Asset Insight Podcast – PIA Managed Co-Ownership℠
Partners In Aviation (PIA) president, Mark Molloy, joined Tony Kioussis on the Asset Insight Podcast to describe how PIA Managed Co-Ownership℠ matches two owners to one aircraft and pairs them with the appropriate aircraft manager. Owners fly their aircraft, on their schedule. However, by cutting acquisition and fixed costs in half, PIA Managed Co-Ownership provides the lowest net cost of aircraft ownership while maintaining access comparable to sole-ownership.
Topics covered in the 20-minute podcast include:
- How PIA Managed Co-Ownership works and what PIA specifically provides.
- How PIA Managed Co-Ownership compares with other ownership options.
- Who the typical client is.
- What aircraft size and model options are available.
- The costs associated with PIA Managed Co-Ownership.
- Charter revenue under PIA Managed Co-Ownership.
Tony Kioussis (00:33):
Welcome to another Asset Insight Podcast, covering the aircraft ownership life cycle. I am Tony Kioussis, president of Asset Insight and your host.
Tony Kioussis (00:42):
Partners In Aviation matches two owners to one aircraft and pairs them with the appropriate aircraft manager. Owners fly their aircraft on their schedule, however, by cutting acquisition and fixed costs in half, Partners In Aviation contends that its managed co-ownership program provides the lowest net cost of aircraft ownership while maintaining access comparable to sole ownership.
Tony Kioussis (01:09):
We found the concept which one article described as the next evolution in business aircraft ownership, sufficiently intriguing and wanted to invite Mark Molloy, the company’s president, to help our listeners learn more.
Tony Kioussis (01:24):
Thanks for joining our educational podcast, Mark, I have to tell you that the concept on the surface at least sounds like a better option than relying solely on charter revenue to reduce your direct cost. How has it been received by the business aviation community?
Mark Molloy (01:41):
I’d say it’s initially skeptical because there are so many different programs, and there’s a little bit of a deluge for folks that are trying to find the right program as to which one is the right fit.
Mark Molloy (01:55):
It took us a while really to get the momentum in the program and to have enough matches out there to really start to become mainstream. But we’ve now been out in the space for about six years and we have matches all over the country from Seattle to Miami, we have them in lights, mids, and super mids. We’ve got CJs ones, twos, threes, and fours. Phenon 100s, Phenon 300s, Lear 45XRs, we’re doing three hard currently G200s. We’ve got challengers, we’re doing a Legacy 600 right now as well. So now we’ve got the momentum, and I would say the credibility and customers that are considering us have the ability to visit with folks that are in the program and have been through the whole process.
Mark Molloy (02:41):
It took us two years working on the program before we were brought it to the marketplace, but now it’s up and running. And now we’ve got enough momentum with the program that it’s becoming an option for folks as they’re looking at all the options they have to solve their needs,
Tony Kioussis (02:57):
Skepticism in the marketplace. What a concept, how unusual? Happens with every new concept that comes along, right?
Mark Molloy (03:05):
If the word partnership doesn’t raise the hair on the back of your neck, you’re not really thinking straight. It really should.
Mark Molloy (03:12):
All of our clients have had some partnership somewhere along the line, that’s gone south on them, and so there should be some red flags, but that was the issue. The math was good, the structure wasn’t, and so what it needed was someone to take the time to really do this and nothing but this and that was kind of the genesis of the program. We felt like we could solve this if we stuck to our guns and stuck to just this.
Mark Molloy (03:38):
Yeah, I understand the skepticism, it should be there, but when done right, the math is pretty compelling.
Tony Kioussis (03:45):
So tell us how your company’s manage co-ownership program works. What the process for structuring one of these relationships is, and what does Partners In Aviation specifically provide?
Mark Molloy (03:57):
The elevator speech on this is we are match.com for business aviation. We match two owners to one aircraft. That’s all we do. It’s never anything else. It’s never multiple owners. It’s not multiple aircraft. This is not a fractional program. Every match is two owners, one aircraft and a manager. It’s a little triangle. And we assist in matching the owners. We then assist in the acquisition of the aircraft for those owners. And then we assist in the legal structure. We have an aviation law group that handles all of the agreements. The two owners enter three separate agreements. They enter a 50% interest purchase agreement. They enter an aircraft co-ownership and operation agreement, and they enter an aircraft management and pilot services agreement.
Mark Molloy (04:44):
We assist with those in conjunction with their counsel. So we’re matching them to a co-owner, we’re matching them to an aircraft and then we’re matching them to a manager or charter manager depending on how they intend to operate.
Mark Molloy (04:58):
So we’re not the manager in this. We work with managers all throughout the country. We work with the 800-pound gorilla, big national managers. And we work with a lot of boutique, small managers that manage 15 or 20 aircraft. And the two owners choose who that manager is usually with our guidance.
Mark Molloy (05:15):
But at the end of the day, it’s two owners, one aircraft and a manager. We try to keep it simple. Our typical client flies 100 hours a year which translates to three to four, maybe five days a month that they’re using their aircraft. That means the other co-owner has access to his aircraft about 25 days every month. It’s not 30 out of 30, to have 30 out of 30 you’d need to pay 100 cents on the dollar for the aircraft. Inside of this model, our folks are paying 50 cents on the dollar for the capital and for the fixed costs. And they have access about 25 days a month.
Mark Molloy (05:53):
Most of our clients have reasonable flexibility in their schedules. That’s why they’re coming into this program. And so that handles 100% of their trips. That’s the value proposition to be paying 50 cents on the dollar for the big numbers, with access that really handles 100% of the flying that they’re currently doing.
Mark Molloy (06:12):
Think of us as match.com, but we’re matching you to more than just to partner. We’re matching you to a partner we’re matching you to an aircraft. We’re matching you to the right manager. And then we’re providing this legal structure that you’re going to operate under.
Tony Kioussis (06:27):
There are numerous options out there if one wishes to fly privately, including of course, charter possibly through a Jet Card and Fractional, how is Partners In Aviation’s managed co-ownership compare to these and other options?
Mark Molloy (06:44):
For everybody that’s looking at those options usually comes down to how much are they flying and we’re not the right program for everybody. We’re a bit of a niche business. And I think there’s a spot for all of those programs. Usually, as folks go through the process of trying to identify which is the right program for them, it’s going to come down to how much they’re flying.
Mark Molloy (07:07):
If they’re flying less than 50 hours a year, usually they’re going to bend towards charter, Jet Card, or a membership program of some type, because in our program this is aircraft ownership and there’s capital invested here. So there has to be enough usage for that to make sense. And usually, if it’s under 50 hours a year, you are not flying enough to justify this capital acquisition. Once you start getting north of 50, certainly 75 hours, then a lot of folk are starting to look to see if there’s maybe a better way than what they’re currently doing in charter and Jet Cards and that’s usually the time they’re going to come to visit with us. I would say on the low end, our clients are flying 50 to 75 hours a year.
Mark Molloy (07:54):
The high-end customers that we have fly 125 to 150 hours a year. About 85% of our clients fly between 75 and 125 hours a year. So we’re really kind of a tight niche business.
Mark Molloy (08:07):
If you’re flying much more than 150 hours a year, you’re probably going to bend towards full ownership. I really think all of those programs have a space and we’re in that space of that 100 hour a year operator plus or minus about 25 hours. That seems to be where the math is pretty compelling. They’re probably spending more than they’re comfortable with on charter or Jet Cards, but they’re not to the point where they’re ready to purchase a whole aircraft. I think that’s where we best fit.
Tony Kioussis (08:37):
Those are interesting statistics on the typical managed co-ownership client. I would not have thought it was that low a utilization. That is really interesting to me. What are the aircraft size models, options that are available to people?
Mark Molloy (08:53):
We’ve got matches in turboprops. We just finished two PC12s and we have matches in heavy jets, but not a lot in either of those two categories. We’re really light, mid and super mid. Our business is about a third in each of those three. As I said before, we’ve got pretty much all the models of light jets now flying CJs ones, twos, threes, fours, M2s, Phenom 100s, Phenom 300s, Lear 45s, we’ve got Citation XLS and a multitude of Hawkers flying now in the mids. In the super mids, we’ve got Gulf Streams, Challengers, Legacies and Falcons. So we’re about a third in each of those categories. So it’s relatively evenly spread.
Mark Molloy (09:38):
We don’t work with any Piston aircraft and we don’t do a lot of international work. So it’s mostly domestic, but a lot of our domestic guys will take the airplane to Europe once or twice a year. Nothing unusual about that. But if it’s a customer who’s going to Europe as a regular course of business, that’s probably not going to be a fit for the program at this time.
Tony Kioussis (09:57):
Are there any costs specific to managed co-ownership that an interested party needs to keep in mind?
Mark Molloy (10:05):
Well, this is ownership. So it’s got all the costs of ownership. You’ve got a dedicated crew, you’ve got insurance, you’ve got hangar, you’ve got all the way down to subscriptions and wifi. You are paying for everything, it’s just that you’re paying 50 cents on the dollar for it. So it’s no different than any other owner that owns his own airplane.
Mark Molloy (10:22):
There is a management fee involved and that’ll be based on the manager you choose. And again, like everything, you’re paying 50 cents on the dollar for each of those. So really no different cost than what you would have as a sole owner, going to pay 50% of the capital. You’re going to pay 50% of the fixed costs. You’re going to pay 100% of your direct operating costs. And typically the direct costs are the cost of fuel and engine programs. Otherwise, everything else is split.
Mark Molloy (10:50):
Just know that it’s the same as ownership in terms of all of that. The good news is somebody else is picking up half the load.
Tony Kioussis (11:00):
Is it possible to generate charter revenue under managed co-ownership or is this structure limited to part 91 operations?
Mark Molloy (11:08):
You tell us which of those two avenues you choose and we match you accordingly. And right now about 25% of our business is straight part 91, where it’s just the two owners flying their aircraft. And about 75% of our business is what we call the subservient third partner and that’s revenue.
Mark Molloy (11:27):
In our program, the revenue is done on a limited and strategic basis. And what I mean by that is in the old model of charter revenue, it was a little bit of tail wagging the dog, where the airplane flew mostly in revenue and the more hours the better to drive the cost down. We don’t subscribe to that theory, but we do think there’s logic in putting revenue on the airplane where it makes sense and where it makes sense is leveraging your fixed costs. When you see the performance, it’s pretty easy to see the single biggest line item as an owner is crew.
Mark Molloy (12:06):
There’s nothing more expensive as an owner than what you pay salary benefits and training for your crew. And you’re going to have a crew of two to operate the airplane. So it does make sense to leverage that cost, but not to add to that line item. And typically, depending on the airplane, a crew can fly somewhere around 300, 350, maybe 400 hours a year, depending on the kind of aircraft. That’s really a days driven equation, more than it is an hours equation, but it equates to somewhere around 350 hours a year where we have two co-owners each flying somewhere around 100 hours a year, that leaves us about another 150 hours that the airplane can be flown in revenue with that crew.
Mark Molloy (12:48):
And typically what will do then with that manager that’s managing this is we will mitigate the deadheads. A lot of our customers have a second or third home that they’re flying to, or a vacation destination where they’re going for a while.
Mark Molloy (13:02):
The airplane’s going to take them there, and then it’s going to depart in revenue. It’s not going to deadhead back. And as you know, in today’s market, and it’s been this way for a while, we can fly these airplanes in revenue pretty much every day, every direction. That’s not a problem. The demand has been such that’s relatively easy to do.
Mark Molloy (13:22):
So the revenue piece to the model mitigates deadheads, and they’ll also cherry-pick good charter opportunities that don’t interfere with either of the co-owners flying. And when you do it that way and you keep it inside of the space that the crew can handle. Typically at the end of the year, we’ll have put about 350 hours on the airplane. About a third of that will be co-owner A’s hours, about a third of that will be co-owner B’s hours. And about a third of that will be revenue hours. And that’s pretty good math at the end of the day. And now you’ve leveraged your fixed costs. You haven’t added to those and the net cost of ownership under that model is a good value proposition.
Tony Kioussis (14:04):
Yeah. The other thing that dawns on me is you really haven’t run the flight hours up substantially on the aircraft. If you’re doing 350 hours a year, that’s pretty routine. So you’re not taking a devaluation on the aircraft when you go to sell it because of high time, which is one of the problems that a lot of people forget about when you’re chartering. I imagine managed co-ownership works best if the two owners live near each other, which avoids repositioning costs, who pays for the cost to position the aircraft when the owners live in different locations?
Mark Molloy (14:40):
We do the matches geographically. And so you are going to be matched to somebody who’s inside of your region and where we can keep the repositioning to typically 30 minutes or less that actual cost to move the aircraft, usually once or twice a month is minimal. That cost, which is fuel and engine program is a split cost. So neither owner cares where the airplane sleeps at night, whether it’s a corner at A’s base or a corner at B’s space. What they care about is that they drive to their local airport, walk through their FBO, get on their airplane with their crew at the best cost. So that cost of repositioning goes into the split bucket. But as I say, it doesn’t even move the needle in the big math we’re talking about here.
Mark Molloy (15:24):
That’s how it works. You’re going to be matched to somebody geographically. There’s a very small amount of repositioning cost. You’ll save more in hangar rent by cutting your hangar in half than you will pay in repositioning costs. You’re talking about folks that have a couple of trips a month typically.
Tony Kioussis (15:40):
This is an intriguing concept and one that no doubt makes sense to many existing and prospective owners. What haven’t we covered that you would want people to know about our managed co-ownership or Partners In Aviation?
Mark Molloy (15:55):
It’s probably worth saying that the way this works as a customer, you and your legal folks are going to be directly involved with our law team and our aviation tax consultant to assist you on your end, but you’re going to be treated like a sole owner in tax and in title. So not in a partnership legally or structurally, this is a little different, you’re in a co-ownership. Each owner owns an undivided interest in 50% of the aircraft. There is no K1s at the end of the year, it’s not a partnership. There’s no entity where they reside together and they’re treated autonomously for tax and title. So say it’s a $6 million airplane. Each owner has a $3 million asset. One of them might be taking bonus depreciation, and maybe they’re showing 70% business use and 30% personal in terms of write-off. And the other owner might be chasing grandkids and do none of that. And what one owner does has no effect on the other, in terms of tax and titles. So it’s a little different than what the old partnership model was.
Mark Molloy (16:55):
We find that their legal folks much prefer this from liability and from a financial entanglement perspective. That’s a big part of this too, is the legal structure that comes with it. That’s all part of the service.
Tony Kioussis (17:12):
This has been another Asset Insight podcast, covering the aircraft ownership life cycle. Please visit our ever-growing podcast library at assetinsightpodcast.com and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis, and as always, thank you for listening.