Syndicate expertise
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Syndicate expertise
I've been asked by someone who is looking at setting up a part ownership arrangement for advice and given his ideas were a little curly, I thought I'd ask the wider audience.
The scenario is....
Owner 1 owns an aircraft outright. The aircraft cost him $100,000, but it's worth a lot more ($200,000) because it was given to him and that's what it cost to get it flying, so ultimately it owes him $100k. If he sold it, he would be happy with his $100k.
Owner 1 wants to share the running costs of the aircraft and he wants some of his capital back to earn some interest in the bank and to buy his wife a new car. He wants to sell the other share to a friend for $50,000 because it's half of what the plane cost him.
Owner 2 buys a half share for $50,000 and is wrapped with the deal because he's getting is fantastic because the aircraft is worth around $200,000 so he's getting a fantastic deal.
In two years time, Owner 2 moves to another state for work and wants to get out of the arrangement so he decides to sell his share of the syndicate. Owner 1 doesn't have any money at the moment because his wife has just left him.
Here's the curly bit....
Should owner 2 be able to sell his share for $100,000 because the aircraft is worth $200,000, or should owners 2's share be capped at $50,000 ?
The scenario is....
Owner 1 owns an aircraft outright. The aircraft cost him $100,000, but it's worth a lot more ($200,000) because it was given to him and that's what it cost to get it flying, so ultimately it owes him $100k. If he sold it, he would be happy with his $100k.
Owner 1 wants to share the running costs of the aircraft and he wants some of his capital back to earn some interest in the bank and to buy his wife a new car. He wants to sell the other share to a friend for $50,000 because it's half of what the plane cost him.
Owner 2 buys a half share for $50,000 and is wrapped with the deal because he's getting is fantastic because the aircraft is worth around $200,000 so he's getting a fantastic deal.
In two years time, Owner 2 moves to another state for work and wants to get out of the arrangement so he decides to sell his share of the syndicate. Owner 1 doesn't have any money at the moment because his wife has just left him.
Here's the curly bit....
Should owner 2 be able to sell his share for $100,000 because the aircraft is worth $200,000, or should owners 2's share be capped at $50,000 ?
Clarie is quite correct on the one hand,
On the other, the actual price paid is really determined by what the buyer is prepared to pay... (?)
If the buyer thinks its a 'good deal', then he/she may happily pay the $100K for the half-share in the $200K aircraft.
On the other hand......"Market Forces"......
Cheers
On the other, the actual price paid is really determined by what the buyer is prepared to pay... (?)
If the buyer thinks its a 'good deal', then he/she may happily pay the $100K for the half-share in the $200K aircraft.
On the other hand......"Market Forces"......
Cheers
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Understood, however an aircraft owner knows that for owning an aircraft the largest costs are running it versus the purchase price and this arrangement helps owner 1 because he only has to pay for half of the 100 hourlies roughly, half the hangar and half the insurance.
Maybe this should be approached differently, maybe as an equity partner.
Owner 2 buys in at $50,000. The aircraft is sold after 2 years for $200,000 and owner 2 gets back his $50,000. Owner 2 can't conceivably think that he would get back $100,000 for his investment. In 90% of GA aircraft they will depreciate anyway so this shouldn't come as a surprise to owner 2.
Maybe this should be approached differently, maybe as an equity partner.
Owner 2 buys in at $50,000. The aircraft is sold after 2 years for $200,000 and owner 2 gets back his $50,000. Owner 2 can't conceivably think that he would get back $100,000 for his investment. In 90% of GA aircraft they will depreciate anyway so this shouldn't come as a surprise to owner 2.
Perhaps owner 1 should have had something drawn up when he sold a share to owner 2, so this situation wouldn't occur.
morno
morno
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Maybe owner 2 on paper is buying a 1/4 share, that would solve it, except for the running costs which would be based on a 1/2 share. That might be a good solution on paper.
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At the time of the sale to Owner 2, Owner 1 is throwing away $50,000 by selling half the $200,000 plane for $50,000. He only realises that "loss" when owner 2 sells.
If he is upset by the concept of owner 2 gaining $50,000 at the later date, then he shouldn't give it to him in the first place.
The equity concept may work - where Owner 2 puts in $50,000 to buy a stake in the aeroplane with the requirement to pay 1/2 of all the fixed costs. If Owner 2 wants to get out, then the plane share is sold and from the proceeds Owner 2 is paid his $50,000 indexed at CPI (or RBA cash rate, or any other mutually agreeable index) and Owner 1 gets the rest. That way owner 1 retains all the bonus equity for the good deal in buying the plane.
If he is upset by the concept of owner 2 gaining $50,000 at the later date, then he shouldn't give it to him in the first place.
The equity concept may work - where Owner 2 puts in $50,000 to buy a stake in the aeroplane with the requirement to pay 1/2 of all the fixed costs. If Owner 2 wants to get out, then the plane share is sold and from the proceeds Owner 2 is paid his $50,000 indexed at CPI (or RBA cash rate, or any other mutually agreeable index) and Owner 1 gets the rest. That way owner 1 retains all the bonus equity for the good deal in buying the plane.
What XXX said.
Make shares in ownership relate to the proportions contributed of the capital cost of the aircraft.
Distribute the operating costs evenly across the number of syndicate members.
Certifs
Make shares in ownership relate to the proportions contributed of the capital cost of the aircraft.
Distribute the operating costs evenly across the number of syndicate members.
Certifs
Last edited by certifs; 24th May 2013 at 03:51.
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An aircraft costs $100k. The owner spends $100k on it.
In the real world, that does not make it worth $200k, unfortunately. The aircraft is worth what the market says it is
It's such a subjective topic, and aircraft are easy to overcapitalise on - if you don't know what you're doing
In the real world, that does not make it worth $200k, unfortunately. The aircraft is worth what the market says it is
It's such a subjective topic, and aircraft are easy to overcapitalise on - if you don't know what you're doing
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Interesting situation. Lesson is to get a market valuation done at the time of initially selling the share, and charge appropriately for half, quarter or whatever shares. Capital gain from that point is then legitimately allocated to partners, whenever they sell. In this case, if the share was advertised as a half share, and Owner 2 put in the running costs etc on that basis, he's made a good deal when he sells for current market value of the share. Owner 1 might have been a bit more prescient at the outset!
Owner 2 sells for whatever the market will bear at the time of sale. He will get whatever a buyer is prepared to pay at THAT time, for the given plane at THAT time.
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Owner two sells the share for what he can get for it, simple. I've made a small profit on syndicate shares I've sold in the past. It's none of one's business what the share is sold for. I'm surprised there's any debate?
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Owner two sells the share for what he can get for it, simple. I've made a small profit on syndicate shares I've sold in the past. It's none of one's business what the share is sold for. I'm surprised there's any debate?
The shares of any syndicate are only worth what somebody is willing to pay for them. If owner 2 buys 50% of the aircraft for $50,000 and then later decides to sell it and gets $100,000 for it then owner 2 has made a tidy profit. Much like my mate the ranga here
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Start how you mean to finish. The syndicate needs to establish on commercial terms and that way now one feels they have been taken advantage of. We are all friends until it comes to money so establish a fair market price for the syndicate shares. Alright, the aircraft is worth $200k, but is the a price it would really achieve if put on the market. How much does Owner 2 think it is worth to him? It could be the half syndicate share is established somewhere between $100k and $200k, say $150k. This might realistically be all the plane could be sold for less a discount for convenience of the syndicate. So Owner 2 pays $150k for his share knowing he has bought in at some discount. Owner 1 has established a more suitable value and will be less likely to feel he has been taken advantage of. The ongoing relationship between Owner 1 and Owner 2 has greater chance of remaining harmonious as everyone feels they have committed in a business-like manner.
Just my 2c worth.
Just my 2c worth.
My lawyer explained contract strategies to me very simply. It's like a marriage, it starts with flowers and chocolates and ends in the divorce court with much bitterness.
It is therefore wise to contemplate the end of the arrangement before the flowers and chocolate phase begins. It's too late once the marriage is made.
Another lawyer who worked for me taught me that it is equally important to spell out rights and responsibilities once the contract is dissolved, for example, who owns what liabilities for maintenance costs and suchlike.
If the aircraft is "worth $200,000" at the time old mate only paid 50,000 for a half share, then as far as I am concerned he gets his 50,000 back unless other arrangements are in the contract.
It is therefore wise to contemplate the end of the arrangement before the flowers and chocolate phase begins. It's too late once the marriage is made.
Another lawyer who worked for me taught me that it is equally important to spell out rights and responsibilities once the contract is dissolved, for example, who owns what liabilities for maintenance costs and suchlike.
If the aircraft is "worth $200,000" at the time old mate only paid 50,000 for a half share, then as far as I am concerned he gets his 50,000 back unless other arrangements are in the contract.
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If the aircraft is "worth $200,000" at the time old mate only paid 50,000 for a half share, then as far as I am concerned he gets his 50,000 back unless other arrangements are in the contract.
At the moment there aren't many aircraft that SELL for over $200k. Many are listed at high prices, but I know of at least 2 aircraft that sold in the last few months at half the initial asking price.
I would add that unequal syndicates (ie one person owns 75% and another 25%) is a recipe for disaster. The minor owner has no vote and gets lumped with the bills. Either syndicate the aircraft properly or not at all.
Beyond syndication, none of the options to earn money from aircraft are very good. If the a/c has had $100k spent on it it must have been either a) to fix an old aircraft (eg old Bo) with problems, b) a glass panel or c) engines on a twin. I guess it could be an engine & some avioinics on a single. If it was worth $100k pre upgrade, then its a serious aircraft - so it is unlikely to be a training aircraft or one you'd want to trash with training. This leaves private hire or charter. Charter is starting to get arduous for maintenance and these days needs to be one of a handfull of aircraft 210 / B58 / PA31, etc. Private hire might be an option, but the market is pretty small - especially if you put flight experience & currency requirements on the aeroplane to try and protect it.
The best syndicates I've been part of have had no agreements. Its just mates who respect & trust each other dealing with honour.
Once you sell a share, its the new shareholders problem to sell it. If he moves interstate and can't sell his share then he still must pay the share of the fixed costs. If he sells it at a loss to get out quickly, its his loss. If he sells at a profit - good luck to him. Once the original owner sells a share its none of his business.
Each shareholder should have a power of veto to stop one shareholder selling a share to someone unsuitable, although this would commonly then require that shareholder that rejected the prospective buyer to then buy the share at the proposed price - maybe not the first time, but at least the second or third.
There could also be a "shotgun" clause where if one owner offers to buy the other out at a price and it is rejected, then the other is required to buy the initial shareholder out at the proposed price. This means that if shareholder A offers shareholder B $10,000 for the share and B rejects it. Shareholder B then has the ability to buy out shareholder A for $10k
I would add that unequal syndicates (ie one person owns 75% and another 25%) is a recipe for disaster. The minor owner has no vote and gets lumped with the bills. Either syndicate the aircraft properly or not at all.
Beyond syndication, none of the options to earn money from aircraft are very good. If the a/c has had $100k spent on it it must have been either a) to fix an old aircraft (eg old Bo) with problems, b) a glass panel or c) engines on a twin. I guess it could be an engine & some avioinics on a single. If it was worth $100k pre upgrade, then its a serious aircraft - so it is unlikely to be a training aircraft or one you'd want to trash with training. This leaves private hire or charter. Charter is starting to get arduous for maintenance and these days needs to be one of a handfull of aircraft 210 / B58 / PA31, etc. Private hire might be an option, but the market is pretty small - especially if you put flight experience & currency requirements on the aeroplane to try and protect it.
The best syndicates I've been part of have had no agreements. Its just mates who respect & trust each other dealing with honour.
Once you sell a share, its the new shareholders problem to sell it. If he moves interstate and can't sell his share then he still must pay the share of the fixed costs. If he sells it at a loss to get out quickly, its his loss. If he sells at a profit - good luck to him. Once the original owner sells a share its none of his business.
Each shareholder should have a power of veto to stop one shareholder selling a share to someone unsuitable, although this would commonly then require that shareholder that rejected the prospective buyer to then buy the share at the proposed price - maybe not the first time, but at least the second or third.
There could also be a "shotgun" clause where if one owner offers to buy the other out at a price and it is rejected, then the other is required to buy the initial shareholder out at the proposed price. This means that if shareholder A offers shareholder B $10,000 for the share and B rejects it. Shareholder B then has the ability to buy out shareholder A for $10k