Partnership info you'd be willing to share

[PMcClure]

However you do it, it seems important to have a rainy day fund set up and funded. Without it, every decision will be a discussion and potential disagreement.

Some costs are fixed and some costs are variable. To me, it seems logical to keep those separate. All partners pay fixed expenses based on ownership share (or agreement)  and then pay for actual use (fuel and hours). There is less to argue about that way and you don't have to care much about the flying or fuel purchasing habits of other partners. 

Some like simple, some like to track details. Having a system that works for all the partners is what matters. Plenty of room for things to go wrong, no matter what the system is. Some people can't be in a partnership and its important to weed that out before you get in with one. 

Sometimes I miss the partnership I had in the F. Good times and lots of experience to learn and share. For a new or financially challenged owner, partnerships can be great. But if the people or goals are mismatched, there are a lot of trouble spots.

[Jerry 5TJ]

30 minutes ago, teejayevans said:

I think if all the partners fly 200 hours a year, the partners would have too much scheduling conflicts and you would be racking up the hours.

Two of us flew our plane 1300 hours in 4 years.  Few schedule conflicts & none that we could not settle amicably in seconds.  

Good utilization drives down costs; we bought the thing to go places and were happy to "rack up" hours.   

At year end we settled up the accounting to within an AMU or so.  Annual direct operating cost of 350 hours was about $100,000 so that was within 1% and good enough for us.  

Our focus was on safety and utility and not on pennies.  It worked for us.  

Best luck in your partnership!  

 

 

[yvesg]

Many years before I fully owned my M20, I was on a partnership that has I think the best system. We used a "virtual" account which had entries made in a book staying in the aircraft. Detail on who owns what to whom were added to the book when for example, one would fill the aircraft to 52 gallons. Air time was used to split the amounts each were accountable for. FBO fixed costs were also entered in the book. Annuals and insurance costs were splitted equally. Engine overhaul reserve was virtual too, essentially when one would sell his share or the engine needed overhaul, this would trigger a settlement where the pilot who flew the most hours would pay $X dollars to the other(s) for the hour difference.

The nice thing about this is that you do not need to leave money in a bank account... you pay when payment is required. The negative aspect is that you need to trust your partner(s) because if he bails out you could be stuck with all that is due however a strong partnership agreement can mitigate this.

Yves

[Bob - S50]

23 hours ago, N6758N said:

The other good thing about a wet rate as previously mentioned is that it benefits the airplane when cheap fuel is purchased. Any fuel that we buy that is less than $6/gallon means the airplane makes money, which means the rainy day fun is always growing. I would rather have the airplane have a larger bank account for when it is needed than to fly around trying to save myself money on gas. I guess the more partners, the more complicated. I like just having the one, keeps things simple. 

I agree there needs to be reserve funds.  We get there through our dues, not hourly rate.  We have two reserve accounts (in one account, but separate on paper), an allocated account used for engine, prop and magneto overhaul as well as oil changes and other 'use' related items like spark plugs and tires.  That money comes from hourly charges.  Use the plane, pay into the account.  Our unallocated reserve account comes from our excess dues.  That's used to pay for annual, insurance, hangar, etc.  Stuff we have to pay for whether or not we fly the plane.  We also use that fund to pay for unexpected repairs like avionics that break as well as for upgrades like our GTX345 and our planned install of Cies floats.  I'll also try to talk my partners into replacing our TC with a G5 some day.  If our unallocated fund is under $5000, we pay $250/month.  If it is over $5000 we pay $200/month.  Even at $200/month we put a little in the fund each month.

Different strokes for different folks.

[N6758N]

Just now, Bob - S50 said:

I agree there needs to be reserve funds.  We get there through our dues, not hourly rate.  We have two reserve accounts (in one account, but separate on paper), an allocated account used for engine, prop and magneto overhaul as well as oil changes and other 'use' related items like spark plugs and tires.  That money comes from hourly charges.  Use the plane, pay into the account.  Our unallocated reserve account comes from our excess dues.  That's used to pay for annual, insurance, hangar, etc.  Stuff we have to pay for whether or not we fly the plane.  We also use that fund to pay for unexpected repairs like avionics that break as well as for upgrades like our GTX345 and our planned install of Cies floats.  I'll also try to talk my partners into replacing our TC with a G5 some day.  If our unallocated fund is under $5000, we pay $250/month.  If it is over $5000 we pay $200/month.  Even at $200/month we put a little in the fund each month.

Different strokes for different folks.

Everyone does it differently and as long as it works well than stick with it. I like your idea of the monthly fee that changes depending on how much is in the account. The problem with my setup is that if the airplane doesn't get flown a lot then the funds take a long time to grow in the account. 

[flyboy0681]

Just now, N6758N said:

Everyone does it differently and as long as it works well than stick with it. I like your idea of the monthly fee that changes depending on how much is in the account. The problem with my setup is that if the airplane doesn't get flown a lot then the funds take a long time to grow in the account. 

I agree that it is an interesting approach.

[salty]

On 12/20/2016 at 10:27 AM, PMcClure said:

The way we ran our F was as follows:

4 partners - 2 regular fliers and 2 part timers. 1 partner was responsible for keeping all the records and communication the status of accounts. One partner was responsible for maintenance on the bird. The other two flew less than 1 hour per month and helped with annuals, washing, etc...

Everyone paid a monthly overhead fee - about $150-$200 per month. That paid all overhead costs (Taxes, hangar, insurance, etc...). This was adjusted each year. 

Everyone bought their own fuel and left the plane as the found it. Usually we left it at 50% full. If something was wrong with the fuel truck, etc... we just took care of it the next day. 

We paid a major maintenance and overhaul fee of $20/hour. That was kept in reserve for... major maintenance and overhaul! At the time I got out, we had over $20,000 in reserve. I heard they just replaced the engine last year and the fund paid for almost all of it. 2 partners had access to the account. Any out of pocket expenses were reimbursed by the accounting partner. 

From time to time, we would agree on additional assessments for planned upgrades, etc... This was a little tricky to handle with the part time fliers. But generally we worked it out. For example, we put in a $12k A/P and the two active partners paid for it and reduced the equity of the other two by some. 

If someone wanted to take the plane overnight, they just let the partners know. Special requests for holidays were written on a white board in advance for others to consider. 

No written agreement, no hard schedule. No LLC. Just 4 good ole boys trying to make it work. Never had an argument or a problem. 

I got a lot out of this partnership. Friendship, experience owning an aircraft, cheap flying ($60/hour all in), easy access to a plane, etc... Eventually one of the part timers moved away and the other regular partner picked up his share. I sold my share to a new pilot and move on. The F model value and partnership arrangement limited upgrades that I wanted. 

More than the money or documentation, I think the most important thing is to know who you are getting into a partnership. If one guy is a jerk or deadbeat, a contract will help handle him. But ideally, the partnership should work naturally. If I were to do it today, I would be a little more concerned about liability than I was then. However, an LLC or corporation doesn't give you as much coverage as you thing. Having insurance and making sure you are covered to limits allowed takes care of most things. 

 

So if one partner in a four way buys out another, how do things like hangar fees and annuals get split up? That makes him a 1/2 owner right, so does he have to pay half those expenses? That doesn't really seem fair. 

[Aerodon]

Almost all of my planes have been in partnerships, and I had a 20% share in a Seneca which cost me less than my friends wholly owned C172 - including all the fuel and maintenance.  5 partners sound a lot, but all it takes is one who is relatively inactive, two business flyers, two weekend warriors and the booking conflicts are really low.  The plane flew 150-200 hours per year, so all the maintenance including the annual was treated as a variable cost.  The fixed costs are divided equally - you are paying to have a plane standing in the hangar ready to use, whether you use it or not.  There is an argument that the annual inspection should be in the fixed cost too.

Splitting maintenance pro-rata to the hours in a year can be very unfair.  All it takes are for any one of the following to happen:  magneto failure, vacuum pump, starter, top overhaul, autopilot repair, gear overhaul and then the hourly charge is ridiculous.  I buy into the argument that a plane not flying requires as much maintenance as a plane flying 200 hours a year.  So the guy flying a lot is not really causing more maintenance than the guy not flying.

We charged ourselves a 'commercial rate' for tax and business reasons.  There are occasions when pilots can be reimbursed for travel expenses, and its much easier to pass on an invoice for $xx for 'aircraft use' in the same way as you would present an invoice for 'car use' or an airline ticket.  

Aerodon

[RobertGary1]

Sometimes people see a partnership as an inexpensive way to fly. But its important that they all know the worst case situation. I lost the engine in my F a couple years ago with 1000 since factory new (about 15 yrs old). There was no usable core. It adds about $15K-$20K to the cost of an "overhaul", plus prop, gov, oil cooler, etc all had to be overhauled to remove debris. I ended up buying a factory reman outright from Lycoming. 

 

I have a couple partners in my Bonanza. Worked well for years but this year had two gear ups so we're folding.

 

-Robert

Edited December 21, 2016 by RobertGary1

[PMcClure]

10 hours ago, salty said:

So if one partner in a four way buys out another, how do things like hangar fees and annuals get split up? That makes him a 1/2 owner right, so does he have to pay half those expenses? That doesn't really seem fair. 

That partnership always was considered 4 places. In the case when one partner bought out another, they picked up their share of fixed expenses too. You are right, it isn't fair. But it was his choice instead of allowing another partner in. I think that partner was angling to take full ownership or at least half in the long run. We had an up front conversation with him that his 50% share didn't trump other owners rights, which was fine with him.  We just worked everything out. 

In the case where we paid for upgrades, and another partner didn't, we split equity but not fixed expenses. 

[Bob - S50]

23 hours ago, salty said:

So if one partner in a four way buys out another, how do things like hangar fees and annuals get split up? That makes him a 1/2 owner right, so does he have to pay half those expenses? That doesn't really seem fair. 

That's why we allow unequal ownership.  I own a bit over 40% while the other 3 each own a bit under 20%.  We all get equal access and an equal vote in decisions.  We all pay the same fees.  The only difference is when we decide to quit and sell the airplane.  When that happens, each owner gets a share of the sale price in proportion to their ownership percentage.

[DonMuncy]

17 minutes ago, Bob - S50 said:

That's why we allow unequal ownership.  I own a bit over 40% while the other 3 each own a bit under 20%.  We all get equal access and an equal vote in decisions.  We all pay the same fees.  The only difference is when we decide to quit and sell the airplane.  When that happens, each owner gets a share of the sale price in proportion to their ownership percentage.

If I were you, I would be trying to get the other owners to buy your shares up to the point you have equal shares  It looks like what you have is a larger share of a decreasing value asset; based on the belief that when you factor in maintenance and improvements, you will never get your full investment back out.

If I were the other guys, I would be very quiet. They have all the "value" you have with a smaller investment.

I'm sure someone will tell me if my thinking is erroneous.

[salty]

9 minutes ago, DonMuncy said:

If I were you, I would be trying to get the other owners to buy your shares up to the point you have equal shares  It looks like what you have is a larger share of a decreasing value asset; based on the belief that when you factor in maintenance and improvements, you will never get your full investment back out.

If I were the other guys, I would be very quiet. They have all the "value" you have with a smaller investment.

I'm sure someone will tell me if my thinking is erroneous.

I agree. It doesn't make sense to me. It's the same thing the other way, if I have 1/4 share I just sell half my share to someone, pocket the cash, and my recurring expenses are cut by half and I get the same benefits until the partnership ends and we cash out. 

I see no value in owning more than an equal share unless it gives you priority usage and control on changes to the plane. 

Ill take a 1/100 share please. 

[ArtVandelay]

If I were you, I would be trying to get the other owners to buy your shares up to the point you have equal shares  It looks like what you have is a larger share of a decreasing value asset; based on the belief that when you factor in maintenance and improvements, you will never get your full investment back out.
If I were the other guys, I would be very quiet. They have all the "value" you have with a smaller investment.
I'm sure someone will tell me if my thinking is erroneous.

That's a negative attitude, maybe it's an "appreciating" asset!

[peevee]

We pay 200 each a month for fixed costs and 90/hr dry for mx fund. We protect the engine reserve and won't go below our required engine fund. We leave the airplane at 25 gallons a side per the wing gauges. 

Form an llc

Write an operating agreement 

Agreement spells out all of this, llc owns airplane, members own shares in the llc. I think I offered to send copies of the documents last time this was asked. 

Edited December 22, 2016 by peevee

[eman1200]

37 minutes ago, peevee said:

We pay 200 each a month for fixed costs and 90/hr dry for mx fund. We protect the engine reserve and won't go below our required engine fund. We leave the airplane at 25 gallons a side per the wing gauges. 

Form an llc

Write an operating agreement 

Agreement spells out all of this, llc owns airplane, members own shares in the llc. I think I offered to send copies of the documents last time this was asked. 

thanks peevee.  I'll pm you my email address, I wouldn't mind taking a look at your docs.  I feel like I have a much better handle on the operating agreement, although every little bit helps. 

[carusoam]

It's interesting to see how some people's priority isn't the dollar value of the plane as much as it is the ability to fly the plane.

this can happen when 50% or 25% of the asset isn't a giant chunk of the owners other assets.

25% of a 50AMU plane. 12.5 AMU

50% of the same plane is 25 AMU

Once your house is paid for, kids have moved out and retirement plan is in place,  the unevenness of the capital put into this plane is small for a guy that has good partners...

This is my understanding of how a good partnership can be used.  Some good partners may be more financially sensitive.  Some less...

when seeking partners, consider getting an engineer, a pro pilot, and a third talented person from another area.... like someone good with finance and accounting....

Best regards,

-a-

[salty]

4 minutes ago, carusoam said:

It's interesting to see how some people's priority isn't the dollar value of the plane as much as it is the ability to fly the plane.

this can happen when 50% or 25% of the asset isn't a giant chunk of the owners other assets.

25% of a 50AMU plane. 12.5 AMU

50% of the same plane is 25 AMU

Once your house is paid for, kids have moved out and retirement plan is in place,  the unevenness of the capital put into this plane is small for a guy that has good partners...

This is my understanding of how a good partnership can be used.  Some good partners may be more financially sensitive.  Some less...

when seeking partners, consider getting an engineer, a pro pilot, and a third talented person from another area.... like someone good with finance and accounting....

Best regards,

-a-

True. A plane is not something I wouldn't consider an investment. I'm in it to fly it, not to earn equity. 

[peevee]

9 minutes ago, carusoam said:

when seeking partners, consider getting an engineer, a pro pilot, and a third talented person from another area.... like someone good with finance and accounting....

 

Good luck with that. It's not like I have any QUALIFIED pilots interested in buying the last partner spot in our group beating down my door, let alone people in differing backgrounds.

[flyboy0681]

1 minute ago, peevee said:

Good luck with that. It's not like I have any QUALIFIED pilots interested in buying the last partner spot in our group beating down my door, let alone people in differing backgrounds.

Which is an interesting point. Buyers don't come along every day and getting out could be a very long process. I have a feeling that one of my partners is going to attempt to sell his share very soon and not sure he knows what he will be up against. If anyone knows of somebody wanting to buy into a hangared 1983 "J" based out of South Florida equipped with a GTN750 and a zero time overhaul (literally zero time, was just installed this week), drop me a PM.

 

[eman1200]

12 minutes ago, flyboy0681 said:

Which is an interesting point. Buyers don't come along every day and getting out could be a very long process. I have a feeling that one of my partners is going to attempt to sell his share very soon and not sure he knows what he will be up against. If anyone knows of somebody wanting to buy into a hangared 1983 "J" based out of South Florida equipped with a GTN750 and a zero time overhaul (literally zero time, was just installed this week), drop me a PM.

 

I visit my parents once or twice a year in boynton beach.  could I reserve those weekends in advance? 

[flyboy0681]

2 minutes ago, eman1200 said:

I visit my parents once or twice a year in boynton beach.  could I reserve those weekends in advance? 

If you want to buy a 1/3 share and fly it twice a year, that would be fabulous!

The plane is based next door in Boca Raton, how convenient is that?

[peevee]

1 hour ago, flyboy0681 said:

Which is an interesting point. Buyers don't come along every day and getting out could be a very long process. I have a feeling that one of my partners is going to attempt to sell his share very soon and not sure he knows what he will be up against. If anyone knows of somebody wanting to buy into a hangared 1983 "J" based out of South Florida equipped with a GTN750 and a zero time overhaul (literally zero time, was just installed this week), drop me a PM.

 

Hell, if anyone wants a quarter share in a gorgeous all glass rocket with dual aspens, jpi 900, ifd540,  new interior and great paint in Denver hit me up. Problem is you need some experience under your belt. The buy in is very low for what you get. 

Edited December 22, 2016 by peevee

[RobertGary1]

5 hours ago, peevee said:

Form an llc

 

Check with an attorney in your state.  In California any llc operating (regardless of the state of formation) pays a min $800/yr in franchise tax.  Could be a big hit if you didn't expect it. 

-Robert

[eman1200]

19 minutes ago, RobertGary1 said:

Check with an attorney in your state.  In California any llc operating (regardless of the state of formation) pays a min $800/yr in franchise tax.  Could be a big hit if you didn't expect it. 

-Robert

if it's $800 in Cali I would expect it to be roughly $50 anywhere else in the country.

while I half kid, and am not sure the actual tax rate in NC, I have accounted for taxes in my mock expense spreadsheet.