Potential Partnership - Thoughts/Advice?

[talkingbob]

Hello,

As a PPSEL (no tailwheel), I am curious if some of the POA members would give insight regarding a 10-member partnership I am considering buying a share of.

The partnership consists of a corporation that owns a Piper Super Cub. Each member owns a 10% share.
The airplane itself is stored in a hangar and has about 950 hours on the Tach. It has an electrical system, transponder, GPS, nav lights, starter...
They use online scheduling and the monthly dues is $50 with $40/Tach. hour rate when you fly. The partnership has been in place for like 30 years and the members that I've met seem to get along. Despite having ten owners, I was told that the plane flies an average of only 90 hours a year.

I am trying to be prudent and ask the right questions, but considering I've never been an aircraft owner/partner, is there something I'm missing? Honestly, it seems almost too good to be true...

Thanks!

 

[kujo806]

I am currently in a 9 person partnership for a Piper Arrow. As it is in any partnership, there are pros and cons. In my case, the other partners rarely use the plane, so I have ~90% availability with a fraction of the cost. I think it is more ideal to have less partners as there are diminishing returns once you go over 3 or 4 partners. Considering my situation, it is the best choice for me now, but I still think I want my own plane at some point. I have a lot going on with work and a baby at home, so I don't get to fly as much as I'd like to. Considering that, it would suck to have a plane sitting in a hangar not being used. I do get a bit upset when other partners do something wrong, but that is the life of being in a partnership. Sometimes they don't fill up the fuel, or leave food/garbage in the plane, or schedule it all weekend only to not even touch the plane. It can also be a challenge to get any upgrades or maintenance done when you have a bunch of guys who don't use it much, but my group is pretty decent about keeping it airworthy. Overall, it is much better than renting. It really depends on your situation I'd say.

 

[jhausch]

Sounds like a dream partnership for a fun flyer at a great price (even with Summer coming to a close.... not sure where you are "geographically speaking")

What's the buy in?
Is the plane worth 10x buy-in?
How much $ is in the reserve kitty?
What is the exit plan for a partner?
Sign-off requirements?
Maintenance been handled well?
Is there a CFI in the group?

 

[talkingbob]

Sounds like a dream partnership for a fun flyer at a great price (even with Summer coming to a close.... not sure where you are "geographically speaking")

What's the buy in? - $4500
Is the plane worth 10x buy-in? - The treasurer says that the plane is worth $40K
How much $ is in the reserve kitty? - I do not know.
What is the exit plan for a partner? - Find someone to buy your share (there are a few partners trying to sell a share currently)
Sign-off requirements? - None to speak of. One partner got his tailwheel endorsement, then jumped right in to flying the Super Cub.
Maintenance been handled well? - As far as I can tell... The MX Officer is an airline pilot and has been in the group for 20+ years.
Is there a CFI in the group? - Yes, the airline pilot is also a CFI

The climate is very close to the same climate you would have in Bartlesville, OK. I grew up in the midwest and personally have no issue flying in the cold.

What's the buy in? - $4500
Is the plane worth 10x buy-in? - The treasurer says that the plane is worth $40K
How much $ is in the reserve kitty? - I do not know
What is the exit plan for a partner? - Find someone to buy your share (there are a few partners trying to sell a share currently)
Sign-off requirements? - Nothing official. One partner got his tailwheel endorsement, then jumped right in to flying the Super Cub.
Maintenance been handled well? - As far as I can tell... The MX Officer is an airline pilot and has been in the group for 20+ years
Is there a CFI in the group? - Yes, the airline pilot is also a CFI

 

[talkingbob]

I am currently in a 9 person partnership for a Piper Arrow. As it is in any partnership, there are pros and cons. In my case, the other partners rarely use the plane, so I have ~90% availability with a fraction of the cost. I think it is more ideal to have less partners as there are diminishing returns once you go over 3 or 4 partners. Considering my situation, it is the best choice for me now, but I still think I want my own plane at some point. I have a lot going on with work and a baby at home, so I don't get to fly as much as I'd like to. Considering that, it would suck to have a plane sitting in a hangar not being used. I do get a bit upset when other partners do something wrong, but that is the life of being in a partnership. Sometimes they don't fill up the fuel, or leave food/garbage in the plane, or schedule it all weekend only to not even touch the plane. It can also be a challenge to get any upgrades or maintenance done when you have a bunch of guys who don't use it much, but my group is pretty decent about keeping it airworthy. Overall, it is much better than renting. It really depends on your situation I'd say.

Thank you for the reply!
I am a bit confused what you meant exactly when you said what you did about "Diminishing returns"?

 

[weilke]

Are you allowed to receive instruction in the plane ?

Is there an engine overhaul/fabric reserve in place ?

I would be all over this if I had it available locally. I am in a partnership on the Bo, I have it for the current two week block yet 3 of the other partners are using it for day-trips, $200 fish sandwiches and proficiency flying with my permission.

 

[DJTorrente]

10% of a Super Cub is ~$10k? The personalities involved will have more impact on whether you enjoy the experience than the money. Aircraft partnership is more marriage than business transaction. You're all sharing the same mistress.

Thank you for the reply!
I am a bit confused what you meant exactly when you said what you did about "Diminishing returns"?

He means that when you go from solo ownership to a 5-person partnership, your fixed costs are cut by 80%. When you add another 5 people and make it 10-way, the costs only drop from 20% to 10%; and the difference between fixed costs at 5 and 10 people likely pales in comparison to your direct operating costs (fuel, parking, occasional instruction) which you have to pay all yourself anyway.

 

[weilke]

Thank you for the reply!
I am a bit confused what you meant exactly when you said what you did about "Diminishing returns"?

Adding a 5th partner to a 4-way reduces your cost by not much. From 5 on your insurance cost goes up because most consumer grade policies are limited to 5 listed pilots.

 

[talkingbob]

Are you allowed to receive instruction in the plane ?

Is there an engine overhaul/fabric reserve in place ?

I would be all over this if I had it available locally. I am in a partnership on the Bo, I have it for the current two week block yet 3 of the other partners are using it for day-trips, $200 fish sandwiches and proficiency flying with my permission.

Are you allowed to receive instruction in the plane ? - They just modified the bylaws, so that student pilots could be members

Is there an engine overhaul/fabric reserve in place ? - The excess money from the dues and hourly rate goes into a "maintenance fund", but I currently do not know any more details beyond that

 

[kujo806]

I would definitely find out what is in the reserve kitty. It is part of the asset valuation. If the plane is worth 40k and they have 10k in the kitty, you are buying into a 50k asset (not accounting for engine time, but you get the picture). If they have a loan out on the plane for a previous overhaul or something (as is my case), you have to count the liability against the value.

I think the others answered the diminishing returns question. Basically one partner cuts the fixed costs in half (50% improvement from solo-awesome!). Two partners cut fixed costs 66% (16% improvement from one partner-not bad). Three partners equal 75% cut in fixed costs (only 9% improvement from two partners), but start adding to the PIA of a partnership.

 

[weilke]

I would definitely find out what is in the reserve kitty. It is part of the asset valuation. If the plane is worth 40k and they have 10k in the kitty, you are buying into a 50k asset (not accounting for engine time, but you get the picture). If they have a loan out on the plane for a previous overhaul or something (as is my case), you have to count the liability against the value.

When putting a value on a share of a larger partnership, the question of how the share is valued relative to the value of the plane if you sold it today becomes less important. If you buy 1/10th of an entity that exists for 30 years, it is unlikely that the thing will be liquidated tomorrow. If I buy a share of GE stock, I dont care either how much it would cost if every piece of real estate and every piece of machinery owned by GE was sold tomorrrow.
The only way to determine the value of a larger partnership share is:
- are there other comparable partnerships at this airport and how much has the last share in one of them sold for.
- is there another guy in the partnership who would sell me his share for less
- what price has the last share sold for
- what is the asking price on the share that hasn't sold in 2 years
and finally
- what is it worth TO ME to have the keys to XYZ plane.

I think the others answered the diminishing returns question. Basically one partner cuts the fixed costs in half (50% improvement from solo-awesome!). Two partners cut fixed costs 66% (16% improvement from one partner-not bad). Three partners equal 75% cut in fixed costs (only 9% improvement from two partners), but start adding to the PIA of a partnership.

It can add to the pia, otoh if there is one partner you dont really see eye to eye, having a couple of other people to deal with can be a buffer (unless that is someone like the 'training officer' or the schedule-king).

On something like the supercub, if you have an unexpected engine replacement, it is sure nice to have 9 others who throw their $2200 in the hat.

 

[talkingbob]

I would definitely find out what is in the reserve kitty. It is part of the asset valuation. If the plane is worth 40k and they have 10k in the kitty, you are buying into a 50k asset (not accounting for engine time, but you get the picture). If they have a loan out on the plane for a previous overhaul or something (as is my case), you have to count the liability against the value.

I couldn't agree more. I will devise the best way to ask the treasurer about the asset valuation at the right time.
Thank you for your insights. They are most appreciated.

 

[talkingbob]

On something like the supercub, if you have an unexpected engine replacement, it is sure nice to have 9 others who throw their $2200 in the hat.

I couldn't agree more. In fact, one member mentioned how they paid something like $1250 when the engine needed an overhaul.

I am curious though... Are you implying that Super Cubs need unexpected engine replacements more than other aircraft?

 

[Jeff Oslick]

I would be extremely tempted if a deal like this crossed my lap. Due diligence, yes, of course, but this sounds like a good deal. My sister is in a similar setup for a Christen Eagle, and it seems to work very well for her. Personally, I'm in a 3-way LLC owning a 182, for almost 9 years, and it's been great.

Jeff

 

[weilke]

I am curious though... Are you implying that Super Cubs need unexpected engine replacements more than other aircraft?

With ANY aircraft you have to anticipate the need for an unplanned engine overhaul.


That particular plane doesn't seem to fly that much. Lycoming engines will occasionally eat a camshaft for no good reason.

 

[talkingbob]

With ANY aircraft you have to anticipate the need for an unplanned engine overhaul.


That particular plane doesn't seem to fly that much. Lycoming engines will occasionally eat a camshaft for no good reason.

Ah, OK. That makes sense. I just wanted to make certain there wasn't something unique to a Super Cub that I was missing.

Thanks!