Eye of Experience #41:Strategies for Aircraft Ownership

Over the years I have been a sole airplane owner, been involved in a two-person partnership in owning an airplane, and been in another partnership of four people that owned two airplanes. I have also belonged to several airplane ownership clubs, and I've been an airplane renter. I think this probably qualifies me to speak with "the voice of experience" in discussing the advantages and disadvantages of each form of aircraft ownership.

Sole Ownership

Unless you have a business use for an airplane, enabling you to write off a substantial portion of the expenses involved in owning an airplane, or unless you plan to fly it more than 150 hours per year, there is simply no way than owning an airplane can be justified economically. It is much cheaper to rent.

Of course, the factor known as "pride of ownership" may come into play. This is the element that some people use to justify expensive toys. And I've heard individual owners attempt to justify sole ownership of an aircraft on the theory that the airplane is always there when they want it, or that they know precisely how it has been flown ("only by me") and maintained ("per my instructions"). But no matter how the individual owner attempts to kid him or herself, single ownership simply cannot be justified financially unless the owner has a business write-off or operates the airplane a minimum of 150 hours per year.

I once indulged myself with an expensive toy. I bought a classic Mooney Mite (Model 18C) and had a lot of fun flying it all of 15 to 20 hours per year. Other kinds of expensive toys include float planes, gliders and aerobatic airplanes, as well as balloons.

Now don't get me wrong. There's nothing wrong with individual ownership if one can afford it. And you don't have to worry about what the last guy who flew it did with it, since you're the only one flying it. You also know exactly how it has been maintained. And of course the factor of "pride of ownership" comes into play. This is very important to some people. Again, there's nothing wrong with that if you can afford to indulge yourself.

Partnership

Depending on the people involved and the method by which it is structured, a partnership can provide exactly what a pilot wants or needs. However, an airplane partnership is almost like a marriage. The partners must be compatible in all respects. They must agree on the purchase of equipment, scheduling, maintenance, and a myriad of other details.

I have known successful partnerships set up so that each partner has total control of the airplane for one week at a time, alternating weeks. If one of the partners wants to take the airplane on a trip extending intro the other partner's week, he must first clear the time with the one who "owns" the airplane for that specific week. Others have much looser arrangements, merely requiring that the one taking the airplane notify the other partner that he or she is doing so and for how long a period. I've also known of partnerships in which one of two partners rarely flew, but underwrote 50 percent of the fixed costs, thus in effect subsidizing the other partner's flying. This, of course, is a good deal for one, but not so great for the other.

One of the problems encountered by many partnerships results from the fact that the partners may share many interests and thus both partners may want the airplane at the same time, causing scheduling conflicts. Of course, this works both ways, since with the partners having common interests, they may take trips together, even family vacations.

With a general partnership, you must be abundantly aware of the fact that each partner is responsible for the actions of the other(s). I know of an instance where one partner ran out of fuel, crashed, and killed himself and his passenger. The passenger's family sued the remaining partner (who had absolutely nothing to do with the event), and virtually wiped him out. He lost a thriving business as a result of the judgment, and this after the airplane's insurer had paid out the policy limits. In this case the victim's family was particularly vindictive because the passenger was a girl in her 20s carrying on with a 53-year-old married guy (the pilot). Unfair? Certainly, but that's the law ... and please believe me when I assert that there's no relationship whatever between law and justice. Nobody ever said that life has to be fair.

Before you enter into a partnership, you should know the other person or persons thoroughly. You must be in complete agreement with your prospective partners regarding matters of maintenance, upgrading of equipment, scheduling use of the airplane, all financial matters, etc.

Group Ownership (The Way to Go)

Finally we come to the only way in which aircraft ownership can be justified on an economic basis for the pleasure flyer who has little or no business-related use for an airplane - group ownership. Over the years I have been associated with several flying clubs in which each member owned a share of the airplane or airplanes, and each of these groups was quite different from each of the others in terms of membership, organization, etc. For example, in some cases the members actually own shares in the airplane or airplanes, while in others they set up a nonprofit corporation which owns the aircraft, and each member owns shares of stock in the corporation.

In the 1950s I was one of four guys who jointly owned two airplanes - a Beech Model 35 (the original Bonanza) and an early Navion - and it worked out very well. Of course, in those days, life was a good deal simpler - with very few lawsuits. At the same time, I was given a free membership in a club with over 150 members and four airplanes. They made me an honorary member and let me fly their equipment in return for checking out their members. (As I recall, their dues were $3.00 per month and they charged $3.00 per hour to fly the Cub and $4.00 per hour for the four-place airplanes.)

Then, in the early 1960s, after I had sold my own airplane and before I founded my flight school, I joined yet another club with 17 members and one airplane. Availability was no problem. Only two of us flew the airplane very much, so 15 other guys were subsidizing our flying. It worked very well for us. This is not an unusual situation. My experience indicates that availability of the equipment belonging to a flying club is rarely a problem. For the most part the members of a flying club have access to an airplane any time they want one.

Organization

I have been the "official" instructor for several other clubs, so I think I'm somewhat of an authority on flying club organization and operation. Although some flying clubs are sort of informal partnerships in which each individual owns a share of the aircraft, the most common form of organization is for the group to form a nonprofit corporation. The corporation owns the equipment (airplane or airplanes and associated equipment-powered towbars, tugs, or whatever). The members each own an equal share of stock in the corporation. The bylaws are carefully drawn to cover such things as dues, scheduling, engine reserve, general maintenance, etc. Usually the bylaws also contain provisions for just how a member may sell his share and to whom. Sometimes a departing member must sell his share to the club so the club can then select the incoming person to whom that membership may be sold.

I am aware of several such clubs that have been successfully operating for many years and they all have one thing in common: They all maintain a sound financial basis. One such club with three airplanes maintains a constant membership of 30 members. They charge themselves only a few dollars less than what an FBO charges for rental of a comparable airplane, and they seem to always have a waiting list of people wanting in. This one has been in operation for over 40 years that I'm aware of.

Another group that has been functioning for several decades consists of seven wealthy people who own a high-performance single-engine airplane. This group has relatively high dues, but the dues include one hour of flying time each month and it doesn't carry forward. The purpose of this is to encourage the members to fly at least an hour each month to ensure that they remain current. Others groups, such as the seventeen-member club to which I once belonged, don't care if the members ever fly. I think the minimum of one hour per month (on a "use it or lose it" basis) is an excellent provision. In order to avoid paying for an hour they don't fly, each of the seven guys in that group almost invariably puts in at least an hour per month, an easy and painless way to stay current.

Almost all of these flying clubs have general meetings of the membership at least annually, and many of them are quite active in the sponsorship of aviation safety meetings. Some plan and execute group fly-outs to interesting places, or just for breakfast fly-ins or for lunch.

The FBO Club

Some FBOs and/or flight schools have what are called "FBO clubs." When I founded my flight school, I set up such a club. I kept it simple by establishing an annual fee that enabled a student or renter to save money by flying 15 or more hours per year. In other words, once a member had flown 15 hours within his or her membership year, he or she was and is dollars ahead. Unlike some FBOs who hope their club members pay and don't fly, my purpose was to marry the customer to my school so that he or she wouldn't go elsewhere and rent airplanes from another operator on the same airport (which is home to several who rent aircraft). This has worked out quite well for both me and my customers; I have several members of my FBO club that have been members for well over 20 years and are still happily flying our airplanes.

Other Options

I have barely scratched the surface here of all the ways in which aircraft ownership may be accomplished. There are no doubt many other means by which one may own an airplane. For example, a pilot who owns a business may have the business buy the airplane, which he then flies for both business and pleasure. This arrangement is highly advantageous both in terms of liability and tax consequences. Incidentally, I once had an IRS agent tell me that if an individual claims a business deduction for a boat, they take a real close look ... but with an airplane (about which the agent is likely to know little or nothing), they will probably approve any and all business deductions.

The bottom line is this: Before considering aircraft ownership, one should examine all the options and choose that which fits his or her needs best.