General Thoughts and Guidance on Aircraft Partnerships

[ValkyrieRider]

I am looking for some general thoughts and/or guidance from this group on aircraft partnerships.  I am currently the sole owner of my M20C but my schedule is making it more difficult to fly as much as I have in the past.  Previously I would fly about 120 hours a year and would use it more to fly for work a couple times a month.  Now if I get 60 - 80 plus hours a year, I am flying a lot.  With the fixed costs, maintenance, and of course fuel going up, I am thinking it would make sense to share these costs with someone that would be in the same situation as far as the number of hours they fly.  Obviously not having the sole use of my plane would take a little to get used to, especially trusting that someone else would take care of it they way I do.  What are your thoughts and guidance, or concerns that I should consider?  Also, how would you recommend I value the plane and would you consider a down payment and monthly payments?

[MikeOH]

My thoughts are you should reconsider!

I fly right around 80 hours per year and, all in, it’s averaged $17K per year. Not sure your costs, but how much are you really going to save to offset scheduling conflicts(think holidays), no more spur-of-the-moment flights, and wear and tear from someone else? The seats/radios/etc not the way you left them?

[MikeOH]

Oh, one more thing is liability. If you don’t set up an LLC and transfer ownership to it then you can be responsible financially if he crashes and causes damages!

[Vance Harral]

I'm a fan of partnerships and have been fortunate to be in a successful one for a couple of decades.  In addition to reducing costs for the individual pilots, there is much to be said for the fact that partnerships tend to keep the airplane operating a healthy number of hours per year.  Sole ownerships often seem to go through periods of inactivity over the years due to life circumstances, and that can wind up creating headaches and devaluing the airplane, due to lack of use.

The financials are straightforward: agree on a value for the airplane and other assets (tow bar, cabin cover, tools, whatever) and have the incoming partner give you cash (if they need a loan to come up with the cash, that's their problem, not yours).  Determine your fixed costs and split them by equity percentage - typically evenly, e.g. 50/50 for two partners.  Then bill each pilot an hourly fee that covers direct (fuel/oil/etc) and indirect (engine overhaul) operating expenses.  Since you've owned the airplane a while, you almost certainly already have a decent idea of how these costs break down.  You'll need some bookkeeping to track the fixed and operating expenses and payments on a monthly/quarterly/whatever basis, which is a new burden - it's just one of the "costs" of having partners.   Most people do this informally and it works out fine.  We employ a professional bookkeeper in our partnership, but that's arguably overkill.

Having said all that, this statement gives me pause:

1 hour ago, ValkyrieRider said:

especially trusting that someone else would take care of it they way I do

If you expect a potential partner to care for the airplane exactly the way you do, you probably shouldn't take on a partner.  A partnership cannot be successful when one partner feels in their heart that it's really still "their" airplane, where they set the standard for how it's flown and maintained, and the new partner is expected to hew to the original owners' preferences.  You have to think of it as if you'd sold your airplane outright, then you and your new partner bought a completely different airplane and started from scratch, together.

That doesn't mean you can't look for a partner with similar principles and attitude, of course.  Maybe that's all you mean.  But having been asked this question by a couple of friends, my usual response is to ask how they'd feel about things that, objectively, are just preferences.  How do you think you'll feel if the new partner suggests oil changes every 35 hours instead of every 25?  What if they'd like the airplane put away with 3/4 tanks instead of full, or vice versa?  What if they ask you to leave the prop horizontal (or vertical) when securing the airplane?  If your attitude about these things is, "No big deal, let's try it that way and see how things go", you're well-suited for partnership.  If your attitude is, "I've been doing it such-and-such way for the last X years and see no reason to change", you're not well-suited.  Similarly, MikeOH's comment about the seats/radios/etc not being the way you left them is a good indicator as well.  A partnership works for me, in part because I couldn't care less about those things.  But I can understand how they might bother the heck out of other pilots.

What I've seen anecdotally is that partnerships where one person has been a sole owner for many years, and later takes on a partner only when the financials start to get tight, tend to not work out.  That's what you're proposing.  So put yourself in the other person's shoes: would you want to buy into a partnership where, despite carrying half the equity and half the expenses, you are subservient to a "senior" partner who exerts outsized influence on operations and maintenance?  I generally advise people to avoid thinking-of-taking-on-a-partner offers unless they're already flying the airplane under some non-equity arrangement that's going well, or - maybe - if they feel they already know the other pilot well despite not actually flying the airplane.  Otherwise, better to form an airplane-less partnership with like-minded individuals first, and acquire the airplane second.  That's effectively the "market" you're competing against, and you'll do best if you set your mindset accordingly.

[Joshua Blackh4t]

Maybe you just want to hire it to someone while you aren't using it much. But on a cost sharing basis and for legal reasons they can be a partner even if you retain the capital value and then can set the rules.

That would be the only way I'd do it, otherwise they could do all sorts of nasty things to it. Or worse, complain if I do nasty things. Like take passengers who accidentally spill beer and the plane smells for the next month. Wouldn't want to do that in a share plane. 

[Fly Boomer]

4 hours ago, ValkyrieRider said:

I am looking for some general thoughts and/or guidance from this group on aircraft partnerships.  I am currently the sole owner of my M20C but my schedule is making it more difficult to fly as much as I have in the past.  Previously I would fly about 120 hours a year and would use it more to fly for work a couple times a month.  Now if I get 60 - 80 plus hours a year, I am flying a lot.  With the fixed costs, maintenance, and of course fuel going up, I am thinking it would make sense to share these costs with someone that would be in the same situation as far as the number of hours they fly.  Obviously not having the sole use of my plane would take a little to get used to, especially trusting that someone else would take care of it they way I do.  What are your thoughts and guidance, or concerns that I should consider?  Also, how would you recommend I value the plane and would you consider a down payment and monthly payments?

JET-A and 100LL prices stay pretty close.  Actually, last year, 100LL was cheaper than JET-A for the first time in at least a decade.  Graph shows fuel prices up a little in the last month or two, but way down compared to a year ago (I think these prices are at the refinery).  So, bottom line is it's getting cheaper to fly!

 

[ValkyrieRider]

8 hours ago, Vance Harral said:

I'm a fan of partnerships and have been fortunate to be in a successful one for a couple of decades.  In addition to reducing costs for the individual pilots, there is much to be said for the fact that partnerships tend to keep the airplane operating a healthy number of hours per year.  Sole ownerships often seem to go through periods of inactivity over the years due to life circumstances, and that can wind up creating headaches and devaluing the airplane, due to lack of use.

The financials are straightforward: agree on a value for the airplane and other assets (tow bar, cabin cover, tools, whatever) and have the incoming partner give you cash (if they need a loan to come up with the cash, that's their problem, not yours).  Determine your fixed costs and split them by equity percentage - typically evenly, e.g. 50/50 for two partners.  Then bill each pilot an hourly fee that covers direct (fuel/oil/etc) and indirect (engine overhaul) operating expenses.  Since you've owned the airplane a while, you almost certainly already have a decent idea of how these costs break down.  You'll need some bookkeeping to track the fixed and operating expenses and payments on a monthly/quarterly/whatever basis, which is a new burden - it's just one of the "costs" of having partners.   Most people do this informally and it works out fine.  We employ a professional bookkeeper in our partnership, but that's arguably overkill.

Having said all that, this statement gives me pause:

If you expect a potential partner to care for the airplane exactly the way you do, you probably shouldn't take on a partner.  A partnership cannot be successful when one partner feels in their heart that it's really still "their" airplane, where they set the standard for how it's flown and maintained, and the new partner is expected to hew to the original owners' preferences.  You have to think of it as if you'd sold your airplane outright, then you and your new partner bought a completely different airplane and started from scratch, together.

That doesn't mean you can't look for a partner with similar principles and attitude, of course.  Maybe that's all you mean.  But having been asked this question by a couple of friends, my usual response is to ask how they'd feel about things that, objectively, are just preferences.  How do you think you'll feel if the new partner suggests oil changes every 35 hours instead of every 25?  What if they'd like the airplane put away with 3/4 tanks instead of full, or vice versa?  What if they ask you to leave the prop horizontal (or vertical) when securing the airplane?  If your attitude about these things is, "No big deal, let's try it that way and see how things go", you're well-suited for partnership.  If your attitude is, "I've been doing it such-and-such way for the last X years and see no reason to change", you're not well-suited.  Similarly, MikeOH's comment about the seats/radios/etc not being the way you left them is a good indicator as well.  A partnership works for me, in part because I couldn't care less about those things.  But I can understand how they might bother the heck out of other pilots.

What I've seen anecdotally is that partnerships where one person has been a sole owner for many years, and later takes on a partner only when the financials start to get tight, tend to not work out.  That's what you're proposing.  So put yourself in the other person's shoes: would you want to buy into a partnership where, despite carrying half the equity and half the expenses, you are subservient to a "senior" partner who exerts outsized influence on operations and maintenance?  I generally advise people to avoid thinking-of-taking-on-a-partner offers unless they're already flying the airplane under some non-equity arrangement that's going well, or - maybe - if they feel they already know the other pilot well despite not actually flying the airplane.  Otherwise, better to form an airplane-less partnership with like-minded individuals first, and acquire the airplane second.  That's effectively the "market" you're competing against, and you'll do best if you set your mindset accordingly.

 

[ValkyrieRider]

Thanks for the well thought out response.  You bring up some very valid points in your response, specifically, would I be able to look at the partnership as an equal partnership, and not solely my plane.  Prior to moving to Arizona, I was part of a larger flying club in Minnesota, and it worked perfectly for me.  One of the reasons I am considering the partnership is to offset the fixed costs, to ensure the plane is flying enough to keep things running smoothly, and to potentially start a small flying club.  After bringing a partner or two on, I would like to add a 6/7 seater, and maybe a 152 or something similar and bring additional partners for those planes.  I do probably have to do a little thinking to ensure a partnership would be the right fit for my situation.  

[Becca]

I am a big fan of good partnerships.  We bought our plane in an excellent partnership and it was sad to dissolve it when we moved.  We shared fixed expenses equally (at the time of the purchase, that was a loan, hangar, annual, insurance, and some upgrade funds); and then we charged variable expenses by the hour (engine/prop depreciation, oil, fuel), which we figured out our variable expenses by a tracking spreadsheet and updated it regularly.  It was a compatible partnership, we had similar financial resources, similar approaches to maintenance, we were friends who enjoyed flying together, and we were respectful of each others scheduling needs (visiting grandma for weekend > $100 hamburger) and never had scheduling conflicts.  We each flew just under 100 hrs a year which is about perfect balance between partners.  We each owned our share of the plane AND the same share of our bank account balance which held our reserves. Many partnerships don’t put reserves aside and they fall apart when a big expense comes up or they fail to upgrade the plane regularly because on partner is always “let’s wait.”  

We put the plane in an LLC for some limited liability protection and used a version of the AOPA partnership agreement to spell out rules (which is important to think about survivorship, selling a share, etc)

You are in a different situation because you already own the plane.  So you have to ask - how do you value the share, what about things that’s already depreciated like the engine, what happens if your partner wants to take a loan to buy his share, etc.  I think if I were you, I’d consider selling block time at cost instead of selling a share - get the person you sell the time to named on the insurance as part of their block time buy, charge enough to cover some of your expenses, etc.  Maybe ask the person to contribute $200/month or something in addition to the block time price. If the arrangement works out, consider a partnership after that 

 

Edited July 20, 2023 by Becca

[LANCECASPER]

On 7/19/2023 at 1:27 PM, ValkyrieRider said:

I am looking for some general thoughts and/or guidance from this group on aircraft partnerships.  I am currently the sole owner of my M20C but my schedule is making it more difficult to fly as much as I have in the past.  Previously I would fly about 120 hours a year and would use it more to fly for work a couple times a month.  Now if I get 60 - 80 plus hours a year, I am flying a lot.  With the fixed costs, maintenance, and of course fuel going up, I am thinking it would make sense to share these costs with someone that would be in the same situation as far as the number of hours they fly.  Obviously not having the sole use of my plane would take a little to get used to, especially trusting that someone else would take care of it they way I do.  What are your thoughts and guidance, or concerns that I should consider?  Also, how would you recommend I value the plane and would you consider a down payment and monthly payments?

Here's a good place to start: 

https://mooneyspace.com/search/?q=partnership&quick=1

[Mcstealth]

My perspective is from the outside looking in.

I have asked many owners at my home airport to allow me to partner up with them. I Haven't had anything serious come my way. Always, the same negative reason I get from an owner is, "I want my airplane when I want my airplane."

I have not put out flyers or advertised, but I have put it "out there" to the Fbo, A/P's, owners, line guys etc, asking if they knew anyone that would consider a partnership. Most everyone says no one they know will partner up. 

Wish someone would take up my offer. I know financially it makes sense to me. To those who don't need or want help financially, it's just a flat no thanks. 

[Pinecone]

Maybe put up fliers locally about forming a partnership.  To find others like you, that don't have an airplane, but want access to one.

[1980Mooney]

@ValkyrieRider - most of the comments are from fans of partnerships.  Although you can structure the partnership to limit personal liability for your partner's action, you will still bear half the cost and half the loss in value of the plane (assuming only one other partner) for your partner's bad luck or mistakes.

Here is an example below of a recent partner mistake - door popped open - plane crash landed into the Approach Lighting System at Chatanooga.  Plane is totaled.  From the registration it looks like they purchased and formed the partnership about one year ago.

About 25 years ago when I was at KIWS in the T-covers, a Commanche in a partnership was tied down next to me.  One day I showed up to fly and saw it sitting on pallets, prop mangled, and the main landing gear extended but punched up through both wings.  A partner was flying their young son in the pattern, and they somehow starved the engine.  Instead of a dead stick landing on the runway they landed really hard (nearly pancaked) in the grass between the runway and taxiway.  I occasionally met the other partner who had bought the plane and formed the partnership.  At the time Commanche's were appreciating and his main motive was to make a gain when he eventually sold out.  I heard that he was furious with the situation and that he wanted out ASAP - he did not want to contemplate the time and money for repair - he just wanted it scrapped and his cash pay out from the insurance company. I thought for sure it would be scrapped but I looked the plane up a while back and amazingly it was repaired and is still flying. 

 

[glbtrottr]

My flying started with a 50 member flying club eons and eons ago.

Today I own several airplanes.

I have seen great partnerships and I’ve seen horrible partnerships.

It is all about the operating agreement. What if you or the other partner wants to get out *right now!” ? Entries and exits are key.

What about if one or more partners want fancy upgrades…but you do not? What are the terms?

Perhaps you don’t fly a ton…but I fly the wings off of that airplane. How do you price it’s depreciation or cost of overhaul?

How do you deal with reserves ? If an overhaul is needed now, is there enough in the kitty for it ?

Hmmm time for paint.

Ohhhh I fly a lot less conservatively than you. Sorry about the blown tire and scored brakes.

I just put in 20 hours maintaining the plane - where were you?

Things to think about ….

[Vance Harral]

glbtrottr asks excellent questions.

I'm going to detail how the partnership in which I participate answers these questions, but not because our answers are necessarily best practice.  The point is that we all had to sit down and come up with answers to these questions, and it's that process of coming up with the answers that tells you whether or not you've found compatible partners.  Those of you considering a partnership may or may not find this helpful, but I've got some time on my hands today.

2 hours ago, glbtrottr said:

What if you or the other partner wants to get out *right now!” ?

We have various avenues for exits, including a vote to sell the airplane via broker.  But ultimately, if a partner becomes completely unsatisfied with the pace of their effort to exit, they may invoke a definitive exit clause in our partnership agreement, along with providing a "final offer" price.  When this clause is invoked, the remaining owners must either purchase the exiting owner's share of the LLC at the final offer price, or all sell their LLC shares to the exiting owner at that same price.  The idea here is that if the exiting owner provides an genuinely attractive owner to the remaining partners, and the remaining partners are just being jerks, the exiting partner has the option to immediately buy out the whole LLC at the attractive rate, then turn around and sell it (possibly at a profit), free of the irritation and encumbrances of the other partners.  This isn't necessarily easy or convenient, but at least it's a definitive way out.

2 hours ago, glbtrottr said:

What about if one or more partners want fancy upgrades…but you do not? What are the terms?

In our partnership, upgrades require a unanimous vote.  Individuals are permitted to "sweeten the pot" to obtain this unanimous agreement, by offering to pay for most or all of the upgrade themselves.  But - and we believe this is key - such unequal funding is considered a gift to the other partners, and no change is made in equity shares.  This provides a natural balance between reasonable people.  Anyone can pitch an upgrade, others are free to decline it.  If it's declined, but the person pitching the upgrade really, really wants it, they have an avenue to make it happen; but without gaining any future financial and/or voting leverage over other partners.  For what it's worth, I've done this twice in the last 20 years, because I just really wanted a basic engine monitor, and an electronic HSI.  To the extent this increased the value of the airplane, I only got back 25% of that increase, even though I paid for everything.  I decided I was OK with that.

2 hours ago, glbtrottr said:

Perhaps you don’t fly a ton…but I fly the wings off of that airplane. How do you price it’s depreciation or cost of overhaul?

We charge all partners an hourly rate to fly the airplane, in addition to the fixed costs which are divided equally.  Accordingly, partners who fly more pay more, in proportion to their flying.  This is a deal killer for some people, because it makes the whole thing feel too much like renting from a flight school.  But the rate is a lot less than a flight school would charge, and you're not going to find a flight school with a Mooney anyway.  The hourly rate is enough that it prevents one partner from taking advantage of the others, and the funds go into three logical accounts: one for direct hourly operating expenses fuel/oil/incidentals, one for components that wear/break with use (cables, instruments, tires), and one for depreciation of major components (engine, paint, etc.)

As the airplane depreciates, the total value of the LLC remains roughly the same, because the depreciation fund grows in accordance with deposits from the hourly charge.  If we dissolve the partnership before putting major money into the airplane on engine overhaul, paint, etc, that cash comes back to the partners in equal shares (not in proportion to hours flown) at the time of sale.  So that's how less frequent fliers are treated fairly with respect to more frequent fliers.

2 hours ago, glbtrottr said:

How do you deal with reserves ? If an overhaul is needed now, is there enough in the kitty for it ?

The depreciation fund we're keeping isn't designed to have enough money to actually pay for an engine overhaul, or shiny new GTN 750Xi when the primary navigator gives up.  If/when the partnership decides we want those things, the depreciation funds may be used, but it will be necessary for the partners to pony up cash out of pocket to fund the project.  The resultant airplane will - one presumes - be worth a little more than before.  Accordingly, the partnership is worth more than before, so at least some of the out-of-pocket cost to the partners is returned to them via an increase in the value of their equity.

This strategy does expose us to the possibility that the airplane could need something big, and one or more of the partners doesn't have the out-of-pocket cash to cover it.  But that's an essentially unsolvable problem, because major airplane components can need an overhaul or replacement at literally any time - you can't actually estimate when you'll need the funds.  So barring the extreme and impractical approach of requiring partners to pony up approximately double the value of the airplane at buy-in, you're going to have to face this one way or the other.  Mostly we do so by trying to suss out the financial state of prospective partners, though I concede that's dubious.  Our partnership buy-in agreement does permit asking the incoming partner for a credit check, but all of us feel that's not especially useful.  Again, though, it's essentially impossible to avoid this in any kind of real-life partnership agreement, so we choose to accept the risk.  It's a pretty reasonable risk in a vintage Mooney worth less than $100K.  It might not work out so well for a brand new G650.  Up to you whether it's reasonable for, say, a late-model Acclaim.

2 hours ago, glbtrottr said:

Hmmm time for paint.

That's a depreciation item, see above.

2 hours ago, glbtrottr said:

Ohhhh I fly a lot less conservatively than you. Sorry about the blown tire and scored brakes.

This is probably the most interesting question.  We have a clause in our operating policies that deals with this sort of thing - assigning responsibility for maintenance that is clearly pilot-induced, to the operating pilot - but it's not foolproof.  In the end it boils down to whether the people in your partnership are inclined to embrace responsibility, or avoid it.  Across the partnerships I'm familiar with, this generally hasn't been a problem, but perhaps only because it hasn't really come up.  Most partnership pilots are not incompetent or deliberately abusive.  I think the idea that you'll get stuck with a rogue pilot who is always breaking stuff is a bit of a bogeyman.

2 hours ago, glbtrottr said:

I just put in 20 hours maintaining the plane - where were you?

Our agreement explicitly prohibits any member from expecting recompense in exchange for any kind of maintenance: 43.13 Appendix A stuff, or even just washing and waxing.  These things are "allowed", but not required.  That doesn't necessarily prevent hard feelings, though, so you do need to seek out partners who are either like-minded, or who are content with nothing other than self-satisfaction for this sort of thing.  Mostly this comes up during our annuals, which have always involved a large degree of owner-assist work.  That work isn't equal, primarily because some of the partners have the kind of flexible work schedule that permits doing so, and others don't.  We just live with it.  As one of the guys who does a fair amount of the work, I have no ill will toward other partners that don't, in part because their non-flexible-work-hour schedule is a noble profession that benefits the community.

[Bob E]

I like Vance Harral's thoughtful answers.  As an attorney I've done quite a few aircraft partering agreements, and all of them were single-aircraft LLCs. Unless you want to form a genuine flying club where every owner basically rents an aircraft when they fly it, I don't recommend multi-aircraft LLCs. The individual pride of ownership and the resultant attention to detail when it comes to care and maintenance always seem to disappear when your aircraft becomes a fungible part of a rental fleet.  Worse, when a person contributes their personal aircraft to a co-owned fleet, they still get angry if they feel that someone else mistreated "their" plane. It leads to arguments, bad blood, and frequent exits from the arrangement. On the other hand, if you have just two or three co-owners of one aircraft, that's a small enough group that each person will give it loving care. Such an arrangement is well-suited to people like you who want to continue to be able to fly their aircraft but who are willing to lower their fixed costs by sharing it.

Several items are, in my opinion, crucial to the success of a 2 or 3 person co-ownership LLC:  First, and most important, if your potential partners aren't already long-term friends, some due diligence is in order! Meet with them and their families. Watch whether they use checklists or cut corners. Listen to how they talk to ATC and how courteous they are to other pilots in the pattern. Make sure you are comfortable giving them a set of keys. Second, make sure the LLC operating agreement is purpose-drafted for an aircraft co-ownership LLC, and that its provisions - as well as a set of rules and regulations for aircraft use - cover allocation of all types of expenses, scheduling, and "what-if" scenarios. (See Vance Harral's comments above!) Good operating agreements are the best way of ensuring that co-owner friendships will endure.

[midlifeflyer]

Super post @Vance Harral. The upgrade issue comes up regularly and have used the methodology you use, especially including the minimal increase in economic interest coupled with no increase in voting rights for "sweetened" upgrades.

[midlifeflyer]

6 hours ago, Bob E said:

Second, make sure the LLC operating agreement is purpose-drafted for an aircraft co-ownership LLC,

I have seen internal problems resolved quickly by good ones and nasty lawsuits over ones that fail to do this.

[Vance Harral]

11 hours ago, Bob E said:

Second, make sure the LLC operating agreement is purpose-drafted for an aircraft co-ownership LLC

For better or worse, our arrangement has a somewhat "generic" LLC Operating Agreement, which explicitly allows the partners to draft a set of Operating Policies for individual assets of the LLC, and incorporate them as LLC rules by reference.  We put all the airplane-specific stuff in an Aircraft Operating Policy document that was drafted at the same time as the LLC Operating Agreement.  The AOP covers fueling preferences, where you can land, who can provide flight instruction, etc.  It also lays out voting policies in accordance with the LLC Operating Agreement, for certain minor things that we felt should be majority vote rather than unanimous consent.

There are a couple of reasons for splitting things up this way.  One is that it provides a path for the LLC to own additional assets in the future: another airplane, a boat, or whatever.  We've never acted on that idea, though, mostly for all the good reasons Bob E notes about large LLCs with many members and assets.  The other reason to split the Airplane Operating Policies out from the base LLC Operating Agreement, however, is that it makes the latter simpler, stronger, and easier to maintain in compliance with state law.  You really don't want the LLC Operating Agreement which details financial policies and required meeting notices, to be co-mingled with things like how often the airplane gets washed.

[ZuluZulu]

19 hours ago, Vance Harral said:

glbtrottr asks excellent questions.

I'm going to detail how the partnership in which I participate answers these questions, but not because our answers are necessarily best practice.  The point is that we all had to sit down and come up with answers to these questions, and it's that process of coming up with the answers that tells you whether or not you've found compatible partners.  Those of you considering a partnership may or may not find this helpful, but I've got some time on my hands today.

We have various avenues for exits, including a vote to sell the airplane via broker.  But ultimately, if a partner becomes completely unsatisfied with the pace of their effort to exit, they may invoke a definitive exit clause in our partnership agreement, along with providing a "final offer" price.  When this clause is invoked, the remaining owners must either purchase the exiting owner's share of the LLC at the final offer price, or all sell their LLC shares to the exiting owner at that same price.  The idea here is that if the exiting owner provides an genuinely attractive owner to the remaining partners, and the remaining partners are just being jerks, the exiting partner has the option to immediately buy out the whole LLC at the attractive rate, then turn around and sell it (possibly at a profit), free of the irritation and encumbrances of the other partners.  This isn't necessarily easy or convenient, but at least it's a definitive way out.

In our partnership, upgrades require a unanimous vote.  Individuals are permitted to "sweeten the pot" to obtain this unanimous agreement, by offering to pay for most or all of the upgrade themselves.  But - and we believe this is key - such unequal funding is considered a gift to the other partners, and no change is made in equity shares.  This provides a natural balance between reasonable people.  Anyone can pitch an upgrade, others are free to decline it.  If it's declined, but the person pitching the upgrade really, really wants it, they have an avenue to make it happen; but without gaining any future financial and/or voting leverage over other partners.  For what it's worth, I've done this twice in the last 20 years, because I just really wanted a basic engine monitor, and an electronic HSI.  To the extent this increased the value of the airplane, I only got back 25% of that increase, even though I paid for everything.  I decided I was OK with that.

We charge all partners an hourly rate to fly the airplane, in addition to the fixed costs which are divided equally.  Accordingly, partners who fly more pay more, in proportion to their flying.  This is a deal killer for some people, because it makes the whole thing feel too much like renting from a flight school.  But the rate is a lot less than a flight school would charge, and you're not going to find a flight school with a Mooney anyway.  The hourly rate is enough that it prevents one partner from taking advantage of the others, and the funds go into three logical accounts: one for direct hourly operating expenses fuel/oil/incidentals, one for components that wear/break with use (cables, instruments, tires), and one for depreciation of major components (engine, paint, etc.)

As the airplane depreciates, the total value of the LLC remains roughly the same, because the depreciation fund grows in accordance with deposits from the hourly charge.  If we dissolve the partnership before putting major money into the airplane on engine overhaul, paint, etc, that cash comes back to the partners in equal shares (not in proportion to hours flown) at the time of sale.  So that's how less frequent fliers are treated fairly with respect to more frequent fliers.

The depreciation fund we're keeping isn't designed to have enough money to actually pay for an engine overhaul, or shiny new GTN 750Xi when the primary navigator gives up.  If/when the partnership decides we want those things, the depreciation funds may be used, but it will be necessary for the partners to pony up cash out of pocket to fund the project.  The resultant airplane will - one presumes - be worth a little more than before.  Accordingly, the partnership is worth more than before, so at least some of the out-of-pocket cost to the partners is returned to them via an increase in the value of their equity.

This strategy does expose us to the possibility that the airplane could need something big, and one or more of the partners doesn't have the out-of-pocket cash to cover it.  But that's an essentially unsolvable problem, because major airplane components can need an overhaul or replacement at literally any time - you can't actually estimate when you'll need the funds.  So barring the extreme and impractical approach of requiring partners to pony up approximately double the value of the airplane at buy-in, you're going to have to face this one way or the other.  Mostly we do so by trying to suss out the financial state of prospective partners, though I concede that's dubious.  Our partnership buy-in agreement does permit asking the incoming partner for a credit check, but all of us feel that's not especially useful.  Again, though, it's essentially impossible to avoid this in any kind of real-life partnership agreement, so we choose to accept the risk.  It's a pretty reasonable risk in a vintage Mooney worth less than $100K.  It might not work out so well for a brand new G650.  Up to you whether it's reasonable for, say, a late-model Acclaim.

That's a depreciation item, see above.

This is probably the most interesting question.  We have a clause in our operating policies that deals with this sort of thing - assigning responsibility for maintenance that is clearly pilot-induced, to the operating pilot - but it's not foolproof.  In the end it boils down to whether the people in your partnership are inclined to embrace responsibility, or avoid it.  Across the partnerships I'm familiar with, this generally hasn't been a problem, but perhaps only because it hasn't really come up.  Most partnership pilots are not incompetent or deliberately abusive.  I think the idea that you'll get stuck with a rogue pilot who is always breaking stuff is a bit of a bogeyman.

Our agreement explicitly prohibits any member from expecting recompense in exchange for any kind of maintenance: 43.13 Appendix A stuff, or even just washing and waxing.  These things are "allowed", but not required.  That doesn't necessarily prevent hard feelings, though, so you do need to seek out partners who are either like-minded, or who are content with nothing other than self-satisfaction for this sort of thing.  Mostly this comes up during our annuals, which have always involved a large degree of owner-assist work.  That work isn't equal, primarily because some of the partners have the kind of flexible work schedule that permits doing so, and others don't.  We just live with it.  As one of the guys who does a fair amount of the work, I have no ill will toward other partners that don't, in part because their non-flexible-work-hour schedule is a noble profession that benefits the community.

If you wanted to, you could start a partnership consulting business.  This is some really high-quality advice.

[Bob E]

         "We put all the airplane-specific stuff in an Aircraft Operating Policy ...."

Vance:  Yep, we're pretty much saying the same thing.  (Your AOP is what I called rules and regulations for aircraft use.)

 

 

[midlifeflyer]

33 minutes ago, Vance Harral said:

For better or worse, our arrangement has a somewhat "generic" LLC Operating Agreement, which explicitly allows the partners to draft a set of Operating Policies for individual assets of the LLC, and incorporate them as LLC rules by reference.  We put all the airplane-specific stuff in an Aircraft Operating Policy document that was drafted at the same time as the LLC Operating Agreement.  The AOP covers fueling preferences, where you can land, who can provide flight instruction, etc.  It also lays out voting policies in accordance with the LLC Operating Agreement, for certain minor things that we felt should be majority vote rather than unanimous consent.

There are a couple of reasons for splitting things up this way.  One is that it provides a path for the LLC to own additional assets in the future: another airplane, a boat, or whatever.  We've never acted on that idea, though, mostly for all the good reasons Bob E notes about large LLCs with many members and assets.  The other reason to split the Airplane Operating Policies out from the base LLC Operating Agreement, however, is that it makes the latter simpler, stronger, and easier to maintain in compliance with state law.  You really don't want the LLC Operating Agreement which details financial policies and required meeting notices, to be co-mingled with things like how often the airplane gets washed.

So long as they are covered in writing, it probably doesn't make a difference, but when I advise a group, I usually recommend doing both. The problem I see is that once the organization is under way and operating, the tendency is toward informality. Things get missed. Worse yet, "oh yeah, we'll talk about that later: ends up during the later lawsuit.

So I like to see certain things covered in the operating agreement while everyone is thinking in terms of formalism and what-ifs. Prohibition against commercial use. Penalties assessed against the company due to the actions of a member.  Responsibility for damage not covered by insurance. Termination policies. Valuation for the purpose of  membership termination and death. Which expenses are pro-rata and which are shared equally without respect to member share.  What can be done by majority vote and what needs the agreement of all. Stuff like that. There's plenty of stuff left of operational policies.

 

[A64Pilot]

I have never participated in sharing an airplane, only watched. I don’t think it would work for me. Too much like sharing a Wife I think.

From what I have seen one person uses the aircraft way more than the other, but some are fine with that because I guess what they wanted was access to an aircraft more than actually using an aircraft. But many I’ve seen turn friends into enemies.

I think for a lot of people it’s a good fit especially as ownership gets more and more expensive and more partnerships may help save so many of the poor aircraft I see rotting away on tie downs seemingly abandoned.

On a similar but different note I’m thinking about buying a smaller Class C RV, smaller because it has to fit in the hangar, but my logic side tells me that I wouldn’t use it enough to justify the expense and that renting one when we want to is more logical and avoids a lot headaches.

I can see an airplane being like that if ownership isn’t a primary goal, just access to one.

 

[Echo]

I was in an LLC with one additional co-owner for a couple of decades.  great relationship.  Then a third entered with a different airframe.  You know what they say, "three's a crowd."  Just make sure agreement is completed and all should be fine.  There are pros and cons of both sole ownership and co-ownership.  I would submit that sharing is better than NOT having at all depending on your finances.  We both had kids at home.  Now we have the financial resources to own independently...

[1980Mooney]

On 7/28/2023 at 7:02 AM, midlifeflyer said:

I have seen internal problems resolved quickly by good ones and nasty lawsuits over ones that fail to do this.

 

On 7/28/2023 at 12:28 PM, Vance Harral said:

For better or worse, our arrangement has a somewhat "generic" LLC Operating Agreement, which explicitly allows the partners to draft a set of Operating Policies for individual assets of the LLC, and incorporate them as LLC rules by reference.  We put all the airplane-specific stuff in an Aircraft Operating Policy document that was drafted at the same time as the LLC Operating Agreement.  The AOP covers fueling preferences, where you can land, who can provide flight instruction, etc.  It also lays out voting policies in accordance with the LLC Operating Agreement, for certain minor things that we felt should be majority vote rather than unanimous consent.

There are a couple of reasons for splitting things up this way.  One is that it provides a path for the LLC to own additional assets in the future: another airplane, a boat, or whatever.  We've never acted on that idea, though, mostly for all the good reasons Bob E notes about large LLCs with many members and assets.  The other reason to split the Airplane Operating Policies out from the base LLC Operating Agreement, however, is that it makes the latter simpler, stronger, and easier to maintain in compliance with state law.  You really don't want the LLC Operating Agreement which details financial policies and required meeting notices, to be co-mingled with things like how often the airplane gets washed.

 

On 7/28/2023 at 12:59 PM, midlifeflyer said:

So long as they are covered in writing, it probably doesn't make a difference, but when I advise a group, I usually recommend doing both. The problem I see is that once the organization is under way and operating, the tendency is toward informality. Things get missed. Worse yet, "oh yeah, we'll talk about that later: ends up during the later lawsuit.

So I like to see certain things covered in the operating agreement while everyone is thinking in terms of formalism and what-ifs. Prohibition against commercial use. Penalties assessed against the company due to the actions of a member.  Responsibility for damage not covered by insurance. Termination policies. Valuation for the purpose of  membership termination and death. Which expenses are pro-rata and which are shared equally without respect to member share.  What can be done by majority vote and what needs the agreement of all. Stuff like that. There's plenty of stuff left of operational policies.

No matter how well crafted a "Partner, LLC, Operating, etc" agreement is, there are sometimes foreseen events that crop up.  Sometimes it is just the partner's different interpretation of intent or what was written.  I spent most of my business career dealing with this.  Sometimes it results in binding arbitration, sometimes threatened legal action and sometimes a lawsuit.  As said before, it is largely a function of the character of the people that you choose to involve.  The "agreements" just codify your personal understandings and expectations of your partners.  

I was told that back in the 90's when I bought my J that it had been in a 3-4 member partnership.  Supposedly one well-meaning partner decided to top off the brake fluid which was low.  He used DOT 3 Automotive Brake Fluid instead of mineral oil.  The brakes eventually failed and repair cost was borne by all the members.  Other things happened and relationships were frayed.  Two years later, during a two (2) year period the nose gear truss was replaced twice, steering shaft broken and there was hangar rash to one wing. They put the plane up for sale at that point.  

Edited July 29, 2023 by 1980Mooney