When sharing an aircraft, advanced planning and documentation can preserve the relationship of the parties and allow the ownership arrangement to outlive potential disputes.
As I’ve described previously, this is an exceedingly difficult market for those looking to fly privately. One traditional way to avoid long wait times associated with the purchase of a private aircraft had been fractional ownership. However, the market dynamics have shifted such that this avenue now presents its own challenges.
Not only is the waitlist for fractional share ownership pushing into 2024 for some aircraft but starting an interim lease until the fractional purchase share is delivered is no longer an option. Further, some of the jet card membership programs and fractional programs continue to struggle to meet the on-time performance metrics they achieved pre-pandemic. Finally, quality charter options continue to remain scare and significantly more expensive than they were two years ago.
As a result, I am seeing more of my clients look to purchase their own aircraft with one or two associates. This too is also a challenge given the shortage of available pre-owned aircraft. However, it is likely that an aircraft can be sourced and closed in 2022, which presents many with a more desirable option than fractional ownership in 2024.
Once the parties have decided to share an aircraft, the first decision is whether the ownership will be co-ownership or joint ownership. Under a co-ownership structure, multiple companies and/or individuals share in the ownership of the aircraft. Each co-owner operates the aircraft and provides its own crew. The crew can be provided by each co-owner independently or through a management company. Co-owners are not able to charge each other for operating the aircraft. This is the major distinction between co-ownership and joint ownership.
Under joint ownership, which is defined in 14 CFR 91.501(c)(1) of the Federal Aviation Regulations (FAR), one of the joint owners employs and provides the crew and each of the other joint owners pays the amounts defined under the joint ownership agreement. Each joint owner is responsible for its direct operating costs of the aircraft. All joint owners must be on the registration certificate of the aircraft. Joint ownership rules only apply to aircraft that can operate under FAR Part 91, Subpart F, but smaller airplanes and helicopters operated under the NBAA small aircraft exemption can also use the cost reimbursement options under Part 91, Subpart F.
Regardless of whether an aircraft is co-owned or jointly owned, the owners should enter into a user agreement to address, in advance, these potential issues.
a) Will the aircraft be reserved on a first-come, first-served basis? Is this fair if one owner has the flexibility to plan further in advance than the other?
b) How far in advance can the aircraft be reserved? For example, can one owner reserve the day after Thanksgiving for the next five years immediately after becoming an owner?
c) Do one or all owners have frequent pop-up trips that could conflict with another owner’s needs?
a) Will fixed costs be shared equally or based on a percentage of the annual usage?
b) If based on usage, can the annual usage be reasonably predicted?
a) Will a management company be used to operate the aircraft?
b) If so, how do the owners reach agreement on which management company to hire?
4. Extended trips
a) How often does one owner need the aircraft for multi-day trips that keep the aircraft inaccessible for the other owners?
b) What obligation does an owner have to return the aircraft to its home base if it’s not going to be used for several days between stops on an extended trip?
5. Shared Usage
a) Do the owners travel to the same areas of the country and would sharing the aircraft for those flights be desirable for all owners?
a) When the owners are not using the aircraft, will it be placed on a Part 135 certificate for charter?
b) If so, if a charter flight is booked, can an owner reservation trump the charter flight?
7. Allowable Activities
a) Will smoking be allowed on the aircraft?
b) Will large or small pets be permitted and, if so, under what conditions?
a) Do the owners have similar views on safety upgrades that may not be mandatory?
b) What about amenities such as wifi and upgraded avionics?
9. Dispute resolution
a) If and when conflicts arise, is there a procedure in place for resolving conflicts in a very specific and cost-effective manner?
10. Termination – at some point, an owner will no longer want to own the aircraft
a) Will the non-selling owner be entitled to a right of first refusal?
b) If one owner wants to sell and the other does not, will a sale of the aircraft be required?
c) What will be the terms of the sale, including the mechanism for pricing the aircraft?
Sharing an aircraft can lead to conflict. It should never be assumed that just because the owners are associates that they will be able to work issues out as they arise. The best way to avoid future conflicts is to create a user agreement which is very specific and thorough and anticipates as many of these friction points as possible. A well-drafted user agreement, signed when the aircraft is purchased, can act as the non-biased document that all owners look to for guidance. The more answers found in the user agreement, the less likely it is that the conflict will escalate.
Since not every possible conflict can be contemplated in advance, the user agreement must contain a specific dispute resolution provision and a termination provision. Additionally, if the owners no longer wish to own the aircraft together, an unwinding process should be documented that is satisfactory to the parties.