Equity based clubs

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injb

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I'm thinking about alternatives to renting once I get my PPL, and I started reading some info on the website of a local club. It mostly makes sense to me, but there's one thing I don't get: it says that each member owns an equal share in the club's assets, but that a share is "generally acquired for somewhere between 20% and 30% of the equitable value of the share". How can that be? If members only pay 30% of the value to join, where did the rest of the value come from?

I'm guessing this isn't anything unusual since they don't offer any explanation, so maybe someone can explain how it works to me?

Thanks!
 
I would guess that for most equity clubs you wouldn’t be able to sell a share for the actual equity value. Let’s say you have an airplane valued at 100k with 10 members. Mathematically each share is worth $10k. But a buy in would probably be $3 to $4k. You likely wouldn’t find someone willing to buy in at 10k
 
JCranford said:
I would guess that for most equity clubs you wouldn’t be able to sell a share for the actual equity value. Let’s say you have an airplane valued at 100k with 10 members. Mathematically each share is worth $10k. But a buy in would probably be $3 to $4k. You likely wouldn’t find someone willing to buy in at 10k
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So the original members must have ponied up the 10K and then taken the hit when they sold their shares?
 
That part I can’t answer although logic would dictate that they acquired the plane somehow, so I assume orig8 al members would have bought in at $10
 
There is probably debt involved.

The plane(s) may have been purchased with loan(s). The loan(s) have been being paid out of operating funds and therefore over the years the balance sheet has been improving and the per share value is no greater than when issued. Market doesn't necessarily reflect that.

Don't write any checks until you see the financial reports of the club. Also, don't settle for the copy they let you look at for a few minutes. Have them produce many months of the current year and the last few full years.
 
You also have to account somehow for appreciation or depreciation of the aircraft. Various co-ownerships and clubs will handle this quite differently.

As the aircraft ages and the engine time is flown off, it’s not worth what it was worth a few years ago. Therefore your “share” is falling.

Overhaul the engine from available funds or everyone’s pockets, and the value of most light aircraft goes up anywhere from 30-50% if sold the next day.

Buy avionics and it goes up maybe 50% of the value of the avionics. (Sad, but true.)

Buy paint, interior, other stuff? Who knows. Make a guess. Lots of buyers buy based on nice looks.

So, in the end you have to look at their books and talk to them about their methodology and decide if it’s what you like. In return you get lower fixed costs. If you buy in at the “right time” in some accounting schemes, and then the airplane is sold, you make out better than someone else.

And some clubs will track all of that and price accordingly. All depends on who’s involved.

And of course the ever present “the engine could have problems tomorrow” and whether or not to operate with an engine fund or not.

We had someone ask about joining our co-ownership LLC recently. We had to think hard about what the buy-in would be. When we all started, it was low, and the aircraft had a loan on it. Now we’ve paid the airplane off in full after we had on co-owner leave (for reasonable reasons, no hard feelings at all) and we upgraded the panel.

A buy-in now would be a significant chunk of change. Because otherwise someone would be not taking the same risk we are, if you see what I mean. We have capital tied up in the depreciating asset and no loan on it now.

But... we also let that person know that because it was a significant chunk of change, if they decided to do it, we’d invest it right back into the aircraft. Interior first and up ALL of our “enjoyment value”, not just sit on their cash. So everyone would see a tangible benefit from it. There’s that aspect of co-ownership also. We’ll probably do the interior ourselves soon, it would just accelerate that.

Ultimately (also for good reasons and no hard feelings) they decided joint ownership wasn’t for them right now.

So yeah. Ask for the books. We offered up our tracking spreadsheets and our logs if they wanted to see them. And analyze what they’re doing and ask questions if you don’t understand it until you do. Even co-ownership is a big investment for a lot of folks, so treat it appropriately.
 
Each club is going to be different, so you'll have to ask for their reasons. You may ask to see the books, but you also might find that only an accountant can make sense of them.

I just joined an equity club. We have 5 planes and a bank account with healthy reserves stashed away. I multiplied the number of possible members and the share price, and came up with a total value that's less than half of the value of the assets. There is a very small amount of debt, not nearly enough to make up the difference. I don't understand how I bought $2x worth of assets for $x, but it's also kind of moot. It's not like there's an open market for this share. The club has 63 members, a maximum of 75, and a waiting list of 10 members who want to sell their shares.
 
Thanks for the info everyone, there's a lot I didn't think about, such as debt.


Eric Gleason said:
Each club is going to be different, so you'll have to ask for their reasons. You may ask to see the books, but you also might find that only an accountant can make sense of them.

I just joined an equity club. We have 5 planes and a bank account with healthy reserves stashed away. I multiplied the number of possible members and the share price, and came up with a total value that's less than half of the value of the assets. There is a very small amount of debt, not nearly enough to make up the difference. I don't understand how I bought $2x worth of assets for $x, but it's also kind of moot. It's not like there's an open market for this share. The club has 63 members, a maximum of 75, and a waiting list of 10 members who want to sell their shares.
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Sounds very similar to the one I looked at. They have 5 planes and around 70 members. When I look at all the costs though, the saving over renting is not as big as I thought it would be. I'm really only toying with the idea right now because I still have to actually get my PPL.
 
injb said:
They have 5 planes and around 70 members
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With a ratio of 14 members per aircraft, then a question to investigate is scheduling availability.
  • How many members of the 70 are actually actively flying?
  • If you choose to end the workday early and go fly, will an aircraft you're checked out in be available?
  • Can you do your PPL training in the same aircraft and it be (nearly) always available for you to schedule for training?

What is this club's overnight policy?
  • Many FBO's that rent aircraft will ask for a certain minimum charge (often equivalent to a certain number of rental hours) for each day the aircraft is away from home. If you are actually flying for that amount of time/money each day, no problem. But if your plans were to fly somewhere for 2.5 hours one way, stay for 4 days, then return, you need to be ready to pay for the minimum hours you didn't really consume.
  • Flying Clubs, especially equity clubs, often do not charge a daily minimum. So if your flying mission includes frequent multi-day trips, then the club opportunity wins out over normal rental.

injb said:
When I look at all the costs though, the saving over renting is not as big as I thought it would be
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Often, clubs like the one you are investigating, have one big perk that is hard to put a number on. They provide you access to a particular airframe, well maintained and equipped, that you would not be able to afford or keep on your own. And in the case of your club, your buy-in and monthly dues provides you access to *five* aircraft. And if one or two of them are "bigger, badder, faster" than a regular training aircraft, even better for you.

Other items to investigate
  • Quality of maintenance and uptime.
    • When a squawk occurs, how rapidly is it addressed?
    • If the repair requires taking the plane off of the line, how rapidly is it returned?
  • What items do your dues cover beyond basic fixed costs?
    • In the equity club I belong to, insurance coverage is part of the deal, saving me that annual cost.
  • How are off field fueling expenses handled?
    • Do they pay the per gallon amount no matter where you purchase?
    • Or is that a fixed number and you must cover any overage?
  • How is the club structured and operated?
    • Is the group fairly easy going and easy to deal with?
    • Or is it feeding someone's Napoleonic power fantasy?
 
How easy is it to get out of the club? That's another crucial question.

If the club uses little debt to buy its planes, and if it has sizable cash reserves, then the club will be an entity with lots of equity. In this case, new members must put up significant cash to get in, which means that it is harder to get out as well. For example, Eric mentioned a club that has a waiting list of ten members wishing to sell their stakes.

Until you sell your stake, your assets are tied up and you're on the hook for continuing to pay the club's expenses. Probably a lot of new members don't think about this.

An alternative is a club that uses lots of debt to buy its planes, and that holds very little cash in reserve. In that case the equity for a new member to buy in is negligible, so that it's also easy for a member to get out. Such clubs might be rare, but I learned to fly in such a club near me.
 
Great info! A lot of these questions are actually answered on their website, which I take to be a good sign. They also say that they can provide guest access to the schedule to give prospective members a sense of what the contention is like for the planes.

They have a 1/hr per day minimum that would apply for overnight trips, but that's reasonable to me. Each plane they have is different - different equipment, different price. They range from a 172SP to a Cirrus SR22 (the latest addition). Hopefully the choice of the fleet is calculated to cater to everyone, and they don't have 80 or 90% of the members all vying for the cheap planes! That's something I would need to see the schedule to know. It would be cool to have access to a Cirrus though!

I'm close to finishing my PPL so I wouldn't be looking to do that with the club, but I might do an instrument rating soon afterwards, so it could be good for that.
 
injb said:
They range from a 172SP to a Cirrus SR22 (the latest addition). It would be cool to have access to a Cirrus though!
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Not many clubs offer access to the Cirrus. So, yeah, it would be cool to have access to it for a reasonable buy-in and monthly fee.

If this club permits you to get your PPL in their aircraft, and the aircraft you can train in will be super available, do they have a CFI available for a better than local average rate that you enjoy learning from?

It's not unheard of that club aircraft can be rented for less than the local prices, are in better condition, and are more available. It's also not unheard of that club instructors will offer their services to club members at rates lower than the local schools and academies.
 
NoHeat said:
How easy is it to get out of the club? That's another crucial question.

...

Until you sell your stake, your assets are tied up and you're on the hook for continuing to pay the club's expenses. Probably a lot of new members don't think about this.
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Yes, do think about this. Read the bylaws and make sure you understand exactly what you are signing up for.

Say you lose your medical, or some other life change forces you to stop flying for a while.

You may be contractually unable to leave, and contractually on the hook to keep paying monthly dues whether or not you fly. Even if you can afford that at current rates, there may be no guarantee that those dues don't increase for reasons outside of your individual control.
 
Since the club you're considering is similar in size to the one I joined, I'll share my thought process. It may help you figure out what's right for you. My club has a 182RG, a 172SP (180hp), a 172N (160hp), an Archer (180hp) and a Warrior (160hp). The 160hp planes are the only ones allowed for primary training.
  • I wanted access to a good traveling plane to take my family on trips, like a 182, 182RG, or Bonanza. None available to rent in the area. Cannot afford to buy or join partnership now.
  • I compared the club to the rental fleet available. There is not much here anymore, and all of them are 172s or 152s. Not sufficient to take the family and bags on a trip.
  • Club rentals are based on Tach vs. Hobbs. With the rates they set, this works out to about ~15% savings per hour vs. renting.
  • Insurance is included in membership, so I don't need to purchase renter's insurance.
  • I compared it to the other clubs available. All others were a single 172, except one also had a 152.
  • The buy in cost ($4170 in my case) seemed like a cheap price to pay for access to a 182RG, especially with no alternatives.
  • 15 members per plane is about the max you can have and still have decent availability. For this club, it means that you need to plan for a weekend trip at least a couple of weeks out, but if you want to fly spontaneously because it's a nice day, you can probably find a slot available for an hour or two. It may not be in your favorite plane.
For me, for now, the only real down side of the club is aircraft availability. It's pretty good, but I have to plan ahead a bit. My long-term plan is to remain in the club and purchase something cheap, simple, and fun (Champ, Citabria, etc.) to satisfy my needs for spontaneous or low and slow flying.
 
Some previous pilots may have quit paying their monthly dues and just left their equity in the club. Could be one reason why the equity exceeds the ownership capital.
 
We have deferred membership option in our club. A member can choose to leave (but cannot actually leave until they're next in the exit queue, and a new candidate buys their share). Deferred means they leave their ownership share in escrow with the club as well as any banked hours, and should they desire to return to the club at some future date, they're next in line to rejoin, regardless of the waiting queue.
 
The club that I bought into has two Cessna 172N. There are 20 members and it is limited to that. So that amounts to 10 per airplane. Seldom have scheduling difficulties. There are several names on the roster that I have never seen on the schedule. I paid $5000 for my share though they sometimes sell for more. Based on $5000 and 20 members that is a theoretical total equity of $100,000 or $50,000 per plane. There is also a decent maintenance/engine reserve but I do not recall the amount. Both aircraft are well maintained and are also ADS-B compliant. Monthly dues are $77 and current wet hourly rate is $72. I think I got a pretty decent deal.
 
SkyDog58 said:
The club that I bought into has two Cessna 172N. There are 20 members and it is limited to that. So that amounts to 10 per airplane. Seldom have scheduling difficulties. There are several names on the roster that I have never seen on the schedule. I paid $5000 for my share though they sometimes sell for more. Based on $5000 and 20 members that is a theoretical total equity of $100,000 or $50,000 per plane. There is also a decent maintenance/engine reserve but I do not recall the amount. Both aircraft are well maintained and are also ADS-B compliant. Monthly dues are $77 and current wet hourly rate is $72. I think I got a pretty decent deal.
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Sky dog, at those rates, is the club banking enough for engine overhauls and avionics upgrades?

My rates are considerably higher, but the reserves are generous. They haven't had to do a member assessment to raise funds, and that includes the sale and purchase of newer planes to upgrade the fleet.


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We have 15 members, and the buy-in is a bit less then 1/15 of the aircraft value. The rules are structured to favor x-country trips, and it's a pretty well equipped 172 - AP, Garmin, Nexrad, etc. It's a long standing club, kinks worked out, and a waiting list. Being it's a 172, it's probably a lot easier to bring folks in at or near the 1/15 number. . .the member age spread is pretty wide, and some of the older guys don't fly much, so scheduling is easy. The reserve is usually at least one-engine's worth, or a bit more.

The wet tach rate is about $85 per hour, and we pitch in $95 each, per month for insurance, tie-down, subscriptions, incidentals. It'd probably be slightly cheaper elesewhere, but we're in a high-cost area, close in to DC.
 
SkyDog58 said:
Monthly dues are $77 and current wet hourly rate is $72. I think I got a pretty decent deal.
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I agree... you've got a bargain.

We pay $320/mo and $60/hr dry tach for flight. Our fixed costs are ~$2,500/mo and the extra $2k/mo in dues covers routine maintenance, annuals, and upgrades. The flight charge is 30% to the engine fund, 70% to operating fund and the maniacal treasurer (me) assures the engine fund is fully funded at all times.

Two years ago we did an engine overhaul and complete new leather interior and windows on the Six. Last year we did WAAS upgrades and GTX345 installs for BOTH planes. All accomplished with no new debt.

Next plans are new interior for the Cardinal, and autopilot replacement for the Six.

Shameless plug: If you're in the Fort Worth area, there are two shares for sale. But be advised you'd have me as a partner, pardner.
 
Ravioli said:
Shameless plug: If you're in the Fort Worth area, there are two shares for sale. But be advised you'd have me as a partner, pardner.
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Okay to post this on the regional Facebook Group?
 
AggieMike88 said:
Okay to post this on the regional Facebook Group?
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Sure. I know the two peeps selling would like the leads. You can ask people to contact info at six 4 a six dot com if they are interested.
 
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