You’ve decided to consider sharing your wings. Good for you! Like sharing a life, sharing an asset can benefit numerous people and allow them to potentially do more than going it alone.
But it also can complicate life. Making a logical decision about co-ownership can help you get more for your flying investment.
A co-ownership is the simplest way to share wings. Basically, it puts two or more names on the aircraft title and establishes an agreement on how to allocate an asset. A partnership, which will be covered in a future column, is more complex. It is often used for sharing business aircraft or at least where more money or partners is involved.
To establish an aircraft co-ownership, all you really need is a simple agreement and an update to the aircraft’s FAA registration. To register an aircraft, send an Aircraft Registration Application (AC Form 8050-1), a bill of sale (AC Form 8050-2) or other evidence of ownership, and the $5 registration fee to the FAA Aircraft Registration Branch. The forms and additional instructions are available from your regional FSDO.
The agreement between co-owners can be as simple as a handshake or as complex as you want an attorney to make it. Most co-owners agree to something in between: A written and signed agreement outlining rights and responsibilities of the participants.
One of the most important questions of co-ownership answers what happens to the asset — the airplane — if one of the partners dies. Do the other partners get the plane? The person’s beneficiaries? A charity? No one likes to think about these things, but they could become vital questions.
Most aircraft co-ownership agreements are considered tenancy-in-common, meaning that ownership passes to the dead co-owner’s beneficiaries. If the agreement is a joint tenancy, the share goes to the co-owners. Some agreements include a life insurance policy on all co-owners.
Who actually owns the shared aircraft? In a co-ownership or partnership, all the pilots own the aircraft in shares as described in the agreement. In a flying club, either the organization owns the aircraft or possibly an investor who leases it to the club. Make sure your agreement spells this out and covers liability issues.
The initial cost of the aircraft is the first consideration in a co-ownership agreement. Maybe a group member has an aircraft that will be shared. Or the group will equally divide the cost of an aircraft they purchase together. This, of course, should be a part of the co-ownership agreement, spelling out the initial investment. If financing is required for one or more co-owners, terms of the financing should be discussed and included in writing.
Fixed costs for co-ownership include group financing, property taxes, hangar or tie-down rental fees, insurance, estimated cost of the annual inspection, and other expenses to be paid whether the aircraft flies or not.
Operating costs are the expenses required by flying, such as fuel, oil, engine and airframe maintenance, avionics maintenance, etc. Typically, these are charged to the individual co-owners for the number of hours they actually flew during a period, with an annual review and adjustment.
Reserves should be discussed by the group and agreed upon. Typically, this means the group sets aside a specific amount into an escrow fund to cover propeller and/or engine replacement. These are major expenses, especially on more complex aircraft.
For example, if an 1,800-hour-TBO engine has 600 hours on it and the overhaul will cost about $12,000, does the group want to set aside $10-per-flight-hour in a reserve to pay for it? Or does the group take the chance and split the expense, if and when necessary? It’s best to work this out in advance in your co-ownership agreement.
Typically, co-ownership agreements outline how the costs are covered. Fixed expenses, the costs of owning the aircraft, usually are shared equally among co-owners. Operating costs and any reserves, the costs of flying the aircraft, are shared based on the number of hours flown by individuals. A monthly bill for each co-owner is calculated and paid, either as a formal invoice or across the table at a monthly owner’s meeting.
You also need to spell out how the aircraft will be shared among the co-owners. Does someone with a larger share get priority? Do some co-owners get weekend priority? What if one of the co-owners takes the aircraft out of town for awhile? Will there be a flight log in the aircraft for recording flights? How will the questions about liability be resolved? These and many other questions need to be discussed and answered early in the relationship to ensure that the relationship will last.
In the next column of The Frugal Pilot, I’ll cover writing your co-ownership agreement.
See you in the pattern!