Part ownership?

[Rene]

As a young, low time pilot, would there be a disadvantage to buying part of an airplane?

Obviously, the dollars would have to work out, and I would have to have a full understanding of it's MX / FAA history and any forseeable future issues.

It is similar to what I am renting, by agreement the aircraft will be maintained in its current configuration (NORDO, VFR) and I would have the option to eventually buy out the other party - an older more experienced pilot who doesn't want to sell outright, but finds himself using it less and less.

I have read the AOPA booklet and several other online guides concerning partnerships, LLCs, corporations, and clubs, but thought I'd ask people who aren't trying to sell me anything.

 

[asicer]

I would hope that the buy out option has a date on it. I would hate for "someday" to become never.

Conversely, I would hope that there's a way out for you if you don't like it.

Also, have you flown the plane yet? With the current owner?

 

[GeorgeC]

The disadvantage is how risk is pooled.

If you co-own with one other person, and the engine takes a dirtnap the day after you sign on the dotted line, you're on the hook.

A non-equity partnership might shield you from that.

That said, IMO, the interpersonal dynamics are far more important than monetary/MX considerations.

When I was a (relatively) young, low time pilot, I briefly entertained buying into a partnership. The plane itself would have been fine, and the price was right, and the people were decent, but there was an uncomfortable asymmetry with being a ~35yo in the company of ~50 year olds with (relatively) deep pockets.

 

[DJTorrente]

As a young, low time pilot, would there be a disadvantage to buying part of an airplane?

Obviously, the dollars would have to work out, and I would have to have a full understanding of it's MX / FAA history and any forseeable future issues.

It is similar to what I am renting, by agreement the aircraft will be maintained in its current configuration (NORDO, VFR) and I would have the option to eventually buy out the other party - an older more experienced pilot who doesn't want to sell outright, but finds himself using it less and less.

I have read the AOPA booklet and several other online guides concerning partnerships, LLCs, corporations, and clubs, but thought I'd ask people who aren't trying to sell me anything.

An airplane partnership is as much as marriage as a financial relationship centering on a piece of equipment.

At least one problem with the arrangement you're describing -- an owner of 100% selling a part interest, compared with two or more owners contributing purchase money to jointly acquire -- is the "selling" partner still views it as "his" plane that he is "letting" you use. One way to avoid this is to spend time thinking about your likely and even unlikely use cases -- do you plan to take this simple aircraft (NORDO, VFR) to unimproved or uncharted landing locations? Sit down with him and of those out loud. If he has any problem with them, let him speak now or forever hold his peace -- so to speak.

Suppose one of you prangs something that is clear pilot error -- would the other look to the pilot to make the entire repair, or would it be considered an ordinary maintenace expense?

The exit scenario you probably want is a right of first refusal -- you have the right to buy him out if and when he wants to sell, with a clear mechanism how to set the price of that transaction -- for example you can match a bona fide offer if he has one; have an appraisal of the aircraft set the price; etc. You may also want the right to ratify any third party he chooses to sell to.

Good luck.

 

[MikeNY]

similar to what I am renting

Is the rental aircraft also VFR-only with no radios?

by agreement the aircraft will be maintained in its current configuration (NORDO, VFR)

If NORDO/VFR-only meets current needs, what about in future?

Potential disadvantage: For investment in part ownership (for ‘young, low-time pilot’), consider restricting factors … for any future need for radios(s), upgrades to IFR, etc.

 

[TCABM]

Broadly speaking, if you’r exchanging money for an ownership position, the first question to answer is how will your ownership position he recorded?

The next question is how will the finances of this partnership be managed? How will operations and maintenance decisions of this partnership be made?

 

[mandm]

Can you consider to just rent the airplane from the guy? Such as buy a block of time in blocks of 10 hours. That way he owns it and does the maintenance and you will still have the same usage you’re looking for. Owning and renting costs are quite similar, yet owning ends up costing more because of the fixed costs and you end up buying unnecessary stuff too.

 

[Ed Haywood]

It's a smart way to own IF you find the right partner. Many potential pitfalls to disagree over. All can be managed if both parties are like-minded and agreeable.

 

[midlifeflyer]

There are so many variations in what you can do, from renting to non-equity ownership to partial ownership to full share. Same with the way the arrangement can be structured. I can't recommend any of them without knowing more than I want to about the setup.

But the question that keeps going around in my head is: Does a NORDO airplane meet your mission for the foreseeable future?

 

[Lndwarrior]

I had a great experience in a partnership. Ended up getting to fly it anytime I wanted. We contributed and maintained a healthy overhaul reserve. Ended up selling my share for more than I paid. Communication and fairness is the key.

 

[DaleB]

I’ve been on the other end of this. I had a plane that I bought and owned outright; sold 50% interest to another pilot, then we agreed to a third, and now there are four of us - and my original 50% ownership guy is gone. In other words, it’s now me and three new guys.

So far everything has been really good, for six or so years. I think the reason for that is that we have a very good, clear operating agreement and we’ve been careful to make sure everyone is on the same page as far as usage, maintenance and repairs, etc. We all get along well. I used parts of partnership agreements from a couple of sources - AOPA and the Beechcraft club, if I remember correctly. I modified to fit our plane and the wishes and goals of myself and my original partner, then we had it reviewed and fine tuned by an attorney. Everyone since has come in under the same agreement.

One person (the original partner) finished his primary training and took his check ride in the plane. Two others have been freshly minted PP-ASEL and the most recent is a high time ex-AF commercial pilot just flying the RV for fun. We split the fixed costs every month (hangar, insurance, etc.) and pay in a fixed rate per hour to cover fuel, consumables, and an engine reserve. Other expenses are split equally.

So - if done right, it can work quite well. I’ve heard horror stories too, which is why we took the time to do it right from the beginning.

 

[Rene]

I would hope that the buy out option has a date on it. I would hate for "someday" to become never.

Conversely, I would hope that there's a way out for you if you don't like it.

Also, have you flown the plane yet? With the current owner?

I have flown it, and both the airplane and the current owner are fine. The buyout option is well written, with a date, pricing formula, option to extend by mutual agreement, and accelerator clauses to move it up if one of us doesn't fly it a minimum number of hours.

 

[Rene]

The disadvantage is how risk is pooled.

If you co-own with one other person, and the engine takes a dirtnap the day after you sign on the dotted line, you're on the hook.

A non-equity partnership might shield you from that.

That said, IMO, the interpersonal dynamics are far more important than monetary/MX considerations.

When I was a (relatively) young, low time pilot, I briefly entertained buying into a partnership. The plane itself would have been fine, and the price was right, and the people were decent, but there was an uncomfortable asymmetry with being a ~35yo in the company of ~50 year olds with (relatively) deep pockets.

I agree that "the interpersonal dynamics are far more important" than any other part of the situation. Were I to speak for the owner, I would say that his motivation is to preserve "his plane", basically in its vintage condition, into a future where he does not see himself flying it. And I was offered the opportunity because I appreciate the plane for what it is. Some aspects are flexible, others are completely inflexible.

 

[Rene]

An airplane partnership is as much as marriage as a financial relationship centering on a piece of equipment.

At least one problem with the arrangement you're describing -- an owner of 100% selling a part interest, compared with two or more owners contributing purchase money to jointly acquire -- is the "selling" partner still views it as "his" plane that he is "letting" you use. One way to avoid this is to spend time thinking about your likely and even unlikely use cases -- do you plan to take this simple aircraft (NORDO, VFR) to unimproved or uncharted landing locations? Sit down with him and of those out loud. If he has any problem with them, let him speak now or forever hold his peace -- so to speak.

Suppose one of you prangs something that is clear pilot error -- would the other look to the pilot to make the entire repair, or would it be considered an ordinary maintenace expense?

The exit scenario you probably want is a right of first refusal -- you have the right to buy him out if and when he wants to sell, with a clear mechanism how to set the price of that transaction -- for example you can match a bona fide offer if he has one; have an appraisal of the aircraft set the price; etc. You may also want the right to ratify any third party he chooses to sell to.

Good luck.

The current owner totally wants the aircraft to remain as it is with only a very few very specific permissible changes. But to me it's a time machine so I don't want to alter it. He flies it into unimproved strips, but hates to have it sit outside, which has been the subject of a conversation. The buyout option has a set date (with an option to extend by mutual agreement), a pricing formula, terms, and a way to move it up if one of us doesn't fly it "enough".

 

[Rene]

Is the rental aircraft also VFR-only with no radios?

If NORDO/VFR-only meets current needs, what about in future?

Potential disadvantage: For investment in part ownership (for ‘young, low-time pilot’), consider restricting factors … for any future need for radios(s), upgrades to IFR, etc.

Yes, and it completely satisfies me (other than cost and availability). My iComm and Dick Clarks are fine, I don't anticipate needing anything "more" for the length of time the agreement will run (or longer for that matter).

 

[Rene]

Broadly speaking, if you’r exchanging money for an ownership position, the first question to answer is how will your ownership position he recorded?

The next question is how will the finances of this partnership be managed? How will operations and maintenance decisions of this partnership be made?

Some aspects are negotiable (financial), others set in stone (operations and maintenance).

 

[Rene]

Can you consider to just rent the airplane from the guy? Such as buy a block of time in blocks of 10 hours. That way he owns it and does the maintenance and you will still have the same usage you’re looking for. Owning and renting costs are quite similar, yet owning ends up costing more because of the fixed costs and you end up buying unnecessary stuff too.

I wonder if the costs to an owner would increase if he chose to rent it. That would be advantageous short term. But renting doesn't alleviate one of the owners significant concerns, that of preserving the aircraft in its current condition into the future.

 

[Rene]

There are so many variations in what you can do, from renting to non-equity ownership to partial ownership to full share. Same with the way the arrangement can be structured. I can't recommend any of them without knowing more than I want to about the setup.

But the question that keeps going around in my head is: Does a NORDO airplane meet your mission for the foreseeable future?

For the forseeable future it does.

 

[Rene]

I’ve been on the other end of this. I had a plane that I bought and owned outright; sold 50% interest to another pilot, then we agreed to a third, and now there are four of us - and my original 50% ownership guy is gone. In other words, it’s now me and three new guys.

So far everything has been really good, for six or so years. I think the reason for that is that we have a very good, clear operating agreement and we’ve been careful to make sure everyone is on the same page as far as usage, maintenance and repairs, etc. We all get along well. I used parts of partnership agreements from a couple of sources - AOPA and the Beechcraft club, if I remember correctly. I modified to fit our plane and the wishes and goals of myself and my original partner, then we had it reviewed and fine tuned by an attorney. Everyone since has come in under the same agreement.

One person (the original partner) finished his primary training and took his check ride in the plane. Two others have been freshly minted PP-ASEL and the most recent is a high time ex-AF commercial pilot just flying the RV for fun. We split the fixed costs every month (hangar, insurance, etc.) and pay in a fixed rate per hour to cover fuel, consumables, and an engine reserve. Other expenses are split equally.

So - if done right, it can work quite well. I’ve heard horror stories too, which is why we took the time to do it right from the beginning.

I had a great experience in a partnership. Ended up getting to fly it anytime I wanted. We contributed and maintained a healthy overhaul reserve. Ended up selling my share for more than I paid. Communication and fairness is the key.

The owner wants the aircraft to be kept as it is to the extent possible. There are paragraphs that will govern future maintenance, operations, repairs, modifications, and use, as well as finances, and how costs are divided.

 

[MauleSkinner]

Conversely, I would hope that there's a way out for you if you don't like it.

I’ll reiterate this…you need an exit strategy in the partnership agreement if either of you wants or needs to get out for any reason, whether one of you buys the other out or outright sale of the airplane if neither of you can manage it alone.

 

[catmandu]

Having been in a partnership, and given your responses, @Rene, I would say if your gut says this works, go for it. But the caution on an exit strategy is VERY valid, especially given an even number of partners. We had an issue in our prior partnership, and thankfully had an odd number of partners such that a majority opinion on a resolution was able to be reached in short order.

 

[Rene]

Having been in a partnership, and given your responses, @Rene, I would say if your gut says this works, go for it. But the caution on an exit strategy is VERY valid, especially given an even number of partners. We had an issue in our prior partnership, and thankfully had an odd number of partners such that a majority opinion on a resolution was able to be reached in short order.

I’ll reiterate this…you need an exit strategy in the partnership agreement if either of you wants or needs to get out for any reason, whether one of you buys the other out or outright sale of the airplane if neither of you can manage it alone.

Yes, I can see how three would work quite nicely. The agreement as proposed is to run a certain number of years at which point we can mutually agree to extend the time period, I would have a set amount of time to purchase his share at a price determined by an agreed upon formula, or should I not purchase his part, he could buy me out. There are also clauses to allow one to buy out the other if the aircraft is not used by that party for a specified length of time.

 

[midlifeflyer]

But the caution on an exit strategy is VERY valid, especially given an even number of partners especially given an even number of partners. We had an issue in our prior partnership, and thankfully had an odd number of partners such that a majority opinion on a resolution was able to be reached in short order.

Equal vs non-equal does not change the need for an exit strategy. Disagreements with even shares and no dispute resolution mechanism can ultimately lead to dissolution. Disagreements with uneven shares can leave an unhappy minority which feels taken advantage of.

An alternative to unequal number of partners is unequal shares.