Question of the Month: Can a Pilot Association Become a Flying Club, and if so, how?

“Oh, East is East and West is West, but never the twain shall meet”.  The idea in Rudyard Kipling’s poem, The Ballad of East and West, that some things (in his case, two people) are just so far apart that they can never work together—was the thought that flashed across my mind when members of The Columbia Aviation Association (CAA), a well-established Pilot Association based at Aurora State Airport, KUAO in Oregon, contacted me about the idea of adding aircraft for member’s use.   After a while though, I started seeing a clear path though the challenges of a potentially divided membership and especially on the issues of risk and liability mitigation.  After more pondering, I’m pleased to say that a fairly easy solution emerged that meets the goal of having aircraft available for members’ use, but at the same time, does not change the original intent of a pilot association—that of an aviation social club.

For the full story behind why CAA decided to look at adding aircraft, see this Month’s Club Spotlight.

Before going much further, let’s understand the major differences between such organizations, which will then allow the evolution of a very workable solution. 

Pilot Association:

As the name suggests, Pilot Associations are made up of pilots who choose to associate together.  In the context of this article, we’ll concentrate on local associations—aviation social clubs really— rather than national organizations such as AOPA, EAA, United States Pilots Association, Ultralight Association of America, and so on.  Also, bear in mind that I am not talking about labor unions that happen to use the word “association” in their names.

Here, I’m talking about smaller groups of people that choose to associate based on the common bond of being pilots, or others that share in the amazing opportunity that is general aviation in this country. 

The sort of Pilot Associations we are considering here are social clubs.  Many such associations, including the Columbia Aviation Association, have active committees that organize fly outs, speakers, dinners, trips to museum and other aviation-centric facilities, provide scholarships …and much more.  Some of these associations have been in existence for years.  CAA, for example, was formed in 1949 originally as the Columbia Aviation Country Club and was actually modelled around what is probably the oldest aviation country club in the nation, namely The Philadelphia Aviation Country Club which was organized in 1931. Aviation buffs might be interested to learn that a discussion of the then board of directors, in the conference room still used by the club today at WINGS Field, KLOM, in Bluebell, PA, was the catalyst for the formation of AOPA back in 1939.  What goes around…

There are many such associations around the country— Pottstown Aircraft Owners and Pilots (PAOP) and Smokehouse Pilots Club are two that quickly come to mind.  The goal of such organizations is simply to share in the love of aviation.  Members may, or may not, be pilots.  Pilots may own their own aircraft, rent, co-own or be members of (separate) flying clubs, but one thing they have in common is the that the association itself, or its collective membership, do not own aircraft.  Which gets us nicely to…flying clubs.

Flying Clubs:

Most readers of this article (in the AOPA Flying Clubs Newsletter no less), know that a flying club is defined by the FAA as: “…a nonprofit entity organized for the express purpose of providing its members with aircraft for their personal use and enjoyment, only”. 

A flying club is also a social/hobby club (which brings useful tax advantages if established correctly) and is made up of members who not only share in the fellowship of aviation, but who have access to actual aircraft, whether by true equity co-ownership or by sharing in the obligation of operating an aircraft under an exclusive lease agreement. 

Again, as most readers will already know, the AOPA Flying Clubs group has amassed much experience by helping start more than 245 new clubs to date, and provides an amazing and impressive array of resources, articles, example documents and much more.  To see what we offer AOPA members, please visit https://youcanfly.aopa.org/flying-clubs

In a Nutshell: 

As seen above, there are many similarities in the operations of pilot associations and flying clubs, but the two big differences are that pilot associations do not own (or lease) aircraft for their members to use, and a pilot association may (possibly, unlikely) be recognized by the IRS as an “educational charity” rather than a social club, and so receive approval for 501(c)(3) tax exemption. Again, as regular readers will know, there is no way that a flying club could ever be considered a charity, but it could still benefit from tax exemption as a 501(c)(7) social/hobby club.  See chapter four of The Guide to Starting a Flying Club for more on this topic. 

Actually, as it turns out, the structure of the pilot association itself does not matter a hoot in the eventual proposed solution!

So, in simple summary, at least for the purposes of this article:

Pilot Associations are social clubs without aircraft for members’ use.

Flying Clubs are social clubs that provide members with aircraft for their personal (non-business) use.

Given the simplicity of the above, you might think that a pilot association could just acquire aircraft for members’ use, and so become a flying club.  Alas, as is generally the case, the devil is in the details.

Doing it Right:

Together with CAA, we developed a method to make this work—that is, for an existing pilot association to offer aircraft for its members to use.  By the way, the reason for even going down this path was that pilot members of CAA were finding it impossible to rent aircraft—a nationwide problem—and that sole ownership of aircraft is an expensive proposition.  So…what if they could just add aircraft to the exiting association?  Could it be as simple as that? 

Unfortunately, not, as there are some important that must be faced:

• Not all members of the existing pilot association will want to be part of a flying club. Perhaps they own their own aircraft, they might already be part of a flying club or co-ownership, or perhaps they simply do not want their association to change so radically. Either way, factions may develop, and so any proposal must be acceptable to all members.
• Many pilot associations have been around for years and have accrued substantial assets. CAA, for example, owns a magnificent club house located right under the ATC tower at Aurora State Airport .Along with considerable assets comes the equally considerable responsibility to protect them, which takes us to talking point number 2…that of liability protection. How can a pilot association protect itself, its members, and its assets, if it provides aircraft for members’ use…and something goes sideways?
• How will aircraft acquisition be funded? From the coffers of the existing pilot association? Again, not all members will find this acceptable, so funding must be considered upfront.
• Will there be a club within a club? Will there be different classes of membership…flying and non-flying? Will there be different membership rates within the association?
• What about social events? Will the flying members branch off and form an exclusive clique?

With the above in mind, let’s now look at solutions to make this happen:

1. Liability Protection and Organization:

• The only clean and sensible way to protect the assets of the association is to establish a separate legal entity for the (associated/affiliated) flying club.
• Presumably, the association will already be established as a non-profit organization in the state of operation. If not, it should do so, pronto, as any such organization (and its members) should benefit from liability protection.
• Non-profit Corporation (NPC) is the right way for an association to organize, rather than an LLC, as it presents the option of applying for tax exemption as a social/hobby club, or, rarely, as an educational charity, as discussed above .If your association is set up as an LLC, you might consider applying (to the state) for a one-time conversion to an NPC, and then, separately, to the IRS for tax exemption.
• The flying club should then be established as a separate legal entity. Again, the correct way to do this is as an NPC. If the club (or its collective members) intend to own (rather than lease) aircraft, it should also consider applying to the IRS for tax exemption under 501(c)(7).Note that these are separate processes: NPC with the state, tax exception with the IRS.
• Once formed, the flying club will apply to the IRS for a tax number (EIN).The point here is that the club will be a separate legal and tax entity from the association.
• As a separate NPC, the club will require a board of directors. There is no reason why the club board should not involve the same people, in the same positions, as that of the association. Alternatively, the club board could be a completely separate group of people, but IMHO, this is not desirable as the club, by design, is the flying arm of the original parent association, and they should be very tightly coupled. Granted, the club (with aircraft) will need additional officers, but the board should comprise the same people to ensure cohesion and integration.
• It makes sense that the flying club should have separate bylaws from that of the association, but again, there will be much cross coupling—for example, rules of membership.
• The flying club will also require operating procedures, additional officers such as maintenance and safety officers, a safety program and more, but this is the same as with any flying club, so all the information on the AOPA Flying Clubs website is relevant and applicable.

2. Membership

The two organizations now look like this:

Each is a separate legal entity for the reasons detailed earlier, but the whole point of doing this is for members of the original association to have access to aircraft in a club environment.  In other words, membership of the club must be predicated on membership of the association.  If this is not to be the case, then just set up a complexly separate flying club and let individuals decide if they want to be members of one, the other, or both.

After much discussion and thought, we propose the following, which should be clearly conveyed in the club’s bylaws.  (There is no actually no need for the association’s bylaws to change, except, perhaps, for a general update):

• Membership of the flying club is predicated on being a member in good standing of the association. Only members of the association will be considered for membership of the club.
• There is no notion of someone joining the club without first being a member of the association. This will reduce the likelihood of “renters” joining the club for lower cost flying and not contributing to the wider aspects of a flying club, like camaraderie, engagement, social participation, volunteering, mentoring, and so on.
• In order to be considered for club membership, members of the association must have remained in good standing for some agreed period prior to their application to join the club. Good standing here relates to the timely settlement of all accounts (fees and dues), as well as obligations such as duties imposed on members.
• The board of directors and flying club officers will determine eligibility for club membership based on the club’s bylaws. In this context, the bylaws should be the same as for any flying club, and must detail the minimum certificate and experience levels, previous accidents and insurance claims, temperament, professionalism, and also the “fit” to the desired culture of the emerging club.
• If a member leaves the association, they must also leave the flying club. Yet another reason for the board (and especially the treasurer) to be common to both entities.
• It should go without saying, but still has to be said, that the flying club should never accept non-certificated people as members. Even if nonpilots can be members of the association, they should learn to fly at a flight school prior to applying for membership of the association’s flying club.
• The association shall remain the center of all social activities. There is no reason for the flying club to replicate any of the association’s existing benefits and programs.
• The association shall charge members fees and dues, as per its bylaws. Nothing should change due to the existence of the affiliated flying club.
• Members of the flying club will pay fees, equity share, dues, usage rates and any assessments based on the club’s bylaws.
• Members of the flying club shall adhere to the association’s bylaws as well as the club’s bylaws and operating rules.

So, there you have it.  There is no reason whatsoever that a progressive and active pilot association should not consider having an affiliated flying club to provides members with access to nice aircraft for personal and recreational use.  The affiliation occurs due to common and overlapping membership and leadership.  Creating a separate legal entity for the club provides mutual liability protection, and the club should be run and funded only from members of the flying club, so allowing other people to continue to enjoy the benefits of association membership without additional charges.

As always, fly lots and fly safely!