Sharing a plane with friends

[chrixxer]

There are a couple of guys at my home airport I'd like to help out a bit, and in the process help out my Mooney a little bit. (Planes like to fly, not sit...) (Also, other pilots kicking into the pot helps defray at least the fixed costs, insurance / tie downs / annual, etc.) The idea is, it'll be my plane, owned by an LLC that I will be the manager of. The other pilots (two, maybe three; two of them are CFIs (one has a ton of time in his dad's Ovation), one's a conscientious guy finishing his instrument rating) will be members of the LLC and, when I'm not using the plane, can fly it for whatever the operations cost is per hour, dry (budgeting 150 hours/year, building in maintenance reserve, engine reserve, prop reserve, etc). Kind of like a tiny, tiny flying club. (These guys all want to build hours, and this will be an economical way of doing that. The idea is to roughly break even, plus keep the moving parts exercised.)

Cribbing from rental agreements, I've drafted this Aircraft Operation Agreement. I'd love any comments anyone might have.

I'm a lawyer by trade, and I've seen these sorts of things end friendships if everything isn't spelled out clearly in advance. I've also seen friendships end for unrelated reasons, and the absence of a clear agreement in what would otherwise be a business relationship becomes messy litigation. So this may be overkill, but...

(This also doesn't address the LLC operating agreement, which will be separate but which will incorporate this document by reference.)

Any other tips or advice?

[Godfather]

IMO take out all the verbiage about Hobbs time. Use straight tach time and charge accordingly.  Treat it like a business instead of sharing between friends. I think you said the engine has low hours, if so and the overhaul is over a decade old be prepared to feed it a few parts as it transitions to a rental unit.  

I personally would not go through the pains of ownership unless I had one of the following...

-sole use of the plane

-all purchase and operating expenses divided equally between members (partners)

-profit from using my plane as a rental

 

To sum things up the only friend I would give permission to fly the plane would not need to be asked to return the plane full and would not be charged an hourly rate. 

[chrixxer]

This is an attempt to "spread the wealth" a bit (and kind of a tit-for-tat; through my relationships with these folks and a sympathetic business owner, I never had to pay 2-3 hour per-day minimums, cancellation charges when plans changed, etc., got to take my dogs with me on trips, etc., while renting). It's pretty close to sole use, in that I can bump them off up to a day in advance (there are plenty of rental planes in the fleet they can switch to if I exercise that option), and they'll contribute to the operating expenses and help offset some of the fixed costs. (I'm also using a tie-down spot on their ramp, since there's a waiting list for such at the airport at the moment.) Not looking for profit, and that's a whole other insurance category in any case. It's not going to strictly be a rental; again, more like a very limited membership flight club. They'll be nominal owners in the LLC, too.

It's through their relationships I have a good A&P/IA who will supervise a lot of work, and save me $$ in annuals and other maintenance. Likewise for avionics installation. In return, I can help them build complex hours for significantly less than what they're paying to rent, and without having to schedule around students/lessons/"full freight" renters.

The "ask to return the plane full" bit is the kind of stuff the lawyer in me wants spelled out now, at the outset, while everyone's still friends, in hopes of making sure we all stay that way. My boss is a partner in a plane with a guy he otherwise gets along with, who almost always parks the Cirrus with half tanks. Kinda sucks when you're set to leave on a multi-state cross-country and have to schlepp over to the fuel pit to top off beforehand. BTDT.

[BKlott]

Regardless of what the paperwork says, it really is all about the people. They either will work well together and make it a positive experience or they won't. 

My Dad (I'm a second generation pilot) never had anything positive to say about airplane partnerships. He told me that they were usually a group of guys trying to fly that don't want to spend any money on the airplane. That leads to problems. I grew up with a natural aversion to these types of arrangements. 

Years later, Dad and I purchased a Grumman Cheetah together. We split the costs 50/50 for the four years that we owned her. We never once had a disagreement about finances or what to do with the plane. The day we sold the Cheetah I asked Dad if I was a "good partner"? He simply said "the best". Made me feel better on what was one of the saddest days of my life. Years later we bought another airplane together, the one I still have 16 years later.

You might be interested in our contract. It was just a handshake.

 

 

[Jerry 5TJ]

If there's a problem with your plane you can fix it.  It only takes money.  

If there's a problem with your partners a six-pager won't remedy it.  You're a lawyer, used to trying to identify any possible problem and papering it over.   I believe GA aircraft partnerships are different.  But then, I'm an electronics guy, not admitted to the bar.  

I feel if you can't trust your partner a contract won't solve many issues.  Find someone you trust, and who trusts you, agree to act equitably, and shake on it.  If you don't trust the other guy, don't even let him touch your airplane.  You are betting your life on his actions, and his on yours.  

Trust and not contracts have been the basis of my aviation partnerships.  We've shared equally in acquisition and fixed costs, splitting hourly costs pro rata.   You're proposing an unequal split of ownership and cost sharing.  That may build stress into the relationship from the start.  

Maybe if you're buying a Citation X and forming corporate entities to hold the assets complex agreements are appropriate.  For a 50 year old plane worth $50K (but which may incur a $50K repair bill at any time)  you need a trust-based relationship.  Healthy checkbooks help maintain the relationship, too:  Don't partner with someone who can't afford both the expected and unexpected costs as well as you can. 

Why an LLC?   It will increase your costs by the annual filing fees at the least.  Expert counsel advised us it won't shield a co-owner or member much if any from the other pilots' errors.  Plus, the FAA occasionally has been inclined to view a company whose sole asset is an airplane as by definition a company providing air transportation and thus required to operate under Part 135.  You don't need that scrutiny.  

Rather than incorporate we held the title as co-owners and used the funds saved to buy all the smooth coverage liability insurance we could get.  $2M smooth is probably all you can get on a piston single, but you can get additional umbrella coverage.  It isn't cheap.  But if one of your members hurts a third party with the plane you'll need it.  

All this notwithstanding a good aviation partnership can be very rewarding in surprising ways.  I highly recommend finding a great partner (and being a great partner yourself).  

 

 

 

[chrixxer]

Just now, Jerry 5TJ said:

Find someone you trust, and who trusts you, agree to act equitably, and shake on it.  

You're proposing an unequal split of ownership and cost sharing.  That may build stress into the relationship from the start.

Why an LLC?

I trust these guys. I just also find things are easier when they're clearly spelled out ahead of time. I've seen too many "handshake" arrangements fall apart spectacularly. (Before this gig I was a "wine lawyer" and wine makers in small wine country agricultural towns - like the farm area I grew up in - tend to be handshake folks. Probably works well enough most of the time.  But I don't see those arrangements. I see the ones that I've gone sideways, spectacularly, and expensively. One agreement started as "I'll put up the cash, you provide your skill, we'll make a couple of cases, if the wine's bad we'll pour down the drain, if it's halfway decent we'll give it to our friends." That eventually (after two harvests) became a tortured mess 2+ years of federal court litigation didn't quite resolve...

It's not an unequal share of ownership - it's my plane. That I want to let a select few people have the option of flying. With them kicking in the costs incurred by their use. An Arrow on the field rents wet for $189/hr. I'm pretty positive our rate will be significantly less than that. Keeps the bird flying. Keeps them flying. (CFIs making what CFIs make and paying what Westsiders pay...)

Multiple reasons re the LLC; we're aviation attorneys and set them up for partnerships etc all the time. 

[chrixxer]

1 hour ago, bluehighwayflyer said:

She wasn't exactly the bell of the ball when your started and if your plane was one of Jerry's "flips" like I think it was you are probably going from close to 0 to 60 on the utilization curb very quickly.  It'll be interesting to watch. Thanks for sharing.

Leeroy Jenkins! Fortunately these not-partners bring with them lots of connections in the local aviation community, including a friendly A&P!  

[Hank]

I see conflict:

1. "I own the plane."
2. "My partners will be owners in the LLC."

So the Corp. owns the plane, they own part of the Corp., but they don't own part of the plane???

What would keep me out of it:  you can take the plane I have reserved for a trip on pretty short notice . . . Strikes me as pretty darn unfair. "Sorry, honey, we have to make that 12 hour drive tomorrow,  chrixxer is taking the plane" isn't a conversation I would like to have. And I don't think you would call and tell her that yourself.  

[Yetti]

I think you need a set of "guiding principals for operations"  You are they owner, they have no say.   I always say "Read and know the contract, but if you have to refer to it in a conversation, you are doing it wrong"

[chrixxer]

14 minutes ago, Hank said:

I see conflict:

1. "I own the plane."
2. "My partners will be owners in the LLC."

So the Corp. owns the plane, they own part of the Corp., but they don't own part of the plane???

What would keep me out of it:  you can take the plane I have reserved for a trip on pretty short notice . . . Strikes me as pretty darn unfair. "Sorry, honey, we have to make that 12 hour drive tomorrow,  chrixxer is taking the plane" isn't a conversation I would like to have. And I don't think you would call and tell her that yourself.  

To the tune of a dollar each. Nominal owners. But membership in the LLC gets them things like gate card access to the field, parking privileges in the tie down area, etc.

(And that 12 hour drive is the kind of trip they'd want to clear with me first. If I know someone's got a Big Trip on the calendar and I want to run to Catalina for a bison burger, I'll rent. If I've got a big trip and they're hitting French Valley for waffles, I'm gonna bump 'em, but with enough notice they can book something else.)

And we've discussed this and it's understood. One CFI has Tuesday's and Wednesdays off, days I'm unlikely to need the plane. He wants to take a date to SBA for dinner, sweet.

And remember, there are 3 Archers, a Warrior, an Arrow, two SR20s and an SR22T on the line. This would be a cheaper option, but not the only option by far. This is a fairly unique situation.

You're thinking in terms of partnership. It's more along the lines of, "share in and benefit from what's mine," in a plane we'all probably keep a little nicer than the student beaters.

Edited May 6, 2017 by chrixxer

[chrixxer]

20 minutes ago, bluehighwayflyer said:

Yes, absolutely!  Having a good preestabliahed relationship with an A&P/IA is one of those bases I mentioned that you seem to have nicely covered. The rest, though, since you are invoking the name of Leeroy Jenkins I have to tell you might be a better example of res ipsa than that flour case they taught us all in first year Torts.

Jerry swears the plane is flying regularly and offered to fly it himself "anywhere east or west of the Mississippi." There was a belly-in, but damage was minimal (two belly panels replaced along with the prop and a thorough IRAN on the engine). We'll ease her in, and the company will be sitting on cash reserves for at least the first year, until I know roughly what kind of companion she's going to be. (After that: Moar avionics!!)

I'm meeting with a former flight school fleet manager (now a regional captain, but he oversaw a half-dozen leased back Cherokees and Arrows for several years) on Monday to put together a rough idea of the dry rate, etc., and make sure I'm not overlooking anything (engine reserve, prop reserve, oil consumption, general maintenance reserve...).

[Cris]

Many years ago I was a partner in several Mooney's. It always worked out but there was an extensive agreement. One issue that was not addressed and did occur was gear up landings and the resultant loss of value after repair. One partner had the misfortune to have two gear up landings within a year one of which was mechanical but avoidable and one as a result of a porpoised landing. The difference in the value of the aircraft even after repair caused the dissolution of the partnership. Something to consider if you are involved with others even with the best of intentions. 

Edited May 12, 2017 by Cris

[Bravoman]

 Under  your first paragraph 1.1, I would remove "as a result of members negligence".  Also, It looks like that paragraph may have been misnumbered.

Regards, Frank

[Vance Harral]

If you really trust your potential partners and believe everything is going to work out, give them equal scheduling rights, and equal say in how the aircraft is operated and maintained.  Trust that they'll treat you fairly about scheduling.  Ask what they think should be in the operating agreement and incorporate their ideas.

If you're unwilling to do these things, I predict a negative outcome.  I've been part of a successful partnership for 14 years and I know it can work out well.  But I wouldn't enter a partnership where one person wants a greater share of privileges and say-so in aircraft operation because the airplane is more theirs than mine.  I understand you're carrying a greater share of the capital investment and responsibility in exchange for it, I just think it's unlikely to pan out when some of the pilots are second-class citizens.  Not because it's "unfair", just due to human nature.  Ask yourself, if one of your friends dings a wingtip or spills orange juice on the seats, is it no big deal because these things happen and it's just a machine, or are you going to be irritated at their carelessness with "your" airplane?

The answer to these questions has a lot more to do with the success or failure of the partnership than the rental agreement.  The agreement is important too, but it's secondary to the attitude with which you're going into it.

[chrixxer]

Again ... not partners. They're not making any capital contribution, just contributing a dry hourly rate for their actual operation. It's more like they'll be able to "rent" a plane no one else gets to rent, when it's available, at a very good rate (compared to the complex rentals available on the field). They get to build hours cheaper than they otherwise would; my E gets exercised when I'm not flying her. Win/win. But they're not going in with equity, won't be responsible for maintenance or insurance (except if we add a pilot who raises our rate, and then only for the delta) etc.

[N601RX]

On 5/5/2017 at 10:48 PM, chrixxer said:Jerry swears the plane is flying regularly and offered to fly it himself "anywhere east or west of the Mississippi." There was a belly-in, but damage was minimal (two belly panels replaced along with the prop and a thorough IRAN on the engine). We'll ease her in, and the company will be sitting on cash reserves for at least the first year, until I know roughly what kind of companion she's going to be. (After that: Moar avionics!!)

The search function will provide a lot of relative information if the sellers info is entered, both here and on the NTSB.  

You can read about the Mooney that was underwater for a few days, and then sold in pieces by the salvage company.  It was then put back together without engine or avionics dissamembly and then attempted to be sold as no damage history with no mention in the logs of any of it. When that didn't work it was repainted and renumered in an attempt sell it. 

You can also read about the ferry permitt death trap he put his son in down in Panama City that killed him. You can read about numerous other Faa enforcement action and them taking his A&P license.  Just a few things to think about.

[Vance Harral]

2 hours ago, chrixxer said:

Again ... not partners. They're not making any capital contribution, just contributing a dry hourly rate for their actual operation. It's more like they'll be able to "rent" a plane no one else gets to rent, when it's available

Your pointed reply with boldface type nicely illustrates the point I'm trying to make.  Saying these pilots are not partners due to their lack of an equity stake makes it clear you don't see them as equals.  They're just "renters" to you.  No matter how nice and/or experienced they are, if you treat them like renters, they'll treat your airplane like a rental.  You need to be OK with that.  Some renters are better than others, of course.  That judgement call is up to you.

To be clear, I get that you're the only one with capital investment, and it's not unreasonable to want more/all of the control because of that.  Adults are free to enter into any honest agreement, and I'm not saying your arrangement can't work.  I just think it's uncommon for arrangements like this to work well over the long term.  People who don't want to pay for an ownership stake usually discover it's better to rent from a business with no emotional investment in the rental machine, even when that comes with per-day rental minimums, etc.

I have seen the arrangement you're proposing work out OK when the "renters" are actually aircraft owners themselves, who just want occasional access to a different type of aircraft.  Usually it's reciprocal.  Any chance your renters are aircraft owners themselves, or at least have been in the past?  If so, that probably improves your odds of a good long-term arrangement.

[chrixxer]

1 hour ago, Vance Harral said:

Your pointed reply with boldface type nicely illustrates the point I'm trying to make.  Saying these pilots are not partners due to their lack of an equity stake makes it clear you don't see them as equals.  They're just "renters" to you. 

Reply: They're also friends, and work for the shop where I've been renting for a while. 

To be clear, I get that you're the only one with capital investment, and it's not unreasonable to want more/all of the control because of that.  Adults are free to enter into any honest agreement, and I'm not saying your arrangement can't work.  I just think it's uncommon for arrangements like this to work well over the long term.  People who don't want to pay for an ownership stake usually discover it's better to rent from a business with no emotional investment in the rental machine, even when that comes with per-day rental minimums, etc.

Reply: Three hour daily minimums at $189/hr make for very expensive weekend trips, especially if you're just taking a 1 hour hop up to wine country. BTDT. Also, the rentals are used for flight training, so often aren't available all day for several days, and since these guys work for the flight school, they have to give preference to those operations.

I have seen the arrangement you're proposing work out OK when the "renters" are actually aircraft owners themselves, who just want occasional access to a different type of aircraft.  Usually it's reciprocal.  Any chance your renters are aircraft owners themselves, or at least have been in the past?  If so, that probably improves your odds of a good long-term arrangement.

Reply: Actually, two of the probable three are, and one's a member of a flight club on the field (that only has high wing Cessnas, and a high buy-in, but low hourly rates).

 

Edited May 12, 2017 by chrixxer

[chrixxer]

18 minutes ago, bluehighwayflyer said:

chrixxer listens but he does not hear. He buys an M20E from Jerry P. for $27,000 on eBay and then insures it for $45,000 and expects to immediately put it into heavy IFR service by multiple zero equity operators in order to defray costs. He also is an aviation attorney but seeks feedback anyway from laymen regarding an operating agreement he has drafted, then disregards any practical advice he receives that he doesn't agree with.  I'm really sorry to say it but I don't see this ending well. 

You've cherry-picked, grossly distorted, and/or fabricated 'facts' here. (For instance, where did I say "heavy IFR service"?)

[mooniac58]

Let's settle down people.  More civility is needed here...

[Roger O]

With all due respect to everyone here, Chrixxer (what is your name by the way...) is an aviation attorney.  Come on folks, this is his profession.  If he can't write a suitable legal partnership agreement who can?  Like other parts of the body, everyone has an opinion, and it is just an opinion not fact.  What works for one may not work our for another.  Leave the guy alone, and whatever he decides is his choice.  If it works out, great, if not, partnerships of any kind can be dissolved.

To the op, I think that by asking the members here about your personal partnership agreement, all you are doing is opening up a big can of worms, and "riling up the troops" unnecessarily .  You most likely have written more agreements (and have seen the results of those contracts) than most people here have ever seen.  IMHO, you need to make this decision yourself.  No one here can or should really help you with that one.  I'm certain that whatever way you go it will be the best for you in your situation.

[TCC]

Honestly, I don't see the issue with a non-equity partnership in the plane. Spell out the Ds (death, dissolution, divorce, etc) and the expectations for operator specific issues (thou shalt not fly without a CFI if non current), and rights (if any) the partners have. Then let 'er rip.

[chrixxer]

2 hours ago, Roger O said:

You most likely have written more agreements (and have seen the results of those contracts) than most people here have ever seen.  IMHO, you need to make this decision yourself.  No one here can or should really help you with that one.  I'm certain that whatever way you go it will be the best for you in your situation.

Thanks; I was asking for (and to an extent received) feedback on anything I might have missed, any particulars in aircraft "sharing" I might have overlooked. I've put together plane partnership agreements before, but they were for true partners; likewise, I've put together rental agreements before, but those were for pure rentals. Often the non-legal cognoscenti have insight we desk jockeys lack, when it comes to a particular subject.

FWIW, I ran the agreement by another friend, who actually used to work for the flight school / FBO these guys work for now, and who I've been renting from. He used to manage their fleet of aircraft, has seen the various ways rental agreements get abused, etc. He also knows all the participants personally (we're all going flying Wednesday, a regular thing for us). He had a few tweak suggestions but agreed with the fundamental approach.

Better to have everything explicitly spelled out, even if among friends, in advance. For instance, our fuel island shuts down at like 9pm (maybe 10pm), while many of our flights come in after that. So maybe the last user couldn't have parked the plane with full fuel, and just came back from, say, Phoenix. The next guy has to fill the tanks himself, which he shouldn't have to do - his three trips around the pattern for currency shouldn't cost him that fuel. So, insert the company, which collects from the first guy and reimburses the second. (Yeah, they could do it directly, but that can be a hassle.)

(Oh, and despite the presumption of an earlier poster in this thread, I doubt the aircraft is going to be exposed to "heavy IFR service." With coordinating with LAX, our IFR flights can sit on the tarmac for an hour or more. Coming in after the tower is closed, "expect multi-hour delays" getting an approach clearance. It needs to be able to fly IFR, but a good chunk of our flying is VFR... Further, it's not going zero-to-sixty overnight, excluding me flying it back to L.A. (which should give me a good feel for the aircraft). We're going to start slow, with one other LLC member initially, and see how it goes. And even that will wait for me to be comfortable enough with the plane to want my friend(s) flying it. It's been gone over, but until I have my A&P at my home field give it a once over...)

My name's Chris, BTW.

 

Edited May 12, 2017 by chrixxer

[chrixxer]

Just now, TCC said:

Honestly, I don't see the issue with a non-equity partnership in the plane. Spell out the Ds (death, dissolution, divorce, etc) and ... rights (if any) the partners have. Then let 'er rip.

That's all in the LLC Operating Agreement, not the aircraft agreement, and honestly, the LLC OAs are bog-standard (we pull ours from the CEB practice guides).

[Roger O]

Chris, sounds like a plan!  Good luck with the plane and the partnership.  I'm sure all will go well for you!

Roger