Equity Vs. Non- Equity club

Discussion in 'Flight Following' started by Flyingfanatic, Oct 12, 2019 at 10:50 AM.

  1. Flyingfanatic

    Flyingfanatic Pre-takeoff checklist

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    I understand the fundamental differences, but I'd like some feedback on the pluses and minuses of both.
     
  2. frfly172

    frfly172 Touchdown! Greaser! PoA Supporter

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    If your a member of AOPA ,you can review their info on flying clubs.
     
  3. NealRomeoGolf

    NealRomeoGolf Cleared for Takeoff

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    Equity - you own something, plus. You have to sell to get out, minus.

    Non-equity - not on the hook for big expenses, plus. It is not yours and you probably have less power on direction of the club, minus.

    Of course it all depends on how the rules of the club are written.
     
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  4. flyingcheesehead

    flyingcheesehead Touchdown! Greaser!

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    @NealRomeoGolf nailed it. Not much difference, IMO, unless the club liquidates. I owned a stake in an equity flying club for 14 years.
     
  5. Flyingfanatic

    Flyingfanatic Pre-takeoff checklist

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    Anyone here started one up? I know AOPA is a good resource, but curious as to the details.
     
  6. NealRomeoGolf

    NealRomeoGolf Cleared for Takeoff

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    I technically have one (non-equity variety), although it is just two people and I am the owner. Wouldn't call it a club. It is an arrangement. :)
     
  7. Clip4

    Clip4 En-Route

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    In an equity club you assume higher risk for unforeseen maintenance and aircraft value depreciation. You may also be assessed for upgrades you really are not in favor. You may also have difficulty selling a share within the time frame you desire. Equity clubs may have smaller memberships. Typically a <6 member club is considered a partnership for insurance with much lower rates.

    Non-equity clubs usually have larger memberships. 75% the members rarely fly and just pay to say they belong to a flying club (national average 2 hours a month). If things are not to you liking, the loss of you initial membership fee and you are done. Members tend to rotate through non equity clubs rather regularity and the operational expenses are subsidized by a stream of new members. While some non-equity clubs provide for member assessments, most do not and use a line of credit to smooth money flow issues.

    Personally I prefer non equity clubs.
     
  8. flyingcheesehead

    flyingcheesehead Touchdown! Greaser!

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    @Clip4, while you bring up some good things to consider when joining a club, you're making a lot of assumptions here that don't necessarily apply to all equity flying clubs, and most of your points apply equally to non-equity flying clubs.

    It really depends on how the club is run financially and whether they have good reserves. My club was very well run and maintenance reserves were built into the hourly rates for the airplanes. We were able to absorb surprises like $15,000 for new fuel bladders and some corrosion repair, three engine overhauls, etc without any additional assessments on share owners.

    We did have three occasions in 15 years where there was an additional assessment: $200 per person for a nice new Diamond DA40, and $50/person, twice, for a portion of ADS-B upgrades. Those were a bargain for what members got in return!

    As far as aircraft depreciation, that's really only in theory. Aircraft don't really depreciate unless you buy brand-new ones, or you beat the crap out of them. Most equity clubs treat their airplanes well because they own them, and even though we bought a four-year-old airplane, nine years later it's still worth what we paid for it.

    Our club has a method for owners to sell their share back to the club if they're unable or unwilling to sell it on their own.

    The insurance thing is true regardless of what type of club it is. There's a lot of types you really can't insure with more than 5 people, and our club's insurance was on a people-per-plane basis: We had 30 members and 3 airplanes, but if we added one more member (and thus had more than 10 people per airplane) our rates would have gone up about 10-15%.

    As for what the right size club is, that likewise has nothing to do with equity vs. non-equity. The more planes you have, the more people per plane you can have and maintain good availability. I don't think I would want to have more than 4 or 5 people with only one airplane. With two airplanes, you can do 8-10 people per plane pretty easily, with 3 planes we had really excellent availability with 10 people per plane. 4 or 5 planes could probably support 12-15 people per plane, and so on.

    Again, not necessarily. There are equity clubs that have tons of people who just want to own part of an airplane and never fly. They're the same people who own ramp queens, it's just that they're wasting less of their money and there's other people to keep the plane flying! Likewise, there are also non-equity clubs that are smaller and have a lot more active members. There was a non-equity club on our field with the same number of planes and the same number of members we had, for example.

    There are numerous things to consider when choosing a flying club, and I won't re-hash them all here, but having been involved in flying clubs for nearly my entire aviation career, the club being equity vs. non-equity really doesn't make it onto my radar at all in terms of what's important when choosing a flying club. You want a club that's financially stable, has airplanes you want to fly at reasonable rates (not too low, or they won't be financially stable!), and maintains those airplanes well. The corporate structure of the club is way down the list of differentiators, and if you make it that far, your area has an embarrassment of riches when it comes to flying clubs.
     
  9. Clip4

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    Maybe I should have said aircraft values are highly variable.. If you are holding a share during a period of economic down turn you are going to take a hair cut and may have difficulty selling it. In my view, clubs that refund the equity if you want out are not equity clubs. Many get themselves in trouble very quickly after an economic down turn as revenues are reduced and reserves are spent to buy back memberships.

    Since member equity cannot exceed a members contribution in the event of liquidation of a not for profit club, I guess on could argue none of these are true equity clubs.

    As with any club, some are managed really well, some really bad. I have seen both on the equity an non equity side as a member. A change in a couple key people can make a huge difference.
     
    Last edited: Oct 13, 2019 at 9:47 AM
  10. gdwindowpane

    gdwindowpane Pre-takeoff checklist PoA Supporter

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    I’m in the process of starting a club in my area. Lots of useful information here. AOPA is a big resource. I have been working with our regional AOPA ambassador (I think thats what he is called). He has been very helpful.

    We are looking at 8 members. We were moving forward with a non-equity arrangement. One of our members is/was going to purchase a plane and then lease it back to the club. Plenty of sample budgets, by-laws, leases etc online at AOPA.

    The plane he is/was going to purchase is an 1976 Archer II. Owner is screwing around with the purchase and our member is getting cold feet. So we may end up going with another plane and go equity membership. I really want non-equity as we are in rural PA and selling the membership would be difficult due to the low amount of pilots in the area. Non-equity, I would think, would be easier to walk away from.

    The thing I’m having a problem with is getting a ballpark quote on insurance. Our 8 potential members include a young lady, 17 years old with zero time, 1 student with over 300 hours, a freshly minted pilot with 70 hours and the rest are 300+ some with IFR, complex etc. hard to budget an hourly rate with out some sort of idea on insurance cost. Anyone have a ballpark I can budget? AOPA insurance wants to know exactly which plane we have. I’m thinking it will either be the archer with $63,000 hull coverage or a 172 with the same hull.

    Thanks for the information. I will be following this thread.

    Chris
     
  11. Clip4

    Clip4 En-Route

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    You need to call AVEMCO. They handle must the club insurance for clubs >5 members. I believe they still allow students in an Archer and pilot experience is not part of the quote. You won’t be thrilled with the cost. The rate will be comparable to buying discounted 8 renters policies.
     
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  12. flyingcheesehead

    flyingcheesehead Touchdown! Greaser!

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    From what I've seen - And that includes about 75 share transfers - The changing value of the airplanes didn't affect the share price. Getting newer, nicer airplanes definitely increased it, but as long as we had the same airplanes the share price remained relatively constant.

    I never said refunds were given... We're definitely an equity club.

    There are clubs as you describe, though, where you buy the share directly from the club and you're required to sell it back to them. If they keep that money in a separate account - IE, it's backed up with cash - OK, still good. If you cannot sell your share to a third party, and they don't have cash to back it up... Yes, that's going to lead to trouble.

    Definitely.

    Ease of walking away can be a good thing or a bad thing. If it's non-equity and there isn't some sort of origination fee, what's to stop your members from leaving the club in November and joining again in April to avoid paying dues during months they won't fly?

    Likewise, it's nice to have someone who'll buy you a plane and put it on leaseback, but then you're subject to them screwing around, maybe not maintaining the plane well, or deciding to end the leaseback for whatever reason, leaving you with a planeless club.

    One of the best options I've seen: One flying club I was a member of bought their planes using a loan from a cooperative of club members. A share in the co-op cost $10,000 and they sold enough shares to buy the planes, and payments from the club to the co-op were covered using the dues. No bank to deal with, members with more disposable income can make a decent return on relatively low risk, and everybody's happy.

    Get a quote from Avemco. All they'll need to know is the expected hull value you want to insure, and the number of members in the club. Anyone else will want a full listing of the club members' names, total time, PIC time, time in type, etc... Kind of a pain to get all that together.

    Also, AOPA wants to know exactly which plane you have, because once they give you a quote you'll be "blacklisted" and won't be able to get quotes from anywhere else. You get two shots for insurance: Avemco, and ONE broker. The brokers don't want to go to the trouble of finding you quotes from the underwriters only to be undercut, so they don't quote anything that was previously quoted from a different broker. Choose wisely.

    Finally - Don't make insurance part of the hourly rate. It's a fixed cost, it needs to be part of the dues. Otherwise, if your members don't fly the plane enough, you won't have enough money to pay the insurance bill.
     
  13. James331

    James331 Touchdown! Greaser!

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    My understanding is a equity club is all the issues of owning plus all the inconveniences of renting.


    Per the insurance thing, there is zero reason they need the N number till you pull the trigger.
     
  14. bflynn

    bflynn Final Approach

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    Well, make insurance part of the rate if you have an hourly rate insurance. But you probably won’t.

    IMO, one of the best club structures is an loose value of equity club. How do you do that? By pricing the equity poorly. If your buy in is say $1000 and that gets you equity, then it’s an equity club. The total equity doesn’t have to add up to the total valuations, because we all know that valuations change over time. So, don't try to match them. If you want to keep values straight, create an LLC that owns the rest of the value.

    This is a position to drive toward after start up, but a large number of members with equity can each own a small amount of equity, just don’t keep adjusting the valuations. you get the low buy in costs of non equity and the ownership part of equity. A partial owner is still an owner.
     
  15. weilke

    weilke Touchdown! Greaser! PoA Supporter

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    There are plenty of 'clubs' that exist in name only and mask an underlying aircraft rental operation. As a 'club', they are considered an 'induvidual user' of the airport.
     
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  16. flyingcheesehead

    flyingcheesehead Touchdown! Greaser!

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    Not sure where you're getting that...

    Issues of owning:
    * Costs a crap-ton of money to start
    * Costs a crap-ton of money to maintain
    * Have to be ready to spend a third crap-ton of money at a moment's notice

    Inconveniences of renting:
    * Beat-up planes
    * Hard to go on a trip
    * Expensive hourly costs discourage you from going on trips anyway
    * Hard to get a plane at the last minute

    None of those applied to my equity club... IMO, it was more like all of the benefits of not having to own an airplane, with most of the benefits of owning an airplane... And some things you can't get from owning, like having three different airplanes so you can choose the best one for the mission of the day!

    But again, none of this really has anything to do with equity vs. non-equity.
     
  17. James331

    James331 Touchdown! Greaser!

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    Depends.

    Mx wise with a good prebuy and a good pilot most basic planes arnt that bad on the upkeep side.

    Most clubs have beat planes too, if the average person flying it is a weekend warrior the plane is going to get beat up, just the club plane might have newer paint and a airtex pleather interior.

    Lots of clubs where you pay a low monthly due (sub $100) and get a pretty sweet rate on the plane, last place I rented from had C150s for like $75hr wet and IFR 172s for about $100, and like 70ish a month, they weren’t going to win OSK, but flew just the same.

    I’d ether find a place like that or just buy, you can get a 8A, Grumman AA1X, C120/140 for the price of a used toyota, or get a PA24, C170, S108, Cruisemaster for the price of a used Lexus.