An old (often bad) idea transformed into an innovative ownership option.
Aircraft owners and operators don’t usually spend their money on airplanes with the intention of having them mostly sit, underutilized, in a hangar. But the fact is, there are many who want the benefits of ownership, yet they have relatively modest usage requirements. Just take a quick glance at general aviation utilization data, and the depth of the matter becomes obvious: There are a lot of turboprop and jet aircraft flying between 100 and 200 hours per year.
So what’s an owner who’s not flying all that much to do? Well, some simply pony up, buy whatever they want, and don’t fret about it at all. Because for them, the benefits of flying the ideal aircraft far outweigh the costs. But plenty of others do struggle with cost justification based on how little they fly, and they look for ways to contain, offset and mitigate the expense. Some take solace by generating a bit of charter revenue, conceding the additional wear and tear on the airplane. Others elect to fly older, smaller, slower or less-expensive aircraft than they would prefer. A few join forces with one or more partners and divvy up the costs.
The Partnership Dilemma(s)
There’s no denying that splitting fixed costs (acquisition, hangar, crew, insurance, etc.) provides significant financial relief. But even though they may sound good in theory, we’ve all heard way more partnership-from-hell stories than happily-ever-after ones. They’re notorious for usage disputes and scheduling conflicts. Tax, title and financial entanglements are usually built right in. And loosely defined, poorly thought-out exit plans are pretty much the norm.
In DIY partnerships, it’s relatively common for the parties to be friends or business acquaintances who have decided that sharing an airplane is a good idea because of the math. These partnerships are often structured in a “We’ll figure it out as we go” fashion, increasing the odds for drama and conflict that will ultimately sour the experience for one or all the partners.
A lot of things can go south in a partnership. And they often do. So, most owners would never consider one because the pitfalls far outweigh the financial benefits.
Out with the Old, in with the Smart
Partners in Aviation (PIA) is a new company offering an innovative path to ownership that delivers everything low- to medium-utilization operators need – including peace of mind. The company, along with its industry partners, has methodically tackled the issues, risks and entanglements that have plagued DIY partnerships. The result is PIA Co-Ownership, a program for owner-pilots and corporate operators flying between 100 and 200 hours per year. PIA Co-Ownership fills the gap between fractional and sole ownership, combining the key benefits of both.
“We’re offering a shared-ownership program that’s practical, sensible and fundamentally different from partnerships – both legally and structurally,” says PIA President Mark Molloy. “Our job is to bring two compatible co-owners together within a given geography and help put them in the new or late-model aircraft that best fits their needs. Think of us as match.com for business aircraft.”
Unique Matching Service – an Industry First
PIA specializes in identifying, vetting and matching highly qualified co-owners with compatible mission profiles. “This is the first time anyone in our industry has focused on offering this type of service,” says Molloy. “The ideal co-owner has the financial wherewithal to own the whole airplane, but simply doesn’t need it. It’s not about what they can afford. It’s about getting all the airplane they want and need at half the cost.”
In addition to geographic matching, PIA also provides aircraft-acquisition consultation and a unique, proprietary co-ownership agreement. The PIA Co-Ownership Agreement is a legal document that is essentially a playbook for the two co-owners. It fully defines the relationship in its entirety – from aircraft acquisition to scheduling and logistics to exit plan.
“We spent a lot of time and resources during the development of the agreement,” says Molloy. “It’s comprehensive. Everything is defined and agreed upon by both co-owners from day one, leaving no detail to interpretation. The structure makes co-ownership easy for each owner’s entire team to support, too – especially the CFO and legal counsel.
“To get our model right, we partnered with an all-star team of best-in-industry experts in aviation tax and law, aircraft maintenance and management,” Molloy says. “In addition to cutting the net cost of ownership in half, our structure provides tax and title autonomy. Defining the exit path up front makes entry into the program even more comfortable. And operators who fit our utilization profile will enjoy aircraft access that closely rivals sole ownership.”
Who’s on First?
Scheduling is typically the major area of concern expressed by prospective co-owners, who want to understand accessibility. The PIA Co-Ownership Agreement includes a unique scheduling model that allows co-owners to have unparalleled aircraft access. Communication and coordination is centralized with a locally based aircraft management company that handles logistics and scheduling. This eliminates the need for direct communication between co-owners who, because of the structure, don’t need to get to know one another, although they likely will.
Here are the basics of how scheduling works:
Each co-owner controls the aircraft schedule every other week – the On-Week. There’s no need to check the schedule during your On-Week because the airplane is yours from Monday at 6 a.m. through Sunday at 11:59 p.m. Because of relatively low usage volume and scheduling flexibility, co-owners are typically able to plan 75 percent or more of their trips during their On-Week.
“It works out that the airplane will still be idle and available 70 percent of the time during On-Weeks,” Molloy explains. “So each co-owner is incentivized to make the airplane available to the other, via the master schedule, on the days he or she will not be flying during their On-Week. This component is key to maximizing access, and the incentive makes it mutually beneficial to each owner.
All factors considered, co-owners should expect to have access to their aircraft for 90 to 95 percent of their desired trips. That means making other plans for a handful of trips per year. Molloy says the occasional inconvenience is easy to rationalize. “With half of the cost of the airplane in the bank, finding alternative lift for three or four flights a year is a small price to pay, and that service will be provided by the management company. Fifty percent of the cost with 90-plus-percent access is the single-best value proposition of all ownership options, including sole ownership, ownership with supplemental charter, fractional or DIY partnerships.”
Because the financial advantages of co-ownership are so significant, PIA notes that many of the operators they’re meeting are now seriously considering the purchase of new aircraft for the first time. Still others are looking at moving up to a larger class.
Molloy concedes that the program isn’t for everyone. “If you need an airplane at your beck and call 24/7/365, it’s obvious you should own it yourself. But if you fit our usage profile, 100 to 200 hours per year, and the idea of 90-plus-percent access for 50 percent of the net cost of ownership is appealing to you, PIA Co-Ownership is certainly worth evaluating.”
Visit partnersinaviation.com for more information.
Frequently Asked Questions
In addition to scheduling and access, other common questions include:
Q: Can the PIA program work with more than two owners?
A: Short answer: No.
Longer answer: There are other models out there that bring together multiple owners. They are typically geared toward operators with limited financial resources and require much more compromise.
The PIA model – including exceptional access, exit path and ownership autonomy – is ideal for two well-qualified owners. We concentrate on new and late-model aircraft that offer warranty, guaranteed maintenance, bonus depreciation and the latest in avionics and safety. We subscribe to the theory that the best co-owner is one who is a.) financially capable, and b.) not your tennis partner or poker buddy.
Existing aircraft partners, or those not requiring the matching services of PIA, can acquire the documentation package, exponentially increasing their chances of a successful marriage.
Q: Is this for owner operators or for professionally flown aircraft?
A: Yes. PIA Co-Ownership works for either.
Q: Is this available for piston aircraft?
A: Yes. In addition to PIA Co-Ownership, the company also offers a program called Coupled Approach, which is optimized for higher-end piston aircraft.
Originally published by Twin and Turbine Magazine on May 25, 2017.