NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, explains co-ownership structuring and sharing the use of an aircraft involving one or more co-owners without engaging in illegal charter operations (134 ½ operations). Regulatory, tax and risk management are critical – among other things. Guard against mistakes.
Owners and potential aircraft purchasers have for a while told me they want to buy or continue to own an aircraft but intend to share ownership with at least one other person. They recognize the value of freeing up capital from the aircraft purchase price, deploying the cash into their businesses or investments, decreasing ownership costs, and sharing the risk of depreciating aircraft values.
Fundamentals of Aircraft Sharing
How do the parties start their shared aircraft ownership experience? Before all else, they should agree to buy and/or share a mutually acceptable aircraft that accomplishes their respective missions. They should genuinely and confidently trust each other to honor their aircraft arrangements.
To avoid false starts or panic when a prospective buyer understands the true cost of aircraft ownership, each party should model and/or consult professionals to ensure that the economics make sense individually and collectively.
The parties should also address the other major issues entailed in sharing an aircraft. Tax planning and limitation of liability—starting with a request to form a limited liability company (LLC)—often surface first. More broadly, the parties should discuss their respective ideas for buying, owning, managing, operating, maintaining, and improving an aircraft as well as sharing costs.
From a legal standpoint, it is critical to comply with the Federal Aviation Regulations (FARs). As the parties plan risk management, they should promptly confirm that adequate insurance is available to cover their aircraft ownership and operations.
This article was originally published by AIN on July 12, 2024.
