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Co-ownership Tips

by David Wyndham 12. June 2017 14:49
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When I was in high school I worked as line crew at an FBO at the small airport in Rochester, NH. When I started work, my employer rented out Cessna 150s for $19 per hour and a Cessna 172 for $29 per hour. AvGas was less than a dollar per gallon. One local pilot owned a mid-1960s Cessna 172. He flew only on severe-clear days, which in New England was infrequent. At best he maybe flew 40 hours per year. I asked him why didn’t he just rent. He replied that he could buy AvGas to fly 3.5 hours for the cost of one hour of a rental. I did some quick math as I knew what his recent annual cost and what he paid for the tie-down space he rented. Throw in a wild guess for insurance and I came up with over $100 per hour for his 40-hour “bargain.” I asked about these costs. A few months later he took on a partner to co-own his plane.

Most turbine aircraft fly less than 400 hours per year. Many operators since 2008 have reduced their flight activity and it is not uncommon to see utilization below 300 or even below 200 annual hours. For private owners, the 200 annual hours is maybe toward the high side. If you are flying 200 annual hours, your aircraft is sitting idle most of the time. 

Aircraft are also expensive. Fixed expenses like crew salaries, hangar and insurance when the are spread over a small number of hours drive up the average hourly total costs. If you are not using your aircraft, why not get some revenues by having someone else use it? Putting your aircraft onto a charter operator’s certificate receives a lot of attention and is the first thing I think of for helping to offset the total costs of owning your own aircraft. But there are other options like my long-ago Cessna 172 owner found out.

My general discussion will use co-ownership and joint-ownership interchangeably as it involves the day-to-day functioning of the shared arrangement. We do define them slightly different. Co-Ownership is when two or more organizations share the use and expenses of an aircraft but the aircraft is operated by a management company. Joint Ownership is when two or more organizations share the use and expenses of an aircraft and the aircraft is operated by one of these organizations (not a management company). There are legal and tax subtleties between the two that I won’t cover.

The significant advantage of co-ownership is that the two individuals share not only the costs of operation, but also the acquisition cost. Thus, a $1 million acquisition budget is all that is needed for a $2 million aircraft. You can either get a larger aircraft for the money or apply it to a newer model of the desired aircraft. Which leads me to tip number one.

Don’t buy more aircraft as a co-owner than you can afford to buy alone. 

Co-ownership works best when both partners are financially sound enough not to “need” the other in order to make the payments or pay the bills. When (not if) one of the two of you wants to sell, when you can afford the whole aircraft then the negotiations can be less stressful and less likely to result in the complete sale of the aircraft. Maintain your financial independence with respect to the aircraft. Look for a co-owner who also has the financial resources to operate the aircraft.

Second, find someone who flies “not like you” to co-own. Best case is owner A flies for business during the week and owner B takes the aircraft on vacations and holidays. You will need to schedule your travel. Avoid disputes over needing the aircraft at the same time but having complimentary schedules.

Speaking of scheduling, “first come, first served” is not likely to be successful all on its own. I saw one partnership come unraveled when scheduling issues turned into one owner scheduling the aircraft every other week for the entire year. All week. One thing to consider is “on and off” weeks. When its your “on week” you get priority scheduling and when you are “off” the other owner gets first use. To make things work, you’ll both want to accommodate each other.  

Best scheduling tip is to both have travel schedules set well in advance with limited conflicts. Agree up front about who pays what costs when the aircraft is away for several nights. Owner A takes the aircraft away and plans to on vacation for two weeks. Owner B needs the aircraft during the interim while owner A isn’t needing to fly. Who pays for the repositioning trip?  Have an agreement that spells out all use and scheduling policies.

Make sure that both owners share similar financial goals with respect to the aircraft. Want the aircraft cosmetics maintained to the highest standards? Maintained only at the service center? Spell out the level of maintenance and upkeep of the aircraft. Also spell out exactly how expenses are to be shared. Separately discuss fixed cost sharing like hangar and insurance versus variable costs like fuel and maintenance. Set up a maintenance reserve account and possibly put the aircraft on a guaranteed hourly maintenance program for at least the engines. Have a budget.

Last tip is to plan for the sale of the aircraft and terms for the sale. A long running partnership may see another aircraft. Partnerships dissolve with the current aircraft when needs and finances of one owner change. Again, if both co-owners can afford the aircraft, the loss of one owner is inconvenient but not disastrous. 

A successful co-ownership lets two owners get 80% to 90% of their aircraft needs met for 50% of the cost. Advanced planning and written agreements along with both parties being transparent with respect to the aircraft are critical, but it can work. It worked for a Cessna 172 and it can work for a much bigger aircraft, too.

 

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Aircraft Sales | David Wyndham | Flying



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