Lease back to Flying Schools.

[bushpilot]

I have read some threads regarding the pros and cons of private owners leasing their a/c to flying schools and aero clubs.... and the LSA prerequisite, and maintenance restrictions etc....so I'm not here looking for comment on those aspects.

 

But I am interested to know what sort of money is appropriate - and the preferred method: i.e. hourly charge only; fixed charge; combination of both; other. The type of a/c that I'm considering making available to a club would be a Jabiru or Brumby - so capital cost of around $80K.

 

Would appreciate any feedback.

 

Cheers

 

Chris

 

 

[Guest brentc]

I know of an operator charging his Jab out to a school for around $70 an hour wet. That figure was based on Jabiru's suggested running costs as per their supplied spreadsheet with a few modifications based on experience. It's a tricky balance between getting your capital back and not charging too much so as to scare off the leasee.

 

You'll need to put a spreadsheet together as there are many variables. For instance, some owners lease their aircraft to a school and the school pays for the insurance as they get a discount due to the bulk. Many GA schools even register the aircraft in their own name, however the aircraft may have a private owner for reasons such as insurance. Maintenance may also me done by the flying school rather than the owner, so lots of room for negotiation there.

 

It pays to have owned a plane for a while to help ascertain costs, however there should be enough members on this forum to help you come up with some realistic costs. I'll post again later tonight when I have more time.

 

 

[bushpilot]

Thanks Brent C.. You also prompted me to remember there are a couple of threads in this forum covering Jab. operating costs in detail..

 

I guess I am also interested to know what people think is a fair margin - on top of actual costs (direct & indirect)... $70 does sound about right..

 

Cheers,

 

Chris

 

 

[Guest TOSGcentral]

Chris,

 

I suggest you also take an overview of the situation and exercise care.

 

Lease back (or cross hire as it is usually referred to) is commonplace in the low end of recreation. It enables small, struggling schools to offer a range of aircraft with no capital expense on their part.

 

The scene is fraught with potential difficulty for a number of reasons and I have first hand experience of all of them!

 

The most important first step is to fully realise that you are not under the protection of the GA ‘umbrella’. In that scene there is an ever present case of legality that requires the aircraft to be maintained, serviced and its activities recorded correctly. That does not exist in RAA and it is down to the owner/operator’s responsibility to ensure this is complied with.

 

That is fine in a responsible school but ‘schools aint schools’! They are very variable and they are subject to a variable market and variable weather – as well as variable actual standards. If income goes down the first thing to suffer is maintenance!

 

I would strongly suggest that if you go into any cross-hire then you do so under a form of written contract that is legally binding and has sufficient assets behind it on the part of the hirer to make them worth suing if push comes to shove.

 

Parts of that contract should include:

 

(a) Written undertaking that ANY work on the aircraft is logged.

 

(b) Written undertaking that ALL flying is logged.

 

© Written undertaking that you have access to the log books any time you wish so you can satisfy yourself that scheduled servicing is taking place, and the aircraft has an appearance to justify this.

 

(d) Any insurance provisions are crystal clear in writing and who is responsible for them – with a fall-back clause on the hirer if the hirer is responsible.

 

(e) Equipment on the aircraft at the time of commencement is detailed and the aircraft must be returned in the same airworthy condition it was delivered inclusive of the original equipment (unless otherwise replaced with owner consent). Any discarded equipment (or components) must be returned to the owner at the time of replacement.

 

(f) Written undertaking regarding how you will be paid, when you will be paid and the maximum time period payment frequency.

 

(g) Suitable costing into the hourly rate to counter the depreciated value of the aircraft at the point of return. Getting $12,000 income from it is great but not if it’s realistic resale value has dropped by $20,000 when you get it back.

 

Common failings on cross hire agreements are:

 

(a) Total lack of any legally standing contract and just word of mouth on trust.

 

(b) Log books being falsified to record servicing not actually conducted.

 

© No servicing done and none recorded but the ‘log books are away somewhere’ so they cannot be seen right now.

 

(d) Failure to record payable flying time, or, disconnection of the engine time recorder so flight time is invisible anyway.

 

(e) Failure to repair damage done but that damage is camouflaged.

 

(f) Removal of valuable components and replacement with inferior, second hand or unserviceable equipment.

 

(g) Failure to make regular payments that are due for the activity of the aircraft.

 

(h) Failure to make any payments.

 

(i) The aircraft being badly damaged in operation and the owner gets a wreck back.

 

(j) The owner gets a run down heap back anyway that takes more than the aircraft’s income to fix.

 

Now, to complete the picture – here are just two examples of where it went wrong.

 

• An owner cross hired his aircraft to a small school on word of mouth ‘contract’. Two years later he got the aircraft back. It was worn out, the engine timer was disconnected, it required the police to get the aircraft documentation back (and that was just notes that had been obviously recently scribbled down), the entire engine and propeller assembly had been stolen from the unsecured aircraft, and the aircraft required thousands of dollars to return to original condition. The owner did not get one cent of flying fees and has subsequently not done so.
   
  

 

Not content with that he tried the same stunt again with a different school. 2.5 years, not a cent in income, and an unreliable and worn out wreck returned with several valuable components replaced with rubbish and no log book entries – again!

 

Not a very wise person eh? Stupid in fact – but there are shades of grey Sportsfans – you all be careful out there!

 

• A brand new owner (with no experience at all) was sucked into buying an aircraft for a school. The aircraft would be rebuilt to pristine condition and the owner would get heaps in cross hire and be taught to fly for free as well. Another $10.000 later (on top of the purchase price of a very simple aircraft) saw the aircraft withdrawn. It took another $7,000 dollars (without labour) to get the aircraft airworthy so that it could at least fly. It had been turned into an illegal death trap!
   
  

 

Yeah! I could go on for pages – like I said just be careful and ensure you have both clarity in arrangements and adequate recourse. There are good operators out there that will do you well. There are probably many more that ultimately do not – even if they were genuinely well intentioned in the first place.

 

Aye

 

Tony

 

 

[bushpilot]

Wow Tony - thanks for all your insights here; you have obviously seen the good, the bad and the ugly when it comes to these type of arrangements..

 

It's easy to assume that a handshake arrangement is going to work out - but, as you have pointed out, that is sometimes (or often even...) not enough. Having said that I guess there are some informal arrangements out there that have worked - but it seems that the key to helping insulate against the pitfalls is formal (contractural) agreements, together with a dose of goodwill.

 

Thanks again for you guidance.

 

Cheers

 

Chris

 

 

[ahlocks]

Tony,

 

Thank you!

 

You and the participants of this thread have helped solved a LOT of heartache that has been going on with us over the last few weeks. We initially purchased our plane for my son and I to learn to fly with and for my son to use to progress on to a career in aviation. We had considered that cross hiring the aircraft would subsidise our ownership of the aircraft.

 

Ever had that nagging, gut wrenching feeling that you are about to do something that you will regret? Well cross hiring is it for us!

 

We've never doubted that the prospective hirer is reputable, but rather their perception and objectives for the aircraft differ from ours. We look after and keep our belongings and business plant in as near to pristine condition as is practical.

 

They perceive the aircraft as a machine to generate business and create income.

 

A perfectly good plan for a business, but not with our pride and joy.

 

Our biggest concern was the accelerated wear and tear of the aircraft. Stories of engines not making TBO when used 'on line' and that the aircraft may well not be available for us when we want it.

 

If anyone is considering cross hiring their aircraft, don't forget to factor the emotional side of it as well. Your new pride and joy is very likely to end up looking very tired, very quickly.

 

So, thanks again. It may not have turned out to be a problem, but it's a risk we're not going to take. And it feels so much better having finally made the decision!

 

Cheers,

 

Steven B.