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Advantages of an Aircraft Partnership

  by Andrew Czernek, aczernekATcomcast.net

Advantages of Partnerships
Disadvantages of Partnerships
Financial Issues
Other Issues
Legal Organization

Agreement for a Non-Profit Corporation
Agreement for a Lease Corporation
AOPA Resources

The prime financial advantages come from reducing the costs of an expensive activity. Two partners reduce the capital investment in a $100,000 or $200,000 airplane by 67%.

But aircraft ownership has other expensive “fixed costs” every year as well – the $2,500 annual inspection; the $2,500+ insurance bill; the $250 monthly hangar fees. These expenses may total $500 to $600 per month and they’re present whether you fly 50 hours per year or 250 hours, so it makes financial sense to share them.

Most of us also buy aircraft with the intent of upgrading the avionics or interior, only to find the expenses outstrip the budget. A partnership that agrees to buy the new avionics stack will get it done faster and at lower cost to each partner. And even if your airplane is seeing 250 hours of use per year, it’s not being flown every day, so you’ll find conflict over flying time to be rare.

In addition, incorporating (instead of individual ownership) gives you a lower-cost, marketable asset should you ever decide to stop flying or simply not have enough time to merit the investment. Shares in a well-run partnership can be sold fairly easily to pilots who are eager to fly more often. Since you’re selling stock in a corporation rather than the vehicle, the transaction is free from the sales tax that would be there if the aircraft were sold. The partnership may also have other valuable assets, such as hard-to-get hangar space or money accrued towards engine overhaul.

There can be other tax and financial advantages too. My home state allows non-profit corporations to be set up for activities such as flying, which keeps the tax reporting to a minimum. Even if the incorporated partnership is a for-profit corporation and requires annual federal tax returns, it can enjoy deferral of the sales tax on aircraft purchase and possibly investment tax credits.

I won’t try to outline all of the legal and tax issues, but the Aircraft Owners & Pilots Associatioin (AOPA) has some excellent resources in its members-only section, including this article by attorney Ray Speciale:

AOPA “Pilot’s Guide to Taxes: Income, Personal Property, Sales and Use,” (Speciale, February 1, 2005) http://www.aopa.org/members/files/guides/tax_guide.html

 

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But Forget the Finances . . .

Given all of the financial reasons to form a partnership, I’d still say that the advantages of a partnership to me have been personal ones:

  • I’ve always had a ready safety pilot for IFR currency work. When I lived in Chicago, one of my partners (who lived about a mile away) would call me in the evening and suggest that we go out and do night airwork. Normally it’s the last thing that I’d do after a hard day’s work but I started looking forward to it.
  • We’ve shared long trips and gone on crazy weekend trips that have been lots of fun. They’ve included camping with the Mooney Caravan to Oshkosh – and even organizing movies on a bedsheet between the airplanes. We also took off one weekend on a nearly 5-hour trip to Columbia, CA, discovering its wonderful airplanes-only campground while a comet hung in the northwest sky.
  • On more than one occasion, we had one partner leave the plane somewhere in the country for a second partner to pick it up and continue exploring the U.S.
  • It’s made the impossible possible. My former partner, Henry, has a wife who doesn’t like flying. But she’d agree to hop in the Mooney if there was a second pilot along, so we could get her to go from Seattle to San Francisco.
  • We’ve learned from each other: little techniques such as cleaning Plexiglas. Or big things, such as smarter ways to avoid icing.
  • You get to try out more equipment, perhaps comparing headsets; checking your blood oxygen levels with a pulse oximeter; or learning how to use the communications capability of a Palm Pilot to get weather updates while flying.
  • A pilot in the right seat to handle radio communications and navigation charts dramatically reduces the workload of flying.
  • Let’s not forget that having a couple other people to degrease, wash and wax the airplane a couple of times per year reduces your labor by two-thirds as well.

However, partnerships are not for everyone. If you want an absolute guarantee that the airplane is flown only to your standards, a partnership is not for you.

 

Revision: 10/28/2010