Partnerships for those seekingto buy airplanes can be the solution to aircraft ownership for some, while for others theyare nothing but trouble from the very first day. Why do some succeed and others fail? Thereasons vary with the individuals involved, but the problems with most unsuccessfulaircraft partnerships usually revolve around money and scheduling the use of the airplane.Often those problems occur because little thought was given to the operation of thepartnership before it was begun.
The more partners you have in an airplane the harder it is to get along. Generallyspeaking those who fly for business want to use the airplane during the week while thosewho fly for pleasure, with some exceptions, are usually weekend flyers. That can work outgood for a two-partner operation where you have few conflicts regarding the scheduling.But, this type of partnership can run amuck when it comes to paying for the use of theaircraft especially if one of the partners puts more time on the airplane than the other.
For example, the business partner is likely to put far more hours on the airplane thanthe pleasure flyer. If the partnership is arranged as a “split,” where everyonepays for their own fuel and the rest of the expenses are split down the middle, thepleasure flyer is likely to take it on the chin, at least until he or she gets wise towhat is going on.
When a partnership is begun some accommodation must bemade for hourly use if the partners do not expect to fly an equal number of hours peryear. Probably the easiest solution is an hourly charge based on the direct operatingcosts of the airplane minus the cost of fuel which each can pay for as it is needed.Engine and propeller reserves should be included so the partner who flies the most ispaying the appropriate share of the depreciation on those items as it occurs. Somepartnerships treat indirect operating costs (like hangar and insurance) the same way,while others do a split on those items.
Some partnerships are not an equal split among the owners. I ran across one recentlywhere three people carved up the ownership of a Cessna 210. One person owned 60 percent,another owned 10 percent, and a third owned 30 percent of the aircraft. The person whoowned the 60 percent share flew the most.
The ownership breakdown does not have to affect the hourly cost of operating theairplane, though this type of partnership may have some restrictions on how many hours peryear each partner may fly it. That’s a very difficult breakdown to do in advance becausedeciding who is entitled to a given number of hours can remove the flexibility ofownership. And how do you guarantee that at the end of the year the percentages work outright?
Another way of looking at an asymmetrical ownership arrangement is that each partnerpays his or her percentage when the aircraft is purchased, pays for the hourly use of theairplane as he or she flies it, then splits the proceeds from selling the airplane whenthe partnership is dissolved according to the percentage of ownership. That seems to workas long as one of the partners doesn’t fly the airplane so much more than the others thatthe sale price of the airplane is affected.
Let’s say the Cessna 182 fleet averages 130 hours per year. Ifyour Cessna 182 averages 200 hours per year over its life there will be a”high-time” deduction from its value when an appraiser evaluates that airplane.If one partner contributed more than the others to the high average the partners may electto divvy up the high-time deduction according to the number of hours each flew theairplane rather than according to the percentage of ownership. The person who flew themost would wind up paying a percentage of the deduction to the others to compensate themfor the extra depreciation.
It’s in calculating items like this where partnerships often go astray. If one partnerfeels he shouldn’t pay more than the others, bad feelings can erupt into big problems thatwind up with the partnership dissolving. I remember one potential partnership that wentbad when the insurance company stuck an extra charge on the bill because the lowest timepilot of the group had no experience in the airplane they were buying. The low time pilotcame into the partnership after the others had already done most of the calculations thatincluded an insurance quote. One of the original partners demanded that the low-time pilotpay the extra charge for the insurance since it was due solely to his lack of experience.That partnership never got off the ground.
Scheduling the airplane is often contentious inpartnerships. Weekends are “prime-time” for non-business flyers, and if somearrangement isn’t made to allow each partner weekend use, it won’t take long for thepartnership to fall apart. The best situation is a two-partner arrangement where one fliesmostly during the week and the other mostly on weekends. But when everyone wants to usethe plane on the weekends, watch out.
Even if a rotating schedule is established to determine which weekends each parner hasuse of the airplane, what if one partner winds up getting weathered out for three monthsin a row? We can’t do much about Mother Nature, but if that person doesn’t get to fly theairplane he won’t look too favorably on the partnership. There has to be flexibility builtinto the partnership to insure that each party gets to actually use the airplane areasonable amount.
So, how do you resolve problems like this? In my experience, the only solution is tofind partners who are attuned to each other’s needs. If one of the partners is skillful atnegotiating, he or she can often hammer out agreements that make partnerships work. But ifeach person has only his own interest at heart, then the partnership is probably doomedfrom the beginning.
Choose partners wisely
I have owned two airplanes with partners, and both partnerships worked out well. Oftenthe partners flew together, sharing the flying time. That is one potential advantage of apartnership. If you are looking for someone to fly with, and if your partner has the sameinterests you do, you’ll often get a flying buddy in the process.
It can be very difficult to find the right partner. You probably want to base yourairplane at a particular airport, but that might not be convenient for someone who isconsidering being your partner. Your usage patterns may conflict, or your maintenancephilosophies may be radically different. You should take the time to get to know anyoneyou contemplate as a partner to be sure that you understand the other person’s needs, andthat he or she understands yours.
You might meet someone who is looking for a partner,but wants a more complex or higher-performance airplane than you do. Don’t jump into moreairplane than you need or can afford simply because you have a partner for it. The costsof owning and operating the larger airplane are likely to create problems for you earlyon. Buying into a partnership, finding out that you are over your head, and then trying toget out of it will cost you money and grief all the way through the process.
Be careful about buying a share of an airplane where one person has owned it for a longperiod of time, and he is to be a partner. That person, while needing someone to help himdefray the costs, may not treat you like the owner you are. You should be very carefulabout negotiating exactly who is going to do what in that kind of a situation and expectthe other person to live up to the agreement he or she makes with you.
All agreements should be in writing. Verbal partnerships can be very tough to enforceif push ever comes to shove, because one person can always claim that he or she meantsomething other than what you understood. If the entire agreement is in writing, it isvery difficult for either party to backpedal when it comes to a financial matter or otherdecision that has to be made that will affect each of the partners. The agreement shouldbe as clear and straightforward as possible and leave no ambiguity about who isresponsible for what. It is always best to have a lawyer who is familiar with airplaneswrite the agreement around the partners’ desires.
Maintenance is another sticking point for some partnershipsbecause one party has a different view of the level of maintenance that should be done andwho should do it. Something as simple as an oil change can start a war between thepartners. If one partner is a stickler for making certain the oil change is done exactlyon time, while another thinks it’s fine to run a few hours past the time when it is due,friction between the parties may result. The same is true of work a mechanic is willing todefer during an annual inspection: if one partner wants to defer the work to later in theyear to avoid a large annual bill, while the other wants it done during the annual,problems may result unless a suitable compromise is made.
That’s why it is vital that you find a partner who shares your views on operating andmaintaining the airplane. Chances are that the first person who comes along and offers tobecome your partner is not going to be a match unless you have known that person for along period of time and are familiar with his or her philosophies regarding airplaneownership. You must take the time to understand how a potential partner views his role asyour partner before making an agreement with someone that neither of you will live with.
If you have several partners in an airplane and onewants to sell his or her share, there are several ways to go. Every partnership agreementshould state that the rest of the partners have the right to accept or reject a newpartner. If the rest of the partners decide to buy out the share of the one who isleaving, how is the value of that share to be determined? The agreement should specifythis.
I’m a professional aircraft appraiser, and for many years I have done appraisals oncertain partnership-owned airplanes every time there is a change of ownership. Thatprotects interests of all partners. The person selling the share doesn’t feel that he orshe is not being adequately compensated, and the rest of the partners will not feel thatthey are overpaying for the share. The appraisal reports the actual market value of theaircraft, and that number is divided by the number of partners involved (or the ownershippercentage in the case of an unequal partnership) to determine the real share value.
Some people think of flying clubs as large partnerships, and technically they may bejust that. But flying club airplanes can be just as difficult to schedule as an FBO’srental airplanes. Usually flying clubs will take on a certain number of members perairplane. In theory that is not a bad idea, but in practice it sometimes leaves people inthe lurch. If one of the airplanes in the club is newer than the others and has a greatinstrument and avionics package that the others lack, you know which airplane everyoneelse is going to be scheduling. It will be booked months in advance, especially forweekend trips. Some members get frustrated when they have to book the airplane three orfour months ahead to be sure of a weekend trip, especially when the long-awaited dayarrives and the weather is not suitable for flying.
Plan ahead, write it down
Partnerships can be a good thing for those who want to buy anairplane they cannot afford alone. But the partners must be flexible so that everyoneconcerned is happy with the result. When the bills come in is not the time to decide whois responsible for what. Those decisions must be made as the partnership is formed, andthey should be put on paper before the airplane is purchased. If it is necessary to definethe terms used in the agreement, do it…so later on one partner cannot say he or she didnot understand exactly what was meant by a certain paragraph. From there it is a matter ofliving up to the agreement that everyone has signed.
Most people entering into legal agreements intend to live up to them. But it doesn’ttake much for one person to get on another’s nerves over some minor detail that one is afanatic about. Each partner must respect the other’s viewpoints and some heavy-dutynegotiations may be necessary at the beginning to insure the rights of all the partners.In fact, the negotiating may continue throughout the life of the partnership if it is toremain healthy and viable.