Leaseback - Are we crazy to consider it?

[jacobwall]

Hi,

 

Unfortunately, the aircraft market is weak. An opportunity, one that we couldn't pass up, has left us in a situation where we own two planes - a 1975 M20C and a 1976 V35B. We have the Mooney brokered in Las Vegas currently and are exploring our options. One option my partner brought up would be to dry or wet lease the aircraft to a flight school or club. I would normally be more hesitant to even consider leasing back our aircraft except for the fact that it's not a 172. In order for anyone to meet the insurance requirements I'd imagine that they're more responsible pilots. 

 

• Is there anyone here who has experience, whether in a Mooney or not, with leasing back their aircraft to a flight school or club? 

 

• Was it positive or negative? 

 

• Do you have any suggestions or things you wish you would have done in retrospect? 

 

Thanks ahead of time!

[Alan Fox]

If you lease back this airplane it will be destroyed slowly and it will be expensive......Mooneys do NOT lend well to a rental situation.......Better to sell it cheaper than to do the leaseback.....

[bonal]

2 airplanes and right out of high school not bad. When I was trying to sell my Cessna I was approached to lease it to a flying school. Looking into the logistics it seemed more trouble than it was worth..

Just kidding about the HS joke but you look so young.

[N601RX]

Some fbo's and flight schools that manage leasebacks have been know to keep their favorite mechanic busy with repairs. Some months you owe them more than they owe you.

The market may be weak, but decent planes priced accordingly still seem to sale.

[ArtVandelay]

You should talk to the flight school, and their needs for a complex airplane.

You'll pay for maintenance, including 100 hr inspections, assume lots of wear and tear, think pattern work, and lots of it. Students generally don't have insurance, so that's on you also.

You need to discuss particulars with the school.

[rbridges]

I was looking into buying a plane for my son doing a leaseback situation.  Just from what I read, more bad situations than good.  Maybe for a 152/172 type aircraft, definitely not a mooney.

[DS1980]

Yes. No renter will treat your stuff the way you want it to be treated. Ever.

[carusoam]

You do have thick skin...!

Tell me if I understand...

1) If you sell a plane now, you are going to take some loss relative to a price you paid?

2) You think if you can wait some time, prices may rise at a higher rate than the cost of living increase?

3) While you wait, it would be nice to rent it out to a responsible individual?

If the above was your thought process...

Imagine the TNG discussions that the renters will have...

I'm sure one of them can do it on a 2,000' soft field.

Can you find a renter that can afford the 10 - 15 hours dual to meet the insurance minimums?

Most pilots that reach the Mooney level are capable of being responsible. But, they are going to have those first Mooney learning situations in your plane.

Based on the number of Mooneys available for rental, I find it an unlikely situation.

I rented a small leased-back, diamond star two seater... Somebody broke the cable that adjusted the rudder pedals. It lasted about a month on the line before the owner took it away...

Basically I don't have any good lease back experience to share.

It looks a lot like renting a condo out... There will be good renters and some not so good renters.

From an investment point of view...

It looks like a high cost investment, with a low return with the off chance of taking a complete loss.

What is the insurance going to cost?

Do you have a mechanic on your team?

Do you have a CFI on your team?

What are you hoping to get out of this arrangement?

I think I would be more inclined to sell the plane, buy a condo, and rent it out long term...

Sorry, there are no easy answers to that one,

-a-

[ArtVandelay]

The perfect plane for leaseback is a 172SP with G1000.

Easy/cheap to work on, commands a high price, is generally used by IFR training instead of the PPs, so much less pattern work.

[WardHolbrook]

I've made some good money with a Cessna 421 that I owned and had on leaseback to Cessna, but my advice, don't even think about doing a leaseback unless you can approach it from a highly disciplined and purely business point of view.  Most owners who enter into these agreements do it because they think that somehow it will lower their ownership costs.  However in most instances, over the long haul, all you end up doing is subsidizing someone else's flying.

 

Don't be seduced by a flight school’s promises - ask for references. Talk to some of their long-term leaseback owners. My bet is that they won't have any. They almost never do. There are reasons for that.  Don't let the promise of additional rental income being able to offset your ownership costs seduce you into buying (or keeping) more airplane than you can afford to purchase or maintain by yourself. Also, seeing your airplane abused by ham-handed renters will annoy most owners. The bottom line, for most guys, is at the very best, it MIGHT defer (not eliminate) some of your costs for a while; but eventually you've got to pay [for] the piper. (Pun intended.) Worst case scenario, it can run up your costs significantly.

 

All in all, leasebacks are aviation's version of a Ponzi scheme and the only guys who make out with them are the flight schools.

[jrwilson]

I belonged to flying clubs in Palo Alto and San Carlos, ca, which had Mooneys. They had Es, Fs, Js, 231, eagle and even an acclaim ( didn't rent that one, too expensive). Granted that was 3 different clubs, and they didn't have them all at the same time. The J and E lasted for years at the club and even the eagle lasted for about 2 years. Granted that was over 10 years ago, so the economics were likely different, but it has worked before..,

[jacobwall]

You do have thick skin...!

Tell me if I understand...

1) If you sell a plane now, you are going to take some loss relative to a price you paid?

2) You think if you can wait some time, prices may rise at a higher rate than the cost of living increase?

3) While you wait, it would be nice to rent it out to a responsible individual?

If the above was your thought process...

Imagine the TNG discussions that the renters will have...

I'm sure one of them can do it on a 2,000' soft field.

Can you find a renter that can afford the 10 - 15 hours dual to meet the insurance minimums?

Most pilots that reach the Mooney level are capable of being responsible. But, they are going to have those first Mooney learning situations in your plane.

Based on the number of Mooneys available for rental, I find it an unlikely situation.

I rented a small leased-back, diamond star two seater... Somebody broke the cable that adjusted the rudder pedals. It lasted about a month on the line before the owner took it away...

Basically I don't have any good lease back experience to share.

It looks a lot like renting a condo out... There will be good renters and some not so good renters.

From an investment point of view...

It looks like a high cost investment, with a low return with the off chance of taking a complete loss.

What is the insurance going to cost?

Do you have a mechanic on your team?

Do you have a CFI on your team?

What are you hoping to get out of this arrangement?

I think I would be more inclined to sell the plane, buy a condo, and rent it out long term...

Sorry, there are no easy answers to that one,

-a-

 

 

You brought up many valid points. I will take them to heart, it's just hard thinking of the loss my partner and I would be taking. This is one of those times where I should probably learn to cut my losses sooner rather than later. 

 

I've made some good money with a Cessna 421 that I owned and had on leaseback to Cessna, but my advice, don't even think about doing a leaseback unless you can approach it from a highly disciplined and purely business point of view.  Most owners who enter into these agreements do it because they think that somehow it will lower their ownership costs.  However in most instances, over the long haul, all you end up doing is subsidizing someone else's flying.

 

Don't be seduced by a flight school’s promises - ask for references. Talk to some of their long-term leaseback owners. My bet is that they won't have any. They almost never do. There are reasons for that.  Don't let the promise of additional rental income being able to offset your ownership costs seduce you into buying (or keeping) more airplane than you can afford to purchase or maintain by yourself. Also, seeing your airplane abused by ham-handed renters will annoy most owners. The bottom line, for most guys, is at the very best, it MIGHT defer (not eliminate) some of your costs for a while; but eventually you've got to pay [for] the piper. (Pun intended.) Worst case scenario, it can run up your costs significantly.

 

All in all, leasebacks are aviation's version of a Ponzi scheme and the only guys who make out with them are the flight schools.

 

I will definitely be talking to references. Thanks for the input, I appreciate it.

 

If you lease back this airplane it will be destroyed slowly and it will be expensive......Mooneys do NOT lend well to a rental situation.......Better to sell it cheaper than to do the leaseback.....

 

The loss we're looking at taking isn't something that my partner or I are comfortable with. Will we ever get our original investment back? Not a chance, the plane was purchased at the height of the market unfortunately. However, my partner and I would feel much more comfortable breaking even or losing less money while the market A) becomes stronger or   we find a buyer. I can see a potential case being made that someone wouldn't want to buy a plane that was leasebacked to a flight school (or club, which is more realistic). 

[WardHolbrook]

You brought up many valid points. I will take them to heart, it's just hard thinking of the loss my partner and I would be taking. This is one of those times where I should probably learn to cut my losses sooner rather than later. 

 

 

I will definitely be talking to references. Thanks for the input, I appreciate it.

 

 

The loss we're looking at taking isn't something that my partner or I are comfortable with. Will we ever get our original investment back? Not a chance, the plane was purchased at the height of the market unfortunately. However, my partner and I would feel much more comfortable breaking even or losing less money while the market A) becomes stronger or   we find a buyer. I can see a potential case being made that someone wouldn't want to buy a plane that was leasebacked to a flight school (or club, which is more realistic). 

When you ask for references, ask for the long-term ones. (3+ years)  Most of these agreements tend to fall apart after a year or two.

[Marauder]

I had a friend who did a leaseback on a Cessna 172. He was a meticulous kind of guy who had it on leaseback until an instructor teaching instruments starting drawing entry patterns on his DG with a grease pencil.

I'm sure there are good leaseback situations, but the ones I have seen usually has the plane either not making enough money or the maintenance outpaces the lease value.

[Ftlausa]

I have looked at the economics of a leaseback twice, once with a Tiger and on another occasion with a DA40.  Both times I decided against it.  The amount I wanted to include per hour for maintenance -- which will exceed all expectations based upon the experiences I have seen other go through -- made the rental rate too high for the school.  I had one school that initially was willing to assume the cost of maintenance, but then they backed out. 

 

I cannot imagine doing a leaseback with a complex aircraft.  The maintenance and insurance are going to be cost prohibitive.  I am in the process of partnering with an A/P to do a leaseback on a Piper we acquired very cheaply, but the A/P is going to take care of the maintenance, and the insurance is doable based on the low hull value.  Other then a circumstance like that, I think the aircraft owner loses at this end of the market on a leaseback.   

[John Pleisse]

I am in the exact same boat. A Bo and a 201. I have huge capital gains issues selling the Mooney. At last count, there were 51 201's for sale. When I bought my 201, there were 4. I considered leaseback for the 201, but my bird is too nice and it'll be trashed in a month. Instead, I will excavate the avionics and allow my son's to use it for primary training. They are 13 and 14 and they are ready. I will likely take on 2 CFII's as non-equity partners and wheel and deal their instruction services. This would mitigate hangar, insurance, annual and instruction costs. Still losing money, but getting some value. Then I will wholesale it for $69k. I wouldn't lease back a Mooney. There was one rented out of a local airport and I cannot begin to tell you the stories I heard CFI's discuss about the abuses it sustained. The bright side? Mooneys can take it.

 

(Primary training in a 201? Yeah, I don't want to hear it. I have thought it through. They'll miss significant rudder knowledge and could gear it up. I look at it this way, there are countries where training occurs in twins only. It is all relative. Now if somebody would trade me a C-180/185 for the Mooney, I'd do that straight up).

[John Pleisse]

Oh...not mentioned.....insuring the Mooney for instruction ($4-6K) typically puts you in a position where it would have to rent many hours a month to even think about breaking even. Insurance is the back breaker.

[urbanti]

Before entering into a leaseback where it seems virtually guaranteed that you will lose, you might want to explore different kind of partnership options available.

When I was looking at Mooneys, I would have jumped at a no-equity partnership where I could pay for use of the plane based on some predetermined formula. Candidates would have to be OK with your insurance company or take some transition, etc. In any case its a cheap option for them to determine whether they really want to buy a Mooney or not.

At least this way you can pick and choose the people who are flying your plane.

best

Tim

[carqwik]

One way to avoid taking the loss now is to dry lease your plane to a single individual (Mooney qualified...or pays to get so) with some stipulations as to hours, use (hard surface runways, USA/Canada only), etc.  Also, all maintenance falls on him too although I can see the argument as to what is maintenance vs repair and who pays.  (Probably any "betterment" is your cost.)

 

I have no experience with leasing to a flight school but do see plenty of evidence of damage with the Pipers at Pan Am Flight Academy here at Deer Valley...dinged props, off runway excursions, hard landings, etc. 

[larryb]

My advice is to just sell it now. It is a machine and will continue to depreciate. In addition, it will continue to require lots of $ in care and feeding. It wasn't an investment. You purchased a machine giving you the ability to fly around the country at will. The good news is that the weak market also worked in your favor. You bought a Bonanza "one that we couldn't pass up." So I presume you got a great deal on that plane. Even taking a loss on the Mooney you are likely better off now than if you had bought that Bonanza at the height of the market.

 

 

Larry

[Parker_Woodruff]

If you don't see a scenario where it would be nice to have two airplanes in your partnership, I'd go ahead and offload the airplane.  Yes, you are taking a hit on the airplane, but you're handing the person who sold you the "new" plane the same kind of loss.

 

If you could come up with a non-equity arrangement where you find 3 members who all pay a monthly flat rate plus an hourly wet rate, you might find a way to keep the plane.  There are insurance policies that will let you do this without a significantly higher premium.

 

I split use of my M20J with a guy that flew on business travel (ATP, 7500 hours).  He paid $250/month to cover fixed costs and $160/tach hour.  The arrangement worked quite well...We traded off weeks using the plane.  I got it one week, he got it the next.  You won't make money on it, but if there are times when you *both* need an airplane, this is one remedy.

 

It just meant I was driving a 1991 Ford Ranger as my commuter during the off week instead of commuting by M20J.

[KSMooniac]

If leasing-back planes to flight schools was a good way to either make money or just help with the expense of owning a nice plane, we would see tons of nice planes available for rent at every airport.  Just a thought.

[AZ231]

I looked hard at the idea of offsetting my costs by leasing my 231 back to the organization I used to rent from (only to pilots with substantial time who weren't going to be bouncing it off the runway in pattern work).  They maintain their current hangared fleet well, are pleasant to deal with, and have the ability to perform maintenance on the spot.  However, as many have already said, the insurance was going to be massive, and I didn't want to end up in a situation where the plane wasn't available when I needed it last minute. 

 

I spoke with my insurance agent and my policy will allow two additional pilots on the aircraft (with certain conditions met, of course). A friend I have flown with for the past two years is going to fly the plane on an hourly rental basis, and has expressed interest in partnering down the road.  My high-time insurance agent is also interested in occasional use.  This should be a win-win (I hope) as both pilots I have a personal relationship with, and are conscientious of other people's property.  

 

Now just to set the rate......