non-equity partnerships

[GeorgeC]

I just made my first attempt at buying into an airplane. Ultimately, we could not agree on how to answer the questions that came up during the prebuy, so the deal was not consummated.

While the experience was very educational, in hindsight, I am wondering if a non-equity partnership would have been a better fit. How are these typically structured? Do non-equity partners typically pay for gas, insurance, an hourly rate for maintenance, and a share of the fixed costs? Or are variable costs like annuals and upgrades also included? How does one go about finding such a partnership?

 

[poadeleted20]

I don't think there's any "typical" "non-equity partnership". The fact that you have no equity in the deal is contrary to the normal business entity known as a "partnership". So, how you structure it, what's included, and how you pay for the use of the aircraft is pretty much all one big negotiation between the "non-equity partner" and the actual owner of the aircraft.

 

[denverpilot]

Gotta agree. If you don't have skin in
the game, it's just a fancy way to say "rental".

 

[midlifeflyer]

As Ron said, they are structured in any way the parties agree to structure it. The typical transitional lawyer response to "what can I do?" is "what do you want to do?" But you don't want to make it up as you go along. You probably do want some at least minimal legal advice and accounting advice since, as with any co-ownership, cross-liability and tax issues can exist.

To the extent any is "typical," I guess they involve not zero equity but an exceedingly small buy-in with a primary owner who (a) can't find an acceptable co-owner, (b) doesn't want to give up control, and/or (c) does not want the downside of leaseback to a FBO.

I was in one for a few years. In this case, corporate ownership, super-majority shareholder and 4 very small minor ones. There were definitely downsides (as in anything) but it worked out great and the pluses far exceeded the minuses.

 

[Aztec Driver]

As Ron said, they are structured in any way the parties agree to structure it. The typical transitional lawyer response to "what can I do?" is "what do you want to do?" But you don't want to make it up as you go along. You probably do want some at least minimal legal advice and accounting advice since, as with any co-ownership, cross-liability and tax issues can exist.

To the extent any is "typical," I guess they involve not zero equity but an exceedingly small buy-in with a primary owner who (a) can't find an acceptable co-owner, (b) doesn't want to give up control, and/or (c) does not want the downside of leaseback to a FBO.

I was in one for a few years. In this case, corporate ownership, super-majority shareholder and 4 very small minor ones. There were definitely downsides (as in anything) but it worked out great and the pluses far exceeded the minuses.

What were the "downsides?"

 

[Ted]

I was in a non-equity partnership for the Mooney M20F I used to fly. I paid a fixed amount every month that covered my share of hangar, insurance, and theoretical annual cost. I then paid an hourly rate (wet or dry, depending) for the use of the plane. It worked out very well. It gave the full equity owners the flexibility to do with the plane as they wished, but they also went for my input in making decisions. It saved the arguments of "Well I want this" "I want THIS!" etc that I would think would make equity partnerships more difficult, at least for me. Sometimes if they were short on funds, I'd cover a repair and then just take the money out in aircraft time.

I saw the positives as no cash outlay for me to get in, no requirements to share decision making (for both of us) and operating the plane for an overall out-of-pocket cost to each of us lower than we could have done on our own. I saw the negatives as the plane wasn't as nice as I would've made it, and we did have a few conflicts of use.

 

[TMetzinger]

I was in a non-equity partnership for the Mooney M20F I used to fly. I paid a fixed amount every month that covered my share of hangar, insurance, and theoretical annual cost. I then paid an hourly rate (wet or dry, depending) for the use of the plane. It worked out very well. It gave the full equity owners the flexibility to do with the plane as they wished, but they also went for my input in making decisions. It saved the arguments of "Well I want this" "I want THIS!" etc that I would think would make equity partnerships more difficult, at least for me. Sometimes if they were short on funds, I'd cover a repair and then just take the money out in aircraft time.

I saw the positives as no cash outlay for me to get in, no requirements to share decision making (for both of us) and operating the plane for an overall out-of-pocket cost to each of us lower than we could have done on our own. I saw the negatives as the plane wasn't as nice as I would've made it, and we did have a few conflicts of use.

My experience. was similar to Ted's. Much like renting but with better availability and aircraft upkeep.

Sent from my Nexus 7 using Tapatalk

 

[Ted]

My experience. was similar to Ted's. Much like renting but with better availability and aircraft upkeep.

Sent from my Nexus 7 using Tapatalk

The other benefit is that you know who's flying it. IOW, theoretically you don't have idiots abusing the thing and flying it at "full rental power", etc.

 

[JasonF]

I second Ted's comments. I also pay a fixed monthly fee, a dry hourly rate, fuel, and also any annual delta cost in the aircraft's insurance caused by my lower time than the owner's (he is a CFI with more hours, and more hours in type). The upside is a nice airplane with good availability, and no daily minimums. This really opens up the option for day and overnight trips that are difficult with rentals. The downside is you need to fly a certain number of hours per month if you want to break even or save money when compared to renting. Also, you have to make sure you have an agreement that describes what happens when the aircraft is down for extended maintenance.

Overall it's very positive for both parties, as airplanes are just too darn expensive for only one person to use. Sharing that fixed cost burden of insurance, annual, and hangar/tie down among 2-3 people helps dramatically.

 

[TUPilot]

Gotta agree. If you don't have skin in
the game, it's just a fancy way to say "rental".

Especially since some insurance policies may consider it a rental. If the named pilots are paying to use the aircraft (other than fuel), you may be getting into a gray area. I haven't investigated it thoroughly enough (ended up going with a shared equity arrangement) but something you'll want to look at closely.