Aircraft fractional ownership or co-ownership, discussed in the last two articles, is the simplest way for many pilots to cut the costs of flying. Two or three pilots write a simple agreement of how they will share their wings. For a larger group of owners or a more complex or expensive aircraft, an aircraft partnership makes more sense. This article covers the various decisions you and others need to make to have a successful aircraft partnership.
A partnership agreement is a more complex document between two or more people who want to share an aircraft. It will include a lot more legalese than a simple co-ownership agreement, but doesn’t have to be as thick as the agreement for a flying club. However, you should consult an attorney or at least a paralegal in drawing it up. Partnership Agreement forms available at stationery stores are written for small businesses and won’t be appropriate for conditions of an aircraft partnership. Consider good legal counsel an investment rather than an expense. Both the AOPA and EAA offer legal resources to members.
Aviation partnerships typically include three to five partners. A partnership agreement is a written agreement between two or more individuals who join as partners to control assets. The assets, in this case, are one or more aircraft, though most multiple-aircraft partnerships elect to become flying clubs (covered in a later column). The partnership agreement outlines the nature of the relationship, the capital contributed by each partner, and their rights and responsibilities. It also should cover liability issues and that’s where a savvy attorney can help. All these elements are included in the “articles of partnership”.
- What should you and your partner(s) decide before you write and sign a partnership agreement?
- Why do we want to consider sharing an aircraft with another owner? Cost reduction? Friendship? Better aircraft?
- Where will we find like-minded partners? Friends? Pilot club members? Referrals? Advertise?
- How reliable are the people being considered for the partnership? Sufficient assets? Dependable? Trustworthy?
- Must a new partner be voted into the established group unanimously?
- How much do we want to invest initially and monthly in our flying partnership?
- How compatible are our individual flying goals?
- How will we coordinate our individual flying needs?
- How will we buy fuel and share the costs equitably?
- How will we take care of aircraft maintenance?
- Who and how will the partnership pay the bills?
- How will the aircraft be financed, if required?
- What will the aircraft partnership cost each member?
How much is flying in a partnership going to cost? So many variables need to be considered. The costs of the partnership typically are broken down per-owner and per-flight-hour. Per-owner costs include the divided initial purchase price of the aircraft, the costs of added equipment, and any financing costs plus the ongoing costs of storage, insurance, and depreciation. Per-flight-hour costs include fuel, oil, aircraft and engine maintenance, and engine and propeller overhaul reserves.
Another way of categorizing partnership costs uses:
Initial investment to cover aircraft purchase, any upgrades, and financing costs.
Monthly dues to cover constant expenses such as fixed costs and overhead that don’t change often such as hangar rents and insurance.
Hourly rate to cover expenses that change based on flight time such as fuel.
After you’ve gathered a group of like-minded partnership candidates, you can refine your relationship by discussing some of the What-If questions that reveal actual levels of agreement and compatibility. Here are some discussion-starters:
- What will the partnership do if the engine needs major work?
- What will the partnership do if the airplane is damaged beyond repair?
- What happens if a partner dies or loses pilot privileges?
- What if a partner cannot or will not pay agreed-upon expenses?
- What if a partner wants or needs to sell his or her share of the assets?
- What if a partnership dispute requires arbitration?
No two aviation partnerships are exactly alike, just as the partners aren’t clones. Many partnerships have developed creative ways of handling unique situations. Here are some examples to consider:
Unequal shares for partners who cannot buy a quarter-share but can afford an eighth-share.
One or more partners agreeing to take a promissory note from another partner for the initial investment.
The partnership agrees to offer a partial share or to reduce monthly dues or hourly rate to a qualified member who does all or a portion of the maintenance or performs some other service for the partnership (legal, financial).
Partners are allowed a two-week block of time each year when the aircraft is exclusively theirs for hunting, vacationing, Oshkosh, or other activities.
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From your research and discussion of these issues, you can write an outline of what your partnership agreement should include. This document will save time and money as you have an attorney or paralegal help you produce a workable aviation partnership agreement.