lease back financing 5, 10, 20 years

On Fri, 06 Feb 2004 17:04:08 GMT "Dude" wrote:

I got 20 from MBNA on a new plane. They do did ask if you plan to use a
leaseback.

The reason they are asking is that when Cessna unloaded a lot of planes
cheaply a year or two ago, many skyhawk owners found out that they were
upside down in their leaseback planes. At the same time hours were dropping
and some of them walked away from the deal because they were really broke,
or just mad. The finance company gets stuck.



There must be more to it then just that. But I could understand how
people would walk away from a leaseback that's underwater but it
seems it's most likely to happen in the first 10 years
rather than the last. And with a cheaper monthly payment on a
20 year note it seems the chances of going inverted on
a leaseback would be less common. Plane doesn't have to fly as much
to cover the monthly.


Those that ask usually want no more than a 10 year note on a leaseback,
which you MAY be able to negotiate up with a larger down payment. Or you
can fib, just make sure that there is no language in the contract to prevent
you from later deciding to put the plane on leaseback.


Increasing the down payment sounds like a good option.



Shop around, it took me two months, but I got the loan I wanted.


Yes will do that, I think it's a borrowers market.

Tanks for sharing your experience.

R. Hubbell




"R.Hubbell" wrote in message
...
Calling all owners that leaseback a plane to a club or FBO or ??

I have found that financers offer different loans depending on
the who uses the plane. For a club they want 10 years or less
but for private they will finance up to 20 years. Maybe I just need
to keep looking. I don't quite undertand why they would care as
long as they get paid.

So if you are leasing a plane back what kinds of loans were you
able to get?


The 20 year loans are ideal for so many reasons.

R. Hubbell

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

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

Mike

"R.Hubbell" wrote in message ...
Calling all owners that leaseback a plane to a club or FBO or ??

I have found that financers offer different loans depending on
the who uses the plane. For a club they want 10 years or less
but for private they will finance up to 20 years. Maybe I just need
to keep looking. I don't quite undertand why they would care as
long as they get paid.

So if you are leasing a plane back what kinds of loans were you
able to get?


The 20 year loans are ideal for so many reasons.

R. Hubbell

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?



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?

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.


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.

Thanks.

R. Hubbell


Mike

"R.Hubbell" wrote in message ...
Calling all owners that leaseback a plane to a club or FBO or ??

I have found that financers offer different loans depending on
the who uses the plane. For a club they want 10 years or less
but for private they will finance up to 20 years. Maybe I just need
to keep looking. I don't quite undertand why they would care as
long as they get paid.

So if you are leasing a plane back what kinds of loans were you
able to get?


The 20 year loans are ideal for so many reasons.

R. Hubbell

"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

On 11 Feb 2004 04:50:47 -0800 (Mike Long) wrote:

"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.


Sure I understand what a variable rate is, what's the balloon payment
at 5 years?




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.

Alright this agrees with my understanding.


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.

What kind of tax advantages are there in a lease-back??



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.


There's also a lot of pressure coming from new plane purchases too.
I think that has to have an impact on the used-market.
Diamond, Cirrus, Symphony, Lancair, et. al.




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.

For a new plane everything is different. But in a busy club it can work.
It is working in a lot of clubs. It has to be managed properly to work
well.




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).

All good stuff.



Thanks again.


R. Hubbell


Thanks,

Mike

What kind of tax advantages are there in a lease-back??


The main advantage today is bonus depreciatation. If you have a family
income in the 150 plus area, and want to own a new plane, then leasebacks
become a reasonable risk to help you buy the plane. Basically, you can end
up getting a very large tax rebate to then pay off a good chunk of your
loan. I borrowed 150k on my plane, got a 22k rebate (this was under 4th qtr
rule, and withonly 30% bonus. Today you get 50% bonus until Jan1.) By
putting the 22k against my 20 year loan, I effectively have a 15 year loan
with the same payments of a 20. This is why a 20 year loan is really okay.
The key is YOU HAVE TO TAKE ALL YOUR REBATES AND SEND THEM TO THE LIEN
HOLDER! (The guy that taught me this was religious about it, and now so am
I.)

The reason to send them in is in case for some reason you have to sell the
plane, you will not be upside down with the bank or the IRS (due to
recapture).

Also, you want to have 6 months payments in a rainy day fund. You are safer
with a lower down payment, and a rainy day fund than with a higher down
payment (especially at these rates). At these low rates, I would always go
fixed.


There's also a lot of pressure coming from new plane purchases too.
I think that has to have an impact on the used-market.
Diamond, Cirrus, Symphony, Lancair, et. al.


The new improvements of glass cockpits and other items plus bonus
depreciation is pushing really hard on the value of planes under 5 years
old. Planes built before the eighties are holding up well considering that
most of them are passing the 25 year mark. I believe you will see them
start to drop significantly, as the hulls age. If you want to fly cheap, go
get an AP certificate. If you are willing to be a mechanic, you will soon
be able to buy planes for the value of the engines and avionics.



For a new plane everything is different. But in a busy club it can work.
It is working in a lot of clubs. It has to be managed properly to work
well.



The reduced outages, greater marketability, and warranty on a new plane can
help it make money. Insurance can be an issue though. The key to a new
plane on leaseback is a plan for what to do after it is 5 years old. Can
you step up, and still have a viable leaseback? Is plane number two not
going to be a leaseback at all? Do you want to leave it in leaseback
indefinitely? Are you planning to take it off the line and replace it?

My original plan was to take it off the line after the first engine rebuild.
I was planning to get a new interior, nice reman engine, and small avionics
upgrade. According to my spreadsheet, I would be able to get the plane
while I was still a student, and reduce my out of pocket costs to the point
that I was getting a new plane and only paying about 60% of the same out of
pocket costs of new without leaseback. That includes the renovation at the
end of the first engine life. So far the plan is only slightly off, which I
blame on a poor choice of FBO.

The new FBO looks to bring in better hours, lower commissions, and do a
better job on repairs and maintenance for about the same price.
Furthermore, I have now found leaseback opportunities that would give the
tax advantages without the high hours, rough student handling, and high
insurance costs. So I may upgrade my plane instead of rebuilding it.

I know people who have made a little money, but I would not count on that.
If you have expectations of reduced costs only, you are more likely to end
up happy.

"R.Hubbell" wrote in message news:20040211082332.08bd1965@fstop...
On 11 Feb 2004 04:50:47 -0800 (Mike Long) wrote:

"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.


Sure I understand what a variable rate is, what's the balloon payment
at 5 years?

$128,350 on a $195,200 purchase price
$65,723 ON A $100,000 purchase price

Mike