A checklist of some essential considerations as you approach your Co-Ownership structure.
Identity of the Parties and Aircraft: Potentially identify a Managing Co-Owner.
| Co-Owners | [Entity1] | [Entity2] | [Entity3] |
| Owning Entity LLC/Co. Name | |||
| State of Incorporation | |||
| Address Line 1 | |||
| Address Line 2 | |||
| Owner Legal Name | |||
| Owner Title | |||
| Email Address | |||
| Phone Number | |||
| Managing Co-Owner (X) | X |
| Aircraft | Engine 1 | Engine 2 | |
| Year | N/A | N/A | |
| Manufacturer | |||
| Make | N/A | N/A | |
| Model Description | N/A | N/A | |
| Model Number | |||
| Serial Number | |||
| Tail Number | N/A | N/A |
Title to the Aircraft: How the aircraft will be held by the co-owners
- Personal Ownership (In your name)
- Limited Liability Company
Financing: Individual Co-Owner responsibility
In most cases, each co-owner will personally finance his or her own share of the aircraft’s cost. If this is not the case, the details of financing arrangements should be spelled out in the agreement.
Insurance: The co-owners should agree on coverage.
Considerations:
- Type & Amount of Liability Insurance
- Hull Insurance
- Deductible
- In-Motion vs Not-In-Motion
- Commercial vs Non-Commercial operations
- Pilot Rating Requirements
- Deductible responsibilities in case of an accident
Basing: Where will your aircraft be based?
Will limits exist for the number of days your aircraft can be taken from its home base without special permission from the other co-owners.
Authorized Pilots: You should decide who you want flying your aircraft.
After you’ve decided, put any conditions or restrictions in the agreement.
Aircraft Scheduling: Create a formal system for scheduling your aircraft.
Depending on your joint aircraft usage, and any potential commercial lease, it is best to spell out a flexible set of guidelines, saving misunderstandings in the future. Use of a Management Company is beneficial.
Leases:
Leases to consider include the Lease from the Single-Use Entity holding the aircraft to your Primary Business Entity which must contain an Operational Control Acknowledgement, as Required by the FAA. Additionally, a Lease from the aircraft holding entity to an Aircraft Management and Pilot Services Provider will be needed to support Part 135 Operations, if you are considering recouping any costs. Each Co-Owner will have separate leases from their Holding Entity to the Management and Pilot Service Provider.
Management Company:
Management companies regularly provide Aircraft Management services, as well as establishing Pilot Service Agreements. Choosing a reputable company to manage these services is highly recommended as it reduces the need to engage with multiple entities and provides some assurances that the Aircraft is properly maintained. The Aircraft Management and Pilot Services Provider will need a joint agreement with each Primary Business Entity, and the identification of a Managing Co-Owner will be beneficial for the purpose of identifying a single point of contact for decision making.
Expenses: Define responsibilities and share of all Expenses.
Fixed Expenses:
Aircraft Hull and Liability insurance as outlined in the Management Agreement, pilot training, hangar rental (except when the Aircraft is hangered away from its permanent base of operation), administrative fees, subscription fees, program entrance fees, operations subscription fees, credit card fees, manual fees, property taxes, Aircraft equipment additions and upgrades (when mutually agreed to by all Owners), FAA and Aircraft manufacturer required modifications or inspections that may arise from time to time (such as Airworthiness Directives or Mandatory Service Bulletins).
Operating Expenses:
These are expenses which are outlined in the Management Agreement, including, but not limited to: fuel fees, oil fees, hourly maintenance fees, hourly overhaul reserve fees for Pro Parts and Tap Blue, hourly miscellaneous reserve fees, pilot services and/or pilot fees (daily, hourly or per diem fees incurred), catering, landing fees and any other such fees associated with an individual’s specific usage. You may decide to bear these costs equally or in proportion to hours flown. Maintenance not covered by pre-paid programs shall be paid for from reserves, and cases where reserves are insufficient, each owner will contribute their share required to cover repairs and replenish the reserves to a minimum agreed-upon balance.
Federal Aviation Regulations (FARs):
This should go without saying, but you still may want to specify that all operations will be in accordance with the FARs. If there is a violation of the FARs and the FAA decides to impose a civil penalty against the co-owners as the “operator” of the aircraft, rather than against the individual pilots, you should decide on who will be responsible for paying the fine.
Co-owners Responsibilities: Delegation of responsibilities to avoid oversight.
It might be a good idea to appoint specific duties to each co-owner. These duties might include bookkeeping, scheduling, and maintenance. Identification of a Managing Co-Owner will prove useful in addition to, or in lieu of, the use of a Management Company.
Timely Payments:
The success of your co-ownership will depend in great part on how conscientious each co-owner is in meeting his or her financial obligations. Set deadlines for payment and penalties for delinquencies. If delinquencies reach a specified point, you may want to trigger a forced sale of the defaulting co-owner’s share of the aircraft.
Life Insurance:
Co-owners may want to maintain life insurance policies naming the other co-owners as beneficiaries. This will allow the other co-owners to buy out the interest of a deceased co-owner.
Sale of Aircraft: Distribution of funds and fees and use of a certified aircraft appraiser to determine Fair Market Value, unless otherwise agreed in writing.
Voluntary Sale of Co-Owner’s Interest:
This may be one of the most important considerations in drafting your agreement. Thought should be given to valuation of the co-owner’s interest and notifying the remaining co-owners of the decision to sell. You must also determine whether remaining co-owners should be given a first shot at buying the selling co-owner’s interest in the aircraft. Perhaps you will want to restrict the selling co-owner’s ability to transfer his or her interest to third parties. All costs are the responsibility of the selling co-owner.
Forced Sale of a Co-Owner’s Interest:
Provisions should also be made for those difficult situations where a co-owner fails to meet his or her obligations under your agreement. Decide on what deficiencies or defaults will trigger a forced sale. How will the defaulting co-owner’s share of the aircraft be valued (i.e. 70% FMV to remaining co-owner(s) or FMV to a third party)? How will adjustments be calculated for amounts owed to remaining co-owners? All costs are the responsibility of the defaulting co-owner.
Death of a Co-Owner:
This situation must be addressed with the understanding that, in most cases, the deceased co-owner’s family is the new co-owner of the aircraft. In many cases, it would be wise to provide for a sale in accordance with the rules you have drawn up for voluntary sale of a co-owner’s interest.
Arbitration:
It may be a good idea to provide in advance for arbitration of disputes in lieu of litigation, which can be more costly and time-consuming. Be careful to follow any special requirements your state may have for arbitration clauses.
State Law:
Decide which state law you want to govern your agreement in case of disputes.