Best way to structure a partnership purchase of a large aircraft

k9medic

k9medic

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ATP-H, CMEL, CSEL, CFI/CFII Airplanes and Helicopters
Background, I have 2 planes in an LLC that are operated as a business (rental.) A friend has approached me about purchasing a larger pressurized twin with some partners to operate. The plane does not qualify for 91K and the total number of partners including myself would be 5.

The operating agreement and overall operations would be managed under my LLC. Owners would pay an hourly dry rate for the operation of the aircraft and would supply their own pilot and would pay fuel as well as the proportionate expenses related to the aircraft operation such as annuals or heavy MX.

I think we would be avoiding the "flight department trap" as the owners would be paying an operational cost for every hour that the aircraft is operated.

Right now I am waiting on a call back from my accountant but I want to provide some suggestions to her.

  • Should we put the aircraft in it's own LLC and show it as a lease back to my LLC? In this case we would have to pay sales tax on the aircraft.
  • Should we just put the aircraft in my LLC and show an operating agreement with the partners as silent partners? No sales tax would be required as I have a resale certificate and we would be paying taxes on the operation of the aircraft.
  • Should we create a completely separate LLC for the aircraft and "pay" my LLC for the management?
 
Have your aviation business lawyer consult with your accountant.

You have two significant issues there. You mentioned the flight department company. Yeah, what looks good from a business standpoint can look bad from a Part 91 vs 135 standpoint. And there are two layers where that issue needs to be considered - the umbrella and each non-pilot "partner".

The other is that illegal charter is a current FAA enforcement priority, with what the FAA deems to be sham dry leases (where the paperwork says there is a transfer of operational control but the reality is something else) and "management agreements" (where true operational control is with the management company) major focuses.

What it sounds like you are trying to do is doable but I think it requires a knowledgeable professional to navigate the clear air around the towering cumulus.

OTOH, there's always SGOTI.
 
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We are looking at a 400 series Cessna right now.

There would be 5 equal share equity owners. My LLC would “manage” the plane for the purposes of making sure annuals and required inspections were complied with.

Scheduling would be done via google calendar and they other non pilot owners (3) would be supplying their own pilots or using one of us as needed.
 
I don’t know but I’d sure like a ride in that puppy. Especially to the Bahamas, where I hear it’s better.
 
I had two aircraft partnerships with three different aircraft. One of the partnerships had three members and the other had four. Both partnerships worked extremely well for several years, until it didn’t.

The group consisted of people I knew, or that another partner knew, reasonably well and we all had the same commitment to safety and maintenance, and the wherewithal and commitment to pay for things when they came due.

We collected monthly payments to cover our fixed costs and sent out another bill for each member based upon the hours that they used the plane. There was a weekly rotation in which each person had first priority on the airplane. If I wanted to use it during someone else’s week, I needed to clear it with them first. In about five years, I can only remember having one time in which I was not able to use the plane when I wanted it.

It started to turn sour when, in the second partnership, two of the members wanted to get out and they sold their shares to two people who responded to ads in the paper and whom none of us knew personally. One of those people immediately disappeared having used the plane once. We had to chase the other person for payment every month, until he eventually rode off into the sunset, as well. That left two of us supporting the airplane for about a year until we could sell it.

If I had it to do again, I would make sure that the Partnership Agreement specifies that in the event any partner wants to leave, the remaining partners can buy out the partner that wishes to leave. In the alternative, if they do not want to buy out the partner that is leaving, they agrees to sell the airplane.

I hope this helps!

Abram Finkelstein
N685AS
 
Thank you for this.

I had a long talk with one of the potential primary partners. We agreed that 5 persons would be the maximum in a specific LLC. I would be the only true flying partner. The others are not pilots although the son of the person I talked with is a CMEL that would eventually be flying the plane. We would maintain a list of qualified pilots that could fly the plane for the partners and I specifically spoke about 135 regulations. I will not play games when it comes to this.

The common part is we all have the same primary destination which makes things nice if we want to fly together.

We would have an operating agreement and I would be the managing partner for MX items and LLC details and I agree with the first right of refusal for partners who are leaving.
 
I think it best to keep this new venture completely separate from your current LLC. If something occurs in one you don't want the other LLC to suffer.
 
Good point. The only real involvement that I would have from my current LLC is it would be listed as one of the five partners instead of me individually.

There are some strategic tax benefits related to that.


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I think where you will run in to possible problems is non-pilot owners and "using one of us" as pilots. The last part is where this looks like a 134.5 operation. If they are truly dry-leasing the plane and getting their own commercial pilot who is unassociated with the LLC(s), then it is Part 91. If you're seen as providing both the plane and pilot, the FAA will be interested, and not in a good way. You need to consult an aviation attorney to be sure your i's and t's are well formed.
 
What about you, as the only pilot, being NOT in the LLC, and you get use of it at a dry or wet rate? Then if you do end up flying any of the partners, no 134.5 shenanigans can be hinted at since you aren't providing the plane at all, they are.

You have your 2nd class, correct?
 
So you want to lease the plane as well as your services as a pilot?
 
EdFred said:
What about you, as the only pilot, being NOT in the LLC, and you get use of it at a dry or wet rate? Then if you do end up flying any of the partners, no 134.5 shenanigans can be hinted at since you aren't providing the plane at all, they are.

You have your 2nd class, correct?
Click to expand...

Interesting thought.
 
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