Still own the KA but getting a lot of interest since the engines were overhauled. Assuming it sells soon, I'm starting to look at near term options for business trips. Not many partnership options at MTJ. Only one as far as I know. Three guys own a CJ and have a pilot that flies and manages it. One of the owners might want out, he bought-in and hasn't been using it much. I believe he paid 450K for his 1/3 (not sure of the details on the airplane but that's a little high for the average CJ), then each owner pays 4K/mo for fixed expenses (this includes the pilot, management fees, hangar & Insurance) and then DOC when they fly. DOC includes TAP Elite and Pro parts and an allocation for non-covered maint and fuel - I'm told this is all-in $1100/hr. The pilot is included in the monthly cost and owners just pay his hotel/car/meals or airline him home.

My first thought is this isn't a very liquid investment and I'm not sure I could get out of it once in it. Maybe I could agree to lease the ownership position from the guy that wants out? (pay a reasonable capital cost/depreciation on the 1/3 ownership and then cover the monthly). Who knows if he'd go for this or not but assuming we could work something out, this could be interesting.

From my perspective I'd get into a Jet with very little risk. I'd go get a type rating and have the pilot fly right seat for the next year (he's good with that) and I'd get to learn about jet ownership and operations by watching rather than doing (which is good, I'm very busy lately).

I thought I'd share this with BT'er that are much smarter than me and hear some different perspectives, so what say you??

That sounds like a fantastic way to get into a jet John. I can't imagine too many jet partnership opportunities present themselves (besides fractionals). If you're concerned about the exit strategy and the current position holder isn't interested in leasing it to you, consider having exit language added into the partnership agreement. We have a similar clause in our partnership on the Seneca. Should a partner want to get out and cannot find a suitable buyer for the share, he can exercise the option to sell it back to the other partners at 25% less than FMV. It's a bit painful but keeps owners motivated to stay in or find a suitable buyer but still provide a way out if needed.

Great idea Don!

This setup these guys came up with seems like a pretty smart plan. I'm not sure what pro-parts costs per hour but I'm assuming 150-200/hr. I think TAP Elite is about 115/hr/engine. So 400/hr covers a bunch. The pilot said fuel at cruise is 700PPH or 105 (same as first hour in the KA), I don't remember the first hour burn but I don't think its too bad with the Williams engines. So figuring $500 for first hour fuel and $400 afterwards. With the cost of JetA being low (except in MTJ, they are crazy....), seems $1100.hr is conservative. So if I fly 10 hours/mo, it'll cost me 1100 + 400 (amortized fixed) or $1500/hr - can't imagine the KA is costing me less than that......

Of course, it needs to be in the pattern at 3 hours and you can't haul many people around but I'm OK with this as a place to start. I'm investing a ton in growing the Biz and don't need a big expense hitting the books anymore.

Every partnership I've ever seen has had share prices that are inflated. It's as if they feel market values can be set aside just because there's less to pay each. Maybe I'm failing to see the upside, but I don't get partnerships for that reason. Just seems like a raw deal every time I looked at them.

A partnership generally should be more expensive to buy into. You're often buying into account balances already accrued for reserves, and you're buying into a situation where the fixed costs are split. Both of those tend to increase the economic value of the partnership share, assuming the availability will work out for you.

If I could find a way to make my hangar 75% less expensive, my insurance 50% less expensive, my annual 75% less expensive, etc, I'd sure pay some premium up-front to make that happen.

I agree that buying a plane with cash reserves increases value. I don't see that the partnership per se increases value. Yes, somebody helps pay the fixed costs, but on the downside you may not have control over those fixed costs and have a MUCH less liquid asset. Without a clear way to account for all those variables ... I think X% of a plane is worth X% of market value.

Adam, I agree with you for those marketed equity and especially non-equity partnerships in the UK. Seems like a business model where the sum of the parts approaches 2x the market value of the aircraft. Sort of the irrationality of pricing for vacation timeshares... I haven't seen partnerships offered in the US.

John how about an Eclipse Jet? Burns less fuel than a cj and you could own the whole thing.

John: on all my partnerships, including the plane, we have a buy/sell agreement. If one party can't sell after it's offered he can offer his share to the other parties at a price they can take or sell him their share for the same price. Sometimes we have an appraisal first and it's offered to third parties at that, but in the end, the divorce clause is the buy/sell. Keeps everyone honest and if the others don't want it, gives them incentive to assist. I've seen folks stuck in those and they weren't able to sell their interest. So, have a divorce clause. I've never had to use that on a plane, but did in a RE partnership when someone got unreasonable and quit paying their partnership expenses. A friend went to court to eject a partner and the others had to pay all operating costs and court/attorneys. Took them over two years to get the other guy out.
Easy to get in if you have the money; might be different getting out if something doesn't go right. I know one guy that got into one of these and the other partners had to approve a new partner; they wouldn't. He just sat and paid for many years. Didn't want to look bad to the other guys. He really didn't have the means to sue.

What are the chances the plane isn't going to be available when you need it? Do the other owners fly regularly? I assume you are talking about an older CJ, having flown both I would rather have the King Air. The performance of the old CJ is disappointing, it actually burns more fuel per mile than a CJ3 due to its poor climb performance and inability to get to the higher altitudes. It is easier to fly than a KA and I've found its almost impossible to make a bad landing in that airplane. Really nice handling plane, just needs more power. 450K might be a bit high for a 1/3 share unless it's a really nice one.

Putting a buy/sell in place is a great idea! Getting out of the deal is my biggest concern, that's why leasing the exiting partners position would be awesome for me. I'd hope for a month-to-month that enables him to keep his position for sale and me to exit when I want.

I do agree with Adam, often times the pieces of the partnership add up to more than the whole. From my perspective, this hurts liquidity because the buyer of my position is going to have the same concern - it's not that hard to figure out what an airplane is worth...

Every time I crunch the numbers, owning a jet alone is at least a 400k/yr proposition. With a lease and 100 hours of flying, I'd be in for less than half of that.

I know a CJ isn't perfect. I'd prefer a citation ultra setup in the same kind of deal. If it works out, maybe I could talk the other owners into trading. Honestly, I don't know how long I'll need it. Owning a jet is possible to justify for our business but not personally. I hope our business needs me to get do done selling for another year and then doesn't need me anymore. I'd love to punch out and be able to fly slower.

You don't say what year CJ, how many hours, and what avionics but it probably cannot be sold for more than $1MM in todays market. There are 29 CJ's listed on Controller and it is a buyers market.

If you buy-in at $450K it will be hard to ever get out at that price. If you buy-in at $300K then you are likely to be able to come out whole if the plane is sold.

Any premium in the value due to the cost sharing is offset by the lack of liquidity. I would not pay a 30% premium over market price for a share.

I came to the same conclusion John. Flying 50 to 100 hours a year sure makes leasing look good. The time to agree upon the exit is before you write the check if you get into a a partnership. I've never seen a 25% discount if you sold. Usually see appraisal and some small discount or buy/sell. If you lease, it will be easy to move on if things don't go right or you find another plane you really like.

Theory is that fixed costs are amortized over more people, so you get lower operating costs per person.

In practice, with a turbine, there are not that many fixed costs to split up. Hangar is one which fully divides, but that's maybe $3-4K per owner? Property taxes split evenly, but vary a lot on jurisdiction. Insurance is determined by the least insurable pilot in the program, so does not quite split evenly, yet isn't a lot different than the hangar in terms of cost. Maintenance is more hourly driven than time driven in most turbine maintenance programs (SETP an exception to this somewhat), so that doesn't help that much, maybe a few $K per year. After that, everything is operating cost, direct to the operator.

So I think a partnership might save $10-15K per partner per year. Not really that big an advantage in the grand scheme of things.

The major bug in partnerships is lack of availability during peak usage periods. For example, I want to fly somewhere for the last 2 weeks of December. Contention over dates and long trips makes the plane less useful.

Suggestion: have the airplane appraised at new buyer's expense, pay 1/3rd that amount (will be less than $450K). Have an exit clause that says leaving partner can have another appraisal done, pay 80% of 1/3rd of that, or the existing partners can sell the airplane and split it evenly, their choice. A 20% hair cut on a buy/sell cycle is reasonable given the situation.

Mike C.

I know you're a good businessman, but I would sure ask for an explanation of how they priced the partnership interest. Plane value, any PS reserves, any other pre-paid expenses. Value of recently completed inspections, etc. When you get into a managed PS, there will also be management fees and charges. If they are discounting the price they would give the existing partner to leave, consider that in your purchase.
If they're reasonable, proceed. If they don't quickly respond or are not reasonable to begin, it may not get better later.