Successful equity partnerships

[OkieAviator]

I'm currently in a 50/50 partnership on my 172. It's worked out extremely well, the only real rule we have is to fill it up with gas when you're done with it, and wipe it down if it gets too nasty.

This plane started out as a project plane, had a STOL kit put on it, new engine, painted, interior, avionics, ect. We just split the costs of that and have continued to split maintenance 50/50 no matter who has been flying. The logic was that prior to the last annual the plane had only flown about 10 hours in the last 2 years, so things were going to start breaking once it got back in the air on a regular basis. Since last annual 8 months ago we've (Mostly me) have put 100+ hours on the plane. As anticipated things have been breaking and we've been getting them fixed as they do. I've kept records of all costs associated with the plane and can come up with a per hour cost to operate to include all fixed, variable and fuel costs.

My partner and I are thinking about adding a few more people to the plane...doing an equity buy in, monthly fee for fixed and some hourly hold back based on the variable costs. Is that fairly common to how a 4 or 6 man equity partnership works?

There's also the thoughts of getting more planes... but I think those would be treated completely separate since a $20K buyin is much less than a $100k buy in for a SR22.

 

[ChemGuy]

I bought into a 4 way partnership a couple years ago. Our monthly fixed costs pays for hanger, insurance and the fixed annual. We pay $30/hr dry tach for the engine rebuild fund.

Any other expenses/upgrades are split and we each pay 1/4. example, we have had some starter/bendix/ring gear issues, hopefully fixed now. On an $800 maintenance bill we each add $200 to the bank account.

If we add an upgrade or have to fix stuff at annual we add that to the payment. If its a larger bill, we spread the payment out over a couple months.

The plane is in an LLC and we each own 1/4 of the llc. makes it easier to replace a member as no ownership changes go to the FAA and provides some liability protection if another partner has an issue. The LLC has a bank account as well where we place payments into for our overhaul fund.

Within the LLC agreement we have a partnership agreement for how to deal with scheduling, payments and issues that might come up, bad member, dinging the plane, etc.

So far its been a great way to own a nice plane. There have been a few times I would like to have taken flight last minute and the plane was gone. But that very rarely happens.

Good luck with your 172.

 

[midlifeflyer]

What is "common" can be all over the place, from a handshake to formal rules.

It is not at all unusual for a group of any size to have an initial buy-in and some combination of either monthly dues and/or hourly use rates to create a fund pool to cover anticipated fixed and variable costs.

An important thing to be generally aware of is that the more people in the mix, the more chance for conflicts (no matter how carefully we choose our colleagues). They can range from the obvious (scheduling) to things one might not even think of (what if 2 partners want to buy that 750 but the others don't want to spend that much) to the really bad (how do we get rid of someone who isn't working out).

Many (probably most) groups go merrily along with no problem. Others wish they had thought of sitting down and working out those types of issues in advance.

 

[OkieAviator]

I bought into a 4 way partnership a couple years ago. Our monthly fixed costs pays for hanger, insurance and the fixed annual. We pay $30/hr dry tach for the engine rebuild fund.

Any other expenses/upgrades are split and we each pay 1/4. example, we have had some starter/bendix/ring gear issues, hopefully fixed now. On an $800 maintenance bill we each add $200 to the bank account.

If we add an upgrade or have to fix stuff at annual we add that to the payment. If its a larger bill, we spread the payment out over a couple months.

The plane is in an LLC and we each own 1/4 of the llc. makes it easier to replace a member as no ownership changes go to the FAA and provides some liability protection if another partner has an issue. The LLC has a bank account as well where we place payments into for our overhaul fund.

Within the LLC agreement we have a partnership agreement for how to deal with scheduling, payments and issues that might come up, bad member, dinging the plane, etc.

So far its been a great way to own a nice plane. There have been a few times I would like to have taken flight last minute and the plane was gone. But that very rarely happens.

Good luck with your 172.

That's essentially what I was thinking right there. We have a flight log in the plane so I assume it would be my responsibility to add up the totals for a given period of time and then tell everyone what they owe. I would actually probably do that on a quarterly basis.

I would just expand on our current partnership agreement which has a ton of provisions to account for basically everything.

 

[airdale]

Just a caution: With just two people you probably don't have much writted down about policies & procedures. Filling up with gas, for example, is probably not written down. How nasty is "too nasty?"

I joined a club that had grown from two people to a larger number and one of the big problems was that nothing was written down. What to do if someone makes a reservation for two weeks to fly to a destination an hour away, for example. The result was a lot of seat-of-the-pants policy making as issues came up and consequent inconsistency from situation to situation.

So ... try to get ahead of the game and write things down as much as you can.

 

[OkieAviator]

Just a caution: With just two people you probably don't have much writted down about policies & procedures.

Our co-ownership agreement is 6 pages with 32 different articles. I deal with contracts for a living as well as risk mitigation so I tend to have an eye for the 'what ifs'. We cover basically anything that could ever come up. I'm sure we'll make some changes and expand in a few areas, since we're going to start using a maintenance account and some scheduling program. But all in all if it can happen it needs to be addressed.

 

[unsafervguy]

one big thing to watch for when setting up partnerships is, what does each member want in an airplane. partnerships can get real ugly when you get a partner or two who want to upgrade to the newest and greatest thing that comes out. you end up with a partner or two who is happy with a nav/com and a transponder and then you get a couple of partners that think you need a 530waas with a total glass cockpit. Ive seen plenty of partnerships break up over that situation.

 

[weilke]

I am in a 5-way partnership that has been existence for about 20 years. I believe two of my partners are original founders.

There are fixed expenses that are split equally and paid through a monthly contribution:
- insurance
- hangar
- the basic inspection fee for the annual, cost to get the plane to the annual
- property tax
- database subscriptions

All other expenses are paid for out of an hourly dry rate.
- all other maintenance
- engine and prop overhauls

Decisions on upgrades or major expenses require everyone to agree. It has not been an issue in the 3 years I have been part of the group. There is a provision in the bylaws on how to value a share if someone wants to leave and can't find a buyer. New partners (buyers) have to be agreed upon by everyone. There is a division of work. One guy does insurance quotes, one does maintenance, one does accounting, one does regulatory stuff.

Maybe it's just the particular group of people, but things are very peaceful.

Just one thought. I believe that the best 'bang for the buck' is a 3 person partnership. It serves to really cut down on the fixed expenses for everyone involved yet availability should still be very good. When a nice weekend is coming up and the plane is out of town, I wish I had fewer partners. When it came to write the checks for new engine and prop, I was sure glad the bill (that exceeded the money already put aside) was split by 5.

 

[ChemGuy]

When it came to write the checks for new engine and prop, I was sure glad the bill (that exceeded the money already put aside) was split by 5.

Amen brother.
We haven't had to write that check yet, and I hope we will have cash on hand for it when its time. But all the other maintenance bills and a couple upgrades sure are nicer when you have 3 other people to split it with.

Those little 1-2amu fixes, that seem to happen once a year, are much nicer.

With the way the cost to fly continues to ever increase faster than most wages shared ownership (clubs and partnerships) make more sense for most of us normal people.

 

[DoubleD]

You've gotten some good advice here. A partnership is a lot like a marriage. Make sure you're compatible or the tightest agreement won't make it work. "Compatible" includes financially as well as personality types and expected use pattern for the airplane. You want partners who can disagree without be disagreeable and who don't try to bully the other partners.

As for the agreement, think through what happens if someone dies, how someone gets out of the partnership, how new partners are brought in, all the "what if's" you can think of.

I've been in partnerships, with changing memberships, in four airplanes over the years and all have been great. Partners become friends and you usually have someone to be IFR safety pilot for currency.

 

[weilke]

You've gotten some good advice here. A partnership is a lot like a marriage. Make sure you're compatible or the tightest agreement won't make it work. "Compatible" includes financially as well as personality types and expected use pattern for the airplane. You want partners who can disagree without be disagreeable and who don't try to bully the other partners.

I compare the bylaws or operating agreement with a pre-nup. If everything goes well, nobody remembers where their copy is stored. If you ever have to pull out that dusty envelope, you are probably in trouble.

 

[Bill]

I compare the bylaws or operating agreement with a pre-nup. If everything goes well, nobody remembers where their copy is stored. If you ever have to pull out that dusty envelope, you are probably in trouble.

We started out with just me and another guy. Then, as our families grew and we flew less, we added a third, and then a fourth. The only times I've looked at the partnership agreement contract is when we've updated it to add the new guys. It runs smoothly.

And, now that I'm only shelling out 1/4 of the fixed costs, I'm willing to let it ride for a while to see how the drivers license 3rd class thing pans out. If it doesn't, I'll probably end up putting my share up for sale.

 

[kenjr]

one big thing to watch for when setting up partnerships is, what does each member want in an airplane. partnerships can get real ugly when you get a partner or two who want to upgrade to the newest and greatest thing that comes out. you end up with a partner or two who is happy with a nav/com and a transponder and then you get a couple of partners that think you need a 530waas with a total glass cockpit. Ive seen plenty of partnerships break up over that situation.

That's a big one. Also make sure everyone has a similar mission. Ask to look at whatever their scheduling tool is over the last year or so (with current partners) to get an idea of availability...not that that's going to necessarily be a leading indicator, but you get some idea. Our partnership prioritizes 'real' flying over 'training'. So, if someone is working on a rating they just can't tie the plane up for months because they need it every Saturday for a few hours so you can't take your trip. Ours is a LLC with the plane as an asset of the corporation. Everyone owns shares, we have voting rights, etc... I got lucky and ended up in a great partnership my first time around. It's been awesome. I've learned a ton from some more experienced pilots so that when I own my own plane outright someday I don't make the rookie mistakes. Best part is annuals, maintenance, etc... is all split equally. Out of pocket per month is a bit over $100 for insurance, hangar, etc... We do $15/hr into the TBO engine fund and leave the plane full of gas for the next person...so it's an easy start up and go. The 235 is a mule so there are rarely times when you can't carry all the gas and get what you want in there. As the saying goes with the 235's and Cherokee 6's...if you can get the door closed, you're good.

Good luck!

 

[dans2992]

2-3 members is the sweet spot. I'd say it's not _required_ that you all have the same mission. One of our partners goes for a $100 hamburger occasionally, but I'm flying it on trips quite often. Works out fine (for me).


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[SkyDog58]

I would not think that everyone having a similar mission would be a consideration. What would be a consideration for each potential member to take into account is if the selected or proposed aircraft fits their individual mission. One aircraft could fit several different missions.