Ownership Options for the HondaJet Explained

Transcription

1 Ownership Options for the HondaJet Explained There are many ways to utilize and/or own a private aircraft ranging from leasing, chartering, full ownership, co-ownership, LLC partnership, joint ownership, jet card usage - to fractional ownership and the new Uber-like ridesharing applications. This synopsis will focus on the various options of ownership specifically as they apply to the HondaJet and the many legal, operational, FAA, liability and tax issues to consider. Following is a quick overview of United States aircraft - title, registration, operational and ownership issues for the HondaJet (it actually applies to any other aircraft as well). This summary is written for the enlightenment of potential interested parties who have limited aviation background and knowledge. It is not meant to be all encompassing nor is it an attempt to cover all the legal, operational and tax issues inherent in aircraft ownership. Your personal tax professional, CPA and/or attorney should be consulted for further clarification of your specific situation. I highly recommend a very experienced aircraft consultant who would work with all parties together to develop an ownership structure that is best suited for each person s specific tax, liability, legal and other considerations. One of the best is George Rice and he can be contacted at: All US owned and registered aircraft and helicopters are Titled (ownership interest) and Registered (operational interest) by the Federal Aviation Administration (FAA) and this is centrally handled for all US aircraft through the FAA s Aircraft Certification and Registration Branch located in Oklahoma City, OK. Most aircraft transactions and documentation are handled on behalf of buyers, sellers, owners or their representatives, banks, law firms, insurance companies and others by one of a handful of FAA approved independent Aircraft Title and Escrow companies 1

2 - also located in Oklahoma City. I highly recommend and use for all transactions one of the largest, AEROtitle, Inc. - Aircraft Title and Escrow Company. see: The ownership and operation of all US aircraft are governed by FAA - Federal Aviation Regulations (FAR s) and these include several subsections that are often referred to in aviation conversations and thus further explained below. Part 61 refers to Part 61 of the FAR s and covers the certification of all pilots and flight instructors and specifies minimum experience requirements for licensing and the safe operation of all civil aircraft. Part 91 refers to the general operational regulations, maintenance and flight rules that apply to the safe operation of all civil aircraft including helicopters that are used for non-commercial (not for compensation or hire) purposes. There are two other subsections of Part 91 which also impact jet aircraft ownership and operations and those are 91 Subpart (F) which deals with special rules applicable to all jet powered and large aircraft (large is defined a having a maximum certified gross take-off weight or more than 12,500 pounds). And Part 91 Subpart (K) which deals with Fractional Ownership Programs and operations. Because the FAA determines that flight operations which are for commercial purposes (for compensation or hire) have to meet higher safety standards for the public s protection, these operations are covered under Parts 135 (on-demand) commercial charter operations (less than 19 seats) or under Part 121 which govern the commercial airlines with jets or more than 19 seats. There are many more subparts to the FAR s that govern virtually all aspects of aircraft certification and operations but I am only going to touch here on those that have a bearing on this short tutorial. For discussions about aircraft ownership and operation of the HondaJet (or any other aircraft for that matter) I will briefly cover those options available and what they entail and please keep in mind these are written for the edification of a non-aviation audience and thus are not meant to all-inclusive or exhaustive in nature. 1.) Sole Ownership as the name implies, is when an individual, sole proprietorship, company, corporation or LLC purchases the aircraft and then intends 2

3 to operate the aircraft on behalf of themselves or on behalf of that specific corporate entity. The sole owner in this case is responsible for the safe operation of the aircraft. 2.) Co-Ownership is when one or more private individuals, companies, corporations or LLC s go together and legally share in ownership of the aircraft. This should not be confused with the term partnership which in legal terms and to the FAA is not the same as Co-ownership and thus partnership is not used legally to describe the Co-ownership structure - but in practical usage the two terms are often used interchangeably. Co-ownership does not have to be in equal shares and whatever share of the aircraft is owned by each entity is specified in percentage terms on the FAA Bill of Sale (title) and the FAA Certificate of Aircraft Registration (operational) filed at the FAA and which is required to be carried in all civil aircraft at all times. Also most Co-ownership arrangements will include a written co-ownership (shared ownership, aircraft partnership) agreement signed and agreed to by the partners. Most aircraft co-ownership and airplane share arrangements create an equitable system of shared use and allocation of expenses either through this co-ownership agreement or through language incorporated into a management agreement when the aircraft is professionally managed by an outside entity on behalf of the co-owners. An aircraft management agreement between each co-owner and the management company (if so managed) contains the details of the allocation of the use of the aircraft among the owners. Included in a management agreement would be terms covering payments, costs, and specification of the areas of aviation expertise to be provided by the one or more of the co-owners or management company. Some of these would include aircraft maintenance and repair, scheduling, identifying properly certified flight crew and their training, flight following and overall safety of flight issues. Please be aware that in a Co-ownership arrangement the FAA and US law specifies that each of the co-owners are responsible for operational control of the aircraft and thus adherence to all pertinent FAA regulations and its safe operation. So consideration for how the aircraft s operational and co-ownership issues are organized is of primary importance. 3

4 3.) Fractional Ownership. - an aircraft fractional ownership program is simply an expanded form of co-ownership of professionally managed private aircraft. What is expanded, as compared to co-ownership of one plane by more than one person, is (i) the number of planes being managed [operation must have more than 2 aircraft], and (ii) the right of a fractional owner of one airplane or jet to use another aircraft owned by others in the fractional group. The right to use other aircraft is created by a document that all fractional program participants sign. This document is commonly referred to as a Dry-Lease Aircraft Exchange Agreement, or simply Dry Lease Exchange Agreement. Simply put, in the aircraft fractional ownership model, multiple aircraft are available to multiple owners and the operational control is vested in both the fractional owner and the program manager. 4.) Joint Ownership - is defined under FAR Part (c)(3) as an arrangement whereby one of the registered joint owners of an airplane employs and furnishes the flight crew for that airplane and each of the registered joint owners pays a share of the charge specified in the agreement. The FAA has not established a minimum percentage of ownership; however, the relationship must be a true joint ownership and not just a token ownership interest. Each of the co-tenants, or registered joint owners, pay their pro rata share of all fixed costs (i.e., hangar rental, property taxes, insurance, debt service, maintenance and depreciation) attributable to the aircraft and each also pay the direct operating costs (fuel expenses, landing fees and pilot expenses) when they are on board their aircraft. In addition, each of the cotenants maintains considerable control over their own pilots. This includes the ability to hire a pilot, other than the ones employed by a joint owner. Also, pilots are under the co-tenant s exclusive control, subject to the discretion of the pilots as to safety issues. This arrangement is not used when the co-owners use a common pilot for all flights or an outside management company to oversee all operational and safety issues for the aircraft. 5.) LLC as Legal Entity for Sole Ownership this is when a stand-alone LLC is formed (usually in a jurisdiction that has no aircraft sales or use taxes and a useful legal structure - the most common are Oregon, Wyoming, Nevada and Delaware) in order to limit the liability for its LLC owners. In this case the LLC is the Sole Owner of the aircraft registered with the FAA and the LLC partnership agreement will (on its own or in combination with a separate aircraft Co-ownership or partnership Agreement) specify all of the many operational and control issues. For tax purposes this works much like the Co-ownership arrangement but has the added 4

5 benefit of inserting an LLC to limit the liability and risks and isolating the LLC owners. 6.) Making The Co-ownership Relationship Work: Co-ownership of an aircraft can be a beneficial relationship for individuals who would like to share the aircraft ownership experience. However, it is a lot like a marriage. Compromise and some give and take are necessary to make it work. Open and honest communication regarding expectations is critical. Co-owners must also be compatible. At the end of the day, just like marriage, the arrangement is right for some people and wrong for others. Owner Compatibility. To determine the compatibility of prospective co-owners, you will need to ask and honestly answer a number of questions. Will each owner be flying for business, pleasure or both? Will the aircraft perform the missions desired by each co-owner? Can each prospective co-owner really afford to be a co-owner? Do the co-owners get along? The answers to these questions will help you determine whether you and your prospective co-owners will have similar goals and expectations. Some Other Considerations: Formation of a Legal Entity. Owner Information and Structure. Management and Administration. Insurance. Aircraft Use and Limitations on Use. Expenses. Dispute Resolution. Exit Strategies. Properly considering all the potential advantages and disadvantages of each type of aircraft ownership structure is of vital importance. With the proper research and planning, we can assure that your ownership of the HondaJet is a marriage made in heaven. 5