J.C. at MIA: Sal, I have been long considering purchasing an airplane for my own use, and with this economy I can’t help think that there are some good deals in forced sales out there.
Sal’s Law: JC, as a wise man once said, “When things look bad, look for opportunity.” This is indeed a great time to buy an airplane, not only because of the slower than normal economy, but also because aircraft are coming out with new bells and whistles that make late model used aircraft appear obsolete. Two weeks ago I test flew a new Cirrus G-3 and could not believe the array of toys and technology in that cockpit. A week later, they announced a new concept in their glass display and now the plane I flew is less than cutting edge (although still very cool).
The used market is very good right now for buyers. We have numerous clients who are purchasing late model aircraft at prices that would have been unheard of just a year ago. Of course, the sellers are not too happy about the change. Be cautious in purchasing. The price of an airplane is heavily weighted by the year, engine and airframe time, and of course avionics. But it can be drastically affected by any mishaps it may have gone through. Be sure to have a full damage history report on the aircraft and look over the logbooks carefully. As always, I strongly urge both sellers and buyers to engage an aviation lawyer in preparing a formal contract, formal escrow agreement and formal closing procedures. Notice I said formal, in much the same way as you would purchase real estate. These precautions are not costly and they protect both buyer and seller from before and after purchase liability in a big way. See the glass as half full instead of half empty, and then fill the gas tanks and fly!
J.K via Email: I am considering purchasing an aircraft with a lease back agreement at my local FBO. Can one really make money on such an arrangement?
Sal’s Law: JK, I have to give you the usual lawyer’s answer: “It depends.” Leasebacks are a great way to own an airplane and have most of the expenses reduced, if not removed. If the FBO is busy enough you can even make a few dollars. The break-even point will vary depending on each type of aircraft and what premium price it can bring. That, of course varies with the airport as well. You can charge a higher price at a busy airport than you would at little Podunk Airport.
Using a Cessna 172 for example, which we find is the most often requested leaseback airplane, the break-even point is around 30-40 hours a month. Remember this is an average over the year. It is likely the plane will fly more in the spring and summer and less in winter. Good FBO’s can generate over 100 hours a month. Remember also that a leaseback is the same as having your own business. You are responsible for all the expenses. In return, the FBO will rent your plane and give you most of the rental money. Your hedge from liability is insurance and more insurance. At least 2 million “smooth” is a good place to be. You can also take advantage of tax incentives by depreciating the aircraft over five years. Be sure to review the leaseback agreements with an aviation lawyer and be very sure to place the aircraft into an LLC or a C-Corporation. You need to protect yourself from third party negligence. Of course there are disadvantages. You have to be comfortable with the idea that someone else is flying your airplane, and maybe not being quite as careful as you would be. Insurance costs will also be much higher because of the commercial rental service. All of that can be factored into your rental price. Most of all you need to be able to trust the FBO. They have a vested interest in maintaining the aircraft in good condition, just as you do. We had a leaseback client who would leave little notes on the instrument panel asking the renters to “Take care of my baby.” He said he never found the aircraft dirty or abused. If only everyone listened to signs.
Blue Skies to all!