Looking for info on buying and leasing a plane to a school or club

[desertrat]

Other than spending an hour with a specialist CPA, are there any online resources or materials available to learn about the ins and outs of buying a plane and leasing it to a local school or club?

I'm interested in a specific plane, but there seem to be none in the area. I'm not going to fly it daily (maybe once or twice a week), and it could be a great resource for schools or clubs. That would also help cover the costs while affording me the opportunity to use it periodically.

I've always been interested in flying, but it has always seemed like a very expensive hobby. Years ago I flew with a guy several times who said he thought the same, but he went in with another guy and they bought a plane and did a lease-back with a local flight school and said that solved the problem for them. I heard he died in the 90's (cancer) so I can't pick his brain. I'd like to learn more about this to see if it's a viable option for me.

I guess I could look for a few other pilots to jump in and split the cost and make our own "club" of sorts. How does that tend to work out for folks?

The plane in question is $150k-$200k brand new, so it's not like a $5M jet.

FYI, I don't have my license yet; I'm semi-retired and trying to figure out how to make this an affordable hobby going forward.

 

[T Bird]

Hope it works out for you. No direct experience with it or knowledge of resources but I've heard from many people that leasebacks tend to not really save you any $. I'd recommend going the club or partnership route over a leaseback.

 

[Sam D]

An oldie but a goodie:

Captain Jason’s Leaseback Advice:

Re: Lease Back First, I want to give a tribute to Ron Levy, for his great checkride advice post. He was the inspiration for this. Second, this was written over a year ago, and I’ve updated it a bit. Those of you who have read this before might notice the differences. Captain Jason’s...

www.pilotsofamerica.com

 

[desertrat]

Another idea ... if I got my CFI rating and just used the plane to teach others how to fly and get certified in it, and let them rent it for their own needs, what would that look like finaancially? Would that make me a "school" with one plane? Seems like an odd thought, but between insurance and regs, I can imagine things being quite knotty.

Also, what's likely to happen when MOSAIC finally gets approved? I suspect it will be updated and then put out for another comment period (at least once). But the FAA clearly seems to be leaning towards anything that will help encourage growth in the number of pilots over the next 10-20 years, so they seem to be relaxing a lot of unnecessary restrictions. There are also electrics and other innovations that are moving things forward briskly (like new tech that reduces pilot error) so it seems like there's a growing need to update things sooner rather than later.

 

[donjohnston]

Once or twice a week is more than enough to keep the plane in good working order.

Based on my experience with leasebacks (along with the other people who were also doing the same thing at the school and club I was involved with), the number of people who break even is in the low, single digit percentages (like one... or maybe less). Most people lose lots of money.

If you want to see a sobering number, get a quote on insurance to rent the plane out. Then figure out how much it has to fly just to pay that. Then think about how most people treat rental cars. Because that's about how they'll treat your airplane.

 

[murphey]

The most commonly rented aircraft at a school are the low-end, C172 by the private students. A more high-end aircraft rarely justify the hours it needs to break even. Now that twins are no longer required for the commercial, even those are falling by the wayside.

If lease-back is such a fantastic idea, why don't the school owners lease their own aircraft back to their schools?

 

[Anthem]

If you plan on leasing it back - you're going to want to have it in an llc to shield you from liability of other flyers. It will also make deducting expenses easier. Keep in mind - the only successful leasebacks are generally ones that are used heavily. You cant pick and choose one or a couple students/flights a day. You need lots of use out of the planes to offset the 100 hour inspections, the 3x (or more depending upon plane) in insurance costs, etc etc. So unless you're doing north of 75+ hours (preferably 100) per month - the additional costs will kind of eat away. The only successful lease backs Ive seen are ones that are treated as a business and run that way. The "offset my cost" type of thing doesnt really work.

 

[Gilbert Buettner]

A friend of mine put his Cessna 150 on lease back for a while. He said the revenue never covered the maintenance and repairs. Where I work now, one of the employees bought a 152 that the school leases from him. I believe his agreement includes the school doing the 100-hour inspections and including the airplane on the school insurance. It helps that his parents own the flight school.

 

[donjohnston]

If you plan on leasing it back - you're going to want to have it in an llc to shield you from liability of other flyers. It will also make deducting expenses easier. Keep in mind - the only successful leasebacks are generally ones that are used heavily. You cant pick and choose one or a couple students/flights a day. You need lots of use out of the planes to offset the 100 hour inspections, the 3x (or more depending upon plane) in insurance costs, etc etc. So unless you're doing north of 75+ hours (preferably 100) per month - the additional costs will kind of eat away. The only successful lease backs Ive seen are ones that are treated as a business and run that way. The "offset my cost" type of thing doesnt really work.

The amount of liability “shielding” an LLC provides is pretty low. So in addition to that, you better have good insurance. Even better, talk to an attorney knowledgeable in such things first rather than SGOTI.

 

[desertrat]

The amount of liability “shielding” an LLC provides is pretty low. So in addition to that, you better have good insurance. Even better, talk to an attorney knowledgeable in such things first rather than SGOTI.

Actually, the whole purpose of putting one or more assets into a formal business entity is for liability protection. In fact, LLC stands for "Limited Liability Company". As long as you do it correctly, there shouldn't be any problem.

But too many people think LLCs are a one-size-fits-all kind of thing and they just copy what their buddy did and it can be totally inappropriate for them; so one day, something goes KA-BOOM! Next thing you know, a court issued a judgment against you and a creditor seized your home.

LLCs and Corporations are pretty much bulletproof, unless you, your lawyer, or an officer screws up, and then they leak like a sieve. Just say'n. (BTW, LLCs have a trick that makes them even more bulletproof than a Corp if they're structured and used properly! Because of this, there are a lot of companies that will simply not contract with service providers who are set up as LLCs; I know b/c I've worked for several.)

 

[douglas393]

No experience leasing back... had a 182 and now a 206 and have been approached by a local school about using them for training, and when I did my research it seemed to me a very bad idea. Knew someone who bought one of the planes used at the same school, a 172s with g1000. It was their trainer prior to him purchasing it. He ended the leaseback after a few months because he was losing money. Most planes used for initial training get somewhat abused, and so it seems to me from everything I have been told and seen that if you are looking at this as an investment there are better ways to have your money make money. If you are an instructor and it is part of the business it's a different story,

 

[midlifeflyer]

The amount of liability “shielding” an LLC provides is pretty low. So in addition to that, you better have good insurance. Even better, talk to an attorney knowledgeable in such things first rather than SGOTI.

The amount of protection an LLC provides in this situation is pretty decent, particularly in conjunction with the transfer of control over the aircraft that typically takes place in a leaseback. But, as with most things if this nature, the devil is in the details.

And people often forget that an LLC provides two different types of protection - liability for the Member (unless they are independently responsible); asset protection for the asset. So there are individualized issues that may have nothing to do with the leaseback itself.

As you said, the best bet is to

talk to an attorney knowledgeable in such things first rather than SGOTI.

 

[midlifeflyer]

Another idea ... if I got my CFI rating and just used the plane to teach others how to fly and get certified in it, and let them rent it for their own needs, what would that look like finaancially? Would that make me a "school" with one plane?

unless you go for certification under Part 141 or operating under some other special reg, there is really no FAA (edit) regulatory creature called a "school". From a regulatory standpoint, you would be someone providing airplane and instructor for flight training under Part 61 triggering the need for, for example, 100 hour inspections.

From a practical standpoint, if training student pilots, you are also going to have higher maintenance costs just because they tend not to be gentle. Your insurance costs will also be higher, in part due to the increased personal liability (that LLC mentioned is not designed to protect you from your teaching screwups) and in part because of the higher damage exposure to the airplane.

It can be done successfully, but you really need to do some business planning starting with an assessment and reality check of what you expect to get out of it.

 

[Gilbert Buettner]

unless you go for certification under Part 141 or operating under some other special reg, there is really not regulatory creature called a "school".

When I lived in Michigan, I was told that even an individual CFI providing an airplane for training was considered a school by the state, which also required a classroom and toilet facilities. I never verified that. As an independent CFI, I never provided the airplane, and later I was employed at a flight training facility.

 

[MauleSkinner]

unless you go for certification under Part 141 or operating under some other special reg, there is really not regulatory creature called a "school".

I’m addition to state or local definitions as noted above, an independent instructor is considered a “flight school” under TSA definition.