Partnership / Ownership

Bman.

Bman.

Pre-takeoff checklist
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Jul 20, 2014
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Springfield, Missouri
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Bman.
I have a couple of questions that I am sure you experienced owners know plenty about - I am looking for advice and general direction:

1) I trained in a PA-28-181 aircraft hangared 3 miles from my house. It's been great. The plane has 3008 total airframe time. The owner is one of my business partners. I knew the plane was available almost always as he is getting close to retirement and just doesn't fly like he used to. So I asked, can I fly your plane to start training and he said sure.. $75 hour/dry.

2) Fast forward 2 years and I am now working my way through instrument training. Still paying $75 per hour but know I am getting the good deal on this as annual expense alone is barely covered by my contribution as things come up (like a new cylinder) which far surpassed my rental payments. Hangar fees $350 per month.

3) I knew this day was coming...

4) The owner said to me "We need to talk about transfer of ownership". He wants to owner finance for 10 years. Ownership is adjusted as equity is paid into or paid down on the note.

5) Partners still pay $75 hr/dry while using the plane to fixed / unknown costs.

Question:
A) What is the going rate for club members when renting a similar plane?
B) Does it make more sense to have a per hour rate and split up the fixed expenses like hangar / annual equally among partners?

... In general, I know this is going to cost me more. My options are to pass on the partnership / factual ownership and look for other options. Find a rental plane somewhere else (10 miles away would be the closest).

I like the plane. I know the plane. It's low airframe time for a '79. The owner finance is appealing because there is flexibility, no bank note etc.

Help me think about all the things that I am not thinking of.
Thanks

Benjamin




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First thing I'd be thinking of, is whether or not you want to own this aircraft, as a sole-owner or partnership. If it's not what you want long-term, it may be harder to get out of later on. If you finish up the IR, do you want this aircraft, or do you want something to build up commercial hours in? Do you want to join a club with multiple aircraft, or something with more speed?
 
How much and what percentage of ownership will you have with your contribution?

The hourly rate and monthly contribution for the fixed cost seems to be the accepted practice...
 
A) All different
B) It can....

I've seen a number of different club set ups out there. I would break them down into non-equity vs equity and in your case seems like it's going more towards equity. Non-equity's are like 'discount' rental clubs.

In an equity owning partnership you can set it up however you want. In my partnership the 4 of us split all costs 4 ways as they happen... hangar, insurance, GPS, MX, ect. I typically pay for everything and then get reimbursed at some point, track it all on a spreadsheet. We don't do hold back and the only real rule is fill it up with gas at the end of your flight. We schedule using a Google Calendar and it works out great. For engine overhaul we associate $10 per tac hour and keep that in the log, so when someone sells their share they'll have to pay $10 per hour they've flown... or if we run it to TBO and overhaul it then we'll split the costs on that %.
 
I'd try to find 3 other people that want to go in on it with you.

I'm a little confused as to what the $75 dry would now be going toward. Would you be paying that into an account + still paying for all maintenance? Or is that $75 meant to cover maintenance?
 
Thanks guys - keep the comments coming.

Regarding percentage of ownership - we are looking at my equity share being 1/2 or 2/3 ownership if I can or can't find a third partner that I can trust to fly well and not hog the schedule. The scheduling is the one thing that concerns me but I know the plane sits 95% of the month doing nothing and I shouldn't really be concerned with the scheduling conflicts.

Regarding my mission - It's simple. Complete IFR training, continue flying for fun, occasionally for business travel and occasionally with family. I don't have aspirations (currently) for commercial but I won't say never. Regarding the mission and family fun - we are a family of 4. I just don't see us doing a lot of "Group" trips. We haven't yet and nothing planned in the future. So really, it's more about the weekend warrior / fun / hobby with a bit of business travel on the side when that allows. Being real here - it's just a hobby any way you slice it. For the fun of it. PA-28 serves that mission well enough at a fairly economical rate.







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$75 - yes, maintenance and fixed costs (getting clarifications on this exactly). I think the owner is just trying to keep it simple so there is simply a little buy-in from me and everything else remains the same (where he is paying everything as he is now). The buy-in just help cover some of those costs.

If the $75 does cover the fixed costs also, great (hangar, taxes). That's a good deal for me. If it doesn't cover the fixed costs, then what would be the point of buying in and still paying the $75 per hour? I can rent for just a bit more and have no fixed costs.


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How many hours/yr do you fly? If it's 100 @ 75/hr, that's $7500/yr. over ten years, assuming 100 hrs/yr each year, that's $75K for the aircraft. Is it worth it?

For the partnership aspect, how do y'all plan to handle the Ds (death, dissolution, divorce, etc.).

Gentlemen's agreements can be a good thing, but if flying is just a hobby and you're gaining equity in this deal, you might want to consider those questions and more.

Generally speaking, putting terms on paper makes it easier to analyze the proposal and help everyone manage their expectations.
 
Bman. said:
Regarding percentage of ownership - we are looking at my equity share being 1/2 or 2/3 ownership if I can or can't find a third partner that I can trust to fly well and not hog the schedule. The scheduling is the one thing that concerns me but I know the plane sits 95% of the month doing nothing and I shouldn't really be concerned with the scheduling conflicts.
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I'm in my second partnership (both non-equity). There have been 3 or 4 pilots in each with completely open calendars; i.e. no assigned weeks. We all knew there were other partners and no one booked multiple weekends each month or nonsense like that. The first partnership lasted over 4 years, then the owner moved to Texas. In that time we had two, maybe three "real" conflicts, in that two people wanted to actually go somewhere at the same time. First to book it got it. The rest were, "It's a nice weekend day, maybe I'll go fly. Oh darn, someone else has the plane. Well, another time."

So far, a year plus into the second partnership I don't recall any scheduling conflicts to this point.

Now, both of these are traveling planes; first a SR22 and second a Baron. So, less prone to spending an hour or two boring holes in the sky for fun than say a Cub or 172.

I have heard of other partnership where the weeks were assigned and people could "trade" weeks.
 
Bman. said:
2) Fast forward 2 years and I am now working my way through instrument training. Still paying $75 per hour but know I am getting the good deal on this as annual expense alone is barely covered by my contribution as things come up (like a new cylinder) which far surpassed my rental payments. Hangar fees $350 per month.

5) Partners still pay $75 hr/dry while using the plane to fixed / unknown costs.
Click to expand...

You are getting a great deal. :cool:

In a partnership it would be better to have a monthly fee for the fixed costs; insurance, annual, hangar and such. Then an hourly fee for maintenance that tends to be more usage based. Plus those that fly it more put more wear-and-tear on the plane. In the end though stuff happens. So, while there may be a maintenance reserve it may not be enough at times and/or for certain events. At that time you divide the remaining costs by the number of partners; or at least that's what I've heard most often.
 
If you're giving him a note for your "ownership interest," your percentage should vest on the day you sign the note. If he wants to retain a lien on the airplane as security for the note, great, but "accrual" of equity as you make payments is unnecessarily complex and could lead to issues if things fall apart (remember, hope for the best, plan for the worst). Lots of ways to structure this, but off the top of my head, one way for this work is for you and current owner to form an LLC. You each own X% of the LLC. The LLC then buys the airplane from current owner. In order to fund the LLC (basically, the give the LLC the money to buy the plane), current owner loans you $xx,xxx. As security for his loan to you, he gets a lien on either the airplane or your membership interest in the LLC.
 
Try to keep every thing clean. An airplane requires money even if it sits. Your fixed costs are the annual inspection, hangar, insurance, 1/2 pitot/trans inspection, RNAV data suscription. Your arrangement should cover these expenses outside the a flight hour charge. The registration and insurance should be transfered in both names and an agreement for the loan done in writting specifing the terms.
 
I'm currently in a club which has mostly PA28-151/-161/-181. The -181's rent for $110/hr wet and I pay an annual $300 membership (I fly about 8 hrs/mo so call it $3/hr in membership = $113/hr). If gas is $30 to $50 an hour depending on how you're flying the plane and fuel costs, then you're renting your future plane at $75+$40ish = $115 so that's comparable.

With that said, I have NO EQUITY in the planes, a bunch of other dudes/students wear her out, and although scheduling is easy via an app/online and you can try to plan ahead for mx, there's nothing that compares to always having your plane available whenever you want it.

I'd suggest making the contract very clear and clean but to do it for the awesomeness of basically owning your own plane. I'm looking at buying a -181 outright as soon as I find "the one" relatively close to my area!
 
I agree with those saying to plan for fixed costs with a dues payment, not an inflated dry rate. That's what I was getting at when I questioned the $75 an hour. That's too complicated IMO and it also discourages people from actually flying the plane.

It's better IMO to charge each person $200-$300 a month in fixed costs and then lower the dry rate to $20-25 bucks to cover an engine fund + a little on top. That will encourage it to fly more, which typically means less maintenance overall. And the more you fly, the cheaper it gets.

The $350 a month hanger is what is hurting you guys the most. Otherwise, $400-500 a month would be plenty to keep an Archer going plus probably have the base annual paid for at the end of the year.

I'd look to make it a four person partnership. Conflicts are way, way overblown. We have 10 people partnered in my plane and I've yet to have a conflict. In fact, all the summer months are still completely open except for one week long trip. The fact is, most people just don't fly as much as they think they will.

A four person partnership is the best bang for the buck. Once you go above 4, the returns diminish.
 
Out of the above, the LLC is how we do our co-ownership. The LLC owns the aircraft, we own percentages of the LLC.

The dry rate is odd if you're an owner. I also agree with others on this. Our LLC charges out fixed and other costs to each co-owner as they come up, equally. We fuel the airplane as needed and we track hours flown divided by fuel used. Some co-ownerships get really hung up on fuel and do it in different ways. We all decided that everyone flies the thing around for the most part at full rental power all the time anyway, so eventually averages win out and just breaking fuel up by flight time, is fine. The only time this hasn't held true was when I was doing many hours of slower flight and commercial maneuvers and power off 180s, our fuel burn average dropped by 2 GPH that month. Honestly, it's a fun little statistic, but I really don't care if it means my co-owner got a little fuel discount that month. It's just not a big deal at our fuel burn numbers. Maybe I'd care if it was a twin and I flew for a week training with an engine shut down. LOL.

We also pay the LLC an engine maintenance fund per hour. That number gets pretty big toward the end, and it really isn't fair to have equal payments toward a replacement or overhaul if one person flew three times the hours off the engine as another. It's also much more likely someone might have some life event happen where they all of a sudden can't come up with $20K and the airplane is grounded awaiting funds from one of the parties. We purposefully set our hourly number a little low and it won't cover the engine replacement fully, but it's the majority of it. You can always adjust it if needed but try to set it at a reasonable hourly rate up front, that's the fairest way.

Other stuff... be reasonable. I mildly flatspotted a tire doing all these landings recently, and my plan is to pay for a tire or set of them myself. Really it's more like a scuff, but it's annoying. My co-owner says he doesn't mind, but the reality is, if I did it, I'll pay for it.

Also, if there's ANY sort of upgrades you feel might be needed, talk about how those happen, up front. In our case, I'm the single IFR rated pilot in our organization and I'm dreaming of IFR GPS. The reality is, neither of the other co-owners needs one, and their iPads frankly, do the job fine for them. If the airplane is ever to get an IFR GPS, it's probably coming out of my wallet. And I'm okay with that. We may figure out an equity percentage change via the value change of the aircraft, but the loss in value that always happens with avionics is on me. So it's not just the GPS and panel work, but also the half of that money you don't get back that is the true cost I'd be paying. Again, I'm okay with this. But you need to discuss upgrades up front.

Also one final one... gut check. Do you really want to be partners with someone you have to work with on an airplane? Could a large unexpected bill become a sticking point where you argue, and it spills over and affects the business relationship? Or even you deciding to leave to do something else later on, become something for the other person to be angry or otherwise upset about?

I have really enjoyed our co-ownership. We lost a co-owner this year due to his work travel schedule, and everyone was very professional about deciding how we wanted to handle it all. But I've heard the rare but always possible horror stories.

Definitely wouldn't do the dry rate thing. Just split and pay the bills. Technically you could even split those by flight time and get all crazy with the spreadsheets and what not... how much is your time worth?

That's about it for now. Co-owning is a great way to defray costs and keep an airplane flying. Or own more aircraft than you could afford or want to pay, alone. Or both.

Non-tangible: Make dang sure if you're a co-owner, everyone is on equal footing. The owner finance thing is nice, but you're always a bit subservient in that business position. I wouldn't do it without a solid understanding that per the aircraft LLC, you're equal owners. Keep that financing thing out of decision making.
 
It sounded to me that the dry rate is the way that the new co-owners are putting capital into the purchase of the aircraft without having to take out a loan and pay cap-ex to the owner in one lump sum.

Is that right?
 
denverpilot said:
....The dry rate is odd if you're an owner.......

Definitely wouldn't do the dry rate thing.....
Click to expand...

I'm just not getting it. As someone talking with 1-2 other people about a partnership, so far we're all on the same page with "buy your own gas". I simply don't see how it makes sense for the person handling billing to have to deal with everyone's hours/fuel receipts. I'm just not getting it. I don't care where partner A gets his fuel or how much he pays, as long as everyone leaves the plane with x amount of gallons when done.

what am I constantly missing about this aspect of partnership?
 
eman1200 said:
I'm just not getting it. As someone talking with 1-2 other people about a partnership, so far we're all on the same page with "buy your own gas". I simply don't see how it makes sense for the person handling billing to have to deal with everyone's hours/fuel receipts. I'm just not getting it. I don't care where partner A gets his fuel or how much he pays, as long as everyone leaves the plane with x amount of gallons when done.

what am I constantly missing about this aspect of partnership?
Click to expand...

Some people really get uptight about it. We don't, but we just clip the fuel receipts as we pay for them into the back of our little leather book we record all flights in. My other co-owner puts everything into the spreadsheet, and splits up the non-fixed costs by flight hour each month, he says it takes only a couple minutes.

He likes running other numbers... cost per hour over many years, average fuel burn, various stuff that's been built into the big spreadsheet over the years.

Also when at home base, if we do self serve we pay it ourselves. But the truck goes on one credit card (his) and he gets that bill, so it's just easier to have all the fuel receipts flow through to him for the accounting. I may call the truck if I don't fuel after landing but decide on a later day I want more fuel on board.

Many groups always do a full fill post-flight or a "fill to the tabs" but we have no tabs (long range bladders) and filling to the full 80 gallons is a weight and balance and performance problem in summertime at 5885'.

During the hottest of the summer, the tanks may never be above 40-50. And sticking them may be off a gallon or three...

So in the end, we just simplify the whole thing. Put what you need in, clip receipts in the back of the book, we all split it by flight time. It really doesn't end up "unfair" in any way, it all comes out in the wash.

At 80 gallons and often a price of $4.99/gal at self serve ... the best thing any of us can do is fly over to FTG, check with the other co-owners that they're not planning a four person or heavy cargo flight soon, and top the puppies off over there at a much lower per gallon rate, and tanker fuel back to APA. Our fuel prices can be seriously dumb at home.

On that note, we have always had the MoGas STC and have used MoGas on trips and the ol' O-470 loves it and runs fine. It just never was available anywhere nearby. Corn juice in everything here, but...

Walmart put in a Murphey Express gas station with ethanol free MoGas a mile from APA. $2.50/gal. I think we will see a significant reduction in fuel costs starting, immediately. Especially if we're flying a lot... we'll probably keep 100LL in the tanks in the dead of winter when the plane might sit for a little while. But summer? I think we'll be grabbing that MoGas as often as we can. Yay.

Seriously considering ripping the toolbox out of my dually and putting in a fuel tank in the bed. Then the accounting flips around and I'm paying for most of it and getting "reimbursed" via a lower bill monthly. Doesn't bother me.

A full fill on the beast is a $400 event, with 100LL. MoGas makes that $200. It's a massive difference. Plus... I can put it in lawn equipment and snowblowers! :)
 
Also check on the AOPA website for items about partnerships, sample contracts, etc.
Also, 4 people in a cherokee, unless 1 or 2 are small kids, may be past the W&B limit.
 
I'm curious if the LLC might also protect any owners personally, if there was a crazy lawsuit.
 
Skyrys62 said:
I'm curious if the LLC might also protect any owners personally, if there was a crazy lawsuit.
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It doesn't protect you at all if you are the one flying the plane. If one of the other co-owners flies the plane, any action would be against the co-owner and the LLC. And yes, you would not be liable for a judgement against the LLC in that case. Your loss would be limited to your equity in the company.
 
Skyrys62 said:
If I were flying, wouldn't the LLC protect against my personal accounts and/or possessions?
Click to expand...

Not at all. Zilch.
Corp can't limit liability from your own actions.
 
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