Questions about taking the plunge into a/c ownership

[SD]

Well, I'm about to take the plunge into aircraft ownership. I had a
few question about what I am doing that I wanted to throw out there
and see if my thinking is correct or if I am totally in the outfield.

I just started with a flight school as a flight instructor about a
month ago knowing that this school was a small flight school (1 172
and 1 Archer) but has a lot of potential due to the location and
field that it is on. There are only 2 other schools here with one
having only one 172 and one Seneca and the other having several 172's
/ T41's, one 172RG, and a 310 (all on leasebacks). There is another
airport about 15 min away with only 172's and archers used mostly for
primary training. In the past month, I have seen our little school
send 1 commercial student and 1 instructor student over to our
competition ( I hate giving money to the other guys) to fly the RG for
their complex time.

So now I have stumbled across a 172RG that is for sale at a very
reasonable price. I am looking at purchasing this A/C to lease back to
my school. I have read allot here on rec.aviation.owning about
leasebacks, but most of them seem to deal with someone wanting to own
their own plane and lease it back to help defray the cost of
ownership. I on the other hand want to purchase the plane more as a
business investment to not only increase our schools student
demographics and compete with the only other competition that is
within 150 miles, but to increase our schools options and available
aircraft to our students. I am in no way looking to make a profit
with this aircraft but what profit that is made will no doubt go back
into the aircraft one way or another.

Where we live has almost .5 million in population and our 2 planes
stay fairly booked every day. Financing has already been procured and
I have an appointment with an aviation accountant tomorrow to discuss
tax issues. I have already flown the plane and was very pleased with
it(except a few squawks, that I have discussed with the owner about).
The only thing that I have left is to take it and have a prepurchase
inspection done on it. He even turned over all the A/C log books over
to me over this weekend which I have scrutinized over and everything
seems to be in order.

So with that, brings me to the questions. Knowing that I will not be
flying this aircraft on personal flights with only a few exceptions
and using this primarily for instructional use, is this a wise
decision? I feel that this can only increase our student population
at our school so I can only see the positive side of this. That is
why I want other opinions in this matter. I want to hear from people
that are not involved in this one way or another. My wife seems to
think it is a good idea, and of course the owner of the flight school
thinks it is a very good idea (no surprise there), but what do you
guys think about this?



Scott Dedeker

[Mark Astley]

Scott,

I applaud your efforts to support your flight school but I wonder why you'd
go through the trouble of assuming responsibility for an aircraft which you
don't intend to fly very often for personal use. It seems like it'd be
better to just let the flight school buy the plane (and assume the
liability, maintenance, etc), and negotiate a lower rental rate for those
times when you want to fly it yourself (the instructors at the school I
trained at had a "in the family" deal where they didn't have to pay for
hourly minimums, etc).

If you've read the various lease-back threads then you probably know what
you're responsible for:

- aircraft purchase and financing
- possibly the insurance, or some part thereof
- 100-hour inspections, annual, and random maintenance (and these can be
painful for retracts)

I just can't see any win for you unless you plan to use the plane yourself a
fair amount. The win for the owner is fairly obvious: he/she doesn't have
to assume any debt, and skims some profit off the hourly rental. It's true
that some lease-backs work out great, but this tends to be for "common"
planes like 172s and warriors, which have the lowest rental rates, are the
cheapest to maintain, and just about anyone can fly (because many people
trained in them). With a retract, I think the scales are tipped pretty far
in the opposite direction.

I don't want to discourage you, because I think it's great that you're
trying to help build a business. But I would either take a pass on this
one, or try to negotiate a more amenable lease-back agreement (I'm speaking
from ignorance, since you didn't describe the terms you've negotiated with
the owner).

Best of luck,
mark

"SD" <sdatverizondot.net@> wrote in message
...
> Well, I'm about to take the plunge into aircraft ownership. I had a
> few question about what I am doing that I wanted to throw out there
> and see if my thinking is correct or if I am totally in the outfield.
>
> I just started with a flight school as a flight instructor about a
> month ago knowing that this school was a small flight school (1 172
> and 1 Archer) but has a lot of potential due to the location and
> field that it is on. There are only 2 other schools here with one
> having only one 172 and one Seneca and the other having several 172's
> / T41's, one 172RG, and a 310 (all on leasebacks). There is another
> airport about 15 min away with only 172's and archers used mostly for
> primary training. In the past month, I have seen our little school
> send 1 commercial student and 1 instructor student over to our
> competition ( I hate giving money to the other guys) to fly the RG for
> their complex time.
>
> So now I have stumbled across a 172RG that is for sale at a very
> reasonable price. I am looking at purchasing this A/C to lease back to
> my school. I have read allot here on rec.aviation.owning about
> leasebacks, but most of them seem to deal with someone wanting to own
> their own plane and lease it back to help defray the cost of
> ownership. I on the other hand want to purchase the plane more as a
> business investment to not only increase our schools student
> demographics and compete with the only other competition that is
> within 150 miles, but to increase our schools options and available
> aircraft to our students. I am in no way looking to make a profit
> with this aircraft but what profit that is made will no doubt go back
> into the aircraft one way or another.
>
> Where we live has almost .5 million in population and our 2 planes
> stay fairly booked every day. Financing has already been procured and
> I have an appointment with an aviation accountant tomorrow to discuss
> tax issues. I have already flown the plane and was very pleased with
> it(except a few squawks, that I have discussed with the owner about).
> The only thing that I have left is to take it and have a prepurchase
> inspection done on it. He even turned over all the A/C log books over
> to me over this weekend which I have scrutinized over and everything
> seems to be in order.
>
> So with that, brings me to the questions. Knowing that I will not be
> flying this aircraft on personal flights with only a few exceptions
> and using this primarily for instructional use, is this a wise
> decision? I feel that this can only increase our student population
> at our school so I can only see the positive side of this. That is
> why I want other opinions in this matter. I want to hear from people
> that are not involved in this one way or another. My wife seems to
> think it is a good idea, and of course the owner of the flight school
> thinks it is a very good idea (no surprise there), but what do you
> guys think about this?
>
>
>
> Scott Dedeker

[Peter R.]

(SD <sdatverizondot.net@>) wrote:

<snip>
> My wife seems to
> think it is a good idea, and of course the owner of the flight school
> thinks it is a very good idea (no surprise there), but what do you
> guys think about this?

What are the insurance costs for a C172RG that is going to be used for
rentals, assuming you include hull value in the policy?

What are the expected hours your C172 RG will rent per month? Have you
asked other renters at your school if they would rent a retractable gear
aircraft knowing that would mean more instructional hours and instructor
signoff?

Have you stepped through the AOPA leaseback expense model to determine what
your realistic expenses will be versus your leaseback income (you are a
member of AOPA, right)? I do not own a RG aircraft, but I have read that
maintenance expenses are higher, especially when offering the aircraft for
rent.


--
Peter

[SD]

On Mon, 21 Jul 2003 10:27:31 -0400, Peter R.
> wrote:

> (SD <sdatverizondot.net@>) wrote:
>
><snip>
>> My wife seems to
>> think it is a good idea, and of course the owner of the flight school
>> thinks it is a very good idea (no surprise there), but what do you
>> guys think about this?
>
>What are the insurance costs for a C172RG that is going to be used for
>rentals, assuming you include hull value in the policy?
>
The insurance will be issued thru the school at approximately 6800.00
annually.

>What are the expected hours your C172 RG will rent per month? Have you
>asked other renters at your school if they would rent a retractable gear
>aircraft knowing that would mean more instructional hours and instructor
>signoff?
>
The expected hours ofcourse is only an estimate but at the present
state of the school, we can see it flying atleast 15 hours a month at
the beggining, We would only hope that that number would increase,
when the word gets out to the other schools and airports that this
craft would be available for comm/instructor students. As far as the
students that would be flying it, we are only going to allow
commercial and instructor student pilots to fly this aircraft either
in training or solo, at this time I do not want the pre-privates
flying nor do I want insturment students flying it because they have
enough things on their minds just flying insturments that I do not
want them to have to "rememeber" to put the gear down.

>Have you stepped through the AOPA leaseback expense model to determine what
>your realistic expenses will be versus your leaseback income (you are a
>member of AOPA, right)? I do not own a RG aircraft, but I have read that
>maintenance expenses are higher, especially when offering the aircraft for
>rent.

I am a memeber of AOPA but could not find a leaseback expense model.
I have went thru their operations cost calculator if that is what you
are refering about.

[SD]

On Mon, 21 Jul 2003 09:45:18 -0400, "Mark Astley"
> wrote:

>It seems like it'd be
>better to just let the flight school buy the plane (and assume the
>liability, maintenance, etc), and negotiate a lower rental rate for those
>times when you want to fly it yourself (the instructors at the school I
>trained at had a "in the family" deal where they didn't have to pay for
>hourly minimums, etc).
With regards to the maintenance, I like doing a lot of the stuff my
self as much as the Regs allow me to so that cuts down on a lot of the
cost of paying someone else to do it. Even when it comes to 100 hour
inspections and Annuals, I cut down on a lot of the costs by removing
panels and inspection plates etc. so that whoever does the inspections
can get right to work doing what they are paid to do, inspect.

I will be able to take the plane when I want for no cost except the
fuel/oil but if I do, it would be probably less than 3 times a year if
I do. Again, I am looking at trying to use this more as a business
more than a personal venture. I dont want to fly this plane using up
the hours that someone else can be paying for. I see the market as
being on the low end at the moment and the price I feel is right, so I
want to build equity into the plane as much as possible.
>
>If you've read the various lease-back threads then you probably know what
>you're responsible for:
>
>- aircraft purchase and financing
>- possibly the insurance, or some part thereof
>- 100-hour inspections, annual, and random maintenance (and these can be
>painful for retracts)

Most of the maintenance will be done by me, atleast what the regs will
allow me to do, I also assist my mechanic with the inspections and
annual buy taking off the inspection plates, and panels, cowling
myself so that he does not have to worry about that, he can get to
what he needs to do which cuts the costs tremendously.
>
>I just can't see any win for you unless you plan to use the plane yourself a
>fair amount. The win for the owner is fairly obvious: he/she doesn't have
>to assume any debt, and skims some profit off the hourly rental. It's true
>that some lease-backs work out great, but this tends to be for "common"
>planes like 172s and warriors, which have the lowest rental rates, are the
>cheapest to maintain, and just about anyone can fly (because many people
>trained in them). With a retract, I think the scales are tipped pretty far
>in the opposite direction.

This is exactly what I am looking for... Thanks. Because the win for
me, in my mind, is that 1) I am expanding the possible student pool so
that I have more students to chose from. 2) they will be using my
plane and more than likely myself sitting in the plane as well.
Again, with there being only one complex a/c available within about
150 miles for training I see the plane being used a lot. I talked
with the other school and they keep their plane constantly flying.

I am working on the leaseback agreement with the owner as we speak.
After going thru the cost calculator on AOPA's web site and seeing
what the other school charges, we have determined that 99.00 an hour
for this plane would be a good price. I understand that the owner does
take a cut, at which point we have not set down and reached a final
agreement, but that was a concern for me aswell. My thoughts were
maybe kind of like a step up approach that say in 8-12 months it
would reach maturaty at which time he would receive the full amount
that is common for his cut.

Again, thanks for the input. It is much appreciated.


Scott

[Dan Luke]

"SD" wrote:
> So now I have stumbled across a 172RG that is for sale at a very
> reasonable price....I have already flown the plane and was very pleased
with
> it(except a few squawks, that I have discussed with the owner about).
> The only thing that I have left is to take it and have a prepurchase
> inspection done on it. He even turned over all the A/C log books over
> to me over this weekend which I have scrutinized over and everything
> seems to be in order.

Whatever you do make *damned* sure the AD and the SB on the gear have been
done right. If you find out later that you have cracked pivots or actuators,
it would cost $1,000s to fix. The AD came out after I bought my airplane and
I sweated bullets when I had it done. I was lucky, mine was ok, but other
owners got an ugly surprise.
--
Dan
C172RG at BFM

[Dewey M. Sasser]

SD <sdatverizondot.net@> writes:

> Well, I'm about to take the plunge into aircraft ownership...

Sounds like you're really about to make an investment in an aircraft
rental business.

As such, you might want to think of things a bit differently:

What do you have on each side of the deal?

You have some capital
They have a setup for maintaining and insuring airplanes
You both have a desire to see students stick around and pay you both
more money.

The negotiation points would be payment schedules and risk
assumption. (Who pays if the airplane needs a top next year?)


Personal flying would be a nice benefit but doesn't sounds like a
strong motivator.

For example:

You're planning on owning the aircraft and leasing it to your flight
school. This means you shoulder:

1) The price of the airplane
2) The maintenance of the airplane
3) The liability of the airplane

You have no economy of scale to address #2 and #3. On the other hand,
the flight school does.


Advantages:

1) It's your airplane -- you take it with you wherever you go and you
say how it will be used
2) It's a traditional, well understood arrangement

Disadvantages:

1) Lease backs are generally accepted to be fairly costly to the
owner(whether this is true or not is beyond my experience).
2) You're responsible for the maintenance of the airplane
3) You're responsible for liability insurance (according to my CFI/A&P --
a one man/one airplane shop, this is difficult and/or expensive to
obtain).


Another viable scenario would be:


1) You *loan* the flight school the purchase price of the aircraft
(you probably don't have the money up front -- I suspect you could
find some secured or counter-signed loan arrangement to make this
work).

2) You could make this advantageous to the flight school by offering
an effective "interest rate" below normal commercial rates, or by
structuring repayment differently (for example, they could repay
the loan per flight hour). (If they repay you per flight hour it's
effectively the same as a lease-back, right?) You could even give
them a negative interest rate. Careful on the taxes with this one
-- you probably can't claim it as a loss, but you should be able to
as a business expense.

The flight school then owns the aircraft. The flight school is
responsible for maintenance and liability. However, the flight school
already has this for 2 other aircraft and the step from 2 to 3 is much
smaller than that from 0 to 1. Their costs will presumably be lower
than yours would.

In consideration of your below market interest rate they might also
grant you a reduced price when you do take the airplane for personal
use.

Don't forget that in this case *they'd* be paying for maintenance and
the price structure should reflect this.

Advantages:
1) You don't have to deal with additional time and money expenditures
(e.g. maintenance and liability). This makes it much more
efficient for everyone.


Disadvantages:
1) You don't have control over the airplane -- it's not yours, it's
just securing your note.
2) You're in a potentially longer-term relationship with this place --
you mentioned that you've only been there 1 month.


The trick is to find a cooperative business arrangement. You're
willing to put up money to help keep students -- they should be
interested in that, too. On that basis you should be able to find
some way to achieve your mutual goals.

If the flight school *isn't* interested in anything other than a
traditional lease-back (even given your mutual goals and existing
relationship), I would personally consider that a belligerent business
relationship given the common perception of lease-backs. They might
be thinking they'll make money on *you* having to do maintenance. In
this case, you're betting that you'll need to do less maintenance than
the maintenance shop thinks you will, and they have the experience of
these other airplanes to work from.

Good luck with whatever you decide.

Disclaimer: I only know of lease-backs through articles and
conversations with friends, and I don't own an aircraft. I have done
a little business, though...


--
Dewey M. Sasser >

[Tony]

The one thing that I would look into would be the recurring AD on the
landing gear.(I think its for the 172RG) If it gets landed hard you
would then have too take the landing gear off (25hours) and inspect it
for damage. What student would tell the FBO that they landed it hard.
That is one expensive part to look at. Best of luck!

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