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Aero-Tips 08.05.06

Recently I proposed something common in other lands but unusual in the United States as a means of helping Sport Pilot thrive-the Sport Aviation Club, or (and I apologize to my fellow ex-Air Force friends) SAC. In the Aero-Tips item where I discussed SAC, I suggested potential owners band together to help defray the costs of $100,000 dollar Light Sport airplanes, forming social and educational clubs as well to share and learn more about flying.

One reader commented:

This sounds like a good idea on paper, however it won't work. I tried to form a new club based on a light-sport aircraft, but insurance just is not available. I had planned on a 10-member club, with a $100k Zodiac SLSA aircraft, tricycle gear, no grass strips allowed (all the things insurance companies want to hear) - but insurance companies won't touch it. Bob Mackey from the EAA's Falcon Insurance Agency told me at Oshkosh that five members would be the limit. Unfortunately, the numbers just aren't very attractive with five members - it's more like a partnership.

Having sold aviation insurance myself (about a decade ago), I figured this was a stumbling block. Note that in most cases a five-owner airplane policy loses its Open Pilot Warranty (OPW), meaning insurance is valid only when the five named owners fly (nobody else). There may yet be options, however, that could get a SAC off the ground.

• OPTION 1: Set up a five-person SAC. Advantage: Costs shared five ways. Danger: Much more expensive than renting a $100/hour airplane.
• OPTION 2: Go bare. Unless you finance the airplane there's usually no requirement for insurance (Note: a few states require liability coverage, and some larger airports require insurance for based airplanes). If 10 members are each able to put up (or finance through other means) $10,000 then the SAC can pay cash and go without insurance. Put the airplane in a corporate name and have each member of the SAC rent it from the company. Require each individual to carry non-owned aircraft coverage including in-motion "hull" protection. Advantage: Cost shared among many members. Danger: No coverage for storm damage or theft.
• OPTION 3: A club of clubs. Form a SAC with three other pilots, and an insurance policy including an OPW. Get another four to own a second airplane, insured with an OPW. Form a simple corporation (the SAC) that has memberships (airplane owners) and associate memberships (people flying on the OPW). Everyone pays the same rates to fly and those who don't own the airplane pay to cover other expenses (hangar, etc). Not optimal, and not cheap, but some of the costs (hangar, for instance) may be shared if the airplanes fit. Advantage: Lots of members and multiple airplanes. Danger: That's a lot of corporate structure to set up and maintain, including tax considerations, and it's not really meeting the spirit of insurance clauses.
• OPTION 4: Seek out insurance applicable to flying clubs that permit more than five members. This means going to a specialty market (ask a good insurance broker). Advantage: Airplane costs shared among many members. Danger: Insurance much more expensive, negating some of the savings of a SAC.

I don't have all the answers, but hope this will get you thinking about ways to meet your goals.

NOTE: None of the above constitutes legal and/or insurance advice, because I'm not qualified to give either. Take your questions to legal, tax and insurance professionals, be forthright about what you plan to do, and proceed according to their advice.

Aero-tip of the day: Look at creative, above-board ways to share to cost of owning a Light Sport Aircraft.

FMI: Aero-Tips