Asymmetric partnerships

[aftCG]

With apologies to those who surf the same places I do, and who might see this cross posted to those groups, I'm seeking input.

Asymmetric Partnerships
I currently have a Citabria 7ECA that has been upgraded to 150hp, and keep it in a hangar. When I got the plane it had been on loan to a flight school and small college that trains pilot/mechanics for Mission Aviation Fellowship work. There were people who had been involved with the care and use of the plane who were sad to see it leave and I thought at the time that I would keep the plane available to some of them.
That really hasn’t happened yet for no reason other than no one pursuing the opportunity. I also recently met with a couple of guys who had been looking into a partnership. They were really looking for something with more seats (they are where I was 20 years ago: kids), but they were a both great guys who would love to have access to a cheap to fly tail dragger. One of them had a great spreadsheet he shared with me which captured the fixed and variable costs in an way that was easy to plug in “what if” situations.

I’ve been a pilot for just over 20 years and spent part of that as a CFII (more on that later). As an instructor doing freelance work I witnessed several aircraft partnerships, leasebacks, flying clubs, etc. It will be no surprise to anyone reading this that the variety of satisfaction (read: soundly operated and equitable) has been all over the place.

I instructed two guys who were in a 4-way partnership in an old (but nice) C172. I taught two of the members to fly and was shocked one day to find that they had never even met each other (I booked lessons back to back and saw them walk right past each other). They admitted that they didn’t even have a booking system, they just drove out to the airport.

I also taught a pilot from a 10 way partnership in a nice C177B fixed gear Cardinal, and ended up giving BFRs to two more of the members including one who had been an owner for years but not been flying.

Those two partnerships both worked out great for the people I flew with mainly because the other owners never did. I can’t explain the behavior of those people, but it is without doubt the reason for satisfaction from the people making full utilization of their opportunity.

My recent thinking includes the following data points:
I don’t want to create a club. Rules, meetings, dues, bbq events. I’m not a hermit but I’m also not exactly social. The big multi-aircraft clubs I’ve been around had heel clicking rule enforcers and frankly a pretty high cash burn rate (over the top mandatory currency requirements come to mind). And I’m talking about my cash burning, not the club’s.

I don’t want to be an equal partner in my own airplane and be voted off the island because I don’t (or do) want to make panel upgrades, etc. For example my plane has heel brakes. It’s going to continue to have heel brakes.

The plane is going to eventually need to be covered and decisions made about the wing spars. When it goes back together I’m going to be on a crusade to save weight. Everything from covering materials and paint to battery (type and location), floor boards and panel equipment will all be obsessed over. The one weight exception I’ll make is to use metal belly skins, which are a huge benefit during annuals.

For the reasons above, a typical friendly link to the AOPA web site for an article about partnerships won’t apply here. Getting back to my “more on that later” remark, I would like to dust off my CFII and use it to teach at least one of my sons to fly as well as make myself available for tail dragger endorsements and private pilot training on a part time basis.

Potential paths as I see them right now:
1. Give up on my unicorn ideal and sell equal shares, but attempt to accept partners with a like mind. Enjoy spending 25% of my current fixed costs and live on.
2. Keep my plane for myself but essentially toss the keys to people I trust, as long as they get their own insurance. I’m pretty sure that asking them to contribute any money would constitute an illegal rental operation, so this option puts wear on my plane with no benefit for me.
3. Keep my plane, get a different insurance policy with named pilots on it, find a few like minds but sell 2-3 minor shares (possibly even $1) with rights to buy them out. Create a legal club with a dictatorship instead of a voting board, and accept money which would partially offset the monthly fixed burn rate (hangar, insurance and annual).
This club would only instruct members so I think it would avoid 100 hour requirements.
4. Screw it, keep my plane to myself and teach my son to fly. Stop speaking to nice people who express interest in my aircraft.

 

[455 Bravo Uniform]

I too would like to know the answers to 2 and 3.

 

[SkyDog58]

In 2 what do you mean by an illegal rental operation?

 

[Morgan3820]

Shame that you are not at my airport. I would love to buy a share. Anyway, my solution to your problem is what we called a non-equity partnership. The other pilot was a highly qualified Marine pilot, CFII, ATP. I listed him as a named pilot. He paid me $150/month and $20/hr. dry. He kicked in half for annuals and regular maintenance. I retained full ownership of the aircraft. I could make improvements to the aircraft as I saw fit because it was my aircraft. He had his own key and could go where he wanted to with the plane. Basically, he paid for my fixed costs, hangar, insurance and annual. I paid for the aircraft. Worked great, but then he moved to a new duty station.

 

[aftCG]

In 2 what do you mean by an illegal rental operation?

By that I mean, the FAA takes a dim view of people attempting to circumvent rules. If you rent a plane to someone under part 91 the plane is subject to a different set of rules, including mandatory 100 hour inspections.
A plane flown by its owners only has to have an annual. That may be somewhat academic because for a small group of people may only fly it 100 hours per year (sad, but possible). Flown quite a bit it might get 200 hours per year and require two such inspections.

I don't want to even appear to be circumventing the FAA's desire to keep the flying public safe.
But the way I read it a real friendly guy who says "take my plane if you'd like, just throw $50/hr into that coffee can over there" could get hung out to dry be a Fed if they interpret the well meaning individual to be running a flight school/rental operation with no oversight.

Kind of like how Uber circumvents the laws that govern taxi cabs, and the unsuspecting (or unconcerned) drivers use their regular non-commercial insurance to skate past all those darn laws. The FAA wouldn't put up with Uber Air for five minutes.

Other versions which have occurred to me but might also be viewed askance by the FAA (totally spit balling here, hence the post):
I sell non ownership fractions which expire. Say $3k plus a low hourly dry cost. The $3k gets put into the plane (ADS-B for example). We all benefit from the upgrade. New member gets to fly for a low rate possibly it expires in two years or 200 hours for that pilot. After that they may continue to fly the plane for a good hourly price (certainly less than renting, and with the benefits of being able to take the plane on trips, etc). If they leave they have no ownership stake.
One large flying club I know of (Boeing Flying Club) used to sell you a share which you could sell when you left. They changed the rules so that now you don't get to sell your share, you're just done. Hence, I'm thinking that this must be legal.

That pattern could work well for people wanting to learn in a stick and rudder tail dragger instead of clapped out C152 or Skycatcher, especially if they're needing to build hours for their commercial rating. They would eventually get a job flying a giant Tylenol and never look back. Win-win.

 

[bradg33]

By that I mean, the FAA takes a dim view of people attempting to circumvent rules. If you rent a plane to someone under part 91 the plane is subject to a different set of rules, including mandatory 100 hour inspections.
A plane flown by its owners only has to have an annual. That may be somewhat academic because for a small group of people may only fly it 100 hours per year (sad, but possible). Flown quite a bit it might get 200 hours per year and require two such inspections.

That's not correct. Pure rental absolutely does not require 100hr inspections. Providing instruction in an aircraft provided by the instructor does require 100hr inspections, but tossing your buddies the keys and charging them money to use the plane does not. The FAA does not regulate pure "rental" operations.

 

[SkyDog58]

By that I mean, the FAA takes a dim view of people attempting to circumvent rules. If you rent a plane to someone under part 91 the plane is subject to a different set of rules, including mandatory 100 hour inspections.
A plane flown by its owners only has to have an annual. That may be somewhat academic because for a small group of people may only fly it 100 hours per year (sad, but possible). Flown quite a bit it might get 200 hours per year and require two such inspections.

I don't want to even appear to be circumventing the FAA's desire to keep the flying public safe.
But the way I read it a real friendly guy who says "take my plane if you'd like, just throw $50/hr into that coffee can over there" could get hung out to dry be a Fed if they interpret the well meaning individual to be running a flight school/rental operation with no oversight.

Kind of like how Uber circumvents the laws that govern taxi cabs, and the unsuspecting (or unconcerned) drivers use their regular non-commercial insurance to skate past all those darn laws. The FAA wouldn't put up with Uber Air for five minutes.

Other versions which have occurred to me but might also be viewed askance by the FAA (totally spit balling here, hence the post):
I sell non ownership fractions which expire. Say $3k plus a low hourly dry cost. The $3k gets put into the plane (ADS-B for example). We all benefit from the upgrade. New member gets to fly for a low rate possibly it expires in two years or 200 hours for that pilot. After that they may continue to fly the plane for a good hourly price (certainly less than renting, and with the benefits of being able to take the plane on trips, etc). If they leave they have no ownership stake.
One large flying club I know of (Boeing Flying Club) used to sell you a share which you could sell when you left. They changed the rules so that now you don't get to sell your share, you're just done. Hence, I'm thinking that this must be legal.

That pattern could work well for people wanting to learn in a stick and rudder tail dragger instead of clapped out C152 or Skycatcher, especially if they're needing to build hours for their commercial rating. They would eventually get a job flying a giant Tylenol and never look back. Win-win.

Could you point me to the regulation that states that a straight rental requires 100 hour inspections?

Are you providing flight instruction along with the rental or personally flying the renters in the aircraft?

 

[trenton]

The FAA wouldn't put up with Uber Air for five minutes.

And they didn't: http://reason.com/archives/2017/06/27/how-the-faa-killed-uber-for-planes

 

[aftCG]

Could you point me to the regulation that states that a straight rental requires 100 hour inspections?

Are you providing flight instruction along with the rental or personally flying the renters in the aircraft?

Excellent input, thanks (all of you). I had that backwards and rentals needed 100hr and planes used for instruction (only) avoided such.

Is it not true that a "club" plane used for instruction would be exempt from 100 hour inspections?

 

[mondtster]

Could you point me to the regulation that states that a straight rental requires 100 hour inspections?

Are you providing flight instruction along with the rental or personally flying the renters in the aircraft?

To add to this, how many hours a year does the OP expect that the plane will be flown? It is in 100 hour for the first 100 hours post annual.

 

[bradg33]

Excellent input, thanks (all of you). I had that backwards and rentals needed 100hr and planes used for instruction (only) avoided such.

Is it not true that a "club" plane used for instruction would be exempt from 100 hour inspections?

There's an FAA chief counsel opinion floating around that discusses that issue. Basically, Club members can give instruction to other Club members without the need for 100hr inspections ONLY if Club members are given the choice to use non-member instructors. In other words, if the Club forces all members to get instruction from member-instructors, 100hr inspections are required. If Club members can use any CFI they choose (presumably subject to certain minimum insurance standards), then 100hr inspections are not required. I'll see if I can find the opinion.

Edit: found it/attached.

 

[Tom-D]

2. Keep my plane for myself but essentially toss the keys to people I trust, as long as they get their own insurance. I’m pretty sure that asking them to contribute any money would constitute an illegal rental operation, so this option puts wear on my plane with no benefit for me.

It is not illegal to rent your aircraft to any one.
Renting isn't considered a commercial operation and does not require a 100 hour inspection, as long as you are not instructing in it.
Find a couple good friends that you trust with the aircraft, rent it to them for any amount you wish. very legal.

You wish to instruct in it? 100 hour or an annual must be completed each 100 hours.

 

[Eric Gleason]

It sounds like selling non-equity shares would suit your situation best. Another option would be to sell equity shares, but retain 50% or more for yourself. If you write the partnership/club laws so that each share gets a vote, owning 3 out of 5 shares would give you 60% of the vote in case of disagreements. It's common to have minority partners in financial relationships.

When writing the specific rules, you should consult an aviation attorney in your state. You'll probably find it very beneficial to put the plane in an LLC to protect your other assets, and also to avoid sales taxes when shares are bought and sold.

 

[Ravioli]

4 is best.

 

[TCABM]

Either non-equity partnership or what @Eric Gleason wrote, maintain a controlling amount of shares in the partnership and include dissolution language that gives the majority owner right to repurchase a share before anyone else.

 

[wayne]

I don’t want to be an equal partner in my own airplane and be voted off the island because I don’t (or do) want to make panel upgrades, etc. For example my plane has heel brakes. It’s going to continue to have heel brakes.

The plane is going to eventually need to be covered and decisions made about the wing spars. When it goes back together I’m going to be on a crusade to save weight. Everything from covering materials and paint to battery (type and location), floor boards and panel equipment will all be obsessed over. The one weight exception I’ll make is to use metal belly skins, which are a huge benefit during annuals.

...

Potential paths as I see them right now:
1. Give up on my unicorn ideal and sell equal shares, but attempt to accept partners with a like mind. Enjoy spending 25% of my current fixed costs and live on.
2. Keep my plane for myself but essentially toss the keys to people I trust, as long as they get their own insurance. I’m pretty sure that asking them to contribute any money would constitute an illegal rental operation, so this option puts wear on my plane with no benefit for me.
3. Keep my plane, get a different insurance policy with named pilots on it, find a few like minds but sell 2-3 minor shares (possibly even $1) with rights to buy them out. Create a legal club with a dictatorship instead of a voting board, and accept money which would partially offset the monthly fixed burn rate (hangar, insurance and annual).
This club would only instruct members so I think it would avoid 100 hour requirements.
4. Screw it, keep my plane to myself and teach my son to fly. Stop speaking to nice people who express interest in my aircraft.

Like defining one's "mission" for deciding what plane to get you need to define you "mission" for ownership of the plane, which you've certainly started.

Remember a partnership/co-ownership is about others as well as yourself. Just like you don't want to be voted off the island the other owners would not want to just be ignored and feel used for their money. I would be leery of putting in equity into a partnership where one other person had 60% ownership. I could just get out voted at every decision point. Others may think it's a cheap way to get in and don't mind someone else making the decisions.

There's a saying that there two bad financial situations in partnerships: 1) where the other partners can't afford to spend as much as you can and want on upgrades, and 2) where the partners can and want to spend more than you can on upgrades.

I'm in my second non-equity partnership and working on creating a new 3 or 4 owner equity partnership. In both non-equity partnership the owner retained full ownership of the plane and had 2 or 3 non-equity partners (renters). The partners pay a monthly fee to cover fixed costs: hangar, insurance, GPS updates, annual, etc. Then the partners pay an hourly fee for usage. Both I've been in use a dry rate. I've read of others that do a wet rate. Is this mode the owner retains full decision making on the plane. It sounds like you may prefer/want to have that full decision making.

1. You can look for people with similar perspective on what to do, but it may be impossible to find a 100% perfect same match on everything with four people. There may be some give-and-take. The main goal would be to find like-minded people on the big items.

2. I'm not sure about it being an illegal rental operation, but your insurance might not cover any damage done by those "renters". That would be the case regardless of whether they gave you any money or not. You toss someone the keys and if they are not named on your policy or covered under the open pilot clause then the insurance company doesn't need to pay for a penny of damage they do.

3. You may not need a different insurance policy, but rather update your current policy. This was done for both non-equity partnership I've been in. The owner updated his insurance policy with named pilots, so he was covered. I owned zero of either plane, but paid monthly and hourly fees.

4. Always an option.​

If you want to retain full control of the plane your two best options are fly it yourself and a non-equity partnership. This doesn't free up your equity, but it does give you full control and in the partnership option does reduce your fixed costs. If you can find people to buy 40% then that works, but I think that could be challenging.

If you can give up full control you could sell equity shares. You could look for like minded people, but there's no telling how they will "vote" when it's decision time for an upgrade/repair. That would free up equity and reduce fixed costs, but you lose total control.

There is no one best solution. It's what you want and need.

Best of luck.

 

[jonnyjetprop]

Call your insurance company. Ask them how many additional pilots can you place on your insurance before you're considered a club. Either insure the plane with significant insurance and/or form an LLC to protect you if they do something stupid. Rent the plane to the limited number of pilots for a fixed amount or ask for a monthly fee and a much small hourly rate. Schedule with the understanding that you get first dibs, since you own the plane.

It's called a non-equity partnership.