Flying club question.....

Mike Smith

Mike Smith

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Prattville, Alabama
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Fresh Prince of PrattVegas
some of you may remember last October my instructor and I went to Maryland to pick up an airplane for a friend of mine who lives here in Alabama. She had bought the plane before she even started flying. Well, since then she has started training and seems to be doing fine. She and I have talked a couple of times about me either becoming a partner or using the plane to start a flying club. The plane is in good shape for a 68 140, it has @ 4000 hours TT, the hang up is it has @2200 on the engine. It just came out of annual and it really is in good shape, has good compression and makes good power. My thought is, this airplane is basically disposable at this point, for me anyway because I don't want to buy half an airplane just to have to buy half an engine in the not too distant future. However, I can see it working as a starter plane for a flying club. I think we could find 4-5 people to join, fly it till it makes metal and sell it for scrap and buy a better plane. That would be good for the current owner, recoup most of her initial cost. Good for the new members, low buy in, and cheap flying. Good for everyone because we can see if we can make a club work without too much money spent. All involved can afford the project as I have stated including some unexpected MX that an old bird is bound to have. Just looking for things I may not be thinking about, positive or negative.
 
First thing I thought of (with very little experience in airplane clubs, other than just buying into a share of an arrow in june) is getting all those people to agree on the plane to purchase after this one makes metal.
Just my quick $0.02, worth less than what you paid for it.
 
mikeinbama said:
My thought is, this airplane is basically disposable at this point, for me anyway because I don't want to buy half an airplane just to have to buy half an engine in the not too distant future. However, I can see it working as a starter plane for a flying club. I think we could find 4-5 people to join, fly it till it makes metal and sell it for scrap and buy a better plane. That would be good for the current owner, recoup most of her initial cost. Good for the new members, low buy in, and cheap flying
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As long as the buy in is at scrap value, this may work, the issue is I don't know who would buy into an equity club with people they don't know with a plane with an engine that may go soon.
 
Somedudeintn said:
As long as the buy in is at scrap value, this may work, the issue is I don't know who would buy into an equity club with people they don't know with a plane with an engine that may go soon.
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That's a fair statement. So let me ask this, if I were to assign you the task of figuring out a way to put together a club, how would do it with these parameters? Let's say scrap value is 10k, that may be high, but just for a starting point.
 
mikeinbama said:
That's a fair statement. So let me ask this, if I were to assign you the task of figuring out a way to put together a club, how would do it with these parameters? Let's say scrap value is 10k, that may be high, but just for a starting point.
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How much for a new/refurb engine? Why not start the club with a buy-in level that'll replace/refurb the engine and when the shares all sell, decide whether to get the engine done right away or wait until it makes metal?

To be fair, I don't know how much the engine will cost and how much the plane is worth... but just an idea vs scrapping an otherwise good airplane.
 
I'm spitballing, but I think an engine would be @ 20k and I think the airplane as it sits is probably worth @ 15-18K
 
mikeinbama said:
I'm spitballing, but I think an engine would be @ 20k and I think the airplane as it sits is probably worth @ 15-18K
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So is it then worth $35-$38K with a new engine? If you get four people to buy in at $9K each, put a new engine in and then you're all set to fly a plane for a LONG time before it needs another engine.

The club I belong to has 15 people in it... do something of that size and it gets MUCH cheaper to buy in.
 
I don't think even with the new engine the airplane could carry that much value. I don't think we could come close to 15, I think 4-5 is more like reality. im not set on the idea of an equity deal either. If there were a workable non equity deal, I could live with it, I just want to be fair to all involved. Truth is, my friend bought a 47 year old airplane with a run out engine. It may fly 1000 more hours, or 100, who knows.
 
I concer about the concept of not scrapping a good air frame.

If a replacement engine is $20k installed, and there are 5 founding members, each buys in at $4,000 -- $1,000 each into the immediate cash reserves (you bust a tire, starter dies, a flight instrument needs some love) and $3000 into the engine replacement fund.

Set a $40-50 dry rate and put a good portion of that into the fund say $25 of it. Continue flying, do frequent oil changes, operate the engine properly, and monitor health of engine closely. After 200 more hours, you have the remaining $5000 of the $20k. Continue flying. When motor does say it's done, you have a fully funded reserve to replace.

Club dues are set to cover fixed costs plus a bit extra to maintain/build the non-engine reserve.

If founding member wants out, the original agreement is set that they must find and being the rest a prospect that you approve of. It will be up to you guys to determine if the value of the share rises 1:1 with amount in bank account.
 
And the "buy in" includes the current owner. Make sure they're up for that and see if they really meant it when they said a club should be started with their airplane.

In other words, the club starts with empty books and treats the whole thing like a purchase from the existing owner. Otherwise if the current owner is just looking for a way to split costs, and you have enough people who want a club, just start a club and an aircraft search.

The club is a new business entity. It shouldn't "buy" this airplane just because it's available. Buy the right airplane for the club.
 
There's a "partnership" available around here for an aircraft that requires a $1000 refundable buy in and $100/hr to fly the plane. The actual hourly costs are probably about half that, but the owner doesn't want to sell an equity share (the $1000 is just to discourage someone who's not serious) and doesn't require any monthly payments beyond the hourly costs incurred.

Maybe an arrangement like that would work for your friend? The longer the engine lasts, the more she'll make from the deal. But nobody's on the hook for a new engine if they don't want to go that route. And nobody's out any money when the engine does finally quit, since the arrangement is based on a higher hourly rate than is maybe required (or might be available in an equity arrangement).
 
Nate, can you expand on that a little? Are you saying that five founding members, current owner included, put up xxx dollars each and buy the plane? I understand what you are saying about buying the right plane, but in the case of what I am talking about here, I am just looking for ideas on making it work with this particular plane. That may not be possible and that's ok. This is more of a mental exercise. if I could work it out on paper and in my head, I "might" peruse it.
 
I'm looking at joining one w/ a nonrefundable $1000 (fund for additional plane/upgrade to current plane), $85 mo dues (hangar rent, subscriptions, other fixed expenses), $100 wet rate per hour ($20 for eng reserve etc) on a '78 Archer II. Plane has well equipped avionics. If I fly 100 hours a year it works out to around $115-120 an hour. So not much savings vs a rental at an FBO.
 
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mscard88 said:
I'm looking at joining one w/ a nonrefundable $1000 (fund for additional plane/upgrade to current plane), $85 mo dues (hangar rent, subscriptions, other fixed expenses), $100 wet rate per hour ($20 for eng reserve etc) on a '78 Archer II. Plane has well equipped avionics. If I fly 100 hours a year it works out to around $115-120 an hour. So not much savings vs a rental at an FBO.
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I'd bet the plane is better equipped and has better availability than the FBO plane though. That's one of the main reasons I joined the club I'm in. I save a little money if I fly 40 hours or more a year, but have a much better equipped plane that is often available for last minute overnight trips, unlike he rental planes I was using.
 
If you can keep the total number of owners at 5 or less, you can get insured as a partnership instead of a "club." Not all underwriters will let you have 5, but there are some that will. It makes a HUGE difference in insurance premiums. A "Club" with 6 people won't be economical for insurance reasons alone. You'll need closer to 10 to make the numbers work. A partnership with 5 probably costs less for everyone on a monthly basis than a club with 6, 7 or maybe 8.
 
bradg33 said:
If you can keep the total number of owners at 5 or less, you can get insured as a partnership instead of a "club." Not all underwriters will let you have 5, but there are some that will. It makes a HUGE difference in insurance premiums. A "Club" with 6 people won't be economical for insurance reasons alone. You'll need closer to 10 to make the numbers work. A partnership with 5 probably costs less for everyone on a monthly basis than a club with 6, 7 or maybe 8.
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In our case with the arrow, with 4 pilots we still have an open pilot policy. If we were to add a 5th we would loose the open pilot policy, and we'd have to pay to get any CFI's (or others) put on our policy.
 
farmerbrake said:
In our case with the arrow, with 4 pilots we still have an open pilot policy. If we were to add a 5th we would loose the open pilot policy, and we'd have to pay to get any CFI's (or others) put on our policy.
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We have 5 with no open pilot, but we've had good luck with the underwriter allowing us to add a non-partner CFI here and there for the purpose of giving training (CFI can't fly it alone). Helps that we use a local broker that knows the CFIs we've added. That said, we don't use that accommodation frequently because 2 of the partners are CFIs.
 
mikeinbama said:
...My thought is, this airplane is basically disposable at this point, for me anyway because I don't want to buy half an airplane just to have to buy half an engine in the not too distant future. However, I can see it working as a starter plane for a flying club. I think we could find 4-5 people to join, fly it till it makes metal and sell it for scrap and buy a better plane. ....
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If you're going to be selling nice shape PA28s with overhaul ready engines for scrap PM me, I'll take the plane for scrap value, 0.35 a pound ;)

Heck I could make a good business out of that!
 
James331 said:
If you're going to be selling nice shape PA28s with overhaul ready engines for scrap PM me, I'll take the plane for scrap value, 0.35 a pound ;)

Heck I could make a good business out of that!
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Sure James, post your phone number and I'll be sure to call you right up!!
 
Can't blame a brother for trying to make a buck :)


1,201lb PA28 at .35 cents a pound scrap, thats $420

If she still can be flown, take her to heart of Texas for a 13-17k overhaul, so now I'm under 20k for a 4000tt 0TSMO PA28, flip it for a fast 5k, or hang on to it longer for more, I'll do that one all day long!
 
denverpilot said:
And the "buy in" includes the current owner. Make sure they're up for that and see if they really meant it when they said a club should be started with their airplane.

In other words, the club starts with empty books and treats the whole thing like a purchase from the existing owner. Otherwise if the current owner is just looking for a way to split costs, and you have enough people who want a club, just start a club and an aircraft search.

The club is a new business entity. It shouldn't "buy" this airplane just because it's available. Buy the right airplane for the club.
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Exactly. The current 140 owner can eat any loss on the run-out bird and re-invest in a partnership (club) of like-minded pilots/owners. This eliminates the unequal footing inherent with the proposed arrangements to make "this plane" work out. A club is a delicate balance, and certainly worth it, but don't set it up to fail miserably. Just (non)humble advice..take it for what it's worth. Be blessed Bob
 
James331 said:
If she still can be flown, take her to heart of Texas for a 13-17k overhaul, so now I'm under 20k for a 4000tt 0TSMO PA28, flip it for a fast 5k, or hang on to it longer for more, I'll do that one all day long!
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There are places that will overhaul an engine for ~$15k??? o_O
 
bradg33 said:
We have 5 with no open pilot, but we've had good luck with the underwriter allowing us to add a non-partner CFI
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That seems a little strange. In your arrangement does that mean only this one CFI can instruct in your airplane? Our club recently switched from Avemco to Starr, and both companies allowed instruction from any CFI, even for primary PPL training.
 
JimNtexas said:
That seems a little strange. In your arrangement does that mean only this one CFI can instruct in your airplane? Our club recently switched from Avemco to Starr, and both companies allowed instruction from any CFI, even for primary PPL training.
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More or less, yes. Really, from an owner perspective, as long as one of the partners is in the plane at the controls, the partnership is almost certainly covered in the event of an accident. By naming the CFI, it's really just belt-and-suspenders, and might protect the CFI a little from subrogation. I really only worry about it if one of my partners is not legal to act as PIC (say out of BFR); in that instance, as a partner, I'd want the CFI approved on the policy to be safe that we're covered. If the partner is legal to act as PIC, I wouldn't worry about whether the CFI is named or not. Keep in mind that our airplane is complex, high performance, and not especially well-liked by insurance companies, so our policy is a little less favorable than we might get on a more mainstream airplane.
 
In general terms, how would a non equity club work in this case? Would the current owner lease the plane to the club? How do these things typically work? If a lease, is it for a set period? Say 12 months @ $xxx per month?
 
I'd avoid the airplane for a club startup for several reasons
1) If you sell it at scrap for the next owner to put the new engine in, you probably will not have enough to get the next club airplane. End of club.
2) Club airplanes fly more. WCFC airplane would gain 1000+ hours a year. You might not fly it that much, but how long will the airplane last you? 6 months? 12 months? Whatever it is, you'll be guessing about how many months you get, not counting years. It's a short term fix.
3) I don't believe in flying airplanes until the engine dies because you don't know when that will be.

Non equity club - owner buys the airplane and leases it to the club. Term can be anything, typically ongoing and renewable at intervals. Club pays for routine maintenance, owner pays for overhauls. The owner should get a discount based on the fact that they are paying for the overhaul, at least $11/hour for an average cessna or piper. Club members join the club and fly the airplane. Club uses part of the hourly rate to pay the owner and part to put aside for routine maintenance and other operating costs (insurance, etc).

You need to figure out the numbers.
 
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