"R.Hubbell" wrote in message news:20040210203318.10c9d7f7@fstop...
On 10 Feb 2004 04:51:58 -0800 (Mike Long) wrote:

Jet Dollars will do 15 years at 4% variable, balloon at 5 years, 10%

Variable would be dicey right now, looks like rates may go up.
What percentage is the balloon?

The variable would be unlimited. Ie, if the rates went to 20%, so
would the note. Remember 18%? Ouch. However, one can guess rates will
go up at a reasonable pace.



down. Their service is good and the owner's a nice guy.

The reason for the shorter amortization term with a leaseback is that
maintenance will usually get too expensive in a leaseback environment
with an older plane. So, it makes sense at some point to trade the
existing aircraft for a new or newer one. If you have a 20 year loan
and decide to do this in 2 or 3 years, you're upside down. At 12-15

I'm not sure I'm following you. are you assuming that the plane's value
will depreciate? and then after 2-3 years the amount on the loan is more
than the value of the plane? But with the shorter term loan you've paid
more down more?

The amount owed after 2 or 3 years is greater on a 20 year note than
on a 12 or 15 year note (naturally, and I'm sure you know this). The
new aircraft will depreciate until its value will begin to rise. The
used aircraft will depreciate if hours accumulated are greater than
the average - which they would on a leaseback. So, you have a
combination of depreciating value, no equity paid (because of the long
term loan) and the need to renew the aircraft more quickly than others
because of the leaseback - because maintenance increases as the
aircraft ages to the point that you cannot make money.

A shorter note and good revenues are your only defenses. You put some
money in your pocket from 60-65 hours hobbs and your higher payment
brings the payoff amount down. Add the tax advantages and it comes out
okay. You can do it with a 20 year note if you have the will power to
make extra principal payments or sock some money away for resale time.


years you are in a much better position. This has been especially true
since 2001 with the economy hurting and the resale market just
beginning to rebound.

The resale market looks stagnant to me but I'm only looking at piston singles.

I'm only paying attention to singles also. There is good activity on
172Sp's and 182's but, OTOH, 182's are almost always stable. For
prices to rise, aircraft need to sell even more and the numbers of
good airplanes reduce. We're not there yet but they are selling.



Consider carefully before doing 20 years with a leaseback - it can be
painful later.

It really depends on how much the plane flies/month. If the plane is in the
air then everything can work out. With $300-400 month payments it's not
a huge burden if something does go foul.

I confess the formula I use is for new aircraft where payments are
much higher although the theory is still right. The only thing about a
used aircraft on leaseback is that maintenance can keep you from
having a postive cash flow. Even a good airplane will break and it
will break more often at 60-65 hours a month. But, yes, you are right.
If it flies enough, you will have plenty of money to take care of the
equity shortage later.

With new, I simply feel like you're going to make a little each month
after all expenses, including payments, is made. Then, add the tax
advantages. And then consider you own and are flying a new aircraft
for free - maybe even making a little. And there are schools where the
owners make some real money (real money in aviation is usually less
than your day job g).

Thanks,

Mike