Pilots who've had an aircraft on leaseback with their flight school

[unsafervguy]

I was involved in leasebacks on several airplanes with several schools. In reality, the only way to make any money is to have an a&p. Also, be prepared to work long nights fixing airplanes so they can be back on line in the morning. I made money, but having two a&p, ia’s in the family is what made it happen.

 

[86Aviator]

Not trying to hijack the thread, but this has me thinking - is a leaseback business potentially profitable for a passive investor? Let's say someone with a million or so of investable capital and the appropriate FBO relationships acquired a number of aircraft likely to be highly utilized at one or more warm-weather FBOs. No personal use or connections - the airplanes are just business assets - same as if the guy owned a group of duplexes held for rent. Let's also assume that he can employ his own A&P(s) to help keep a lid on mx costs, and the aircraft ready to fly on peak days, and that the aircraft are sold and replaced within a 1031 exchange context every few years (i.e., deferred gains). Assuming appropriate utilization, can that investor expect a reasonable ROIC (maybe 8-10%)? From what I've read here, a 1-3 aircraft leaseback business has discrete risks and disadvantages - but do things look better at scale?

 

[ja_user]

Sounds anything but passive, and 8-10 seems like like index fund terrority for a lot less headaches, and risk.

 

[Palmpilot]

When I was half-owner of a leaseback, we did NOT make a profit!

 

[schmookeeg]

Not trying to hijack the thread, but this has me thinking - is a leaseback business potentially profitable for a passive investor? Let's say someone with a million or so of investable capital and the appropriate FBO relationships acquired a number of aircraft likely to be highly utilized at one or more warm-weather FBOs. No personal use or connections - the airplanes are just business assets - same as if the guy owned a group of duplexes held for rent. Let's also assume that he can employ his own A&P(s) to help keep a lid on mx costs, and the aircraft ready to fly on peak days, and that the aircraft are sold and replaced within a 1031 exchange context every few years (i.e., deferred gains). Assuming appropriate utilization, can that investor expect a reasonable ROIC (maybe 8-10%)? From what I've read here, a 1-3 aircraft leaseback business has discrete risks and disadvantages - but do things look better at scale?

Sorta like how the pink-sheet stocks are an investment. "Sure"

I think there's a highly niche opportunity coming over the horizon for electric trainers, something substantial with say 3+ hours range, elbow room, and a 500# payload to make it competitive with 172s/PA28s. Then again, the OMF Symphony was exactly that and it bombed. (nice plane too) Electric planes are likely to be capital intense with low running costs -- so an investor could enjoy the bonus depreciation, a good revenue stream, and then exchange them out or find some other way to dispose of them before they get ratty. Plus the flight schools are not going to be coughing up notes or cash to cover the 300-500K price tag anytime soon.

Separately, if the pilot hiring bust translates into popping flight schools like we had circa 2010, there will be some opportunities in the liquidation of the big asian training mills. I wish I had a larger checkbook back then, there were deals to be had. It would be somewhat low risk to pick up some quality trainers (restart cessnas and seminoles) for 30c on the dollar and press them into service "wherever"

For a passive and disinterested/not willing to educate himself investor? No way, you'll be chum for the sharks. Aviation and some of its purveyors have pointy teeth.

 

[Ryan F.]

Not trying to hijack the thread, but this has me thinking - is a leaseback business potentially profitable for a passive investor? Let's say someone with a million or so of investable capital and the appropriate FBO relationships acquired a number of aircraft likely to be highly utilized at one or more warm-weather FBOs. No personal use or connections - the airplanes are just business assets - same as if the guy owned a group of duplexes held for rent. Let's also assume that he can employ his own A&P(s) to help keep a lid on mx costs, and the aircraft ready to fly on peak days, and that the aircraft are sold and replaced within a 1031 exchange context every few years (i.e., deferred gains). Assuming appropriate utilization, can that investor expect a reasonable ROIC (maybe 8-10%)? From what I've read here, a 1-3 aircraft leaseback business has discrete risks and disadvantages - but do things look better at scale?

The odds are against you. It's hard to align motivations when skin isn't "in the game" for one of the two primary partners involved, and if you don't have any tools to minimize your expenses or maximize income/utilization you'll probably fall short.

One of the few ways to truly make money with an aviation asset is to work it "yourself" in some way. If you just want to have capital sitting in a depreciated asset, and not be part of the business other than that, well... good luck.

Many years ago I worked at a large flight school. There was a revolving door of new aircraft owners who placed airplanes on leaseback and usually left unhappy within a couple of years.

Once, I was sitting with two friends having a conversation about aviation. Both had done very well for themselves, without going to the airlines or simply "working," drawing a paycheck as a pilot. One was an examiner who owned a light jet training/type rating operation. The other owned an aircraft management company which operated under part 91 simply to service the aircraft owner's personal/business needs directly. On the subject of business, one said, "Don't ever own an airplane if you don't have to. Let someone else worry about that." And the other agreed. Time and time again I've seen that model played out -- most of, but not all, successful (profitable) aviation businesses don't own the equipment.

 

[86Aviator]

Interesting perspectives - thanks very much, guys.

 

[MuseChaser]

If I've interpreted all of your responses correctly,as long as I go into this expecting to lose money, work on the airplane a LOT more than usual, watch the airplane deteriorate quickly, and probably lose a friend and/or good relationship with my CFI, it would work out great. Decisions, decisions. Hehehehe...

Including hangar rent, current insurance, and typical annuals, my current fixed costs are about $3500. It's be nice to see the plane break even or turn a little profit, but the risk doesn't sound worth it. Still on the fence. MUCH appreciate all the input.

 

[ja_user]

How much is your insurance? Does that include letting people fly it solo with few hours? $3500/annual fixed costs sound really cheap. Must have cheap hangars there. Here the hangars alone are more than that.

 

[MuseChaser]

Just to be clear,that is my CURRENT annual fixed costs, not what they would be if I accepted the lease proposal. As a private owner/pilot, my insurance is currently $700, hangar space in large communal fbo hangar is $1800, and my annuals have been varying between $500 and $1200. Insurance would rise to $3800, my current annual is going to be ugly financially, and would probably have three 100 hour inspections yearly now to pay for out of rental proceeds. Hangar rent goes away, which is a nice perk. By far, biggest concern is being on the hook personally for other pilots-induced damage to the plane.

 

[flyingron]

When I took my plane OFF leaseback, my insurance dropped to a third of what it had been. I was around when we negotiated the club policy. The price for each plane in the fleet scaled pretty evenly with the hull value regardless of whether it was: We had two 172s, a 182, a turbo Arrow, a 170, a 180, and my Navion. I'm pretty sure the 172s were the only things making money.

 

[Geosync]

Not trying to hijack the thread, but this has me thinking - is a leaseback business potentially profitable for a passive investor? Let's say someone with a million or so of investable capital and the appropriate FBO relationships acquired a number of aircraft likely to be highly utilized at one or more warm-weather FBOs. No personal use or connections - the airplanes are just business assets - same as if the guy owned a group of duplexes held for rent. Let's also assume that he can employ his own A&P(s) to help keep a lid on mx costs, and the aircraft ready to fly on peak days, and that the aircraft are sold and replaced within a 1031 exchange context every few years (i.e., deferred gains). Assuming appropriate utilization, can that investor expect a reasonable ROIC (maybe 8-10%)? From what I've read here, a 1-3 aircraft leaseback business has discrete risks and disadvantages - but do things look better at scale?

The only possible way it to own the assets outright but even then, unless you're an a&p it doesn't usually pencil out. I know of a fellow that owns a leaseback fleet of 172s, but he also owns a repair shop and his brother runs it. A big issue is when a renter smashes off the nose gear on landing that plane is down for 6 months not making money, even if the repair is insured. Having been an a&p for a rental fleet, I know it happens all the time. I think the only way it can be done is what other have said - you are an a&p, you own outright, and you prioritize them.

 

[86Aviator]

Yea, it sounds like from the responses here that there just isn't that much fat on the steak without some sweat equity in the game. And I think that makes sense in concept - if the scenario I proposed could offer a decent ROI, there'd be more than one private equity fund holding an armada of training aircraft for leaseback.

 

[weilke]

Not trying to hijack the thread, but this has me thinking - is a leaseback business potentially profitable for a passive investor?

It can be. As long as it is not structured in the usual risk-sharing* setup with the FBO/school but rather as a straight up lease of an asset. Flight schools / FBOs are always short on capital, there is a market for leased trainer aircraft. An acquaintance of mine used to have a fleet of various Piper products scattered around the country. He would buy them at bankruptcy auctions or when large flight-schools unloaded them by the dozen. Some minor refurbishment work, sell off avionics not required on a trainer etc. and place them with a lessee. But those were straight up asset leases. Got inspected at delivery and the customer paid a monthly fee + tach fee on the engine'. When the aircraft was returned, it got inspected and anything beyond 'wear and tear' was deducted from the deposit. Not wildly profitable and giving the high percentage of lying scoundrels in the aviation training market it had a lot of hassle factor. Its definitely not a 'passive investment'. If you have a million of play money lying around and you want to dabble in owning an aviation business, then yeah, you could invest it that way.

Can I interest you in some horses ? Or sailboats ?






* and with risk-sharing, I mean you bear all the risk and the FBO shares all the revenue