I often hear from my clients that, of all of the privileges in life, flying privately is the most treasured. The private jet is the time machine that allows a businessperson to schedule multiple meetings in several cities in one day (impossible to do flying commercially); attend a special family event; arrive at home in time for dinner; or depart quickly for family or business emergencies. In order to offset costs and maintain whole aircraft ownership, aircraft owners sometimes decide to invite a friend or two to share their aircraft or to purchase an aircraft together. Jokingly, my first question is always “How strong is your friendship and do you want to stay friends?”
The first decision in the shared ownership of an aircraft is whether the ownership will be joint ownership or co-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 in order to address, in advance, the sorts of issues that often arise and to describe, with precision, their understandings of the subjects that often lead to disputes. Some of the important topics in a user agreement include:
1. Scheduling. 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? 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?
2. Costs. Will fixed costs be shared equally or based on a percentage of the annual usage? If based on usage, can the annual usage be reasonably predicted?
3. Management. Will a management company be used to operate the aircraft and, if so, how do the owners reach agreement on which management company to hire?
4. Extended trips. How often does one owner need the aircraft for multi-day trips that keep the aircraft inaccessible for the other owners? 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. Notice. Do one or all owners have frequent pop-up trips that could conflict with another owner’s needs?
6. Shared Usage. Do the owners travel to the same areas of the country and would sharing the aircraft for those flights be desirable for all owners?
7. Charter. When the owners are not using the aircraft, will it be placed on a Part 135 certificate for charter? If so, if a charter flight is booked, can an owner reservation trump the charter flight?
8. Allowable activities. Will smoking be allowed on the aircraft? Will large or small pets be permitted and, if so, under what conditions?
9. Upgrades. Do the owners have similar views on safety upgrades that may not be mandatory? What about amenities such as WiFi and upgraded avionics?
10. Dispute resolution. If and when conflicts arise, is there a procedure in place for resolving conflicts in a very specific and cost-effective manner?
11. Termination. At some point, an owner will no longer want to own the aircraft. Will the non-selling owner be entitled to a right of first refusal? If one owner wants to sell and the other does not, will a sale of the aircraft be required? What will be the terms of the sale, including the mechanism for pricing the aircraft?
Owning a private aircraft, and the incredible flexibility that comes with it, doesn’t lend itself well to sharing. The first time friends both want to use the aircraft at the same time, the relationship may be strained. The best way to avoid possible conflicts is to create a user agreement which is very specific. It should never be assumed that just because the owners are friends that they will just be able to work issues out as they arise. A well-drafted user agreement signed at the beginning of the shared ownership can act as the non-biased party 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. If the owners no longer wish to own the aircraft together, an unwinding process should be documented that is satisfactory to both parties. When sharing an aircraft with a friend, advanced planning and documentation can preserve the friendship and make the ownership arrangement last longer.
Please contact Amanda Applegate at 310-392-5200 or email@example.com.