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Fuelling the Ownership Dream

Owning an aircraft is a dream for many, whether you’re able to fly yourself or intend to use the aircraft as a business tool. The freedom of flying where or as often as you’d like is appealing, but in some cases it’s the status symbol itself – being able to say “my plane” – that fuels the dream.


May 17, 2010
By Rob Seaman

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Owning an aircraft is a dream for many, whether you’re able to fly yourself or intend to use the aircraft as a business tool. The freedom of flying where or as often as you’d like is appealing, but in some cases it’s the status symbol itself – being able to say “my plane” – that fuels the dream.

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Taking the time to create proper ownership documents is the most important aspect of new ownership.
PHOTO: Airsprint


 

Time management is another key factor. The use of a personal, or corporate, aircraft puts you in charge – and you don’t need to spend hours in line at a commercial terminal. If attainable, a private or business aircraft just makes sense.

As with all things aviation related, the passing of time has brought with it new adaptations and innovations, not the least of which are various forms of aircraft ownership. The most popular methods still involve the traditional 100 per cent title by one individual, or, in more sophisticated situations, such as a corporate aircraft, a holding firm of some sort that may include multiple partners or a single entity.

Bill Clark is an aviation legal specialist based in Toronto. Clark’s area of expertise covers both commercial airline and private corporate aircraft interests. As he sees it, for those who want to share or jointly own an aircraft, the Special Purpose Corporation (SPC) is the method most sophisticated aircraft owners use. A SPC is essentially an independent holding company that owns the aircraft. The benefit of this arrangement is simple: potential new owners seek the elements of liability coverage for the partners as “shareholders” in the aircraft.

An alternative method is a Limited Liability Partnership. According to Clark, this ownership method is becoming more popular with new owners. Under this scenario, there is a general partner – the management company – and others who are equity participants. This model also includes liability protection but adds a tax benefit. The depreciation flows through and, while shareholders do not benefit from the depreciation, the partners do. This ownership method is most common for more sophisticated, bizjet-type aircraft.

Another ownership structure gaining prominence is our “homegrown” variation on the fractional model. As Clark points out, although no private factional ownership legislation exists in Canada at the moment, there is discussion by the rule-makers that one day this U.S. model could be employed here.
Currently, the majority of fractional ownerships are being sold as commercial ops – and, yes, potential buyers do get an ownership document that shows they own part of a specific aircraft – a bill of sale for one-eighth undivided interest in the aircraft. These arrangements are typically run under the Aircraft Operating Certificate (AOC) for the operator. In Canada, there are several firms actively selling their “fractional” business and they are recognized for it. The longest established firm is Airsprint, located in Calgary, Kitchener and Toronto. The others are Edmonton’s Morningstar and Toronto-based Jet Share. These firms operate under a somewhat different application. Morningstar, for example, has received an exemption and runs its fractional share program under a CBAA Private Operator Certificate (POC).

The AirSprint way
AirSprint Private Aviation is Canada’s largest fractional provider and reports indicate that fractional ownership has done (and is doing) very well in our domestic market, contrary to the U.S. perspective. At the core of AirSprint’s model is fleet commonality. It operates Pilatus PC-12 and Citation Excel/XLS aircraft. According to company president Chris Richer, this provides AirSprint clients with the benefit of predictable operational overhead costs.

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AirSprint’s fleet commonality – it operates Pilatus PC-12 and Citation Excel/XLS aircraft – provides its clients with the benefit of predictable operational overhead costs. PHOTO: Airsprint


 

“In the AirSprint model, clients don’t buy shares in a corporation and don’t invest in a partnership deal,” he says. “In fact, they purchase an ‘undivided interest’ in a specific, serial-numbered aircraft. Accordingly, their ownership, for both tax and legal purposes, is no different than owning the entire plane. The size of the undivided interest purchased is directly proportional to the number of hours the client typically flies per year. Each 1/8th interest entitles the owner to one hundred occupied hours per year. The owners are only being charged for actual flight hours – not for hours required to reposition aircraft to them.”

Richer also points out that their model is not a time-sharing program restricted to a single aircraft. AirSprint owners have access to the entire fleet and are guaranteed that when they call, their aircraft, an identical one, or perhaps even a better one, will be dispatched.

AirSprint’s clients are also “secure” that their costs remain predictable for a minimum of five years. Should a client ever decide to leave the program, AirSprint will remarket their interest at fair market value and return the capital, less a standard brokerage charge.

“U.S. fractional companies experience difficulties operating in Canada due to federal cabotage restrictions on transporting passengers from point-to-point within Canada,” he says. “AirSprint has developed a very successful model that offers a Canadian fractional solution for private aviation travel.”

Detail oriented
Regardless of which ownership model is selected or put into use, all need good documentation detailing what the deal is. This tends to be inherent in the business aircraft realm and in the case of the “fractional” option, the operator does the detail work.

However, as more and more people decide to share a private aircraft – especially in the recreational or owner/operator arena – the need for a solid paper trail ensures good partners, depending on how it is handled. Whether you’re thinking a C-172, a vintage gem, or a bizjet, taking the time to study, understand and create proper ownership documents and agreements is the most important aspect of new ownership. It’s as important as choosing the right aircraft.

With smaller, GA aircraft, the normal questions in a partnership or joint ownership include: who owns how much of the aircraft?; who is responsible for which elements of the upkeep and operational costs?; and who has priority for use, or what are the terms for determining such? These points can be quite involved and have a serious impact on the success or failure of the partnership/ownership. It’s paramount to take the time to properly assess all issues with a lawyer before you enter into a serious commitment. No partnership will be problem free, but an open discussion at least will set the right tone, manner and expectations from the beginning.

Given recent economic realities, it’s also prudent to consider other key points. For example, what happens if an owner runs into financial difficulties and is unable to complete obligations? And in the event the aircraft is involved in an incident or accident, rendering it inoperable (or lost), where do a share owner’s responsibilities begin and end? What investment protection has been put in place? Understand all aspects of ownership before laying money on the table. It will make the experience more satisfactory down the line.

Another point to consider is succession rights in the event a partner dies. Many sales have been forced through estate issues that could have been handled ahead of time, eliminating the stress that ensues. Also, with smaller aircraft, the ownership structure tends to be among friends for recreational use as opposed to business objectives. As a result, maintenance responsibilities, insurance premiums, major expenses such as engine overhauls, and even basics such as hangar and fuel, all need proper discussion and documentation. It’s imperative to include these details within the ownership agreement, including financial considerations. The proverbial napkin and a handshake won’t hold up when stress and strain hits. A friendly relationship can become a dirty fight in no time.

A final note: with every deal, make sure all elements are fulfilled and maintained at all times. After the aircraft has experienced a hard landing and needs major service and repair is not the time to discover the parts quality, maintenance program or insurance premium has not been kept up to date. You can’t assume your partners will be as diligent as you are, friendships notwithstanding. Asking questions and reviewing paperwork will keep things above board and all participants’ best interests protected.