When do you adjust aircraft value in a shared airplane ownership? Here are four events that could change valuation.
Our shared ownership in a Cirrus SR22 is held in a Limited Liability Company (LLC). We meet at least once per year to agree on company valuation, which includes the aircraft value. We have a one-page document called “Exhibit, Valuation of Membership Interest,” which we organize just like a balance sheet (shown in prior posts). The members review increases and decreases in bank balances, prepaid items, aircraft value, liabilities and member’s equity. It’s normal to see a reduction in aircraft value from depreciation.
Each member signs the Exhibit of Valuation. This provides a reference point for the next discussion on valuation.
We have a depreciation schedule for the engine and CAPS. Depreciation reduces the aircraft’s value over time. You could include more items to depreciate but we have agreed to focus on these two – engine and CAPS. My previous post discusses how depreciation expense reduces the original acquisition price and results in the net aircraft value as shown on the balance sheet.
Sale of Membership Interest
It’s not unusual for a Member to sell a portion or all of their interest in a shared ownership. When a sale of a Membership interest occurs we use the one-page document called “Exhibit, Valuation of Membership Interest” to agree on and document the sale price. It’s the same document Members use at least annually to agree on the LLC value. And, we have purchase agreements that go with the valuation doc.
Sale of Aircraft
We don’t intend to sell the aircraft, but if the aircraft were sold then the sales price would affect the balance sheet either up or down based on net cash received after expenses. All of the LLC assets would be added up and all liabilities would be subtracted. Any remaining funds would be distributed to Members based on their ownership percentage, and the LLC would be dissolved.
You can help a shared airplane ownership run smoothly by using key tools, right processes and member assignments.
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