Page 32 - Twin & Turbine May 2017

The Joint Owners or Operators Agreement (“JOA”)
Every joint ownership arrangement is slightly different and each should have a written “joint owners’ agreement” or “joint operators’ agreement” (“JOA”). Here are some helpful provisions.
1. Administrative Matters
Although joint ownership is not a business, the owners will generally find it helpful to appoint one joint owner to act as “manager” for purposes of scheduling maintenance, computing amounts due from each owner and maintaining the aircraft schedule. The owners will also want to open a joint ownership bank account to facilitate payment of expenses and collection of payments from the owners.
2. Sharing Usage and Access
The Wright brothers used a coin toss to determine who got to fly the aircraft. The rules regarding sharing of use and access should be written in the JOA or a related document. At a minimum, the JOA should guarantee each owner a certain number of hours or days. Some give the owner who has fallen behind in usage the first right to schedule the aircraft. Some contain procedures for sharing use on “high demand” days, such as holidays. Most arrangements contain procedures for reserving the aircraft, including setting a maximum “lead time” and a maximum amount of time the aircraft can be automatically reserved.
3. Sharing Costs
The JOA should describe how the owners will share aircraft costs. Some agreements allocate all costs in proportion to ownership. However, this creates distortions where the percentage of usage is significantly different that the ownership percentage. Consequently, most agreements try to share variable costs based on usage by requiring each joint owner to pay their own fuel costs and to pay an hourly charge for using the aircraft. This hourly charge should cover anticipated maintenance and overhaul costs. The owners can either retain those hourly charges in the joint bank account or can distribute them to the owners in proportion to ownership, with the understanding that the owners will later contribute toward actual maintenance and overhaul costs in proportion to ownership.
4. “Buy Out” Provision
The “Buy Out” provision is one of the most important provisions in the JOA. Since nothing lasts forever, the provision should contain rules governing termination of the arrangement or transfer of an interest. Some agreements provide for automatic termination and sale of the aircraft upon departure of any joint owner. However, most contain a “right of first refusal,” that gives remaining owners the right to buy out departing owners or to terminate the arrangement. The Buy- Out provision should also cover the worst case scenarios, such as where there is an involuntary transfer due to death or bankruptcy or where a joint owner refuses to follow the rules.
Conclusion
Joint ownership is an inc•reasingly popular method of reducing aircraft hourly costs and sharing administrative burdens. Using a written agreement that spells out the rights and obligations of the owners will generally help reduce the risk of unpleasant surprises. T&T
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Phil Crowther, JD, CPA, MBA, is an attorney whose practice focuses on structuring aviation operations and handling aviation- related tax matters. He has more than 40 years of business and tax experience, including serving as the tax manager at Cessna Aircraft. He is an instrument rated, commercial pilot and can be reached at phil@philcrowther.com
30 • TWIN & TURBINE
May 2017