Better way than Wet Rates?

[Tim Hogard]

A friend and I are considering buying a plane that will be on
leaseback to a flight school.

I was wondering if the days of the "Wet Rates" are numbered with
fuel cost going up so high. As far as I can tell, renting planes
with fuel goes back to well before the '70s and I was wondering
what other systems have been tried? Based on a rate of fuel being
$1.25 a liter it looks like fuel will cost more for a year than an
engine and when your talking about planes that are worth less than
2x of the price of an engine, that messes up the economics.

What are the options for lease back that doesn't turn into
a fuel price gamble?

-tim
http://web.abnormal.com

[NW_PILOT]

"Tim Hogard" > wrote in message
...
> A friend and I are considering buying a plane that will be on
> leaseback to a flight school.
>
> I was wondering if the days of the "Wet Rates" are numbered with
> fuel cost going up so high. As far as I can tell, renting planes
> with fuel goes back to well before the '70s and I was wondering
> what other systems have been tried? Based on a rate of fuel being
> $1.25 a liter it looks like fuel will cost more for a year than an
> engine and when your talking about planes that are worth less than
> 2x of the price of an engine, that messes up the economics.
>
> What are the options for lease back that doesn't turn into
> a fuel price gamble?
>
> -tim
> http://web.abnormal.com
>

I would watch out for most lease backs as the flight school most likely
benefits more than you will and may cost you more in the longrun depending
on the airplane.

[Dave Butler]

Tim Hogard wrote:
> A friend and I are considering buying a plane that will be on
> leaseback to a flight school.
>
> I was wondering if the days of the "Wet Rates" are numbered with
> fuel cost going up so high. As far as I can tell, renting planes
> with fuel goes back to well before the '70s and I was wondering
> what other systems have been tried? Based on a rate of fuel being
> $1.25 a liter it looks like fuel will cost more for a year than an
> engine and when your talking about planes that are worth less than
> 2x of the price of an engine, that messes up the economics.
>
> What are the options for lease back that doesn't turn into
> a fuel price gamble?

I don't think it too much difference one way or the other to the owner, but
there are some tradeoffs. Choose your poison.

Wet rate:
- you either need to pad your rates to cover potential cost increases, or make
frequent adjustments to your rental rate.
- you have to deal with fuel receipts for away-from-base fuel purchases.
- your renters have no incentive to conserve fuel.
- you might be able to negotiate a fuel discount since the handling is simpler
for the FBO (all the fuel billing goes to one place).

Dry rate:
- you need to establish a protocol for rental returns, like "always return it
full".
- you have to put up with complaints "it wasn't full when I got it".
- harder to accomodate a renter who wants partially filled tanks to provide
more carrying capacity.
- your renters have no incentive to keep the mixture rich enough to preserve
your expensive engine.

[TripFarmer]

Do like the big guys do......have a "fuel surcharge" added.


Trip

In article >, says...
>
>Tim Hogard wrote:
>> A friend and I are considering buying a plane that will be on
>> leaseback to a flight school.
>>
>> I was wondering if the days of the "Wet Rates" are numbered with
>> fuel cost going up so high. As far as I can tell, renting planes
>> with fuel goes back to well before the '70s and I was wondering
>> what other systems have been tried? Based on a rate of fuel being
>> $1.25 a liter it looks like fuel will cost more for a year than an
>> engine and when your talking about planes that are worth less than
>> 2x of the price of an engine, that messes up the economics.
>>
>> What are the options for lease back that doesn't turn into
>> a fuel price gamble?
>
>I don't think it too much difference one way or the other to the owner, but
>there are some tradeoffs. Choose your poison.
>
>Wet rate:
> - you either need to pad your rates to cover potential cost increases, or make
>
>frequent adjustments to your rental rate.
> - you have to deal with fuel receipts for away-from-base fuel purchases.
> - your renters have no incentive to conserve fuel.
> - you might be able to negotiate a fuel discount since the handling is simpler
>
>for the FBO (all the fuel billing goes to one place).
>
>Dry rate:
> - you need to establish a protocol for rental returns, like "always return it
>full".
> - you have to put up with complaints "it wasn't full when I got it".
> - harder to accomodate a renter who wants partially filled tanks to provide
>more carrying capacity.
> - your renters have no incentive to keep the mixture rich enough to preserve
>your expensive engine.
>

[C Kingsbury]

"Tim Hogard" > wrote in message
...
>
> What are the options for lease back that doesn't turn into
> a fuel price gamble?
>

Change your rates when the fuel prices go up enough. If the contract doesn't
let you do this, change it or walk away and don't look back.

On second thought, unless you've owned an airplane before, don't even think
about a leaseback. If you can't afford to own a plane on your own you sure
as hell can't afford the risk of a leaseback. And if you can afford to own a
plane, why let other people use it on all the nice sunny days?

-cwk.

[Tim Hogard]

C Kingsbury ) wrote:
: On second thought, unless you've owned an airplane before, don't even think
: about a leaseback. If you can't afford to own a plane on your own you sure
: as hell can't afford the risk of a leaseback. And if you can afford to own a
: plane, why let other people use it on all the nice sunny days?

This plane will be joinly owned by two or three people, one who
is a student at the flight school where it would live.

The plane will be something like a 152 or Tomahawk. The value of
the plane makes it an "investment" I could walk away from and I'm
considering no hull insurance on the plane. The payoff for the
student pilot is something in the area of 115 hrs.

From a purely investment point of view the numbers show up as ROI
of 7.5 years or some such thing so like any plane ownership, its
not a great idea.

All the numbers assume no major expenses outside of the averages
that the flight school has had for other aircraft that are of
the same age and condition. Anything else is a risk.

-tim
http://web.abnormal.com

[Darrel Toepfer]

Tim Hogard wrote:

> The plane will be something like a 152 or Tomahawk. The value of
> the plane makes it an "investment" I could walk away from and I'm
> considering no hull insurance on the plane.

Then it wouldn't be allowed at 4R7...

This year the commission suggested that requirement to the city council
and they approved it. They are in the process of evicting 3 planes
housed there now. A 172H, '47 Bo and an Extra...

[Dude]

Plenty of leasebacks work, you only hear about the ones that didn't.

It sounds like he has the proper expectations financially, but what about
enjoying the plane and liability?

With 3 owners you are likely to be either using it too much to get much
rent, or not getting enough time to enjoy it yourselves. Not insuring makes
it likely to be profitable at low rental amounts, but...

With no liability, how are you planning to protect your assets from when
someone else flies it in to a school bus?

[C Kingsbury]

"Tim Hogard" > wrote in message
...
> C Kingsbury ) wrote:

> The plane will be something like a 152 or Tomahawk. The value of
> the plane makes it an "investment" I could walk away from and I'm
> considering no hull insurance on the plane. The payoff for the
> student pilot is something in the area of 115 hrs.

Nuts! I know you guys brew some pretty strong beer down there but this
verges on the clinical definition of insanity.

The fact that you can afford it makes me question why you would ever want to
do this kind of leaseback. You only make money if nothing unexpected happens
in terms of maintenance, and if a student prangs the prop or something you
eat it all.

So in other words, the FBO has agreed to let you take on 100% of the risk of
owning an airplane, will let any jackass with a 1-hour checkout fly it, in
return for which they are guaranteed a profit. If this were a marriage it'd
be considered spousal abuse.

Personally, I think this is the worst leaseback scenario I've ever heard.

Best,
-cwk.

[Aaron Coolidge]

Darrel Toepfer > wrote:
<snipped: mandated ins. by airport comission>

: This year the commission suggested that requirement to the city council
: and they approved it. They are in the process of evicting 3 planes
: housed there now. A 172H, '47 Bo and an Extra...

Mandatory insurance with (1) the town, (2) the FBO, (3) the comission
individually named was attempted at my home field last year. The backlash
was so intense from the pilot community that it was quickly dropped.
Several pilots made very effective presentations to the board of selectmen,
who were convinced of the futility of attempting to mandate this.
--
Aaron Coolidge

[Darrel Toepfer]

Aaron Coolidge wrote:

> Mandatory insurance with (1) the town, (2) the FBO, (3) the comission
> individually named was attempted at my home field last year. The backlash
> was so intense from the pilot community that it was quickly dropped.
> Several pilots made very effective presentations to the board of selectmen,
> who were convinced of the futility of attempting to mandate this.

Well we're still trying to get the "owners" organized...

[Tim Hogard]

Dude ) wrote:
: It sounds like he has the proper expectations financially, but what about
: enjoying the plane and liability?
Flight time costs so much now, I'm flying far less than I would
like to anyway thanks to ATC fees and landing fees.

: With 3 owners you are likely to be either using it too much to get much
: rent, or not getting enough time to enjoy it yourselves. Not insuring makes
: it likely to be profitable at low rental amounts, but...
I was considering not getting hull insurance.

: With no liability, how are you planning to protect your assets from when
: someone else flies it in to a school bus?
The field requires 2 million liability and the practice field
requires 5 million so thats required and will happen.

Big issue is how often someone is likly to break it in some way.
Since 99% of its flights will be for flight instruction or an owner,
it seems ot me that the risk compaired to the costs may be justified.
If anything bad happens including something fairly minor, the
insurance company will write it off and pay me book value... i.e.
nothing. In that case, I'm better off selling it as scrap my self
where I could get more out of it depending on what happended.
Insurance doesn't cover anything minor (Less than $2500), or major
(greater than its book value) so for the 4% of its hull value I'm
paying per year, I'm not getting much real insurance aginst things
that are likly to happen. After all how many claims are for between
$2500 and $15,000?

-tim
http://web.abnormal.com

[Howard Nelson]

>
> : With no liability, how are you planning to protect your assets from when
> : someone else flies it in to a school bus?
> The field requires 2 million liability and the practice field
> requires 5 million so thats required and will happen.

Before pursuing this any further I think you had better check out the
liability insurance angle. You might find it difficult to get those limits
(at least smooth) written.

Howard


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[Tim Hogard]

Howard Nelson ) wrote:
:
: >
: > : With no liability, how are you planning to protect your assets from when
: > : someone else flies it in to a school bus?
: > The field requires 2 million liability and the practice field
: > requires 5 million so thats required and will happen.
:
: Before pursuing this any further I think you had better check out the
: liability insurance angle. You might find it difficult to get those limits
: (at least smooth) written.
It can be done. Its a 2 million policy with a rider that it goes up to 5 mil
at the one field.

-tim
http://web.abnormal.com

[Michael]

Dave Butler > wrote
> - your renters have no incentive to keep the mixture rich enough to preserve
> your expensive engine.

I actually know a guy who owns an FBO and rented out his PA-30 with a
dry rate. The renter ran the engines at over 75% power, leaned to
peak. Took one long trip to destroy the engines.

Michael