Aircraft Partnerships

Aircraft Partnerships

Aircraft partnerships are an increasingly popular alternative to managed fractional ownership. These partnerships are an alternative that offer the same (if not greater) cost savings of a fractional ownership without the rigid restrictions of a managed fractional share, where owners cannot even select any cabin amenities, let alone their own crew. Aircraft partners have more control over their aircraft, deciding what upgrades to purchase and how it should be managed. They can select their own crew and fly with the same pilots on the same aircraft every trip. They only pay direct costs, avoiding markups, fuel surcharges, and short leg charges that often accompany managed fractional ownership. Owners gain tax benefits, too: tax depreciation of a partnership aircraft may be $4 million, while the depreciation for the same aircraft from a managed fractional company would typically be much lower, around $1 million.

Although most people realize the benefits of purchasing and operating an aircraft another partner, few actually enter into aircraft partnerships due to several exaggerated misconceptions about these agreements. One of the biggest fears associated with an aircraft partnership is that an owner won’t get to fly his airplane because it is being used by another partner. While scheduling conflicts occasionally occur, the trepidation surrounding the potential conflict is largely overblown. An individual with a 150-hour fractional ownership (the equivalent of a 3/16 managed fractional share) will typically fly 93 legs per year and use the airplane only 70 days of the year. This leaves 295 days of the year completely free (not including maintenance, which for private jets ranges from 10 to 15 days per year). Furthermore, the aircraft being in use on a particular day does not necessarily mean that the entire day is blacked out for the other partner. If the aircraft is used to fly one partner to a destination two hours away, where he will remain for a week, the crew can easily fly the aircraft back to the base airport to take another partner to a different destination in the same day. Most of the potential scheduling conflict between partners can be avoided if the scheduling expectations of each party are worked out in writing before the aircraft purchase. The amount of detail that such an agreement includes depends on each specific group of aircraft partners, but it should address all areas of potential conflict, such as overlapping schedules, down time, and relocation costs.

Another reason for hesitation about entering into an aircraft partnership is the fear that one of the other partners may fail to pay his share. This can be largely avoided prior to the acquisition if the partners work out written agreements in advance on how to address the problem of non-payment. Each partner can deposit a considerable amount at the signing of the agreement to hedge against the risk of a partner’s refusal or inability to pay their share later. Full-coverage insurance or maintenance programs can be pre-paid after each flight to avoid the trouble of collecting money from the other partner after each repair. In the case of more extreme circumstances, the power of attorney may be granted to a third party (agreed upon at the signing of the initial contract) to sell an uncooperative partner’s share. If the aircraft partnership was originally set up by a company (since an increasing number of companies are offering aircraft partnership services), the manager may act as a backstop, offering some concessions to the parties involved.

Other areas of concern about aircraft partnerships stem from the potential conflict between partners. As already mentioned, a unanimous written agreement addressing potential areas of conflict drawn up before the aircraft is purchased can solve most disputes. For example, the partners should determine what to do if a dispute arises because one partner wants to add an optional piece of equipment to the aircraft, but cannot get the other partner to agree and split the cost. A typical contract would specify that he should be allowed to add the equipment (providing it does not damage the aircraft) at his own expense.

Most of the perceived drawbacks to aircraft partnership (which usually stem from disputes between partners) are minimal and can be largely avoided by entering into such a partnership with a clear understanding of the expectations and obligations of all involved. The attractiveness of an aircraft partnership is readily apparent and can be pursued either on an individual basis, through one of several companies that are developing aircraft partnership programs, or with the help of an experienced industry expert.