October 2004 –
It’s 7:30 a.m. and, for the second time this week, I am out at the field on my way to the office. Cabin clean: check. Oil level: check. Windshield clean: check. No, it’s not my preflight checklist I’m reading through. Stepping back, I take one last look at N56041, my 1973 Cherokee 140, and, leave her behind for another day of flying without me.
Believe it or not, the little Cherokee gets the best end of this deal. While I work, she will enjoy what I cannot, and be treated to a few hours of what she likes best, soaring amongst the clouds and keeping her engine dry, rust free, and well lubricated.
You see, N56041 is a “leaseback” that loves to fly. With over 500 hours flown this year, she’s asked for nothing but a few oil changes and a new set of plugs. Lucky? Maybe so, but this bird is happy and needs less maintenance if flown regularly and kept in top condition.
Much has been written about the aircraft leaseback. “When the dreaded wolf’s breath blows cold upon your neck …” That description has been repeated, in one form or another, in airport diners and at pre-dawn pancake fly-ins across this country by both old and bold pilots (but not both!) who opine the pitfalls and dangers of leasing your pride and joy to the local flight school.
Maybe they were unlucky. Or maybe they just were not paying attention. Either way, I’m here to tell you that it ain’t necessarily so.
As a matter of fact, it can be downright rewarding and trouble-free. I’ve been leasing out N56041 since the day I bought her and have had two years of carefree cash flow, regular maintenance, and free flying. I’ve also come to know an awful lot of nice people—CFIs and students alike.
Most of us who love to fly can’t afford our favorite hobby. When I first proposed purchasing the little Cherokee (our first), I had just earned my ticket. It was hard to keep a straight face while I explained to my better half the many benefits (and few detriments) to purchasing an aircraft. “Uh … honey, I have an investment idea,” I said, biting my lip and holding back a little grin.
Popular Leaseback Myths
1. The wear and tear on my aircraft isn’t worth it. The average Piper owner flies less than 300 hours per year. Many fly less than a hundred. Aircraft engines were not designed to sit unused, for long periods of time during which they surrender to moisture, rust and corrosion. My 140 likes flying, and its performance has actually improved since I started leasing. When I purchased N56041, the preflight inspection showed compression in the mid-to-high 70s for all four cylinders. At the last 100-hour, all four were still good—but now they were just about at 80. All of them.
2. Renters will abuse my aircraft. The many abused rentals on flight lines throughout the country would seem to support this myth, but it doesn’t have to be this way. By making my face a regular fixture at the field, getting to know the instructors and the students, and by putting in regular maintenance and clean-up time, my aircraft looks about the same as it did the day I put it on the line.
3. You can’t make any money leasing your aircraft. Leasing an aircraft is a business, like any other business. While many a pilot has lost money on a leaseback deal, it doesn’t have to be that way. By closely monitoring expenses and forming a close partnership with your leaseback partner (FBO) and mechanic, a pilot owner can make enough money to fly for free and pay the insurance, the hangar costs, and all of the routine maintenance including the added expense of tires, oil, and inspections.
4. The insurance is too expensive to make any profit. Yes, insurance to rent your aircraft to low-time students can be expensive—up to five times as much as the normal hull and liability insurance I carried before. For my 1973 Cherokee, valued at $40,000, I pay about $450 a month for full coverage. It takes more than 13 hours per month in rentals to make that money back—not a problem given the 50-plus hours per month N56041 flies. You can save a little money if you choose to rent to only IFR or Commercial students who are working on advanced ratings, but that will limit your customer base and reduce the amount of time you will be able to rent your aircraft.
5. You’ll never get to fly your own aircraft. This is where the right FBO really matters. At B&B Aviation, where N56041 lives, owner and A&P Bob Fenner bends over backwards to accommodate my schedule. In order to keep my customers happy, I try to book time in advance just like any other renter, and avoid “bumping” people unless it’s an absolute emergency. Because of the arcane laws of insurance and aviation, I must “rent” my own aircraft from B&B, but it is then credited to my owner account as revenue received. It’s a wash in the end, but the process is required by the insurance company and so, like all other insurance headaches, we live with it.
6. Too many maintenance problems will occur. There are probably numerous leaseback airplanes out there that are poorly cared for and that would have trouble passing an annual. Not this one. One of the advantages of leasing your aircraft to a respectable FBO is the 50-hour inspection. B&B’s owner and A&P, Bob Fenner, gives our Cherokee a detailed inspection at each fifty-hour on the Hobbs and performs a complete annual at each hundred-hour. Sure, it costs a little more, but it’s well worth the peace of mind when I fly with my family, as well as for the safety of the students and CFIs that rent her. Any maintenance squawks are written up after each flight, and Bob gives me priority service. A parked airplane generates no revenue, and Bob knows that.
Now that I’ve dispensed with the most popular myths, I’ll bet you’re ready to run out and sign up at the nearest FBO. Not so fast. Here are a few ground rules to live by that will help ensure a carefree leaseback experience.
Ground Rules for a successful leaseback
1. Select your FBO partner carefully. When searching for an FBO partner, you should concentrate on finding one that will value you as a partner. A large flight school with 25 Cessna 172s will be unlikely to care much about your needs, where one with a few 152s and just a few Cherokees would be anxious to have you on board. A few dollars more at a large FBO may not be worth it if you want flexibility in scheduling and attention from the A&P when you need it.
The biggest advantage of a smaller FBO? Less rental time. Sound contradictory? The trick here is to find an FBO that will care for your plane and keep it flying and happy, but to not over-fly it to the point of abuse. My Cherokee loves flying a few hours each day in the winter—just enough to keep her dry and warm with a fully charged battery.
Once you’ve selected a few FBOs, interview their A&P and make sure you’re comfortable with his or her abilities as well as their temperament. You want this person to genuinely care about your aircraft, so this is particularly important. My A&P always does what is right for the safety of the aircraft and its pilots, and he provides good counsel and advice on work that should be done before the aircraft starts complaining.
2. Treat your leaseback like a business. Too many pilots drop their most expensive toy off at their local FBO and forget about it until they want to fly. Big mistake. Spend time at the field watching after your aircraft. Pay attention to paperwork, insurance, renters’ logs, maintenance logs, and every dollar being collected and spent in your name. Insist that your A&P address even minor squawks—they have a way of turning into major ones with a lot of use.
Did I mention insurance? Pay close attention to your policy, and check to be sure that it is in force every month. Even though you may have incorporated in order to protect yourself from liability, the last thing you need is an incident without insurance coverage. Trust me on this one.
3. Don’t own your own plane—at least in your name. There are a lot of good reasons to start your own corporation, but liability protection is the only important one. Flying airplanes is inherently unsafe, the saying goes, and accidents do happen. When one does, people are usually distressed enough (sometimes with good cause) to go after the manufacturer, the owner, the mechanic, the fuel company, the oil company, and the last five people to blow on your airplane as they walked by.
By creating a company in the form of an “S Corp” or a Limited Liability Company (“LLC”), and then purchasing the aircraft through that entity, you will have legal protections that just do not exist for individuals. Depending on your state of operation (not state of incorporation), you may have more or less protection than we do here in Michigan. In either case, the salient point is to not lose your house if something should occur.
I’ve often read about the advantages of incorporating in Delaware or some other magical place that will save me millions and shield me from all liability. In my case, there was no benefit to incorporating in any of those places—as a matter of fact it ends up costing me more (because of “foreign agent” fees), not less than if I had done it in Michigan. You will have to pay the sales, or franchise, tax in the state in which you operate the aircraft, so you may as well incorporate there. In my state, the taxman prowls the airstrips looking for aircraft registered in Delaware, and then sends you a bill. Nice.
4. Keep your customers coming back. The threshold for customer satisfaction is pretty low in the renters’ market. Students seem to be used to old run-down planes and don’t always expect a clean, well-maintained aircraft. With only a little effort, you can delight your customers, increase your rentals, and even encourage pilots to take better care of your aircraft. Twice a week, I visit the field to clean and inspect the Cherokee.
Here’s my checklist: Interior vacuum, check/add oil, clean windshield, clean the seats and glareshield, untangle seat belts, remove water bottles, pencils, and other trash, wipe off oil and chafe from the cowling, and reset the radios and transponder to the most common local frequencies. Once a year I go through and repair or paint the plastic trim throughout the interior.
During my regular visits to the field, I often see the first students of the day and have a chance to chat with them about the performance of the aircraft. This also gives me an opportunity to listen to some of their suggestions for improvements. After making modifications or improvements to the aircraft, I go back and ask them for their feedback. What worked? What didn’t? Will modifications cause them to rent more? All of their answers are recorded in my log and stored away for future improvements.
5. Make it perform. Last summer, during one of those early morning preflight chats, our Chief CFI, Charlie Cone, commented that he would recommend the 140 more often if the days weren’t so hot and humid. You see, here in Michigan, our summer days really affect climb performance, and he was uncomfortable with the climb rate of the little Cherokee. I knew then that an investment in performance was worthwhile because it would translate into more rentals.
After much research on Piper modifications, the answer was obvious. I invested in a PowerFlow Systems tuned exhaust and a set of Hoerner-style wing tips from Met-Co-Aire. The tips went on first, installed by our A&P and owner Bob Fenner, and added close to 100 fpm to my climb rate on a hot day.
With that mod in place, I flew to Sun ‘n Fun with my 11 year-old-son Dakota (a forgiving seven-hour flight with a strong tailwind) and stopped off in Daytona to have Vic at PowerFlow do a flawless installation of the latest tuned-exhaust system for the 140. Wow! Robin Thomas, founder of PowerFlow Systems (www.powerflowsystems.com) and its sister company, Laminar Flow (www.laminarflow.com), is really on to something with this product. The improvement in performance is nothing short of amazing. Climb rate increased close to 300 fpm, top speed increased five knots and fuel consumption went down at least one gph.
The real result for my business? Rentals of my aircraft have more than doubled since May, and my customers couldn’t be happier. It was well worth the $4,000 investment in modifications to improve the performance of 56041.
Art Mattson’s (www.pipermods.com) 160HP STC (A.M.R.&D) will probably go in at TBO time, but until then I’m pretty happy with my investment thus far.
6. Put some away for reserve. The rental fees your aircraft generates should cover most maintenance and repairs, insurance, and simple upgrades to your aircraft as well as some free flying time for you. Engine overhauls are a different matter. For the O-320 that spins in your Cherokee, you are looking at least ten thousand dollars, sometimes much more.
The answer? Create a reserve account, in the name of your business, for accumulating the funds needed at TBO. My aircraft fetches $75 per hour wet, $35 of which comes to me after insurance, hangar, and maintenance fees. For a 2000 hour TBO, that means putting at least $5/hour into the reserve fund for each hour flown—rented or otherwise. That translates into roughly 6 percent of each rental hour that goes directly to the reserve fund. Do yourself a favor and open the reserve account right now to avoid a huge lump-sum payment in a couple of years.
7. Know your CFIs, students, and renters. I make it a point to meet all of the CFIs who are using my airplane and try to build relationships with each one. This gives me an opportunity to hear firsthand about performance and maintenance issues, and also makes the instructor think twice about how he or she treats the aircraft. I meet many of the students on my morning visits to the field, or on some of the “spot visits” I make when I happen to be near the airport.
Knowing that the owner is a frequent visitor keeps the FBO, CFIs, and renters on their best behavior and helps keep N56041 in top condition.
So, here I am again. It’s 7:30 a.m. and, for the third time this month, I’m out at the field to inspect the Cherokee. Cabin clean: check. Oil level: check. Windshield clean: check. Stepping back, I decide to run through the entire preflight, climb in, and leave the stress and strain of the earthbound world behind as I taxi out and roll down runway two-seven.
Jeff Dalton is a technology consultant and author who lives in southeastern Michigan. He is an instrument rated pilot and flies out of Oakland Country International Airport (KPTK). He can be reached at: jdalton77@comcast.net.
