how to value a 1/4 share mooney

[peevee]

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[carusoam]

I would expect that all partnerships are different.

You would want to get to know the other owners before getting your chunk of change melded with theirs.

First start with asking them how they are handling the finances already...

Are they building a war chest for engine OH and avionics upgrades?

If the engine and avionics are new, the war chest is empty.

If the engine and avionics are in need of OH or replacement, the war chest should be near full.

If you buy 1/4 share, are you buying a 1/4 of the war chest as well?

Or are they planning on talking about the expenses as they arrive?

Open conversation will generate less surprises...

What kind of PPI would you do to protect your wallet?

How does that sound?

Partnerships have many advantages. The accounting is definitely more challenging...

Best regards,

-a-

[carusoam]

How stable is the ownership?

Same three guys for the last five years?

Same MSC doing the annual for the last five years?

Know that all MSCs are not created equally. All ownership groups are not created equally...

Keep your eyes open for inconsistencies.

Reading the logs will give most of the details you are looking for.

Your PPI should be commensurate with your investment. 40 AMU is a pretty large chunk of change (for me). Having a lawyer review your ownership documents would probably be a good idea like having a mechanic review the logs...

Essentially you want to know that you are getting what you paid for. Knowing what that is, is worth a few bucks...

Are the owners on MS?

Best regards,

-a-

[Oldguy]

Some of the partnerships I have seen work with an equity purchase, base monthly expense and an hourly charge for each hour flown. The more you fly, the more you will contribute to the reserves. Fixed expenses (hangar, insurance, nav data, etc.) come out of the monthly charge and repairs, annuals and overhauls come out of the reserve.

 

One group has set up an LLC and it carries all of the assets with a value of which you purchase a portion to join.

 

AOPA has some information on partnerships and clubs on their site. It may be somewhat educational to review what they have and see if it might apply in your case.

 

John

[chrisk]

That's exactly how this runs. 200/mo and 80/dry I believe he said something like 50 goes to engine and I can't remember the rest. Stupid memory.

 

I've toyed with the idea of setting up a partnership.  Usually I get a little stuck on the per hour cost.  If it is to low, folks are not covering the cost of what they are using.  If it is to high, it encourages high power operations. And with a trubo, that can be 100% at 15,000 feet.  --which can cause extra maintenance expenses. 

[Danb]

Agreed re. The Llc just have a lawyer review the documents and members agreement to ascertain that there are no flaws in the paperwork, unfortunately these are similar to marriages and the breakup could be difficult ..the reasoning to make sure the agreement covers withdrawals etc., a client and good friend of mine had an awesome partnership within an Llc sadly his partner got cancer and passed ..there was much difficulty dealing with the widow and estate since there were no concrete terms for many unfortunate occurrences...he ended up having to sell an immaculate bonanza a36 turbo normalized glass, tks etc..I believe it was a 1980 Model..it happens..

[Piloto]

One limitation of sharing is plane availability. Specially during holidays like Thanksgiving and Xmas were partners may want to use the plane for a week or so to visit relatives.

José

[Tommy]

Not advised unless you know them on a personal level. Not only you need to deal with the variables associated with the plane itself, you will also need to contend with people! Yes, humans!! All with their own strengths, weaknesses, and idiosyncracies! If you know them personally - and I suspect this applies to majority of partnerships - then you take out one big variable / potential surprise. Like aviation and almost everything else in life, it's all about risk mitigation! 

 

Personally, I much rather own wholly or rent. 

 

ps. Case and point, at my airifield there is an old Arrow shared by 4. One owner is planning to do his PIFR on it but the avionics need to be upgraded (costing approx $15K). The other owners refuse to chip in, claiming that none of them need all these bells and whistles. So in the end, he was forced to rent another plane for his training!

[Vance Harral]

We've had a partnership on our M20F for about 10 years that's worked very well, even though changes in partners (went from 3 to 4, back to 3, then back to 4).  Scheduling conflicts are almost non-existent.  That's partly because none of us does a lot of traveling, partly because we like to fly together, and partly just because everyone has always been very responsible about scheduling trips far in advance.  We do have an LLC, which I think is a great idea as long as you understand it provides "some" protection from the actions of others, as opposed to absolute protection.

 

When buying in to a partnership, I think some sort of PPI is a good idea, but I wouldn't go overboard.  Unlike buying an airplane outright, when you buy into a partnership, the seller(s) still have skin in the game.  The last time we added a partner, the new guy paid for a mechanic at a different airport who was completely uninvolved with the airplane to do a "basic" PPI (not a full annual).  He just wanted someone new to look at the airplane, which we all thought was reasonable.  That mechanic did squawk a couple of items (brake rotors and an exhaust riser) that our regular mechanic was OK with.  We agreed it was a judgement call, and paid for the rotors and riser to be replaced prior to closing the deal, as a gesture of good faith to the new partner.  As I look back on it, I think the value of the PPI to the new partner wasn't so much the inspection itself, but rather the interaction with us on arguable maintenance issues.  It was an opportunity for him to see our attitude about maintenance, and about working together in good faith.

 

The biggest question for me as an observer, frankly, is your concern with the buy-in price.  In my opinion, it's inconsistent with the long-term costs of operating a turbo Mooney.  At $200/month, $80/hr dry, let's say $50/hr fuel, that's about $9K/year for 50 hours/year.  And that's assuming $0 for "everything else divided by four".  More realistic to say your ongoing costs are going to be well over $10K per year.  If you're prepared for that kind of investment, then quibbling over a few grand on the buy-in price doesn't make a lot of sense.  Yes, I understand that money is money and you don't want to overpay.  But It sends a signal to the sellers that you may be tight on funds, and that you are definitely trying to optimize the deal in your favor.  That's not going to give them a warm fuzzy about you.  If you really like the airplane, and if you get a good feeling about the partners (which as others have said is the most critical item), I would pay their asking price simply as a gesture of good faith.  Airplanes are money pits that you buy into for fun, not investments.  If the partnership works out well - which is more likely if you're generous and cordial up front - I promise you won't care about a few grand one way or the other on the buy-in price when it's time to sell.

 

Just my $0.02 from a guy who has been fortunate to be in a great partnership for a long time.

[Aerodon]

I've seen a quarter share on a really nice k model for sale, it's got a pretty low time engine, fantastic avionics, and it seems the paint and interior are are nice but I haven't seen it in person. Intercooled and a merlyn wastegate of course.

 

I guess my problem is trying to figure out if they want too much for it. K prices vary from about 75k asking up to some I've seen asking 110 or 115k, this one is definitely on the top end of the asking price if you times the share by four.

 

Of course the low cost planes have 1700 or 1800 SMOH and the higher have lower time, this airplane is pretty low time on the engine and I can only assume an existing engine reserve, and would have to see the financials of course. So do I just figure it as a zero time engine since the first however many hours are paid for?

 

I really don't know how to figure out if it's a fair price or not, other than if I'm willing to pay that much for it I guess, but if I need to get out of it for some reason, I don't want to be the only sucker willing to pay that much.

 

Anyone with more experience with partnerships have wisdom they can share?

 

Peevee,

 

I've owned shares in several airplanes over the years with very few problems.  Availability is not much of a problem, even with a plane that flies 200 hours a year and that is rare.  Especially if the partners are complementary, say one guy who flies alone during the week, one guy who flies weekends, one guy has another plane to fly etc.

 

Value is pretty easy to deal with - do a thorough market search and see what similar planes go for, use Vref to make adjustments for TT and SMOH etc.  Arrive at a price that you would be prepared to pay outright, then divide by 4.  Add subtract current assets and liabilities (i.e.. if you've decreased the base value because of high engine time, now you add back the engine reserve).  There is some less tangible value like the costs of setting up the LLC, and the fact that it is all up and running.  Last one in generally has it all done for him, and the lowest risk.  I would pay more.  Don't lowball the current owners - the current owners are probably taking a big hit due to the decrease in A/C values over the last 5 years, don't insult them by taking another 10% off - you have to live with them.  Do your homework properly, and be prepared to show comparables and how you arrived at the number.  If you are close - move ahead you'll get your value out of flying lots.  If you are far apart - keep looking.

 

Where does the money go - to buy a partner out, to fund the plane or to each of the current shareholders?

 

Get an up to date financials - I bought into a share once and a whole lot of unpaid bills surfaced.  I was to complicated and I was too naive to stick it straight back to the existing shareholders.  There were a whole lot of things that should have been divided by 3 instead of 4. 

 

Don't worry too much about the PPI if you are joining an existing 'stable group' - get the existing shareholders to sign a disclosure both on the financials and the technical status - no known technical issues, all AD's up to date.  Have a discussion of what they think the pending maintenance issues are, and future upgrades etc.    Get enough of a purchase agreement that if the engine dies next year, and it turns out that they knew compressions were low and the mechanic had told them about it at last annual…

 

Get creative in a good way - if the plane is worth $90k, offer $30k to be paid into the LLC as new share capital, use $15k for avionics upgrade, $5k for next years operating costs (insurance, hangar, annual etc.) and the balance to be held as an engine reserve?  

 

OK, now I see you are buying a 4th guy out - much of the same applies, except its harder to deal with liabilities that popup.  So be a little harder on the share price - you are not going to offend the remaining 3, especially if you keep the number confidential.  Make sure 'the group' provides a current financial position, so they are on the hook.

 

Regards,

 

Aerodon

 

 

Don

[cujet]

I've worked in general aviation for nearly 30 years. In that time, only a handful of partnerships were truly good ones. Most were troublesome. 

 

In particular, it's common for existing partners to want more than the share is worth, and to be rather unwilling to negotiate. 

 

A local Cessna 177RG partnership was advertised/sold at $25K 1/4 share. The aircraft "might" have been worth $60K. More likely in the mid 50's. To make matters worse, the partnership charged $70/hour dry, to cover various expenses. The maintenance was coordinated by a founding member of the partnership and was performed at the local (most expensive, by far) shop. OK, fine, it's too expensive, we understand....

 

What happened is that the members also ignored a faulty gear warning horn. Eventually leading to one of the members cutting the wire on that annoying horn. Unknown to another member, the gear warning system was inoperative and the aircraft was landed "gear up", ruining the prop/engine and leading to a "total" insurance claim. The payout was enough to pay for Cherokee. So, all members paid too much, one member lost his FAA certs for cutting the wire, another is in trouble for failing to lower the gear, and all members eventually ended up with a less capable, less valuable plane. 

 

This story is not at all uncommon. 

 

Netjets is another great example of a partnership. 1/4 share costs 1/3 of the "list price", and after a few years the aircraft have so many hours they are worthless. Our Citation 10's 1/8 share actually cost per hour, as much as operating our G550. 

 

I'd argue that one is better off owning a slightly less capable aircraft, outright. Knowing his aircraft well, performing prev mx himself (if mechanically inclined) and buying/selling well before the aircraft becomes worthless. Or simply joining a quality flying club. 

[Cris]

It's been many years since I was in a partnership but except for the fact that you are relying on others and their good will as opposed to just ones self it can be an enjoyable and educational experience. As an example you have partners that can fly with you for training as well as the $100 hamburger. The financial issues in partnerships are usually related to unknowns which can and should be spelled out in the partnership agreement. For instance is the aircraft required to be maintained "IFR" including updates like the 2020 ADSB. What are the options for assessments and what happens if a partner decides they will not pay?

With that said my experience is that the sum of the parts is worth less than the sum of the whole. One reason is simply the market. How many folks in your area are willing to purchase a share of an A/C specifically that A/C as opposed to the market nationally that will purchase a whole airplane. This is simple supply and demand at work. Also the partner presumably sets their own price and that is negotiable and really does not effect other partners unless the agreement states something to that effect.

In the end partnerships can and should be great. it just means setting your expectations appropriately and having a well written agreement compete with a dispute resolution clause and a buy / sell clause.

[TTaylor]

I have been in several partnership and found it has worked well.  Good agreements are essential but it is nice to have others to share the costs with and ensure that the plane flies regularly.  Part of the decision comes down to your mission and personality type.  How many hours per year do you plan to fly and at what times of the year?  Can you see the plane as an asset and not as your personal toy?   Many will argue that the only way to go is owning the plane by yourself, but for some this is not a good idea just because they don't fly enough.  I have four partners and the plane barely sees over 100 hours per year.  When several of my partners bought in they were concerned about having access to the plane enough yet they only have flown 10 to 20 hours per year.  Every month each partner pays into our fixed cost account and that means that I can fly the plane and keep it in a hangar for about $150 per month fixed costs for annual, hangar and insurance plus a little for upgrade account.  We have a dry cost plus fuel.  We have a fuel monitor and change based on actual fuel used to encourage efficient use of the plane.  I own a glider as well so for me the Mooney is a tool to travel long distances so I don't take it out to do the $100 hamburgers.

 

I would value the share just like the plane at 1/4 the airplane plus 1/4 of any funds in the accounts.  Never pay more than it is worth.  The nice thing is you are only looking at a few thousand either way on value estimates rather than 10K if you bought it yourself.  If something major goes out you are in for 1/4, you want to upgrade and you have like minded partners it is 1/4 the cost.  Critical is talking with the potential partners to see what their vision is for the airplane.  Upgrades and aviaonics can be expensive, this is one area where friction can grow.  One partner likes VFR with a tablet and the other wants a full IFR glass panel.  Have a group with similar financial backgrounds will help to keep the expectations on similar grounds. 

 

Prebuy is likely not necessary depending on how long the group has owned the plane.  If they have had it for several years I would talk to the mechanic that has done the last few annuals and go through the log books.  You might spend a day and open up several of the access covers if you are familiar with what to look for in a Mooney. 

 

We use PilotSchedule to schedule the plane, it is free and works well.  Having as approved plan for priority usage will make things go smoothly in the long run.  Overall, don't be afraid of a partnership, it can be a great way to fly and keep the overall costs reasonable.  It is nice when it comes to annuals because there are more hands to open panels if you do pilot assisted annuals as well.