Leaseback FAQ?

Robert Perkins wrote in
:

On Sun, 27 Jul 2003 03:10:06 GMT, Judah wrote:

snip

I considered offering a kind of sweat-equity arrangment, in which I
exchange a certain number of hours per year on the airplane, and agree
on times when I won't have it out for personal use, for all the
maintenance and parts it will require (the flight school includes a
full service maintenance shop). For rented hours, they cover
consumables. For my hours, I do.

Then the risk is that they don't sell the hours needed to pay for the
maintenance, but they basically take that risk.

Then I pay the aircraft loan and insurance.

Would a flight school go for something like that, I wonder, if it got
them an airplane they could rent out without the insurance?

(Bear in mind that this also has the intent of keeping an airplane on
the ramp for them to rent, so they don't go out of business for lack
of airplanes to rent. In that sense it's about more than just money
for me; I want the school available for my parents, siblings, and kids
to learn flying. The alternatives around here are pretty bleak; all
centered at an airport clear on the other side of the biggest city in
the area.)


Admittedly, I have never done a leaseback, so I am no expert. But I
expressed interest and spoke about it extensively with the sales rep at my
flight school, and I do know someone who some years ago had two planes on
leaseback (from another school in another state), and talked about it with
him as well.

In both cases, the way it was described to me was that it was expected that
ALL charges and fees were "property" of the owner, not the FBO. That
included mortgage, insurance, maintenance, AND consumables. And that
included times when the owner was flying.

At my FBO, maintenance and consumables that are provided by the FBO are
offerred at a discount to owners. Consumables come right out of the hourly
rate. And Mortgage and Insurance come out of the monthly net. But
maintenance is the biggest variable. Clearly, it would be good for you to
be able to take that part of the risk out of the equation for you.

OTOH, in the two cases that I have seen, the FBO basically had no risk. If
the plane doesn't fly, they don't collect their commission, that's all... I
suspect that if I were to approach my FBO with your approach, they would
flat out reject it.

Of course, my FBO has 7 172s that are all fairly well booked every weekend
in the summer, and reasonably booked pretty well all year round. Your FBO
is in a different situation, and may be more negotiable.

In the "standard" leaseback arrangement that I have seen, the FBO has
almost no risk, with some reward. Once you ask the FBO to take on a bigger
risk, you will need to increase the reward for him to buy in...

I assume this will come in the form of a bigger commission than normal. I'm
not an accountant, but I would suspect that the FBO probably accounts for
the employees in their shop as overhead (assuming they don't lay off their
mechanics when there's not enough work). If so, you can try to sell them on
the idea that if they have flight training and renting at that school, they
will likely have a more steady use of their maintenance overhead and be
able to keep more people on. If they lose their flight training and renting
business, they stand to reduce the flow of business into their shop, and
either have idle hours on their mechanics, or have to start laying off. So
for them, you are helping to cover overhead in their maintenance business.

It was explained to me that in a good leaseback situation, you will collect
money at the end of each month, except maybe during the month in which an
annual was performed. But after a couple of years, the plane's engine will
require an overhaul that will drain all of the profit from the previous
months... I'm sure the FBO won't want to be liable for that if their upside
isn't very big... But it can't hurt to talk to the FBO owner and find
out...

Everything in life is negotiable...

snip

That would make me a partner in the business.

Actually, in the "standard" leaseback arrangement, you are in the business
of renting airplane time, and the FBO is just a commissioned sales rep and
manager. It's comparable to owning an apartment building and having an on-
site building manager who lists the apartments, shows them, and takes care
of the building for you, for a commission. The difference is it's easier to
forecast the P&L in an apartment building, and it would seem to me that
apt. buildings are usually more profitable.

snip

Bear in mind, too, that I probably won't do this. I'll probably find
an old 172 for $40,000 or whatever and a partner or two to bore holes
in the sky with. Then a few years later we'll step up to a six-place
turbocharged one. Or something like that. There's a surgeon in the
family...

See - if you were in this neighborhood, I might offer to go in with you!
I'm looking for almost the same thing.

Unfortunately, the doctor in my family is a diagnostician, and we don't
really get along so well these days...

Judah wrote:

In both cases, the way it was described to me was that it was expected that
ALL charges and fees were "property" of the owner, not the FBO. That
included mortgage, insurance, maintenance, AND consumables.

The agreement with which I was familiar was that the owner was responsible
for the loan and insurance, but the FBO paid for the maintenance and
consumables.

George Patterson
The optimist feels that we live in the best of all possible worlds. The
pessimist is afraid that he's correct.
James Branch Cavel

On Sun, 27 Jul 2003 21:53:08 -0400, "G.R. Patterson III"
wrote:



Judah wrote:

In both cases, the way it was described to me was that it was expected that
ALL charges and fees were "property" of the owner, not the FBO. That
included mortgage, insurance, maintenance, AND consumables.

The agreement with which I was familiar was that the owner was responsible
for the loan and insurance, but the FBO paid for the maintenance and
consumables.

That's the kind of thing that would make it make sense to me, since
there is, it seems, considerable risk on the maintenance end of
things, unless there's a pile of money somewhere to cover the worst
case. And in my case, there isn't.

It's obviously more expensive than just renting airplanes, but again
the point would be in part to keep an airplane on *that* ramp at
*that* flight school, rather than seeing the airplane go elsewhere,
since I'd have a vested interest in family and friends getting flight
instruction there.

Rob