Practicality of Part Ownership

joeparrilla

joeparrilla

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JoeP
Hello everyone,

So as I progress through my training, I find myself thinking more and more about my post training aviation. I know that right now I couldnt afford to buy, tie down, gas up, and maintain my own airplane. I know the various options such as rentals and clubs, but I was seriously considering a part ownership and wondering how viable of an option it is.

I thought it made a lot of sense to get something like 4 people together to all chip in something like 8-10k each to buy a used airplane. If all of the owners split the storage and maintenance costs, bought gas for their own trips, and kept a good schedule of use... it would be a pretty affordable thing to do.

Are there any downsides to going this route? Obviously the up front cost is a lot higher than getting into a club, but in the long run it seems like you would save. Also it seems more relaxing knowing that you are aware of the only 3 other people who are flying your plane, and you can trust what they are doing... as opposed to a plane that is being handed around an entire club.

Does anyone have experience doing this, or other methods of plane ownership? What are some of the most affordable options (long and short term) for getting in the air once you stop flying your training airplane?
 
Joe

That is exactly what I am doing right now. Found some guys and we are looking. If you need ti find out our process, you can pm me. Good luck, it's been tough to find what we want.
 
Have a friend who is a partner in two aircraft,one has three partners and the other has five partners,seems to be working well for him.just be sure you are going to be able to get the hours you need for your training without paying an extra fee. Be sure also to check maintainence records on the engine and airframe and any outstanding ADs.
 
Assuming that you have reasonable partners, no major scheduling issues, and you are generally all on the same page in terms of williness to maintain the aircraft as intended by the manufacturer, the biggest issue is with airplane upgrades, particularly if you have a partner who has let their medical lapse. It's one thing to send in your check for maintenance, hangar fees, and insurance, thinking you will get around to renewing your medical and take up flying again some day. It's another to right a fat check to upgrade a plane you haven't flown in a few years for a complete panel upgrade.

We have a provision in the partnership agreement that mandates that the plane be maintained to IFR standards. That could be helpful in some situations.
 
I think that generally speaking 3 is the optimal size partnership. More than that and scheduling difficulties mount quickly, while the incremental cost of ownership declines slowly.

The ideal is to find two partners who don't fly much but still want to own an airplane.

Partnerships have been covered extensively in other threads, so look them up. You will find several common threads: Pick your partners as you would a spouse, use a lawyer to craft the legal agreement, make sure you have an exit clause spelled out in advance.
 
I own 10% of a very nice Cardinal. It serves about 90% of the needs that sole ownership would serve, at about 40% to 50% of the operating cost, with almost none of the risk of sole ownership (i.e., shelling out $30k for a new engine/prop unexpectedly). It is a tremendous deal. It costs me maybe $6k/year including fuel, vs. potentially $12k to $15k if I owned 100%, plus the occasional $5k to $20k "surprise". Not to mention that I don't have $70k tied up in the plane.

10 members sounds like a lot, and it is a little high, but we have about 4 to 6 members who probably fly once or twice a year, and some of them will go a year without flying it.

From an insurance cost perspective, 5 owners is optimal, and that is my personal "best number". In my experience, two of those guys will likely fly very little or none at all (previously I was in a 5-member club with a Grumman). With five members, our insurance cost was the same as a sole owner (about $1,200/year). With six members, that number would've nearly tripled. I think the Cardinal's insurance is about $3,300/year, for ten members. I.e., I pay $330/year for insurance, a real bargain.
 
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SteveR said:
From an insurance cost perspective, 5 owners is optimal, and that is my personal "best number". In my experience, two of those guys will likely fly very little or none at all (previously I was in a 5-member club with a Grumman). With five members, our insurance cost was the same as a sole owner (about $1,200/year). With six members, that number would've nearly tripled. I think the Cardinal's insurance is about $3,300/year, for ten members. I.e., I pay $330/year for insurance, a real bargain.
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As I recall, when you go above 5 partners you go into a commercial "club" type policy rather than a personal policy.
 
SteveR said:
I own 10% of a very nice Cardinal. It serves about 90% of the needs that sole ownership would serve, at about 40% to 50% of the operating cost, with almost none of the risk of sole ownership (i.e., shelling out $30k for a new engine/prop unexpectedly). It is a tremendous deal. It costs me maybe $6k/year including fuel, vs. potentially $12k to $15k if I owned 100%, plus the occasional $5k to $20k "surprise". Not to mention that I don't have $70k tied up in the plane.

10 members sounds like a lot, and it is a little high, but we have about 4 to 6 members who probably fly once or twice a year, and some of them will go a year without flying it.

From an insurance cost perspective, 5 owners is optimal, and that is my personal "best number". In my experience, two of those guys will likely fly very little or none at all (previously I was in a 5-member club with a Grumman). With five members, our insurance cost was the same as a sole owner (about $1,200/year). With six members, that number would've nearly tripled. I think the Cardinal's insurance is about $3,300/year, for ten members. I.e., I pay $330/year for insurance, a real bargain.
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That is a real sweet deal! That really makes plane ownership seem damn affordable. I know people that pay more for a car lease and insurance...
 
Partnerships seem to normally make sense for the average plane owner. Most of it depends on utilization. It can be hard to get everyone to agree on a plane to buy, though, so pick your partners carefully. Of course if you can't agree on which example to buy, you'll probably have other issues.

If we had more conventional flying, I think we'd be interested in a partner.
 
I've been in two partnerships that have worked fabulously.

Picking the right partner is far more important than picking the right airplane.
 
joeparrilla said:
That is a real sweet deal! That really makes plane ownership seem damn affordable. I know people that pay more for a car lease and insurance...
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Plenty of people pay TWICE as much for a car lease in a mid-level (not luxury) car, if you exclude my fuel cost. My total cost for the plane (no fuel) is just over $3,000 annually, to fly it ~80hrs. That includes a healthy enough maintenance reserve that additional costs are virtually never necessary. This is for a nice IFR Cardinal with autopilot, 496, DME, nice leather interior, good paint, etc.

At this rate, the club has "revenue" of $20,000+ every year to pay fixed cost plus real airframe and engine reserve costs. And our engine stays healthy because it flys often. "Revenue" is high enough that we shun owner maintenance, and just send it to the (somewhat expensive) shop without blinking. With ten people paying, it isn't even worth changing the oil ourselves.

This partnership/club has had this plane since about 1983. It works great. If more of these existed, GA would be much healthier.
 
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SteveR said:
Plenty of people pay TWICE as much for a car lease in a mid-level (not luxury) car, if you exclude my fuel cost. My total cost for the plane (no fuel) is just over $3,000 annually, to fly it ~80hrs. That includes a healthy enough maintenance reserve that additional costs are virtually never necessary. This is for a nice IFR Cardinal with autopilot, 496, DME, nice leather interior, good paint, etc.

At this rate, the club has "revenue" of $20,000+ every year to pay fixed cost plus real airframe and engine reserve costs. And our engine stays healthy because it flys often. "Revenue" is high enough that we shun owner maintenance, and just send it to the (somewhat expensive) shop without blinking. With ten people paying, it isn't even worth changing the oil ourselves.

This partnership/club has had this plane since about 1983. It works great. If more of these existed, GA would be much healthier.
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That is truly a great deal. Everyone cries about GA being too expensive, but this really makes it seem VERY achievable even for a middle class guy.
This is surely a route I am going to consider highly once I get my ticket.
 
SteveR said:
I own 10% of a very nice Cardinal. It serves about 90% of the needs that sole ownership would serve, at about 40% to 50% of the operating cost, with almost none of the risk of sole ownership (i.e., shelling out $30k for a new engine/prop unexpectedly). It is a tremendous deal. It costs me maybe $6k/year including fuel, vs. potentially $12k to $15k if I owned 100%, plus the occasional $5k to $20k "surprise". Not to mention that I don't have $70k tied up in the plane.

10 members sounds like a lot, and it is a little high, but we have about 4 to 6 members who probably fly once or twice a year, and some of them will go a year without flying it.

From an insurance cost perspective, 5 owners is optimal, and that is my personal "best number". In my experience, two of those guys will likely fly very little or none at all (previously I was in a 5-member club with a Grumman). With five members, our insurance cost was the same as a sole owner (about $1,200/year). With six members, that number would've nearly tripled. I think the Cardinal's insurance is about $3,300/year, for ten members. I.e., I pay $330/year for insurance, a real bargain.
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For the record, I've seen Steve's Cardinal, gotten this info before, and am extremely jealous of his luck in finding this opportunity!

It's a nice bird, and a good group.
 
JoeP; Where in the country are you? There might be another PoA'er in the same timeline as you...
 
joeparrilla said:
Hello everyone,
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1. I've had a couple of partnerships and they all worked out well. No problems at all.

2. Didn't you and your father used to advertise vacation packages on afternoon and late-night tv?
 
Gerhardt said:
1. I've had a couple of partnerships and they all worked out well. No problems at all.

2. Didn't you and your father used to advertise vacation packages on afternoon and late-night tv?
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:) We hung up our Italian vacation hats years ago!
 
I joined a partnership about a year ago, so far it has worked out great. Availability has not been an issue and the other partners have been accomodating in trading. If it is 'my week', it doesn't mean that I am the only one flying, the way it works out typically is that the 'owner' for that week goes away for the weekend and one or two others do some proficiency flying during the week. My life follows a google calendar that is pretty well filled out for the next year, I know today which weekend I could use the plane for 6 months from now. If you are more of the 'oh lets go to Florida for the weekend' kind, a partnership with multiple partners may not be for you. Also, if you are really anal about 'your stuff', a partnership may not be for you. If you are the kind that will give your brother in law your car-keys to run down to the store, you'll do fine in a partnership.

You have to get along with folks and sometimes go with the group even though you may not share the group opinion. Can't be a stubborn old goat. This week we sent off an order and a check for a overhaul-exchange engine. The different options were discussed, and despite one members opinion that we could go another year on the current engine, in the end he voted with everyone else to do the overhaul.

Look up other threads on the issue. It is not all zip-e-di-doo-daa, there are stories of partnerships gone horribly wrong out there. Try to get an idea about the partnership before you join, ideally from someone else than the guy trying to sell you his share. Typically partnerships are set up as either a corporation or LLC, get someone to review the bylaws or operating agreement for you to decide whether there are any sticking points. Get the last 2-3 years tax returns, have someone review them to determine whether there are potential tax liabilities floating around.
 
I echo everything that has been said so far but will also add that your costs given the number of people you mentioned seem low to me unless you are buying a very low cost aircraft.

I owned my Cherokee solo for several years and just this year found two other people and created an LLC/Co-Ownership arrangement mostly because I wanted to lower my fixed costs and also pull out some capital to start working on building an RV. It so far has been a win-win for all involved. The other two guys travel a lot for work, and I am busy often with family so scheduling works out well. One person currently flys a lot more than the others however so far we all have been very very flexible with regards to scheduling if we are not taking the plane away for a weekend.

So basically it is about the people, but also the finances as well.

Make sure that you have enough working capital so that if things go wrong (engine issues, maint, etc) you have enough reserves to avoid having to write a very large check. As mentioned before that is painful especially if there are others who fly rarely. That 40K number seems low unless you are buying something low end or with basic equipment. Think future when you are traveling somewhere or have an instrument rating. You will want a reasonable autopilot and GPS in there.

Come up with some exit terms as well so that when one person decides to sell things go smoothly.

So far so good for mine, time will be the judge of course.
 
I own 1/3 of a 1976 Cardinal FG. My monthly share of hangar expense, insurance is $134. I bought in for less than 10k. We pay $30 per hour dry to ourselves to fund part of the maintenance. I figure it costs me roughly $80 to $100 /hr to fly, including just the the dry rate plus fuel at current fuel prices. Expenses not covered by the maintenance fee are then assessed to each member. Overall, not too terrible.
 
As Ken stated, the best tradeoff between money saved and availability seems to be at 3. There are 5 of us, when it comes to the schedule, I wouldn't mind having two less partners. When it comes to signing checks for the engine assessment, I sure don't mind the two extra checkwriters.

The best partnership is a doctor who doesn't fly, a retired A&P and you ;-)
 
weilke said:
As Ken stated, the best tradeoff between money saved and availability seems to be at 3. There are 5 of us, when it comes to the schedule, I wouldn't mind having two less partners. When it comes to signing checks for the engine assessment, I sure don't mind the two extra checkwriters.

The best partnership is a doctor who doesn't fly, a retired A&P and you ;-)
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I think the 3 number is most appropriate if it's a traveling airplane. A weekend recreational airplane may not have as many issues.

I just recall one 3 way partnership I had in a Lance in which one of the partners almost never flew it. But when he did it was always Thanksgiving and Christmas, and he felt entitled to it since he didn't fly it much. (He also had a club membership and flew a 182 most of the time. But when he needed the six seater, he NEEDED it.)
 
A good friend has a 3 person partnership in a V-Tail Bonanza. He has told me one of the other partners flies every couple of months and the other very rarely. My friend has the airplane almost anytime he wants. Sounds like a good deal.
 
I have been considering off and on trying a co-ownership deal. One thing I can't seem to easily wrap my head around is how ownership is measured among several partners who contribute varying amounts to the purchase of an aircraft...

My example: We have four people interested in starting a "club" (really just a co-ownership deal) where we would all "invest" some amount of starting capital to purchase a plane and get things running. If we "invest" (sorry, but I'm drawing a blank on a better term) differing amounts, what does that really mean? It seems clear that at least we would have different "levels" of ownership (equity?) in the airplane itself, but if one person wishes to leave and must sell off his share, how is that share valued? Would it be based on that persons initial capital investment directly, or some percentage of the aircraft's current valuation (and if so, based on whose valuation?).
 
darrell said:
I have been considering off and on trying a co-ownership deal. One thing I can't seem to easily wrap my head around is how ownership is measured among several partners who contribute varying amounts to the purchase of an aircraft...
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Why would you do anything other than equal shares? Doing anything else will be unnecessarily complicated, for exactly the reasons you mentioned, and I doubt you'll find many people who want to pay a higher amount than the other owners.

The best model in my opinion is to charge a monthly fee to cover fixed costs (hangar, insurance, an average annual inspection amount, etc.), then charge an hourly rate (tach time) to cover engine & airframe reserve.
 
darrell said:
I have been considering off and on trying a co-ownership deal. One thing I can't seem to easily wrap my head around is how ownership is measured among several partners who contribute varying amounts to the purchase of an aircraft...

My example: We have four people interested in starting a "club" (really just a co-ownership deal) where we would all "invest" some amount of starting capital to purchase a plane and get things running. If we "invest" (sorry, but I'm drawing a blank on a better term) differing amounts, what does that really mean? It seems clear that at least we would have different "levels" of ownership (equity?) in the airplane itself, but if one person wishes to leave and must sell off his share, how is that share valued? Would it be based on that persons initial capital investment directly, or some percentage of the aircraft's current valuation (and if so, based on whose valuation?).
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I agree it's simpler if everyone is equal, but if it's a function of a few more well-heeled partners offering to fron a bit more, in that case I'd break it up into smaller denominator shares, with them owning more of the shared.

The key will be the operating agree, and setting out the terms clearly. Fixed costs may still be shared on a per-owner basis rather than a shares basis. Just get everything hammered out in black & white up front so there can be no misunderstandings later.
 
mtuomi said:
I'm currently looking for a 4-seater part ownership deal in NYC. Ideally a Warrior or similar 4-way...
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Well unfortunately I am quite a ways from my private. I just wanted to learn more about this ownership route. Hopefully I can find some partners when I am ready.
 
darrell said:
I have been considering off and on trying a co-ownership deal. One thing I can't seem to easily wrap my head around is how ownership is measured among several partners who contribute varying amounts to the purchase of an aircraft...

My example: We have four people interested in starting a "club" (really just a co-ownership deal) where we would all "invest" some amount of starting capital to purchase a plane and get things running. If we "invest" (sorry, but I'm drawing a blank on a better term) differing amounts, what does that really mean? It seems clear that at least we would have different "levels" of ownership (equity?) in the airplane itself, but if one person wishes to leave and must sell off his share, how is that share valued? Would it be based on that persons initial capital investment directly, or some percentage of the aircraft's current valuation (and if so, based on whose valuation?).
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I had one partnership in which I paid my third in cash, the other two took out a loan that encumbered the airplane. We split everything in three. I had another partnership in which I paid my third in cash, the other guy paid for two thirds in a loan. We split everything in half.

Whatever works. I suppose you could have 100 "shares" worth $1,000 each, and one person could own 38, another one 16, another one 27 etc, but then you would have to agree whether you would allocate fixed costs according to shares or evenly. In that case, what's fair is whatever all of the partners decide is fair.

Valuing the shares when a partner wants out is the dicey part of any partnership. Also, consider what happens if a partner suffers a financial setback and can't uphold that share.
 
Ken Ibold said:
I had one partnership in which I paid my third in cash, the other two took out a loan that encumbered the airplane. We split everything in three. I had another partnership in which I paid my third in cash, the other guy paid for two thirds in a loan. We split everything in half.

Whatever works. I suppose you could have 100 "shares" worth $1,000 each, and one person could own 38, another one 16, another one 27 etc, but then you would have to agree whether you would allocate fixed costs according to shares or evenly. In that case, what's fair is whatever all of the partners decide is fair.

Valuing the shares when a partner wants out is the dicey part of any partnership. Also, consider what happens if a partner suffers a financial setback and can't uphold that share.
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A uneven split seems like more trouble than its worth.
 
joeparrilla said:
A uneven split seems like more trouble than its worth.
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I don't disagree, but I was hoping for (and am getting) great insight about it.

Of course, we do intend (if it all works out) to split fixed and variable costs evenly.

Really my only concerns are if higher levels of initial investment should translate into greater "say" in maintenance/upgrade decisions, and how to value shares if/when a member leaves.

An example I was thinking of... We decide to purchase a $100k plane and we get something like $40k, $30k, $20k, and $10k and we get the plane. A few years later, the $30k guy needs to leave the group. He offers his share to the group or to an outside party...is his share going to be worth $30k, or how do you value his share? I think this may also be a general problem for any kind of co-ownership group.
 
joeparrilla said:
A uneven split seems like more trouble than its worth.
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Well it depends. In several partnerships and several attempts to form partnerships, finding the right partners has been hugely difficult. And so if you find the right people, then the trouble of dealing with unequal resources isn't such a tall mountain to climb.

Finding partners isn't like going to Foot Locker and picking out a pair of running shoes, at least not in any of the four medium/large cities I've tried to do it.

Which brings up another point. When one partner wants to sell, it may literally take years to find a replacement. So there needs to be consideration for what happens if the person cannot pay during the interim.
 
Just for some background, I work at a Part 91 operator as a mechanic. The four people that are interested in forming this group are all friends at the same company, all A&P mechanics, two of which are IA's. Three of the four people travel overseas about 6 months out of the year, so unless we are all back at the same time (rare), we'd be hard pressed to have a scheduling conflict.
 
darrell said:
My example: We have four people interested in starting a "club" (really just a co-ownership deal) where we would all "invest" some amount of starting capital to purchase a plane and get things running. If we "invest" (sorry, but I'm drawing a blank on a better term) differing amounts, what does that really mean? It seems clear that at least we would have different "levels" of ownership (equity?) in the airplane itself, but if one person wishes to leave and must sell off his share, how is that share valued? Would it be based on that persons initial capital investment directly, or some percentage of the aircraft's current valuation (and if so, based on whose valuation?).
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I wouldn't start out with uneven percentages, but you could divy up your stock in 1/52nd shares and distribute both priority weeks and fixed expenses (annual inspection fee, storage, insurance) according to the ratios of stock owned by the different owners. The reason I would not do this is the re-sellability of the shares. People who look for a share can understand one of three or one of four, they don't understand '17/52nd'. Our stock is restricted with a 'non dilution' provision in the bylaws and the stock purchase contract. So you can't selll 1/2 of your share to your brother in law if you are hard up for money but still want to fly.

As for a leaving partner, this is how our contract is structured: If an owner wants out, it is up to him to provide a successor who buys his share at a price agreed to between him and the buyer. The group has a right of refusal for two candidates he brings, if they decline one more the partnership reduces n-1 and the remaining partners have to buy out the leaving partner. The valuation of the share is based on a formula that includes an appraisal from a certified appraiser minus certain expenses and then divided by the number of shares. In 26 years, the partnership has never had to resort to the buyout provision.

The simpler your plane and the better run your partnership, the easier it will be to find a buyer for a share. The other partners have an interest in finding a compatible partner as well, so while it is the job of the departing shareholder to find the buyer, the other partners will usually ask around the airport and market the share as well.

All this is very simple as long as everyone gets along.
All this is very difficult if some of the partners don't get along.
 
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Joe, when you are ready to look into a partnership deal I could definately see myself beig interessted. I know we both fly out of KISP and I'd be interessted in getting a group together too if we find the right deal.
 
Partners or a Club are viable methods to lower the cost of flying.

Let me also opine that were I put in charge of your paycheck I'm willing to wager you would be able to afford a plane. (this is not directed at you personally)
I cannot count the times a patient has said to me 'gee doc, I always wanted to fly but I can't afford it.' As the conversation unfolds it turns up the: 3 bowling leagues/vacation timeshare/hot boat/skidoo/cottage up north/his and her snowmobiles/corvette or Porsche/Rolex/and on and on.
At the end I say, 'you are right, you can't afford flying lessons'
 
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