within the Department and directed the Secretary to issue formal guidance setting out acceptable standards and procedures to establish good-faith fair market value for shares of a business acquired by an ESOP. The statutory directive reflected a bipartisan judgment that the absence of a finalized valuation standard had become untenable, exposing well-intentioned transactions to hindsight-driven enforcement and litigation.

The Department’s response arrived in January 2025, in the closing days of the outgoing administration. The Employee Benefits Security Administration issued a proposed adequate-consideration regulation, designated RIN 1210-AC20, together with a companion proposed prohibited-transaction class exemption offering a safe harbor for qualifying new ESOP formations. The proposed regulation restated the two-part test, that the assigned value reflect fair market value and that it result from a good-faith process, and elaborated a series of process expectations, including the prudent selection and ongoing oversight of an independent appraiser, adherence to professional valuation standards, and explicit accounting for the dilutive effect of warrants in leveraged structures. The companion exemption would have conditioned safe-harbor relief on requirements including specified seller-financing terms and the maintenance of fiduciary liability insurance in an amount not less than twenty percent of the purchase price.

Neither instrument survived. The proposals were scheduled for publication in the Federal Register on January 22, 2025, but the regulatory freeze imposed by the incoming administration on January 20, 2025 intervened before publication. Because the proposals had not been published, they were never formally “proposed” in the legal sense, and they were subsequently withdrawn with, in the Department’s own characterization, no legal force or effect. The net result, as of this writing, is that the regulatory situation is essentially unchanged from where it stood in 1988. The only regulatory text addressing adequate consideration is a proposal that was never finalized, and no final regulation has ever been promulgated. For the aviation ESOP appraiser, the practical significance is that the standard against which a valuation will be judged remains defined not by regulation but by the accreted expectations of case law and enforcement practice, a moving target that rewards documented rigor and punishes shortcuts.

2.4 The Process Agreements as De Facto Standard

Into the vacuum left by the missing regulation, the Department of Labor’s enforcement settlements have supplied the operative process standard. The most influential is the agreement the Department reached with GreatBanc Trust Company on June 2, 2014, titled the Agreement Concerning Fiduciary Engagements and Process Requirements for the Acquisition or Holding of Employer Stock. Although the agreement formally binds only GreatBanc, and although the Department has since entered five additional, substantially similar process agreements with other trustees, ESOP professionals treat its terms as the de facto national standard of care, because a trustee who follows them is far better positioned to defend a transaction than one who does not.

The GreatBanc agreement’s requirements fall into several clusters. On appraiser selection and oversight, the trustee must prudently investigate the qualifications of the valuation advisor, ensure that the advisor receives complete, accurate, and current information, confirm that the advisor is free of disqualifying relationships with other parties to the transaction, know the individual actually performing the work rather than merely the firm, document the selection rationale, and periodically re-vet qualifications. On the substance of the valuation, the trustee must critically examine the financial projections against historical performance, compare the analysis to available market data, prefer audited financial statements and document any reliance on unaudited figures, and address how the plan’s terms and the participant demographics bear on the company’s repurchase obligation and on the fairness of the price. On transaction structure, the trustee must assess the reasonableness of any debt the company takes on, and must ensure that a price reflecting control is paid only where the ESOP actually acquires control. And throughout, the trustee must document its work, identify the individuals involved, and be prepared to stop the transaction if the professionals harbor doubt about the valuation’s accuracy.

Section 6 of this paper adapts and extends this process framework to the aviation context. For present purposes, the salient point is that the GreatBanc agreement, an enforcement settlement rather than a regulation, has become the yardstick, and that its requirements are almost entirely about process: the diligence, documentation, and independence that transform a number into a defensible determination of adequate consideration.

2.5 The Litigation Backdrop: Overpayment as the Paradigm Risk

The dominant risk in ESOP litigation is overpayment in the founding transaction, and the paradigm case is Brundle v. Wilmington Trust, N.A., 919 F.3d 763 (4th Cir. 2019). The Constellis Group, a private security-services firm, sold its stock to a newly formed ESOP in December 2013. Wilmington Trust served as the transactional trustee and retained a national valuation firm to advise on the price. A plan participant subsequently sued, alleging that the ESOP had paid more than fair market value. The district court agreed, identifying a series of failures: the trustee had not adequately investigated a contemporaneous valuation that indicated a materially lower per-share value than its advisor’s conclusion; it had accepted management’s forward projections without sufficient scrutiny, notwithstanding management’s incentive to present favorable numbers; it had permitted the application of a control premium even though the ESOP did not obtain effective control, as the selling interests retained board majority; and it had tolerated a pattern of upward rounding that consistently favored the sellers. The court awarded $29,773,250 in damages, and the Fourth Circuit affirmed, holding that the trustee had breached its fiduciary duties by failing to act with the prudence and undivided loyalty that ERISA demands.

Brundle did not stand alone. Decisions such as Perez v. Bruister (5th Cir. 2016), Chesemore v. Alliance Holdings (7th Cir. 2014), and Pizzella v. Vinoskey (W.D. Va. 2019) reinforced the same themes, unsupported control premiums, uncritical acceptance of optimistic projections, and inadequate interrogation of the appraiser’s assumptions. Vinoskey in particular confirmed that the appraiser, not only the trustee, can be held liable as a knowing participant in a fiduciary breach. At the same time, the Department of Labor’s own record is not one of uniform success. In Walsh v. Bowers (D. Haw. 2022), a court rejected the Department’s overpayment theory and criticized the agency for advancing a valuation position untethered to any promulgated standard, a decision frequently cited for the proposition that the regulatory vacuum cuts in both directions. The through-line of this body of law is that adequate consideration is adjudicated on the quality of the valuation and the rigor of the process behind it, and that both the trustee and the appraiser have skin in the game. For aviation service businesses, whose value drivers are more assumption-laden and less transferable than those of the companies in most reported cases, the exposure is correspondingly greater.

3. Why Aviation Service Businesses Are Different

The central analytical claim of this paper is that the enterprise value of an aviation service business is unusually fragile, unusually encumbered, and unusually dependent on specific people, and that these features are invisible to a valuation methodology calibrated on generic service-company comparables. Five value drivers, each with a direct adequate-consideration implication, distinguish the aviation service enterprise.

3.1 Non-Transferable Regulatory Certificates

An FBO’s fuel and line-service operations, an MRO’s airframe and powerplant work, and a charter operator’s revenue flights are each authorized by a federal certificate: the Part 145 repair station certificate for the MRO, the Part 135 air carrier certificate for the charter and on-demand operator, and, for the fueling and ground operations, the airport’s minimum-standards operating authority. These certificates are the legal predicate for the enterprise’s revenue, and they share a characteristic that ordinary intangible assets do not: they cannot be sold. A Part 135 certificate is not an asset that transfers with a stock or asset purchase in the way a customer list or a trade name does. It is held by the certificated entity and depends on the continued presence of specified management personnel, the director of operations, the chief pilot, the director of maintenance, and the chief inspector, whom the Federal Aviation Administration must approve.

The valuation consequence is subtle but decisive. In a stock sale to an ESOP, the operating entity continues in existence, so the certificate is not “transferred” and does not lapse at closing. But the earnings the certificate authorizes are only as durable as the compliance posture and the certificated personnel that sustain it. A generic guideline-company analysis implicitly assumes that a hypothetical buyer could acquire the earnings stream and continue it. In the aviation context, that assumption holds only if the certificate’s human and regulatory scaffolding remains intact. Certificate-derived earnings are therefore properly treated as person-dependent and fragile, not as a durable, freely transferable intangible, a distinction that, as Section 4 develops, belongs at the center of the value architecture.

3.2 The Ground Lease and the Reversion

Most aviation service businesses do not own the land beneath their operations. They occupy airport property under a ground lease from a sponsoring authority, and that leasehold carries two features that impair value in ways generic real-estate assumptions miss. The first is the reversion clause: at the expiration of the ground lease, the improvements, the hangars, the ramp, the fuel farm, and the terminal, typically revert to the airport sponsor without compensation. The leasehold interest therefore has a terminal value that trends toward zero as expiration approaches, a dynamic quantified in the aviation capitalization-rate literature and one that a valuation calibrated to fee-simple industrial real estate will badly overstate. The second is the consent-and-control constraint: airport leases and the sponsor’s minimum standards commonly require the authority’s consent to a change of control or assignment, impose operating requirements, and reserve the authority’s rights over the premises. The enterprise’s control over its most important physical asset is thus shared with a governmental landlord.

Both features matter directly to adequate consideration. The reversion means that the real-property component of enterprise value is a wasting leasehold, not a durable fee, and must be valued as such. The consent-and-control constraint, as Section 5 develops, bears on whether an ESOP that acquires the company’s stock has truly acquired the control for which a control-level price would be paid.

3.3 Cyclicality and Customer Concentration

Business-aviation activity is markedly cyclical, and the service businesses that depend on it, fueling volumes at the FBO, heavy-check and modification work at the MRO, and charter demand at the Part 135 operator, experience earnings volatility that exceeds that of the diversified service companies from which guideline multiples are typically drawn. Compounding the volatility is customer concentration: a charter and management operator may derive a large share of revenue from a handful of aircraft owners, and an MRO may depend on authorizations from a small number of original-equipment manufacturers. High volatility and high concentration both argue for lower multiples and higher discount rates than generic comparables imply, and both make the normalization of “sustainable” earnings, the single most consequential judgment in any income-based valuation, especially error-prone. An appraiser who capitalizes a cyclical peak, or who treats concentrated revenue as diversified, produces exactly the kind of inflated conclusion that Brundle condemned.

3.4 Key-Person and Skilled-Labor Concentration

The value of an aviation service enterprise is concentrated in people who are difficult and slow to replace. The certificated management personnel discussed above are the most acute example, but the concentration extends to the broader technical workforce: experienced airframe-and-powerplant mechanics, avionics technicians, and inspection-authorized personnel are in structural short supply, and their departure can impair both revenue capacity and the certificate itself. This concentration is a double-edged consideration in an ESOP valuation. On one hand, key-person dependence ordinarily warrants a discount, because the loss of a critical individual would impair value. On the other hand, the ESOP is itself a retention mechanism, aligning the workforce’s financial interest with the enterprise’s success, which is one of the principal operational arguments for employee ownership in the first place. The appraiser must weigh both effects with discipline, neither ignoring the genuine fragility that key-person concentration creates nor double-counting a discount that the ownership structure is designed to mitigate.

3.5 Environmental and Contingent Liabilities

Aviation service operations handle fuel, solvents, de-icing fluids, and, historically, fire-suppression agents, and they frequently occupy sites with decades of accumulated contamination. The resulting environmental exposure, including the emerging liabilities associated with per- and polyfluoroalkyl substances (PFAS) in legacy firefighting foams, represents a contingent claim on enterprise value that a generic valuation may overlook entirely. For adequate consideration, the significance is that these liabilities reduce the value that the ESOP should pay, and that a failure to investigate them is both a valuation error and a lapse in the prudent investigation that the good-faith prong requires. The prudent aviation ESOP process treats environmental diligence not as a real-estate afterthought but as a value input.

4. The Aviation ESOP Value Architecture (AEVA)

4.1 Theoretical Foundation

The Aviation ESOP Value Architecture (AEVA) adapts the four-component going-concern taxonomy developed for FBO real-property separation to the distinct purpose of an ESOP fair-value determination. The purpose is different in an important way. In a real-property appraisal, the objective is to isolate the value of the realty from the business enterprise operating within it. In an ESOP valuation, the objective is to value the equity of the whole enterprise, but to do so in a manner that recognizes which components of that enterprise are durable and transferable, which are encumbered, and which are person-dependent and fragile. The AEVA reframes the going-concern components not by asset type alone but by their durability and transferability, because those are the attributes that determine how much a prudent, fully informed buyer, the hypothetical buyer of the fair-market-value standard, would actually pay.

The AEVA distinguishes four components and, for each, the aviation-specific encumbrance that reduces its defensible contribution to value:

Table 1. The AEVA component decomposition

4.2 Enterprise Value, Equity Value, and the Debt Overlay

An ESOP valuation must ultimately conclude to the fair market value of the equity, and in a leveraged founding transaction the relationship between enterprise value and equity value is not incidental. It is the crux of the most dangerous error in the field. The leveraged ESOP purchases the stock using borrowed money, and the debt incurred to fund the purchase sits on the company’s balance sheet immediately after closing. A valuation that concludes to an enterprise value, subtracts pre-transaction debt, and prices the equity accordingly, while ignoring the acquisition debt that the transaction itself creates, will conclude to a price the company cannot support, leaving the equity effectively underwater on the first day. The fair market value that governs adequate consideration must be determined as of the transaction and must reflect the transaction’s own effect on the enterprise’s capital structure. For aviation service businesses, whose cyclical cash flows make debt service more perilous than the guideline comparables suggest, the debt overlay deserves particular scrutiny: the enterprise’s capacity to service acquisition debt through a downcycle is both a valuation input and a solvency question that bears on the prudence of the transaction.

4.3 The Certificate-and-Relationship Intangible: The Transferability Haircut

The intangible component is where aviation ESOP valuations most often go wrong, because it is where guideline-company analysis is most misleading. A guideline multiple derived from transactions in generically comparable service firms embeds an assumption that the target’s intangible earnings are durable and transferable, that a buyer acquires them and continues them. In the aviation service enterprise, the intangible earnings rest on certificates that cannot be sold, that depend on specific certificated individuals, and that persist only so long as regulatory compliance is maintained. The AEVA therefore prescribes a transferability haircut: an explicit reduction to the intangible component’s contribution to value, calibrated to the degree of person-dependence and regulatory contingency, and documented as a distinct analytical step rather than buried in an unexplained multiple selection. The haircut is not a mechanical discount. It is the appraiser’s reasoned estimate of how much of the observed earnings a hypothetical, fully informed buyer would treat as durable given the fragility of the assets producing them. Its explicit articulation is what distinguishes a defensible aviation ESOP valuation from one that merely borrows a multiple.

4.4 Normalizing Cyclical Earnings

Because the income approach dominates operating-company valuation, and because the multiple or capitalization rate is applied to a measure of “sustainable” earnings, the normalization of earnings is the fulcrum on which the entire conclusion turns. For aviation service businesses, normalization must be performed across the business-aviation cycle, not from a trailing period that may capture a peak. The AEVA prescribes a through-the-cycle normalization: earnings should be examined over a full cycle where data permit, adjusted for non-recurring items, and tested against the concentration and volatility characteristics identified above. A valuation that normalizes to a cyclical high, precisely the error most tempting when a selling owner wishes to maximize proceeds, is the aviation analog of the inflated projections condemned in Brundle, and it is the single most likely source of an overpayment finding.

5. ESOP-Specific Valuation Adjustments in the Aviation Context

Beyond the enterprise-value architecture, ESOP valuation requires a set of adjustments specific to the ownership structure. Each interacts with aviation’s peculiar economics in ways that generic practice does not anticipate.

5.1 Control: Does the ESOP Actually Control?

The most litigated adjustment in ESOP valuation is the control premium, and Brundle is its cautionary tale: a control-level price is defensible only where the ESOP actually acquires control. In the aviation context, the control question carries an additional layer that has no analog in other industries. Even where an ESOP acquires one hundred percent of a company’s stock, the enterprise’s control over its core operating asset, the airport leasehold, is shared with the sponsoring authority, whose consent is required for changes of control and whose minimum standards constrain operations. An appraiser contemplating a control premium in an aviation ESOP transaction must therefore ask not only whether the ESOP controls the company but whether the company controls its premises and certificates to the degree that a control price assumes. Where the ground lessor retains approval rights, where the certificate depends on FAA-approved personnel the ESOP cannot unilaterally retain, and where selling interests remain on the board, the case for a control premium weakens considerably, and an unsupported premium is precisely the error that produced a multimillion-dollar judgment in Brundle.

5.2 Marketability and the Put Option

Closely held shares ordinarily bear a discount for lack of marketability (DLOM), reflecting the cost and difficulty of converting an illiquid interest to cash. ESOP shares are a special case, because ERISA and the Internal Revenue Code require the employer to provide a “put option,” the right of a departing participant to sell shares back to the company at fair market value. The put option supplies a form of synthetic liquidity that a wholly private interest lacks, and prevailing practice therefore applies a smaller marketability discount to ESOP shares than to otherwise comparable private stock. The aviation-specific wrinkle is that the put’s liquidity is only as reliable as the sponsor’s ability to fund it, and a cyclical aviation service business may find its obligation to repurchase shares colliding with a downcycle in which cash is scarce. The DLOM analysis for an aviation ESOP must therefore be tethered to a realistic assessment of the sponsor’s capacity to honor the put across the cycle, a point that connects directly to the repurchase obligation analyzed next.

5.3 The Repurchase Obligation and the Three-Way Liquidity Claim

The repurchase obligation is the company’s cumulative, contractual duty to buy back shares from departing participants exercising the put, at fair market value, over time. It is a real and growing claim on the enterprise’s cash, and its magnitude depends on the plan’s demographics, the share value’s trajectory, and the pace of participant departures. In general business-valuation practice, the debate concerns whether and how the repurchase obligation should be reflected in the share value. The prevailing view holds that, because the put is exercised at fair market value, the obligation is not double-counted as a separate liability against per-share value, but that the company’s capacity to fund it is a going-concern and prudence concern of the first order.

The aviation context sharpens this concern into what this paper terms the three-way liquidity claim. An aviation service business generates cash that must, in a leveraged ESOP, simultaneously service acquisition debt, fund the mandatory and lumpy facility capital expenditures that aviation operations require (hangar door systems, ramp rehabilitation, fuel-system upgrades, tooling and shop modernization), and satisfy a growing repurchase obligation. These three claims compete for the same cyclical cash flow, and a downcycle can bring them into direct conflict. No comparable three-way collision exists in the typical non-aviation ESOP, where facility CAPEX is neither as specialized nor as regulatorily mandated. The prudent aviation ESOP valuation must model these claims together and test the enterprise’s ability to satisfy all three across a plausible downcycle. A valuation that treats the repurchase obligation in isolation, or that ignores the CAPEX intensity of aviation facilities, understates the risk and overstates the supportable price.

5.4 Summary of Adjustments

The table below summarizes the principal ESOP-specific adjustments, their conventional treatment, and the aviation-specific modification the AEVA prescribes.

Table 2. ESOP-specific adjustments in the aviation context

6. The Adequate Consideration Process Protocol for Aviation ESOPs (ACPP-A)

6.1 Protocol Design

The GreatBanc agreement established that adequate consideration is defended, in practice, through process. The Adequate Consideration Process Protocol for Aviation ESOPs (ACPP-A) proposed here extends that process framework with the diligence items that aviation service businesses specifically require. It is designed to be layered on top of, not in substitution for, the general process expectations that the case law and the Department’s agreements impose. The ACPP-A proceeds in seven steps:

1. Retain a valuation professional with demonstrated competency in both business valuation and aviation-specific real property and regulatory analysis, and document the basis for concluding that the competency requirement is satisfied.
2. Construct the AEVA component decomposition, classifying enterprise value into transferable, encumbered, and person-dependent components and documenting the transferability haircut applied to the certificate-and-relationship intangible.
3. Obtain and analyze the aviation-specific diligence inputs set out below, integrating each as a value input rather than a narrative appendix.
4. Normalize earnings across the business-aviation cycle, documenting the cycle window, the non-recurring adjustments, and the treatment of concentration and volatility.
5. Model the three-way liquidity claim (acquisition debt service, mandatory facility CAPEX, and the repurchase obligation) and stress-test the enterprise’s capacity to satisfy all three across a plausible downcycle.
6. Scrutinize each ESOP-specific adjustment (control, marketability, repurchase obligation, leverage) against the aviation-specific modifications set out in Section 5, documenting the support for each.
7. Reconcile to a fair-market-value conclusion for the equity, disclose the analysis of each of the foregoing, and document the good-faith investigation in a form that would withstand adversarial review.

6.2 Aviation-Specific Diligence Items

The ACPP-A requires the following aviation-specific diligence inputs, each of which bears directly on defensible value and none of which is captured by a generic ESOP valuation process:

• Certificate transferability and durability opinion. An assessment of the Part 145 and Part 135 certificates, the FAA-approved personnel on whom they depend, the compliance posture, and the durability of certificate-derived earnings under a change of ownership.
• Ground lease reversion and consent analysis. A review of the remaining ground lease term, the reversion provisions, renewal options, and the sponsoring authority’s consent and minimum-standards rights, with the leasehold valued as a finite-term, wasting interest.
• Environmental diligence. Phase I and, where indicated, Phase II environmental assessments, including evaluation of fuel-handling exposure and emerging PFAS liabilities, with contingent liabilities reflected in value.
• Key-person and workforce concentration analysis. Identification of the certificated management personnel and critical technical staff, assessment of replacement difficulty, and balanced treatment of the ESOP’s own retention effect.
• Customer, contract, and OEM-authorization concentration analysis. Quantification of revenue concentration among customers, managed aircraft, and manufacturer authorizations, with its implications for multiple and discount-rate selection.
• Facility capital-expenditure forecast. A forward view of the specialized, mandatory facility CAPEX that aviation operations require, integrated into the three-way liquidity model.

6.3 Required Disclosures

Consistent with the disclosure discipline that distinguishes a defensible valuation, the ACPP-A requires that the appraisal report disclose the AEVA component decomposition and the transferability haircut applied; the cycle window and adjustments used in earnings normalization; the three-way liquidity model and its downcycle stress results; the support for each ESOP-specific adjustment, including any control premium; the aviation-specific diligence inputs obtained and their effect on value; and any material value input that could not be obtained, with its potential effect on the conclusion. Explicit disclosure serves the good-faith prong directly: it demonstrates the prudent investigation that ERISA requires and that the case law rewards.

6.4 The Competency Requirement

Aviation ESOP valuation sits at the intersection of two specialties that rarely reside in the same practitioner: business valuation, with its command of income methods, guideline analysis, and the ESOP-specific adjustments; and aviation real property and regulatory analysis, with its command of ground leaseholds, certificates, and aviation market dynamics. A business appraiser without aviation competency will misjudge the leasehold, the certificate intangible, and the CAPEX intensity. An aviation real-property appraiser without business-valuation competency will misapply the control, marketability, and repurchase-obligation adjustments. The defensible course is to combine the competencies, whether in a single dually qualified professional or through a documented collaboration, and to disclose how the competency requirement was satisfied. In the adversarial settings where aviation ESOP valuations are ultimately tested, the credibility conferred by demonstrated dual competency is itself a component of a defensible determination.

7. Litigation and Enforcement Contexts

7.1 Department of Labor Enforcement and the Process Defense

ESOP transactions are a standing enforcement priority for the Department of Labor, and the founding transaction, the sale by the owner to the plan, draws the most intensive scrutiny, because it is where the incentive to overpay is structural. In the regulatory vacuum described above, the operative standard against which the Department measures a transaction is the process standard embodied in the GreatBanc agreement and the case law. The practical defense against an enforcement action is therefore a documented, rigorous process, precisely what the ACPP-A is designed to produce. A trustee who can demonstrate that it engaged a dually competent appraiser, obtained the aviation-specific diligence inputs, modeled the three-way liquidity claim, scrutinized each adjustment, and documented the good-faith investigation stands on far firmer ground than one who obtained a report and approved a price.

7.2 The Limits of Reliance on the Appraiser

Brundle establishes that a trustee cannot discharge its duty by mechanically relying on an appraiser’s conclusion. It must interrogate the valuation, probe the assumptions, and reject a number it has reason to doubt. In the aviation context, meaningful interrogation requires that the trustee understand the aviation-specific value drivers well enough to ask the right questions: whether the intangible earnings were haircut for transferability, whether the leasehold was valued as a wasting interest, whether earnings were normalized across the cycle, and whether the repurchase obligation was modeled alongside debt service and facility CAPEX. A trustee who cannot evaluate these judgments cannot meaningfully interrogate the valuation, which is itself an argument for the dual-competency requirement, extended to the trustee’s own advisory team.

7.3 The Expert Witness and the Aviation-Credentialed Appraiser

When an aviation ESOP transaction is challenged, the dispute becomes a contest of valuation experts, and the credibility of the expert is inseparable from the defensibility of the conclusion. An expert who can demonstrate command of both the ESOP-specific adjustments and the aviation-specific value drivers, and who can show that the challenged valuation or the rebuttal of it rests on an explicit, documented framework rather than an unexplained multiple, is substantially more persuasive under cross-examination and more likely to satisfy the reliability standards that govern the admission of expert testimony. The scarcity of practitioners who genuinely bridge the two specialties is, in this setting, a source of professional advantage as well as a systemic risk: too few appraisers are equipped to value these businesses correctly, which is one reason the errors this paper describes recur.

7.4 Insurance, Indemnification, and Price Adjustment

The withdrawn January 2025 proposals would have conditioned safe-harbor relief in part on fiduciary liability insurance of not less than twenty percent of the purchase price, a figure that signals the Department’s own assessment of the magnitude of overpayment exposure. Even absent a final rule, prudent aviation ESOP transactions increasingly incorporate risk-allocation mechanisms: fiduciary liability insurance, seller indemnification, and price-adjustment or clawback provisions that recalibrate consideration if the valuation’s key assumptions prove unfounded. For cyclical, assumption-laden aviation service businesses, such mechanisms are not merely prudent housekeeping. They are a rational response to the elevated probability that a normalized-earnings or transferability judgment will later be contested.

8. Research Agenda and Testable Hypotheses

The AEVA and ACPP-A frameworks generate several testable hypotheses about adequate-consideration risk in aviation service ESOPs:

• H1. Overpayment risk in aviation ESOP transactions is increasing in the share of enterprise value attributable to certificate-and-relationship intangibles, because intangible-heavy valuations are more assumption-sensitive and less anchored to transferable assets.
• H2. The defensible marketability discount for aviation ESOP shares is a function of the sponsor’s cyclical repurchase-funding capacity, such that the put option’s discount-reducing effect diminishes as cash-flow volatility and repurchase-obligation intensity rise.
• H3. Control premiums applied in aviation ESOP transactions are disproportionately likely to be challenged and disallowed where the airport ground lessor retains change-of-control consent rights or where FAA-approved personnel constrain the plan’s effective control.
• H4. Leveraged aviation ESOP transactions exhibit elevated adequate-consideration risk relative to non-aviation ESOPs of comparable size, because the three-way liquidity claim (acquisition debt, mandatory facility CAPEX, and the repurchase obligation) competes for cyclical cash flow in a manner without close analog outside aviation.
• H5. Uncritical application of general-industry guideline multiples systematically overstates the adequate consideration for aviation service businesses relative to a framework that applies a transferability haircut and values the leasehold as a wasting interest, and the magnitude of the overstatement increases with fuel or certificate dependence and with the proximity of ground lease expiration.

Testing these hypotheses requires assembling data that are not readily available in standard sources. Three avenues merit exploration. First, the record of ESOP litigation and Department of Labor enforcement (complaints, expert reports produced in discovery, and reported decisions) provides a corpus from which the recurring valuation errors in aviation and comparable specialized-asset transactions can be coded and analyzed. Second, ESOP transaction data collected by trade and research organizations, supplemented by the disclosures of employee-owned aviation enterprises, can support comparison of aviation-service ESOP valuation parameters against non-aviation benchmarks. Third, structured interviews with ESOP trustees, valuation professionals, and aviation transaction advisors can document the range of current practice in treating the certificate intangible, the leasehold, and the repurchase obligation. The empirical program should proceed in stages: a qualitative documentation of current practice; a comparative analysis of aviation versus non-aviation ESOP valuation parameters; and, where data permit, a controlled comparison of conclusions reached under generic methodology versus the AEVA framework, to quantify the magnitude of the overstatement that H5 predicts.

9. Practitioner Implications and Recommended Standards

Pending the empirical validation proposed above, and in the continuing absence of a finalized adequate-consideration regulation, this paper recommends the following minimum practice standards for the valuation of aviation service businesses in ESOP transactions:

• The valuation should be performed by, or with the documented participation of, a professional competent in both business valuation and aviation-specific real property and regulatory analysis, with the basis for the competency conclusion disclosed.
• The valuation should decompose enterprise value using the AEVA components, and should apply and disclose an explicit transferability haircut to certificate-and-relationship intangibles rather than embedding the judgment in an unexplained multiple.
• The leasehold interest in airport property should be valued as a finite-term, wasting interest reflecting the reversion, not as fee-simple industrial real estate.
• Earnings should be normalized across the business-aviation cycle, with the cycle window, adjustments, and treatment of concentration disclosed.
• The repurchase obligation should be modeled together with acquisition debt service and mandatory facility CAPEX as competing claims on cyclical cash flow, and the enterprise’s capacity to satisfy all three should be stress-tested across a plausible downcycle.
• Any control premium should be supported by an analysis of the ESOP’s effective control, expressly accounting for airport-authority consent rights, certificate-personnel constraints, and residual seller board control.
• The good-faith investigation should be documented in a manner sufficient to withstand adversarial review, including the aviation-specific diligence inputs obtained and any material value input that could not be obtained.

These standards do not resolve the empirical questions that only transaction data can answer. They do, however, define a defensible floor: a process and an architecture that convert a vulnerable number into a determination of adequate consideration that a prudent fiduciary can stand behind and an expert can defend.

10. Conclusion

The employee stock ownership plan offers the aviation service sector something the consolidation platforms cannot: a succession path that preserves independence and rewards the workforce that built the enterprise. But the transaction that delivers those benefits rests on a valuation that ERISA treats not as advice but as a legal condition, and the case law, most vividly Brundle v. Wilmington Trust and its $29.8 million judgment, demonstrates that trustees and appraisers who misjudge that valuation face personal exposure measured in the tens of millions. Aviation service businesses sit at the high-risk end of this spectrum. Their value is entangled with certificates that cannot be sold, leaseholds that revert, cash flows that swing with the cycle, workforces that cannot be quickly replaced, and environmental liabilities that generic valuation overlooks. A methodology calibrated on generically comparable service firms will systematically overstate the adequate consideration for these businesses, and hand the trustee a conclusion that cannot withstand the scrutiny that ESOP transactions inevitably attract.

This paper has proposed two remedies. The Aviation ESOP Value Architecture reframes enterprise value around the durability and transferability of its components, prescribing an explicit transferability haircut for the fragile certificate-and-relationship intangible and the valuation of the airport leasehold as a wasting interest. The Adequate Consideration Process Protocol for Aviation ESOPs extends the Department of Labor’s de facto process standard with the aviation-specific diligence (certificate durability, reversion and consent, environmental exposure, key-person and customer concentration, and facility CAPEX) that a defensible transaction requires, and it centers the three-way liquidity claim that distinguishes the aviation ESOP from every other. Together they define a floor for defensible practice in a field that, more than fifty years after ERISA and after the withdrawal of the Department’s January 2025 proposal, still lacks a finalized valuation regulation.

The regulatory vacuum will eventually be filled, whether by a revived rulemaking or by the continued accretion of case law and enforcement practice. Until it is, the aviation ESOP appraiser’s protection lies not in a regulation that does not exist but in the rigor of an explicit framework and a documented process. This paper provides both. The empirical validation of the frameworks, the transaction-data program outlined above, is the work that should follow, and it is work that the growth of employee ownership in the aviation service sector makes increasingly urgent.

Frequently Asked Questions

Can an FBO, MRO, or charter operator be sold to employees through an ESOP?

Yes. An employee stock ownership plan lets the founder sell to the workforce on a defined timeline, keep the business independent, and access tax advantages such as Section 1042 gain deferral and, for an S corporation ESOP, exemption from federal income tax on the ESOP-owned share. Heritage Aviation, an FBO and MRO at Burlington International Airport, became fully employee-owned in 2015, which shows the model works in aviation services.

What is adequate consideration in an ESOP transaction?

Under ERISA Section 3(18), an ESOP may pay no more than adequate consideration, meaning fair market value determined in good faith by the trustee. It is a two-part test: the price must equal fair market value, and it must come from a prudent, documented process. Overpayment is not a pricing error. It is a prohibited transaction and a fiduciary breach.

Why do aviation ESOP valuations carry more risk than other businesses?

Because an FBO’s, MRO’s, or charter operator’s value rests on assets that generic appraisals treat as durable but are not: FAA certificates that cannot be sold and depend on specific people, airport ground leases that revert to the sponsor, cyclical cash flow, key-person concentration, and environmental exposure. A multiple borrowed from generic service firms overstates defensible value.

What was Brundle v. Wilmington Trust?

A 2019 Fourth Circuit decision that affirmed a judgment of roughly $29.8 million against an ESOP trustee that approved a purchase above fair market value. The trustee had a national appraisal firm and a fairness opinion but still lost, because it accepted an unsupported control premium and optimistic projections without scrutiny. It is the defining warning that a report alone does not protect the trustee or the appraiser.

Is there a DOL regulation defining ESOP valuation?

No final regulation exists. The only regulatory text is a 1988 proposal that was never adopted. The Department of Labor issued a new adequate-consideration proposal in January 2025, but it was withdrawn within days before Federal Register publication. Aviation ESOP appraisals are judged by case law and the 2014 GreatBanc process standard, not a finalized rule.

How should an FBO or MRO be valued for an ESOP?

With a framework that separates transferable value from encumbered and person-dependent value, applies a transferability haircut to non-sellable certificate and relationship intangibles, values the airport leasehold as a wasting interest, normalizes earnings across the aviation cycle, and models acquisition debt, mandatory facility capital expenditures, and the repurchase obligation together across a downcycle. This paper sets out that framework as the AEVA and the ACPP-A process protocol.

References and Authorities

Appraisal Foundation. (2024). Uniform Standards of Professional Appraisal Practice (USPAP). The Appraisal Foundation.

Brundle v. Wilmington Trust, N.A., 919 F.3d 763 (4th Cir. 2019).

Carter, W. C. (2025). Valuation of Aircraft Hangars: A Comprehensive Guide. Valuation Takes Flight LLC Working Paper.

Carter, W. C. (2026a). Separating Wings from Walls: Business Enterprise Value Separation in Fixed Base Operator Real Property Appraisals. Working Paper, Embry-Riddle Aeronautical University.

Carter, W. C. (2026b). Terminal Value or Terminal Risk? Lease Term Discounts and Capitalization Rate Premiums in Airport Hangar Valuation. Working Paper, Embry-Riddle Aeronautical University.

Chesemore v. Alliance Holdings, Inc., 770 F.3d 1170 (7th Cir. 2014).

Employee Retirement Income Security Act of 1974, §§ 3(18), 404, 406, 408(e), 29 U.S.C. §§ 1002(18), 1104, 1106, 1108(e).

Internal Revenue Service. (1959). Revenue Ruling 59-60, 1959-1 C.B. 237.

Perez v. Bruister, 823 F.3d 250 (5th Cir. 2016).

Pizzella v. Vinoskey, 409 F. Supp. 3d 473 (W.D. Va. 2019).

Pratt, S. P. (2008). Valuing a Business: The Analysis and Appraisal of Closely Held Companies (5th ed.). McGraw-Hill.

Reilly, R. F., & Schweihs, R. P. (2017). Guide to ESOP Valuation and Financial Advisory Services (3rd ed.). Willamette Management Associates.

SECURE 2.0 Act of 2022, § 346, Division T of the Consolidated Appropriations Act, 2023, Pub. L. No. 117-328.

U.S. Department of Labor, Employee Benefits Security Administration. (2014). Agreement Concerning Fiduciary Engagements and Process Requirements for the Acquisition or Holding of Employer Stock (GreatBanc Trust Company).

U.S. Department of Labor, Employee Benefits Security Administration. (2025). Proposed Regulation Relating to the Definition of Adequate Consideration, RIN 1210-AC20 (issued January 2025; withdrawn prior to Federal Register publication).

Walsh v. Bowers, No. 1:18-cv-00155 (D. Haw. 2022).

About the Author

W. Clay Carter, DBA, MBA, MS, CFA, FRM, CAIA, CIPM, is Professor of Finance at Embry-Riddle Aeronautical University and founder of Valuation Takes Flight LLC, a specialized practice dedicated to aviation real estate and aircraft valuation. His research focuses on airport hangar valuation, ground lease economics, aviation business enterprise value, and aviation-specific valuation for tax, litigation, and employee-ownership contexts. Valuation Takes Flight LLC provides aviation ESOP and business valuations, FBO and MRO going-concern appraisals, Lease Term Risk Assessments, and expert witness services for aviation real estate and business transactions, ERISA fiduciary matters, litigation, and tax proceedings.

This paper is a research synthesis for ESOP trustees, ERISA counsel, aviation business owners, and valuation professionals. It is not legal, tax, or valuation advice, and it does not create an engagement. The adequate-consideration regulation has never been finalized and the January 2025 proposal was withdrawn, so the governing standard could change, and any successor guidance should be checked. Discount magnitudes, haircuts, and structural figures are illustrative and must be developed and supported for the specific company and interest. The governing plan documents, current authority, and the facts of the transaction control.