Partnership/flying club

[38bat]

I am thinking of putting my cherokee 160 into a partnership/flying club. Nice airplane with less than 500SMOH and 3000ttaf, IFR, all speed mods etc.. Prices include maintenence, reserves, hangar fees, insurance. I am thinking of adding 4 partners/members plus myself. After running the numbers it looks like this:

Scenario 1: $2500 buy in, $70 monthly, $32 hour dry

Scenario 2: $2500 buy in, $0 monthly and $54 hour dry

Or??? Any pitfalls other than the obvious? The other question I had is that originally I had thought of offering 20% ownership to each member. Is this a good idea or would it be better to lower the buy in and make it more of a club where I own the plane? Input welcome, thanks guys!!

What do you guys think? Any suggestions? Does this sound appealing? I thought that $32 an hour for a nice IFR airplane sounded really good but am interested in hearing opinions. I am open to other ideas as well. Thanks!!

 

[germb747]

It probably depends on the people you go into business with. If you find people who fly rarely, the 2nd option is probably what they'll go for. If you find time builders, they'll likely want to go with the 1st option.

For example, say you find someone who wants to put 200 hours on the airplane very quickly, only pays 3 months dues, and then bails, would it be worth it to you? Or if one of your partners opts to pay in $54 / hr once every 90 days when they decide to go flying without dues, would that be worth it?

Two pieces of advice. #1 - AOPA has excellent resources on starting a club/partnership like this and they help you run the numbers, check them out. #2 - screen the other members to make sure they're not going to screw you over.

 

[38bat]

Thanks. I did use AOPA's info and that is where I came up with the hourly. I don't really care if somebody does a bunch of time or a little time as long as they pay the hourly. Those of you that are in a flying club or partnership, how does it work as far as billing? I was thinking of limiting hours without payment. For example if you fly 20 hours in a month you must pay for the 20 before flying again, in other words a credit line of 20hrs?? This would limit the exposure a little. I think option A is likely the best, I will pursue that. I would also consider selling 100hr blocks for $3500(1 month if plane goes to you) any input on that? I am considering purchasing a twin but I really like my plane and would like to be able to use it. This seemed like a good compromise. Thanks for the input!!

 

[surreal1221]

Not that I neccessarily know of a potential buyer, but have you thought of selling the plane outright?

 

[38bat]

Yes, that is always an option. I am not in a position where need to do anything so I am just exploring options. I really like the plane so selling shares or doing a flying club deal appeals to me as it would help with expenses, which would allow me to buy a twin. I also would like access to a single and that would take care of that also. Then again, "everything is for sale" as they say....

 

[ElyJs]

Unless you go with actually selling a share of your airplane, you will be considered commercial by pretty much all insurance companies and FAA. Including Avemco, something to think about

 

[38bat]

Yeah, I was planning on selling a share of the plane, maybe a provision for buyback but definately a share deal. Insurance is no problem with a share situation. Plane is in a corp. so easy to do. I was thinking of 5 shares total to keep it readily available. I could do as many as 10 but I like the idea of keeping it small.

 

[RICHARD5]

Just off the top of my head:


These are non-equity shares?

What do the by laws of your current Corp say about partnerships?

The state you filed your Corp may have something to say about how many members you can have.

If that state is different than the state where the plane resides, the residence state may also impose limitations on your plans.

Are you sure about your current liability insurance allowing for partnerships?

It seems to me you may have to set up a separate Corp.

 

[RICHARD5]

screen the other members to make sure they're not going to screw you over.

:rotfl:

Where can I find such a screen?

FYI: My background includes a 5 member flight club like what the OP is considering. Never again....

I suppose you could use a pre-membership psych eval or write in a non-screwing-over clause with provisions for monetary penalties. I'm serious.

 

[Nihon_Ni]

I think you have the cart before the horse a little.

You might think about offering a few options until you find partners who will take the deal. Since you're just setting it up, you have the luxury to create anything that will satisfy interested parties. Personally, I wouldn't want more than 3 other partners, and I'd want a monthly fee to encourage flying. You may find people with a different view, but don't turn them away at this stage just because you arbitrarily decided what the fee structure would be.

I'm sure you read in AOPA's info that the most important thing is to develop your exit strategy before you enter into a partnership. Will you let one of the members force the sale of the airplane or will you force him to remain in the partnership? So long as everyone is happy with the arrangement, there's no wrong answer. Again, since you're just starting up, all options should be on the table until the partners are identified.

I've never been in a partnership airplane (other than with my wife), because for me I've never had to. The cost of flying my AA-1 weren't significant enough to trade off the liberty I had with it for another partner. I have a friend who is on his third partnership, all in Bonanzas. Some have worked out better than others, but he's been happy with all of them.

FWIW, I'd be willing to bet that the number of partners you accept will be one of the biggest factors in attracting members. In general, the rule of thumb is to take on the minimum number of partners you need to pay the bills. I suggest you just advertise your airplane for sale as "partners wanted" and see who bites. Until you find interested parties, this is just an academic discussion.

Good luck.

 

[woutlaw]

My advice would be to go with scenario 1, or some variation of it, that way your fixed costs (hangar, insurance, annuals, etc...) are covered regardless if the airplane flies or not.

The other way, the airplane needs to fly some minimum hours per month to cover the fixed costs, which it may or may not do.

All it takes is the thing being down for annual, lousy weather, unscheduled maintenance, waiting for a part, etc... and all of a sudden you're looking at a bill for the fixed costs you can't meet because the airplane hasn't flown.

I've been involved in a couple of flying clubs and every airplane has gone down for a month or two at least once.

As for equity/non-equity, whatever works best. But make sure those fixed costs are covered.