Tuesday, October 21, 2008
Co-Ownership: Navigating Airplane Partnerships
Buying an airplane with a partner opens up ownership to any pilot. Do it right the first time
Incorporation: Forming a corporation is neither cheap nor easy, and might be overkill for a small group of co-owners. Still, the liability protection and tax implications are attractive to some. There are different types of corporations based on state laws, and each has varying fiduciary responsibilities. Incorporation is beyond the context of this article and should be researched with an attorney.
The Key To Co-Ownership: The People
Every pilot I spoke with cited choosing the right partners as the #1 key to successful co-ownership. “Ultimately, it’s the people,” says Lou Betti. “My partners are dedicated, professional and reasonable.” Betti is the owner and founder of DreamFleet (www.dreamfleet2000.com), which creates add-ons for Microsoft Flight Simulator. He’s one of eight owners of a Piper Dakota; because his experience with partners has been positive, Betti is now considering co-ownership of a Cessna 210.
Partners should be selected with care. They need to be individuals who are trustworthy and have a track record of integrity. You may need to run background and credit checks and call personal references. Too many co-owner arrangements have ended in dissolution because of simple things like how clean a partner is or how meticulous the person is about maintenance. Before entering into any co-ownership, ask yourself if you’re flexible enough to give a little here and there and to accept that not everybody will operate the airplane the way you would.
The Elephant In The Room
Insurance is one of the critical aspects of co-ownership. It covers the cost of the airplane if it’s damaged, destroyed or stolen. It protects your own assets if your airplane causes damage to someone’s property. An improperly insured aircraft can wipe out the life savings of all co-owners and create a lifetime of problems. Remember that all co-owners are liable for the actions of one.
“Don’t call your group a flying club,” says Bob Mackey, senior vice president of Falcon Insurance Agency (www.falconinsurance.com). “Bells and whistles go off, and insurance companies picture a bunch of guys and a clipboard on an oak tree with an airplane key hanging from it and nobody in charge.” He advises keeping co-ownership groups small. “From one to three pilots, there’s zero surcharge in insurance premiums. That can go up 10% to 20% with the addition of a fourth pilot, and up from there.”
In a co-owner group, insurance premiums will be based on the experience level of the pilot with the least flight time. Insurance companies give discounts if, for example, everyone in the group has an instrument rating. The thing to remember about insurance is that trying to save a few dollars by skimping on coverage is a recipe for disaster.
Operations & Written Agreements
Operating on a verbal or handshake agreement “among friends” is asking for trouble. Agreements can contain nearly 60 items that should be addressed, from arbitration to washing of the aircraft. The good news is that many successful groups operate with basic agreements.
Successful co-owners suggest certain starting points. The first is a joint checking account specifically for the airplane. All payables and receivables go through only that account. On a related note, it’s important to assign specific duties like bookkeeping and maintenance. Even in a two-person co-ownership, one person must keep detailed financial records of all transactions and keep an accurate eye on the group’s account. The maintenance person is the only one who can give approval for maintenance tasks or parts purchases.
Scheduling the aircraft is a main concern and should be a mechanism that’s accessible 24/7. Most owner groups use online scheduling solutions that range from free to low-cost. Places like www.schedule-now.net will set up an online scheduling system for $5.95 per month. Fuel options should be spelled out. Owners can either pay for their own fuel out-of-pocket, or pay into the group’s checking account based on their flight time, kept in a log. The flight log is an important tool and can be based on tach time because co-owners aren’t operating for profit.
Other items that should be addressed include whether co-owners will do owner-assisted maintenance, because prepping an aircraft for annual inspections can save a lot of money. Finally, a contingency fund is recommended to take care of unforeseen maintenance issues. There are several agreement templates online (for example, try AOPA’s free-for-members version at www.aopa.org/members/files/guides/multiple.html).
Two useful co-ownership references are Aircraft Partnership by Geza Szurovy and Buying and Owning Your Own Airplane by James E. Ellis. These books are excellent resources for both forming partnerships and for finding and buying the right airplane.
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