Aircraft & Ownership
In this item we try to provide useful information, or sources of information, related to the ownership, including purchase and maintenance, of an Aircraft in the UK.
The content is arranged in separate subject areas in the accordion sections below.
If you think we should include additional information or have got something wrong please Contact Us and let us know.
This article is intended to provide basic advice on the purchase of a typical light GA aircraft, either factory built or as a kit build project, including a part built kit.
AOPA members may Contact Us for further advice.
On the face of it, purchasing an aircraft should be as straight forward a buying a vehicle or a property.
We suggest this as a basic pre-purchase check list is:
- Determine what aircraft you want to purchase
- Decide if you are buying new or used, factory built, kit or part built to complete
- If you are buying new, contact the manufacturer or their authorised agent/s for your locale
- If you are buying used, even if potentially buying from someone you know, you are advised to investigate the current market place for other examples
- If you are taking out finance for the purchase, as a mortgage on the aircraft, get an in principle offer
- Get quotes for Aircraft Insurance
- Confirm that you have agreed somewhere to base the aircraft
- Obtain as much detail about the aircraft as possible, including other pilots of this type of aircraft
- If the aircraft is already registered:
- check the relevant National Aircraft Register (do a web search. In the UK it is the GINFO Database)
- contact the Registered Owner to confirm the aircraft is for sale as advertised
- check if there is any outstanding Mortgage on the aircraft
- Carry out a first Inspection the Aircraft (or part build) and documents
- Follow up with a detailed inspection, perhaps with an Aircraft Engineer or Surveyor, and test flight.
If you are responding to an advertisement be aware that there is a growing level of fraudulent advertisements for aircraft, particularly on auction websites, bogus websites and social media.
The information below provides more detail about completing the purchase and taking ownership of the aircraft.
The main options available for financing the purchase of an aircraft are:
- Bank overdraft
- Capital loans
- Export credit loans
Some common structures for financing an aircraft are:
- Loans secured by a mortgage
- Finance and operating leasing
- Pre-delivery payment financing
There are many companies offering finance for the purchase of an aircraft. The majority will require the loan to be secured on the aircraft by a mortgage. The terms vary, subject to your status, so it is a good idea to shop around.
If you are buying your aircraft through a broker they may also offer to arrange finance. If you use such a service, make sure you understand any terms and administration costs they might add or commission they may be receiving. You may get a better deal dealing direct.
Aircraft Mortgages are covered by legislation in the UK: Statutory Instruments 1972 No. 1268 CIVIL AVIATION The Mortgaging of Aircraft Order 1972
All aircraft must be registered. In the UK the legislation is covered in: Statutory Instruments 2016 No. 765 CIVIL AVIATION The Air Navigation Order 2016
There are specific requirements for each of the following kinds of aircraft:
- New Homebuilt Aircraft
- New Foreign Manufactured Aircraft
- Used Foreign Registered Aircraft
- New UK Manufactured Aircraft
- Former UK Registered Aircraft never Registered elsewhere
See the UK CAA website for registering an aircraft in the UK.
You may require a radio licence to be issued for your aircraft. Aeronautical Radio Licences are not transferable, so licences held in the previous owner's name are not valid. See the UK CAA website for more details.
If your aircraft will be, or is, subject to a mortgage you may enter a new aircraft mortgage on to the register. See the UK CAA website for more details.
A pre-purchase inspection of an aircraft that you are seriously considering buying can be a valuable tool in negotiation with the owner. You should approach a suitable Aircraft Engineer to ask if they would carry out an inspection for you and under what terms and cost. You may not find an engineer willing to put anything in writing in case of possible litigation against them on the basis of their inspection. However, you should make sure the engineer has a clear understanding of your expectations and you of his/hers, including any limitations.
There is normally a going rate per hour plus expenses. A licensed engineer is not essential, as many unlicensed engineers employed in a maintenance organisation have a wealth of experience. You might also consider approaching local groups operating an aircraft similar to one you are interested in, as such a group usually has a co-owner who looks after the engineering side, and they are often quite knowledgeable. Different aircraft types suffer from known problems particular to that type. Owner club websites are also a good source of information.
The aircraft and engine logbooks (preferably going back to the date of manufacture) need to be made available to your engineer because he/she will be able to tell you a lot about the aircraft simply from its recorded history. He/she will also examine the logbooks to check that all the correct maintenance has been properly carried out, and that all the ADs and SBs (Airworthiness Directives and Service Bulletins) have been attended to. If the aircraft has flown much less than 100 hours per year for considerable periods in the last few years, then beware of engine corrosion problems. Many owners do not take kindly to their aircraft being dismantled in order for a third party to investigate its airworthiness, and in this case an inspection relies mainly on what can be viewed externally or seen via inspection panels. But, if the underside of the aircraft is dirty or muddy, beware of superficial corrosion of the skins (assuming an aluminium structure) indicated by little bubbles under the paint. Check the state of the interior and the avionics fit, because this has an impact on the value, as does the total hours on the airframe and particularly the engine. Bear in mind that bringing an engine back to zero hours, together with renovating all the ancillaries may set you back £15k plus or minus depending on type. Different engines have differing TBOs, so an aircraft with an engine coming up to the end of its TBO life, or calendar life if that is closer, is worth that much less that one with a brand new engine. A new paint job will set you back £6000 or more.
A typical pre-purchase inspection may cost something of the order of £300 plus expenses, and will vary according to factors such as depth of inspection required, selling price and complexity of the aircraft. Twin–engine aircraft, and aircraft with retractable gear, de-icing, variable pitch propeller etc. will inevitably cost more. You should expect to cover the engineer’s expenses, typically travel and subsistence. Remember the basic price quoted above is roughly equivalent to the labour costs for a 50-hour check inspection - the pre-purchase inspection at this level cannot be expected to uncover problems that may only come to light at an annual check, which is much deeper than a 50-hour. If asked, your engineer may (or may choose not to) offer a valuation – do not expect one in writing, though. He/she may also recommend that you avoid purchasing the aircraft altogether (again, not in writing) and in this case you would be wise to heed his/her advice, even though that advice has cost you money.
There are three basic routes from which to choose if you wish to build your own aircraft, including Helicopter and Microlight:
- Design and build your own aircraft from scratch
- Construct an aircraft from plans designed by someone else
- Assemble a kit
CAP 659: Guide to Approval, Construction and Operation of Amateur Built Aircraft is a comprehensive guide to the rules around amateur built aircraft, providing an acceptable means of compliance. It is relevant to anyone who:
- seeks a Permit to Fly for an amateur built aircraft.
- is restoring an aircraft (which is not eligible for a Certificate of Airworthiness) and seeks a Permit to Fly for it, be it an existing amateur constructed aircraft, or an historic aircraft whether factory built or otherwise and irrespective of whether it was originally built in the UK or has been imported.
The CAA approves all amateur built aircraft. The route to achieving approval is either by the CAA conducting a direct investigation of the aircraft or, for certain simpler types of aircraft, via the BMAA or LAA conducting the investigation on their behalf. At the end of the BMAA or LAA investigation the CAA issue the approval on the basis of their recommendation.
CAP 659 applies to anyone who seeks a Permit to Fly for an amateur built aircraft, but it only describes the processes that should be followed where the CAA is directly involved in the investigation and approval of the aircraft. Cross-reference may be made to BMAA and LAA processes, but no attempt is made to define them. Amateur builders who wish to know what those processes involve are advised to contact the BMAA or LAA direct.
Under Part 4 Airworthiness of Aircraft Chapter 3 of the Air Navigation Order 2016 , no aircraft may fly in the UK unless, subject to certain exceptions, it has a valid Certificate of Airworthiness (C of A) or a valid Permit to Fly.
An amateur built aircraft cannot qualify for the issue of a Certificate of Airworthiness because it would not in its entirety have been designed and constructed by an appropriately qualified organisation as required by:
- ICAO Annex 8; and
- British Civil Airworthiness Requirements; and
- EU Regulations Nos. 1592/2002 (establishing EASA) and 1702/2003 (the EASA Implementation Regulations); and
- EASA Certification Specifications (CSs).
The level of airworthiness achieved by both the design and during the building process is variable and because of this the CAA do not consider it appropriate to issue a C of A to such an aircraft. The CAA will, however, consider as an alternative the issue of a Permit to Fly under the requirements of BCAR Chapters A3-7 or B3-7, when we are satisfied that the criteria of BCAR Chapters A3-7 or B3-7 have been met.
Before you can fly an aircraft it is required by law to have minimum levels of insurance. The level of insurance cover depends on the Maximum Take-Off Mass (MTOM) of the aircraft and on the number of passengers carried.
On 30 April 2005, EC Regulation EC 785/2004 on insurance requirements for air carriers and aircraft operators came into force. The Regulation was subsequently amended on 6th April 2010. The Regulation, as amended, specifies the minimum levels of insurance required by aircraft operators and air carriers in respect of third party cover, passenger cover and cover for risks of war and terrorism.
In the United Kingdom the Civil Aviation Authority (CAA) is the designated authority for monitoring compliance with the regulation on behalf of the Department for Transport (DfT).
The relevant regulation:
- EC 785/2004.
- Amendment EU 285/2010.
- The Civil Aviation (Insurance) Regulations 2005.
- Explanatory memorandum to the Civil Aviation (Insurance) Regulations 2005; HMSO SI 2005 No 1089.
Aircraft insurance must cover:
- third party cover
- cargo (if relevant)
- risks of war and terrorism (‘war risk’) - unless exempted
The minimum level of insurance cover is based on an International Monetary Fund "Special Drawing Right" (SDR) international currency unit. To convert to GBP, You can find the current exchange rate here.
The minimum value of insurance can then be calculated:
MTOM (kg) Minimum Insurance (Million SDRs)
*Up to 499 0.75
500 -999 1.5
1,000 - 2,699 3
2,700 - 5,999 7
* Aircraft and micro-lights with a MTOM of less than 500 kg used for non-commercial purposes or used for local flight instruction which does not involve crossing international borders are not required to insure against war and terrorism (war risk). Check Regulation (EC) No 785/2004 for more detail.
For non-commercial operations with aircraft having a MTOM of 2,700 kg or less, the minimum level of passenger insurance shall not be less than 100,000 SDRs per passenger. In all other cases the minimum level of passenger insurance shall not be less than 250,000 SDRs per passenger.
Baggage shall be insured for not less than 1,000 SDRs per passenger.
Cargo shall be insured for not less than 17 SDRs per kg of cargo carried, if relevant.
For a typical 4 seat aircraft, single pilot and 3 passengers, with a MTOM between 1,000 and 2,699 the minimum insurance level would be:
3rd Party Insurance 3,000,000 SDRs
3 Passengers at 250,000 SDRs = 750,000 SDRs
3 Baggage at 1,000 SDRs = 3,000 SDRs
Total = 3,753,000 SDRs. This is approximately £3.44 Million.
However, you may find that there is a much higher minimum insurance requirement at some Airports or Airfields, especially Ministry of Defence properties.
You may also get an estimate of the minimum level of insurance required for a particular aircraft type from the G-INFO database.
Enter the Aircraft type you are interested in and then Search. Select one of the aircraft in list, if there are any listed, and then click Minimum Insurance Requirements for an estimate.
From the CAA website (www.caa.co.uk)
"The CAA will normally consider evidence of insurance, and therefore compliance with the Regulation, on the basis of the exchange rate between Sterling and the SDR in place at the inception of the policy. However, owners and operators need to be aware that it is their responsibility to ensure that adequate cover exists for each and every flight. If owners or operators have concerns over their level of cover they should contact their broker for advice."
Obtaining Insurance Quotes:
The Aircraft Insurance market has expanded in recent years and there is now much wider choice for obtaining quotes, which has subsequently seen premiums at least remain stable and possibly reduced.
As with other insurances, you can affect the cost of your insurance by reducing risk. One way is to restrict cover to named pilots only with minimum levels of PIC hours, in particular hours on type.
On renewal, shop around for comparable levels of cover to check that you are still getting a good deal from your Broker.
There may be other ways to keep your premiums down. Speak to your Broker for advice.
Within the UK, other than those aircraft deemed to be deregulated, require a Certificate of Airworthiness (CoA) or Permit to Fly based upon the correct maintenance being undertaken.
GA Aircraft requiring a CoA/Permit to Fly will fall into these categories:
- EASA Aircraft (Including EASA Permit to Fly and EASA Annex II Aircraft)
- Non-EASA Aircraft (UK Permit to Fly)
EASA Aircraft: Controlled Environment
EASA Aircraft which are required to be maintained, or the owner chooses to have maintained, in a controlled environment will be maintained by a maintenance organisation approved by the CAA under EASA Part M Subpart G to act as a Continuing Aircraft Maintenance Organisation (CAMO). They will agree an appropriate maintenance schedule which includes:
- Updating Aircraft Documents
- Developing a maintenance programme
- Complying with Airworthiness Directives (AD's) and Service Bulletins
- Assuring modifications and repairs are correctly carried out
- Assuring scheduled maintenance, e.g to Propellor, is carried out by an approved organisation
- Assuring mass and balance report is correct
- Issuing the Airworthiness Review Certificate (ARC)
An Initial Inspection will be carried out at the first Annual review to ensure all airworthiness matters in the maintenance schedule are up to date so that an ARC can be issued.
Every 50 hours (or 6 months) an inspection will be carried out. If less than 50 hours has been flown then a "50 Hour" check will be carried out at 6 months as required by the approved schedule of maintenance.
In a controlled environment, an Annual Airworthiness review is carried out. When passed, an ARC is issued every 1st and 4th year, with extensions at years 2 and 3 by a Subpart G organisation or the CAA.
EASA Aircraft: Uncontrolled Environment
For EASA Aircraft which may be maintained in an uncontrolled environment, the owner has responsibility for the maintenance schedule,including:
- Updating Aircraft Documents
- Developing a maintenance programme
- Complying with Airworthiness Directives (AD's) and Service Bulletins
- Assuring modifications and repairs are correctly carried out
- Assuring scheduled maintenance, e.g to Propeller, is carried out by an approved organisation
The Annual Airworthiness review is carried out by an approved maintenance organisation.
EASA Aircraft: Self Declared Maintenance Programme (SDMP)
An amendment to EASA Part M Regulation allows for the owner of an ELA1 categorised aircraft not involved in commercial operations to maintain the aircraft under a SDMP.
An ELA1 Aircraft is:
- an aeroplane with a MTOM of 1,200 kg or less and is not a complex motor-powered aircraft
- a sailplane or powered sailplane of 1,200 kg MTOM or less
- a balloon with a maximum design lifting gas or hot air volume of not more than 3,400 cu.m for hot air balloons, 1,050 cu.m for gas balloons, 300 cu.m for tethered gas balloons
- an airship designed for not more than 4 occupants and a maximum design lifting gas or hot air volume of not more than 3,400 cu.m for hot air airships and 1,000 cu.m for gas airships
Non EASA Aircraft: UK Permit to Fly
Permit to Fly Aircraft (LAA Permit)
LAA Permit Aircraft are issued with a Permit to Fly by the CAA based on LAA Recommendations.
The Permit to Fly is non-expiring but has a certificate of Validity which is reviewed annually.
The owner must ensure that the aircraft is maintained to a schedule, or programme, agreed with the LAA.
Maintenance must be signed off by an LAA Inspector approved for the aircraft type.
Permit to Fly Aircraft (BMAA Permit)
BMAA Permit Aircraft are issued with a Permit to Fly by the CAA based on BMAA Recommendations.
The Permit to Fly is non-expiring but has a certificate of Validity which is reviewed annually.
The owner must ensure that the aircraft is maintained to a schedule, or programme, agreed with the BMAA.
Maintenance must be signed off by a BMAA Inspector approved for the aircraft type.
The CAA issue the Permit to Fly, facilitated through a BCAR A8-20 Organisation.
A Certificate of Validity will normally be issued by the CAA on recommendation.
The December 2016 issue of the AOPA Magazine included an introductory article on the Self-Declared Maintenance Programme (SDMP) for EASA aircraft of MTOM 1200kg (ELA1) used for private flying.
The next time your aircraft goes in for its annual service, your maintainer should seek your views on the Maintenance Programme (MP) to be adopted. Since October last year, it has been an EASA requirement that each aircraft has a specific MP that is declared by the owner to be appropriate, the SDMP.
It is to your advantage to take the time to work through this with your maintenance organisation. Of course, you can simply ask your maintenance organisation to sort it out without your guidance or involvement, but the MP may end up being more comprehensive than is practically necessary.
You are likely to be charged for the time to complete the forms to set up your aircraft-specific MP, so why not take the opportunity to learn more?
To make a self-declaration,it is useful to complete the EDD 2015/024/R form from the CAA website, which explains the basis of any MP in a standard format.
The CAA do not review or approve any maintenance programme; this is now the responsibility of the owner. Note also that any annual service has to be signed off by a licensed engineer, so your MP will need to be agreed with them.
The CAA simply file the declaration away in case it needs to be looked at in the future. If your aircraft has a maintenance schedule provided by the manufacturer, you, or your maintainer, can use this as a basis on which to start formulating your aircraft’s MP. Note that the manufacturer’s maintenance schedule might not be available directly to the private owner as many manufacturers provide the appropriate technical publication only through a specialised US provider, APT (Aircraft Technical Publications), which your maintainer hopefully subscribes to.
EASA have defined a Minimum Inspection Programme (MIP) that any MP must satisfy, so yours will lie in between.
A manufacturer has to assume that an aircraft can be used in a range of environments and operating conditions, perhaps being stored outside, maybe in arctic, coastal or desert conditions, with some pattern of assumed usage. But your aircraft may be stored in a warm hangar and flown just 50 hours a year, so the maintenance requirements might not need to be so demanding.
So the opportunity now exists to have a slimmed down MP that is fit and suitable for your aircraft, with unnecessary aspects removed and others reduced in scope or frequency to meet your situation.
You may, however, wish add in some checks and procedures to cover particular operational aspects, e.g. more frequent landing gear checks when operating out of a very bumpy airfield.
So dig out the CAA form; immediately you can draw a line through many of the boxes as you are not a balloon and only have an ELA1 etc. Then take a careful look at the manufacturer's or current maintenance schedule and question each part. This is where you need to get together with your maintainer, removing all that does not apply. Time spent establishing the most appropriate MP will save you money in future years.
No doubt there will be some one-off costs involved in setting up your SDMP but the overall aim is to allow more relevant MPs to exist for each aircraft. So create the MP that works well for you and your aircraft.
European and National regulations permit cost sharing as follows:
- The flight is a cost-shared flight by private individuals.
- The direct costs of the flight must be shared between all of the occupants of the aircraft, including the pilot, up to a maximum of 6 persons.
- The cost-sharing arrangements apply to any other-than complex motor-powered EASA aircraft and this includes aircraft registered outside of the EASA area but operated by an operator established or residing in the Community.
- Cost-sharing is also permitted in non-EASA (Annex II of the Basic Regulation) aircraft registered in the UK.
Direct costs means the costs directly incurred in relation to a flight (e.g. fuel, airfield charges, rental fee for an aircraft). There can be no element of profit. Annual costs which cannot be included in the cost sharing are the cost of keeping, maintaining, insuring and operating the aircraft over a period of one calendar year. There can be no element of profit.
- In the case of a jointly-owned aircraft, the CAA considers the hourly rate, normally payable by a joint owner, for use of their aircraft to be a 'direct cost'.
- Cost shared flights can be advertised, including the use of online 'flight sharing' platforms.
- It is recommended that any advertising or promotion of cost-sharing flights makes it clear that they are private arrangements and not conducted in accordance with commercial air transport or, where appropriate, public transport rules.
- Passengers should be made aware that the pilot may amend or cancel the flight for any reason, including at short notice.
- The proportion of the costs that must be shared by the pilot is not specified in the regulations; however, the pilot must make a contribution to the direct costs of the flight that he is conducting.
- The General Exemption (ORS4 No.1234) which permits cost-sharing flights for Annex II aircraft only applies to flights conducted within the London and Scottish Information Regions.
The CAA have published two guides for Cost Sharing Flights:
CAP1589: Cost sharing flights - GA guide; Information and guidance on the circumstances under which the direct costs of a private flight may be shared between up to six occupants (including the pilot) of an aircraft.
CAP1590: Cost sharing flights - guidance and information; This information is intended to provide guidance for when the actual direct costs of a passenger transport flight maybe shared between the occupants of an aircraft without having to comply with the regulations applicable to Commercial Air Transport or Public Transport flights.
This information is also available from the UK CAA website, which should be checked for any changes.
Aviation Law is contantly changing and you should verify that any information given below is still valid. Fortunately the underlying principles tend to remain constant even if the paragraph and section numbering changes.
Can I rent out my aircraft?
The legislation covering non-EASA National Permit to Fly Aircraft is theAir Navigation Order (ANO). The ANO 2016 Chapter 4, Section 41 states that a National Permit to Fly aircraft may not be hired out without the permission of the CAA.
EASA Aircraft must have either a Certificate of Airworthiness or be a type approved permit to fly aircraft which is already permitted to be used for self fly hire within the terms of the relevant exemptions. EASA EU Regulation applies.
Guidance for private pilots offering charity flights
More UK private pilots will be able to offer flights for charity following a simplification of the Civil Aviation Authority's (CAA) requirements. The Air Navigation Oder (ANO) 2016 and the CAA have issued guidance in CAP 1330.
A blanket permission will now be available for pilots if they meet certain basic requirements. This removes any need for pilots to have to apply to the CAA to carry out individual flights. The changes place more emphasis on pilots providing a thorough explanation to passengers of the level of safety and risks prior to the flight taking place.
As well as simplifying the requirements, other changes include:
- Extending the types of aircraft that can be used to include permit aircraft such as hang gliders, paragliders, microlights, gyroplanes and powered parachutes, and
- Allowing flights to take place from unlicensed airfields.
To use the permission, pilots must ensure that they receive no payment for the flight. All money must be paid by the passenger directly to the registered charity and the charity cannot be the operator of the aircraft.
Pilots should also check that their insurance cover is adequate and ask the passenger to check that their own life and any private health insurance covers the intended flight.
Before you can perform at an approved flying display you will need a display authorisation. This requires you to undertake an approval flight for a display evaluator.
You now need a behavioural and attitudinal fitness assessment.
CAP 403 has guidance for the organisers of these events and others that do not require CAA permission.
All parachute dropping from civil registered aircraft over the UK is regulated by the CAA and must be conducted in accordance with the requirements set in the Air Navigation Order (ANO) 2016.
CAP 660 : Parachuting is a comprehensive source of information. It collates the rules and regulations and provides guidance on the following topics:
- Legal requirements
- Parachuting operations
- Parachuting displays
- Monitoring and audit
- Safety management systems and risk assessment
- Relevant legislation
CAP 403 "Flying Displays and Special Events" includes further information in relation to parachuting as part of a flying display.
The BPA (British Parachute Association) has compiled an Operations Manual, adherence to which will ensure an acceptable operating standard.
This article is written for non-commercial operations and non-complex aircraft. The parts pertaining to changes made in the Air Navigation Order 2016 have been written with advice from and review by the CAA.
If you are a commercial operator and a member of AOPA UK you should contact us if you have a specific enquiry.
Prior to the Air Navigation Order 2016, for any Aircraft that was not subject to a Certificate of Airworthiness there was a minimum share holding of 5% if the owners wanted to take advantage of the exception in Article 269. For Aircraft with a Certificate of Airworthiness this limit did not apply so long as the aircraft was maintained to Public Transport standards.
The Air Navigation Order 2016 no longer stipulates any minimum share value.
It is a requirement for a group that all owners of an aircraft are notified to the CAA using the appropriate form. Not all shareholders in an aircraft appear on the UK Register.
Aircraft can be registered in the names of multiple owners without it being registered as a Group. However, if there are more than three joint owners it is probably best that the aircraft is registered to the trustee of the assets of the group. The trustee must have a share in the aircraft and that person is deemed to be the legal owner of the aircraft. The other shareholders are beneficial owners and, as such, do not have to appear on the Register itself. However, the CAA must be informed of all shareholders and changes that may subsequently occur.
To be registered as a Group, one of the owners must be nominated as a trustee of the Group and then you can add or remove group members without having to re-register the aircraft. If the trustee leaves the group then the aircraft does have to be re-registered.
Group ownership allows the aircraft to be better utilised, reducing the overall hourly cost of flying when both direct and annual costs are considered. However, unless the group members are carefully chosen it can be a bad option.
For national permit to fly aircraft, there must be a permission (general or individual) from the CAA in order to be hired out to another pilot. If the pilot flying the aircraft is a joint-owner, then no such requirement applies. In order to be considered to be a joint owner they must:
- Own equity in the aircraft; and
- Either be a registered owner or in the case of an aircraft registered to a trustee, the trustee must have notified the CAA of the owner joining or leaving of the group.
Under the ANO 2016, there is no longer a direct limit of 20 owners before a group would be considered a self-fly hire arrangement. Whilst it may appear that you can set up a group with unlimited numbers with registered owners having a very notional financial interest in the aircraft, a sensible approach should be adopted such that a group arrangement between joint owners remains as such, and does not appear to be effectively self-fly hire concealed through notional amounts of equity that might change hands on a short term basis. Arrangements that have a very high number of owners and/or frequent changes of group members might arise suspicion and should be avoided.
The CAA has a page about Group Ownership with appropriate links here. NOTE: At the time of writing the CAA article has not been updated for the Air Navigation Order 2016.
Any owner or beneficial owner of the aircraft can then:
1. Self-Fly the Aircraft (subject to ratings and differences training if required)
2. Pay the *Direct Costs for the flight on an hourly basis.
3. Pay a proportion of the Annual Costs. To be seen to be proportional this should be an hourly sum calculated as an hourly cost by dividing the annual costs by the estimated number of annual flying hours.
The cost directly incurred in relation to a flight, e.g. fuel, airfield charges, rental fee for an aircraft. There is no element of profit.
Annual cost means the cost of keeping, maintaining and operating the aircraft over a period of one calendar year. There is no element of profit.
Effectively, there are two ways of managing group ownership of an aircraft. The first of these is a joint, or co-ownership, arrangement and the second is by means of a limited liability company.
There are usually three concerns to be addressed by private owners when deciding how to structure their group. These are cost, ease of administration and the important issue of liability to third parties.
As far as costs are concerned, it is fair to say that the co-ownership arrangements should be cheaper than the costs of incorporating a company and the need for various filings to be made at Companies House. However, whether a co-ownership group or a company, it is vital that the members agree a formal and properly drafted agreement between them, which should deal with a number of important questions. A properly drafted members', or if appropriate shareholders’ agreement should deal with:
· membership entitlement
· for joint owners with a financial share, the sale of either shares in the aircraft or, if a company, shares in the company
· treatment of equity members versus non-equity members
· retirement from membership
· the provision of audited accounts
· the frequency of meetings and the ability of a number of members to call meetings
· the management of the group
· insurance and indemnity arrangements
· expulsion from the group
When setting up the agreement careful consideration must be given to the question of borrowing.
Borrowing by the group or the company should normally be by unanimous consent of the group members or shareholders only.
Insofar as administration is concerned much, of course, depends on the goodwill of persons involved to ensure the group is run smoothly. To avoid future difficulties adequate provision should always be made for each and every member to be kept fully informed and, most importantly, to be sent a copy of the insurance policy each and every year as it is renewed and to be made fully aware of its terms, conditions and exclusions.
The corporate structure involves more administration in that there are regular filings, which need to be made at Companies House, and annual accounts must be prepared and submitted along with an annual return. However, recent amendments to the companies legislation has made provision for a much simplified form of company accounts to be prepared.
There is also the question of transfer of interests. If a company has its liability limited by shares, then a formal transfer of the shares must be made with appropriate entries in the company's books. Should the co-ownership agreement be adopted then some of these formalities are unnecessary, but it should be remembered that the CAA must be informed of every change to the co-owners who is also a trustee, then an appropriate amendments needs to be made on the aircraft register.
In any event, whether a co-ownership or corporate structure is adopted, full and up-to-date financial data should be readily available to its members at all times.
The next issue is the tricky one of the potential liability of the aircraft owners to any third party who is injured or killed or whose property is damaged as a result of an accident involving the aircraft.
It is in this particular area that, in an attempt to reduce insurance cost and potential liability, many individuals favour the corporate structure rather than co-ownership. It has been clearly established for nearly a century that a company is treated in the eyes of the law as an entity wholly distinct from the persons who are its members. Because a company is treated as a distinct entity, one of the principal advantages of trading through this medium has always been that the members of the company are only liable to contribute towards the payments of its debts to a limited extent. It therefore follows that if a company is unable to pay its debts, because for example, its insurance cover is inadequate, an unpaid creditor may petition the court to wind it up.
If an order is made, a liquidator will be appointed to realise the company's assets (in the present case, usually only the aircraft) and if he realises insufficient to pay its debts he will call upon its shareholders to make good any deficiency; their liability is limited to the balance of capital unpaid on the shares (if any) plus any unpaid premiums. This will usually be little or nothing.
However there is a certain limitation to the protection that can be derived from the company structure. Take the following example:
There is an accident involving, an aircraft which is jointly owned. The accident was caused by a mechanical defect in the aircraft which was known by one of the members, who was charged with having the defect rectified but who did nothing about it. It is likely that, in such a circumstance, not only would the company be sued but also the person who was negligent in failing to rectify the defect and also, possibly, the pilot in that he should have made appropriate checks to ensure that the aircraft was airworthy.
Where does this leave the other innocent members if the company is sued?
While there might be some liability upon the company as owner of the aircraft, a properly drafted agreement would provide for a right for the company to seek redress or indemnity from the guilty parties. It is possible that those guilty individuals would be sued by the parties and may be made bankrupt. In these circumstances the indemnity would be worthless. The litigant might then look to the company for payment of all damages and, if necessary, petition for the winding up of the company and sale of its only asset i.e. the aircraft. However, the members would be able to limit their individual liability as before. This is slightly different from the position with co-owners who risk not only losing the aircraft but would also be personally liable, their only rights being by way of contribution from the other members.
The corporate structure, therefore, will not absolve the individual from liability for his own culpable negligence but may protect the other innocent shareholders. However, there is no substitute for procuring full third party legal liability insurance and ensuring that each member who operates the aircraft adheres fully to the terms and conditions of the policy: underinsurance can have disastrous consequences, as can breach of policy terms.
It is always important to ensure that the company trades only when solvent and is able to pay its debts as they fall due, thereby avoiding some of the pitfalls which directors of companies find themselves in under the draconian provisions of the new insolvency legislation.
As you will see there are many factors to be considered when finalising a joint ownership structure. One vital factor is the likely number of participants. Two individuals, who know and trust each other, may prefer the looser arrangement which co-ownership offers. However, on balance, I would always recommend the use of a company, especially if there are a large number of participants. The most important lesson for any party considering a joint ownership is that the arrangements are given careful and proper thought. Lawful operation and full insurance must always be paramount aims.
Group Arrangements by ROBERT RICKETTS, a Partner and Solicitor in the aviation law firm of Clark Ricketts, London (September 1996)
Updated reference to ANO 2016 by M Elborn, AOPA UK (September 2016), with advice from and review by the CAA.