Enter partnership?

gprellwitz

gprellwitz

Touchdown! Greaser!
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Grant Prellwitz
Okay, this is VERY preliminary, but I've just learned about a partnership opportunity that's becoming available, and wanted to get an idea what to look for.

About 6 months ago I was talking to someone at our local airport and found that he was in a 4-person partnership in a Turbo Cessna 210 based at an airport that's even closer to our house. I told him to call if there was a spot available, and I got a voice message tonight that one of the partners was retiring and moving out of the area.

Leslie and I have been looking for a plane for a number of months now and, while this is probably more plane than we were initially considering (TR-182), it isn't out of the ballpark, especially if the up-front costs are minimized by a partnership.

However, it'll be our first plane ownership experience, and it isn't a beginner's plane. I'm looking for advice on what to look for in the partnership.

As I understand it (6-month old and from memory), we would be the least-experienced owners i the partnership. Additionally, there would be two of us taking on the ownership from a single member. We might fly more than the typical 1 member, but not as much as 2 members, though we would both want to be listed on the insurance policy.

Additionally, I seem to recall (and this could certainly be wrong) that they do not currently have it set up with an IFR GPS, something that we consider important, since the home airport does not currently have an ILS. Should we underwrite an upgrade to the GPS?

What else should we watch out for? Obviously scheduling history. How does financing work with something like this?
 
I have been in a 4 way partnership in a Bonanza for about 10 years, and am generally very happy with it. Honestly, even with 4 of us, it is almost always available to fly. There is no way I could afford such a nice plane any other way. Even though the 210 is more plane than you were counting on, it would be much cheaper to own 1/4 of a 208 vs a complete 182!

I was looking for something like a 182 or Arrow when I happened to find out about the Bonanza. Much more plane than I was planning on, but I am so glad I did it! I was the least experienced owner at first, now I am the most.

As for financing, you will probably need to offer some collateral, like equity in your home, your car, or some other kind of personal guarantee. It is unlikely that the bank would accept a 1/4 share in your aircraft,.. but you never know!

Some things you need to talk about and feel comfortable about:

- Scheduling: Will it be available when you want it? What is the scheduling history of other partners?

- Aircraft: What is the maintenance history? How much have annuals or other maint cost over the years? Do you plan to save money with owner assisted maint? Who will help?

- Upgrades: What would you like to do? (avionics, paint, interior, etc.) Are the other partners agreeable to a general plan for this?

- Money: How do you want to handle it? Is there a maint reserve that comes with your share (equity)? Is the maint reserve enough to buy a new engine and prop when the day comes? Do you want to pay for annuals and other maint from the reserve, or out of pocket? How do you pay for upgrades? How often do you bill yourselves for hourly operating costs (reserves)? How do you pay for fixed costs? Who does the accounting, is it up to date? Look over the books.

- Personality issues: Do the partners strike you as easy to work with and agreeable? Have there been disputes in the past? How are they handled? There MUST be a documented process for this.

- Responsibilities: Who is responsible for what? ie. Maintenance (scheduling maint, communicating with A&P's, watching over logbooks, oil change and inspection intervals, etc), Accounting, Cleaning, etc.

- Partner turnover & dispute resolution: How do you deal with accepting new partners? What if there is a bad apple that is dangerous, or just difficult to deal with?

All of these items should be carefully agreed upon and documented.

Please feel free to send me a PM and I'd be happy to answer questions or tell you what has worked for us!

-Erik
 
Grant, Erik alluded to reserves. Be sure to look at the books to determine how much is in each reserve account. Moreover, find out how much of said reserve will be given back to the departing partner and will you have to cover 1/4 of the reserve? If there is $100k in reserves, can you come up with an additional $25k?
 
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When we have sold partnerships in our plane, the negotiated purchase price includes the share in the plane, all reserves, hangar supplies (oil, spare landing lights, tugs, etc.). I ususually provide the seller with a list of the current assets and reserves which he can show the purchaser. 1/5 of the value is added to the negotiated price for the plane.
 
I for one have never been a big fan of partnerships, but thats my opinion. I have a friend who is 1/2 owner of a nice 182, but his partner has more money than he does. His partner is always wanting to do upgrades that cost big bucks. (ei, new Stec 55 AP, new garmin stack, just to mention a few,over $30K)This has put him in some bad situations. You either make your partner made, or have to spend money you may not have.

I would keep renting before I went into a partnership.
 
Grant, I've been involved in several partnerships. Each has worked well. The real plus is that with a partnership you can get access to aircraft that would be too expensive to justify for sole ownership.

There are two keys that come to mind that make everything work. First, as the others stated, you need written ground rules. The second, and maybe most important, is that the chemistry between the partners be good. In each of our partnerships we have had a clause requiring approval by the remaining partners when one partner wants to sell his share.

Cap'n Ron will probably get all over my case for this, but we've never set up overhaul reserves in the partnerships. The thinking was that we would likely never stay in the aircraft long enough for it to become a factor. We just sold our R22, and it's a good example of what I'm saying. We bought it with about 400 hours on it and sold it 800 hours later. The reserve for factor overhaul at 2200 hours would have been around $50K at this point ($90K needed when 2200 hours are reached), cash that would have returned a low interest rate. As it turned out, we sold the helicopter for about $7K less than we payed for it, so I believe our strategy was correct.

same on our R44. I'm willing to bet that we sell it for a turbine ship in the next few years, so again, we have no reserves.

YMMV!
 
bstratt said:
When we have sold partnerships in our plane, the negotiated purchase price includes the share in the plane, all reserves, hangar supplies (oil, spare landing lights, tugs, etc.). I ususually provide the seller with a list of the current assets and reserves which he can show the purchaser. 1/5 of the value is added to the negotiated price for the plane.
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Do you, HOW do you, put a value on the plane?

I'm going to continue to look for a partner. The plane needs to fly more and I don't need to keep paying all of the fixed costs for the flying I do.
 
Besides the advice given above, I would encourage you to meet with the partners, if you haven't already. The deal for you would be a business arrangement; however, this is an airplane, and you would be sharing the use of the plane with the others. Personality conflicts cause much grief in partnerships. You don't have to be best friends with anyone, but you do need to be able to get along and resolve any things that come up.

You would be the new guy. For that reason, you will be well ahead of things to approach any suggestions, such as a GPS [$$$], slowly. Unless the others are already gung-ho for it. A new person, if pushy about it, can upset an established balance to a group and cause resentment. I mean, must be smart about it.

My own partnership is great. The 3 of us aren't best buddies, don't hang around socializing away from the airport, have our own lives and families. But there has never been a problem for us on the plane.

The suggestion for written policies is priceless. It can be way too late, later one, if there isn't an agreed method for someone to leave the partnership demanding such and such amount of money for his or her contributions to the improvements or the amount of money in an overhaul fund, if there is one. This one can be a biggee. I've seen it, though not in either of my partnerships. Example: there is a policy of sticking so much per flight hr. into a separate account towards the overhaul. Someone leaves the partnership or gets shown the door and wants a percentage of that money [even though he used the plane and put wear on the engine, which is what it covers, basically]. My brother-in-law has a good buddy who is in a partnership on a plane that has sat for over two years on the ramp, not flying a second in that time, because of legal wrangling over a former partner's arguing for a share of the overhaul fund. It's absurd, but it is real. And, this is a little Cherokee 160.

Go for it, if all looks good.
 
Some good points here.

One thing that I know might come up is the fact that they currently have four people on the insurance policy and with Leslie and me it would have to go to five. Would that influence the insurance cost, or would it be based largely on the "lowest common denominator" pilot?

If a husband/wife team comes on board in a partnership, should they be treated as a single person in terms of ownership, two people, or somewhere in between?
 
mikea said:
Do you, HOW do you, put a value on the plane?

I'm going to continue to look for a partner. The plane needs to fly more and I don't need to keep paying all of the fixed costs for the flying I do.
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That is entirely at the negotiation of the seller & buyer. There are many sites that give you values - accuracy is open for debate. It also depends on how badly you want to sell or how many people are bidding to buy where the price ends up.

In our case, with 5 partners, the difference in value for the plane is usually only a few months carrying costs - e.g. my partner that recently sold wanted $15,000 - $16,000 for his interest in the plane itself. He actually sold for $13,000 + 1/5 of current assets. To him (as he wasn't flying) the $2,000 represented an avg. of 6 months expenses.
 
gprellwitz said:
Some good points here.

One thing that I know might come up is the fact that they currently have four people on the insurance policy and with Leslie and me it would have to go to five. Would that influence the insurance cost, or would it be based largely on the "lowest common denominator" pilot?

If a husband/wife team comes on board in a partnership, should they be treated as a single person in terms of ownership, two people, or somewhere in between?
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Grant, I know that is an issue for us - our policy states that 5 is a partnership, 6 or more named pilots is a club. I can see both sides of the argument but I think if you want both of you named then it is two shares as that means both of you would be flying separately.
 
As long as the plane remains privately used, no commercial op's, I doubt there would be an increase in the insurance. I've never known that to happen. For my plane, we've had two insurers in the past three yr. Neither of them cared a bit about how many of us there were; perhaps if it were a dozen or more it would be different, I don't know and that isn't your situation. With a plane like a 210, some insurers will very definitely want more money if one partner is low time. It would depend on how low the time is. In that case, if it is your situation, the only three options the partners have, in any real sense, is to either just pay the increased insurance, everyone pitching in a bit more; or, you agree to pay the difference so they don't incur any increase themselves; or, they don't let you buy in in the first place.

I offer my own current partnership again: we originally had another partner who was very low time in our plane, which was a twin. The increase in insurance premium to cover him was enormous. We made a deal with the insurer, that this partner would not ever fly the plane solo, without one of us other partners along and in position to take the controls, until he built up to the hours level they wanted. He dropped out of the partnership in a short time anyway, for other reasons.

This might not even be a factor in your own proposed partnership. But I'll say again, if you like the plane, you like the partners, they like you, and you like the policies they have, however informal or formal they are, go for it. Later, if you decide to get into a plane ownership alone, you'll be quite well educated about ownership and have done that splitting the costs four or five ways.

The T210 is a very capable traveling machine. You'll love it.
 
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bstratt said:
Grant, I know that is an issue for us - our policy states that 5 is a partnership, 6 or more named pilots is a club. I can see both sides of the argument but I think if you want both of you named then it is two shares as that means both of you would be flying separately.
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I too can see both sides of it. On the other side is that 80% of the flying we do is together.
 
gprellwitz said:
One thing that I know might come up is the fact that they currently have four people on the insurance policy and with Leslie and me it would have to go to five. Would that influence the insurance cost, or would it be based largely on the "lowest common denominator" pilot?
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Grant,

FWIW, I've asked this very same question in my hunt. I was told that up to 3 partners would be based on the "LCD" pilot, four would result in a cost increase, 5 would result in another increase, and 6 would be considered a club. (This was Avemco.)
 
Grant, before you get more serious, ask the owners at what airspeed they operate the T210. If over 165 knots, it will need major work in the 900th hour. The 520 will make TBO IF it is run conservatively.

But if someone tells you they are running 170 kts at 11,000, head for the door.
 
I'm buyng into a partnership on a 172 right now. There's a sample contract on AOPA that seems to sum up everything. I've known the other partners since we went to ground school together. Great guys. Partner #3 is leaving and getting out of flying altogether.

An airport bum with oodles of time, gave me the best advice: "Go into it with the idea that the other 2 partners are your enemy and word the contract accordingly" This will keep it all businesslike, which is always a plus.

We do maintain a reserve fund, but, Bob's logic makes a lotta sense.


Mike
 
bbchien said:
Grant, before you get more serious, ask the owners at what airspeed they operate the T210. If over 165 knots, it will need major work in the 900th hour. The 520 will make TBO IF it is run conservatively.

But if someone tells you they are running 170 kts at 11,000, head for the door.
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I'll ask about the airspeed. I talked with one of the partners on the phone last night and he said that they ran ROP keeping the T.I.T. below 1550 and that they don't have GAMIjectors. The engine is about 1200 SMOH (SFRM?), 600 STOH, and less than 3000 airframe TT on a 1977 T210M.

It's in for its annual right now, and they have it done by the same guy I would have had do a pre-buy. He does the maintenance on our club planes, and I trust him. Of course, that does leave me with some trepidation about using him for the pre-buy on this! :)

I did confirm that the GPS is VFR only, which is the only majory deficiency in the panel I know about at this point.

To Bob's point, they do NOT have an engine reserve on it.
 
I believe that TBO on that engine is 1400 or 1500? My 210-Mafia friends here all love their 210s, but the engine overhaul is a very substantial expense, be certain to value the plane interest accordingly.
 
gprellwitz said:
The engine is about 1200 SMOH (SFRM?), 600 STOH, and less than 3000 airframe TT on a 1977 T210M.

To Bob's point, they do NOT have an engine reserve on it.
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With that amount of time and no reserve be cautious about buying into something that you instantly have to pay for a new or overhaul engine on. Since you are the new guy any contribution to that new engine should be prorated to the hours you would have put on the old engine. No way should it be equal splits among the partners once you are in. That is if you do get in.
 
Grant,

I've been in a partnership on seven or eight airplanes, and am currently in a partnership on the Bonanza. Besides the excellent input from others here, there are a few other things I'd think about:

In the past, Avemco, USAIG, AIG, and Global have all told me that the fourth person on the policy raises the rate. I assume you’ll be adding two people to the policy for a total of five. If adding you two pushes the rate up whose responsibility is it to pay that?

If you and Leslie are the least experienced pilots, what does that fact alone do to insurance? The 210, and especially the T210, is a high premium airplane because of gear issues (this according to several underwriters I've spoken to). If you are pushing the premium even higher because of your relatively low time will that be your responsibility to pay for or is that additional expense shared among the current owners?

Are you in approximately the same financial position as the other owners? That is, do you have a lot more or a lot less disposable income than they do? I think it's very important for reasons Dean mentioned before.

How does your flying schedule fit with theirs? My partner has family outside the area and he almost always travels on holidays. I have my family local so it's not a problem for me. If we both wanted to take the airplane every Christmas we'd need to work something out. As it is, over the last ten years of partnerships I’ve had less than a hand full of scheduling issues.

Approach the partnership paperwork as if it were being dissolved. What I mean by that is assume the worst case and make sure the partnership agreement covers it. What if someone pushes the airplane into a hangar door? What if someone flat spots a tire? What if someone wants out? What if someone gets a divorce and the airplane is tied up in the process? What if someone dies? What if a majority want to refurbish the paint and interior? What if someone can’t get a medical? And on and on…

Meet the partners' spouses. A partner's spouse can have a huge influence over how the airplane is used and maintained, and I'd run away from a partnership where one of the spouses is obviously not supportive. Also, if something happens to one of the partners you may end up being partners with the spouse, and it would be good to know what you're getting into. A casual dinner or cocktails is a good way to meet everyone.

With both of you flying the 210 does this impact your agreement? I had a guy who wanted to partner on an airplane, but he wanted himself and his son (also a pilot) to be involved. In my mind that was three partners on the airplane and I should only pay 1/3. In his mind he and his son would own 1/2 of the airplane. I don't know the right answer but it's something you'll need to discuss up front.

I think I've said it here before. Partnerships are a lot like marriage. There's nothing better than a good one, and nothing worse than a bad one. Best of luck. I think the T210 is a great traveling airplane and a wonderful instrument platform.
 
smigaldi said:
With that amount of time and no reserve be cautious about buying into something that you instantly have to pay for a new or overhaul engine on. Since you are the new guy any contribution to that new engine should be prorated to the hours you would have put on the old engine. No way should it be equal splits among the partners once you are in. That is if you do get in.
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Scott,
Why do you say that? As Spike said, I'd factor the "worn-out" engine into the purchase price, and the new engine would benefit me if I were to sell it immediately after overhaul just as much as it would any of the other owners. Am I missing something here, other than to be aware that the "purchase" price might be paid in two installments and that I'd better have enough set aside to be able to pay for the overhaul?
For example, say that with a fresh engine it's valued at 160,000, and that an overhaul will run 40,000, so a "worn-out" plane would be valued at 120,000. So I buy into a "fresh" plane at 40,000, or one with a "worn-out" engine at 30,000 and have 10,000 put aside for an overhaul.
 
gprellwitz said:
Scott,
Why do you say that? As Spike said, I'd factor the "worn-out" engine into the purchase price, and the new engine would benefit me if I were to sell it immediately after overhaul just as much as it would any of the other owners. Am I missing something here, other than to be aware that the "purchase" price might be paid in two installments and that I'd better have enough set aside to be able to pay for the overhaul?
For example, say that with a fresh engine it's valued at 160,000, and that an overhaul will run 40,000, so a "worn-out" plane would be valued at 120,000. So I buy into a "fresh" plane at 40,000, or one with a "worn-out" engine at 30,000 and have 10,000 put aside for an overhaul.
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I am just saying I wouldn't want to have to pay for an engine overhaul on an engine that I had put no hours on. If your plane is to reduce the cost at buy-in due to the run out engine fine.

I have no experiences with partnerships, I am leary of them. It always seems like there is one guy who will work every angle to make sure he gets a good deal and other get screwed. I never wanted to deal with that so I own mine outright and have been very happy. But I know partnerships work for some, I guess all I am saying is caveat empor.
 
Wow Grant! Sounds like a nice plane; hope the partners check out. It will change your perspective about longer trips; make them much easier. Ask them to take you up in the plane. Watch how they operate it; compare that to the POH. Ask questions if they aren't following the POH.

I'm in a wonderful partnership with my P-Baron. Still, we did a buy/sell agreement. If one party (or their heirs) want out, one party makes an offer. The other party can either buy or sell at that price. Keeps everyone honest. Cannot imagine using that with this partner. I'm sure we'd just work something out, but I have a good friend that incurred two years of proceedings to eject a bad partner---therefore, I want a buy/sell agreement in all my partnerships--not just airplanes.

Best,

Dave
 
The first step is going to be to determine if we like the plane. It has a few strikes against it in my mind:
- Apollo 360 VFR-only GPS
- 400B autopilot, which I understand is sometimes considered temperamental and expensive to repair (in general, not necessarily this particular unit)
- 1289 since a TCM factory reman on an engine with 1400 TBO. The compression history is:
Code: 
     10/03    11/04    12/05    12/06    9/07    1/08
#1      68      70      68      68      72      66
#2      70      70      70      75      70      70
#3      74      72      70      74      72      74
#4      68      68      68   66      62      70
#5      70      76      71      67      66      70
#6      69      70      74      70      70      61

On the plus side, in the past few months it's gotten a new alternator and vacuum pump, and it has had the crank & bearings replaced per the TCM AD. It's got an Insight GEM and a standby vacuum and Corrosion X treatment.

After that, we'll take a hard look at the partnership itself, including their operating procedures, charter, agreement, etc. The plane is currently register as co-owners, with each members' name listed on the registration certificate. We'll want to look at the scheduling history (it's scheduled via aircraftclubs.com) and see what their dispute resolution process is.

Presuming that's all okay, we'll need to negotiate with two parties: the seller, to negotiate a price, and the remaining members, to determine how the fact that there are two of us should be treated for insurance, etc.
 
Big drop on #6. Perhaps the annual will tell you something, if you find metal in the filter, etc.

I have been in a partnership for about 3 years, no problems, no engine reserve for the reasons indicated above by iHover. Buy-in is valued at 25% if the plane value with the TSMO and TT it has at the purchase date + 25% of maintenance/operation fund. Negotiated price between the seller and buyer, just like any other purchase. Ours is a Christian partnership, so we have some expectations about how partners will behave toward each other. We have a vote on accepting a prospective buyer, after getting to know them.

None of my partners fly much, and actually want the plane flown more. So a husband/wife that both fly would not be a problem for us. Perhaps offer to pay the extra insurance for the 5th pilot. As the low-time pilots you may be the cause of a larger proportion of the insurance charge; but in a partnership the effect of pilot experience seems to be averaged.

The way we do the use charge is that the monthly (X4) is enough for all the fixed costs, annual, oil changes, routine repairs. Fuel only for the first 30 hours/year. After that $10/hour to the fund. The idea is it encourages everyone to fly at least 20-30 hours/year - good for the plane and for their skills. But a high user pays in more so the others feel it is more equitable. With a husband/wife team, if you did it in a similar way, you would likely get to the hourly charge earlier in the year than others. For upgrades we vote on the change, and share the cost. Someone who does not need something could opt-out - like a VFR-only pilot who would not want to pay for an IFR GPS. In that case the IFR pilots split the cost of the IFR equipment. So far this has not been an issue, but it could be for a high $$ item since the VFR pilot would still get some value out of the IFR GPS in the value of the plane when/if he were to sell his share. We may want to institute a partial recovery of the upgrade cost at a sale for something expensive like a new GPS.

A good partnership makes good sense. But as was said, and bad partnership can create all manner of problems. Best to get to know everyone and the history before you buy-in. Lots to think about. Bottom line for me was that the buy-in cost was 25% of solo ownership. Fixed cost is 25% of solo ownership. My share of the insurance was actually a lot less than what I was paying for renter insurance. And the risks of ownership (unexpected costs) are easier to accept knowing you will only get hit with 25%. Finally, without prior plane ownership experience I felt much more confident buying into a plane where most of the partners were NOT selling (no one dumping a lemon on me), and knowing I had the help of others with a lot of experience and history with this plane.
 
Greg:

If you're all on there as joint owners, you probably have joint liability.

Best,

Dave
 
Dwight B. Van Zanen said:
Big drop on #6. Perhaps the annual will tell you something, if you find metal in the filter, etc.

I have been in a partnership for about 3 years, no problems, no engine reserve for the reasons indicated above by iHover. Buy-in is valued at 25% if the plane value with the TSMO and TT it has at the purchase date + 25% of maintenance/operation fund. Negotiated price between the seller and buyer, just like any other purchase. Ours is a Christian partnership, so we have some expectations about how partners will behave toward each other. We have a vote on accepting a prospective buyer, after getting to know them.
[...]
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Dwight, that's very much how I'm seeing things. I too noted that large drop, but also see that there have been previous years in which a cylinder was almost as low, then to see it rebounded. I'll definitely be talking about it with them, though.

All the partners are IFR, though it appears that two of them got the rating last year, so we may not be the lowest time in the group.

The idea of some sort of a partial recovery of the cost at sale is an interesting one. Of course, there's the initial cost and then the ongoing database maintenance cost. It's certainly a point for discussion. It's up to Leslie and me to decide if it's something we'd want to go in on if it's not equipped the way we would want. We've both only flown IFR GPS equipped planes before, so it's both a comfort factor and a real utility piece. I'd really miss being able to accept a direct clearance, but the bottom line is that it would still fly!
 
gprellwitz said:
I too can see both sides of it. On the other side is that 80% of the flying we do is together.
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The club I once belonged to allowed "family" memberships at a slightly increased monthly share. The family members were restricted collectively to the same scheduling rules as
a single member.
 
Skypilotcfii said:
With an engine that close to TBO there are a lot of unknowns.
...I would not trust that 400B unless all servos had a recent overhaul.
I think the biggest flag for me is the engine is basically run out.
Sorry to be so negative.
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TBO has little meaning under part 91. The engine is run out when it's run out - when it has problems that are obvious.

Mine is way beyond the overhaul time limits but 700 hours under TBO. I'll get the overhaul when my mechanic says I need it.
 
mikea said:
TBO has little meaning under part 91. The engine is run out when it's run out - when it has problems that are obvious.

Mine is way beyond the overhaul time limits but 700 hours under TBO. I'll get the overhaul when my mechanic says I need it.
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Big HP engines are not known to go very far past TBO, so I would go into this expecting to help pay for an overhaul.
 
Dean said:
Big HP engines are not known to go very far past TBO, so I would go into this expecting to help pay for an overhaul.
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OK. I'll buy that. I have the luxury of theoretically having a 300HP engine downrated to 235HP.
 
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