Risk of share ownership and depreciation

[The500man]

I'm looking at buying a share and could do with some expert help!

I've been thinking about how much the share may be worth in a few years if I decided to sell it again, or to put it simply how much I should expect it to depreciate. I suspect it depends on the actual type, but is there any general convention for estimating this kind of thing other than trying to find another example that has more hours on it, or is slightly older and in a similar state to compare?

What really determines the value of an aircraft? Is it just airframe hours/ condition and what time the engine/ prop has left or am I looking at this too simply?

I've been advised to get the aircraft checked over by an engineer before buying which sounds like a good idea, so I'll definitely do this.

In terms of insurance, I've found out what the minimum hours required on type are and what the TT required is, and this is fine for me, but I wonder what does aircraft insurance actually cover? If I own 1/5th of an aircraft how much risk is my 1/5th exposed to, if lets say someone in the group prangs it? I'll of course ask this and find out for sure before comitting myself but it would be nice to have an idea what to expect now.

I'm planning to budget a set amount each month to fly on, and will carry it forward if the weather is crap or whatever, so this should keep the cost per hour under control taking into account the monthly fee.

Is there anything else I need to consider? Any advice is welcome. Thanks.

[stickandrudderman]

The share is worth what the market will stand at the time. Lots of groups think that the share value is fixed because until recently there wasn't much in the way of depreciation on a 30 year old piper/cessna etc.
Things are different now and the share value has to be thought about very carefully, which I guess is why your asking questions.
Broadly speaking you should define the value of the aircraft in the current market and then divide that by the number of share holders.
However, some a/c are not popular and selling a share may be difficult which might be useful in the negatiation process. Of course, you're then in the same boat should you decide to sell again.....
Some groups have the share value written into their T&Cs, but I can't see how this can be enforced.
Quite apart from the money you should indeed have the aircraft thoroughly checked out by an INDEPENDENT engineer, not the one who's been signing it off for the last 20 years, and you should meet all of the other members/shareholders to find out if you like them and they like you.
In the past I've been tempted to buy into several different groups but none of them could satisfy me that the group was being well run. There's usually one member who does most of the work and the others just PAPO. (work it out).
Just my tuppence worth.

[AdamFrisch]

I see so many inflated share prices these days, it's almost comical. Aircraft prices appreciated for a very short period of time due to lack of product, good times and various other factors and it seems that many share holders or sellers still think that's the case. I particularly see it in the valuations of overhauls.

It used to be, you bought an aircraft for £30K and then overhauled the engine for £20K and could turn around and sell for £50K. It used to be like going to the bank and you could even finance against engine times. That won't happen anymore and anyone who tries to sell you that spiel, is out of touch. You won't get back what you put into it in maintenance or avionics - it's just that simple.

This makes it a buyers market for sure, but so many share holders and sellers are living in cuckoo land it can still be hard to get through. You can almost buy an aircraft cheaper than most shares I see advertised.

[Monocock]

Adam is quite right about the fact that many people are asking far too much for their aircraft/aircraft share in this climate.

Find something you like, make sure it is popular as a type, get it checked by an engineer and then (assuming the group is asking a lot), make an offer that is what you genuinely think it is worth. If it's 15% below what they want don't worry. They might just be at the point where they are on the brink of accepting their aircraft needs to suffer some depreciation. In a group that means all members accepting that drop so don't expect a warm reception!

[Rod1]

What sort of thing are you looking at? A light twin with old US engines is a completely different proposition from a Jodel 120 or DA40.

Rod1

[Trinity 09L]

There may also other factors to consider, the type of aircraft, location (to where you live) - tarmac or grass, availabilty at weekends, facilites at the airfield (ILS), and the enthusaism of the group. In our group we do insist the share value goes throught the accounts - but that may not stop " a side deal/discount" we are not aware of. :ooh:

good luck

[gasax]

If you are buying an old CofA machine then the maximum depreciation on your share price could be 100% - all it needs is a major overhaul or repair being required and the aircraft is going to be worth less than the repair. That is the unfortunate fact of life, which many groups seem to be unable to grasp - until they find themselves in that position.

With a permit aircraft - so long as it is not that new, the worst case depreciation would be 50% if the same situation occured - because worst case the parts of the aircraft could sold off.

But asking how much a share might depreciate needs a fair bit more detail. For the usual 10 to 20 member group share prices are only going to be a couple of thousand and if you have to worry about that ..............

There is a share in one of the local 172 going locally - grossly over priced at the asking price and a group without a large bank balance. If you bought it you would suffer an immediate 50% depreciation. The share needless to say has been available for a long time......

[Rod1]

To put some more detail on the previous post regarding a permit machine. There is a Jodel 112 share for sale in my local area for £2700 / 40 per month an £7 dry (1/5th I think) (she will burn about 18lph of mogas). Depreciation risk on that would be very low assuming it is all in good order. In many such groups the bank balance and engine fund will be a fair proportion of the share price.

Rod1

[IO540]

The things to watch out for on syndicates has been done to death on this and every other pilot forum.

The biggest issues seem to be

- You have to get on with the existing members. Pick hand a dozen people you know, at random, and ask yourself whether you would go into this deal with them. Sometimes the answer will be easily yes but in most cases you will be hard pushed.

- Most syndicates have "issues", usually concerning somebody taking the micky e.g. doing a lot of flights of a particular type and pocketing the duty drawback on each one.

- Most syndicates have a "skint" member or three who, at best, refuse to agree to improving the plane. Most syndicates have member(s) who refuse to agree to nonessential repairs e.g. fixing the DME. Duff avionics is a major thread in this game.

That said, the best value for money flying will be a syndicate. Renting is usually no good for various reasons. Buying your own is the best (I am a sole owner) but you need more money and you need to fly often, not just for your own currency but to stop the engine going rusty inside :)

Aviation ownership involves a steep learning curve, not least because there are so many dodgy people in aviation businesses and it takes a while to suss out who can be trusted. This is why the smoothest running syndicates I know have 1 person who knows the ropes and looks after everything, in the same way that a sole owner has to know the ropes and manage his maintenance pro-actively otherwise he is pretty sure to get shafted.

Shares tend to be overpriced, sometimes by a factor of two, relative to the value of the whole plane, simply because they are more affordable :)

All kinds of dodgy stuff goes on with share sales. Often, the departing member agrees to not sell below a certain figure (otherwise everybody else's shares get devalued) but if desperate for cash he sells anyway and p*sses everybody off.

If you can start your own syndicate, with a group of people you know and trust, that is the best way.

[Dan Dare]

I always tell people not to buy the share unless they can afford to lose the money (all sorts of reasons you may not have a share left to sell and not all of these are insurable). In reality an old aircraft shouldn't really depreciate and may even go up in price (numerically if not in real terms), but you have to be aware that you could loose it all.

[Unusual Attitude]

There is a share in one of the local 172 going locally - grossly over priced at the asking price and a group without a large bank balance. If you bought it you would suffer an immediate 50% depreciation. The share needless to say has been available for a long time......

I'd be careful about what your saying there Gasax, if its the Green and White C172 group I think your referring to they actually have just about all the money required in the bank to replace the engine when its due (probably not for a couple of years yet). FYI there has been a share advertised for some time as there have been a few members leave and new ones join over the last 12 months as is natural with any group, especially in Aberdeen where people frequently get re-located with the oil industry. There is one new chap just passed his check flight to join this week and one share remaining for sale (chap relocated overseas) with another potentially interested party already.

As for being overpriced, I'm not sure how much you'd value a nice IFR equipped C172 with long range tanks and the cash in the bank for a new engine if / when required ? Personally I'd say its not bad value at all especially given the other options locally. In the 10 years of being in that group never once did I have to put my hand in my pocket and it was always a very well maintained and cared for aircraft with very little downtime.

[The500man]

Thanks for the replies guys. You've made me think of a few things I will have to ask and find out about!

It sounds very much like an aircraft is worth pretty much what people are prepared to pay for it, which is more or less true of any item, except with items like cars there are more to compare. The aircraft I'm looking at isn't common but I can see other examples of a similar age selling for about the same as the cost per share x shareholders of the one i'm considering, and since it is already 30 years old maybe there wouldn't be much in the way of depreciation.

I've checked G-INFO and it is on a EASA C of A. I'm not yet 100% sure but I think it is maintained (at least partly) by a well known and respected maintenance company. How though should I go about getting it checked out by an independent engineer? How much can I expect to pay for an inspection? Are there organisations that specialise in this kind of thing?

I'm actually considering financing the share through a loan, (I can hear some virtual gasps!) but it would take me a whole year to save the cash to buy it otherwise, and time is money. If I were to rent a similar aircraft it would cost twice as much per hour, however with the monthly considered it would be about 65-70% as much as the rental price. Writing this is making me think now! Should I include the cost of the share broken down per flying hour over the likely period of ownership and number of hours I plan to fly? If I lost the share money I would actually be about 30 mins of flying a month better off renting over two years instead of buying? :confused:

[IanPZ]

the500man...can I ask, are you looking to buy into a syndicate because you have a fair amount of experience and want a share of an aircraft, or have you just finished learning, and are now looking to become a part-owner?

The reason I ask is because sometimes the desire to own can override the calculations. I know you say if you were to lose your initial buy-in, then it would only amount to 30 mins a month flying. I assume from that you know how much flying you think you'll be doing.

Just a suggestion, is the cost for renting instead of buying in prohibitive for a 6month or year period? If not, then perhaps spend the next while renting, and see if your expectations meet reality. Remember, its far easier to reassess and buy into something in 6 months time than to discover you don't use a share anywhere near as much as you thought you would, and then be saddled with monthly costs until you can sell the share!

And can I also ask your permission to run off at a tangent (by all means say no and I will launch a different thread). What is the general feeling out there to schools that sell shares in a plane that they maintain, use for an agreed amount of time per week for teaching, and give you the option to buy in and out of the syndicate with a clearly defined rate of depreciation? Ta. IPZ

[Maoraigh1]

I've been in the same group since January 1990. My Jodel DR1050 share cost me £1600, the same as a 9 month old repossesed Lada at the Glagow car auction. (that was how I had enough cash to buy the share.) The Lada sold for £400 four years later. I flew 8.9 hours in July, but hope to do more in most months.
The big negative in group ownership is when things go wrong. You can save money with a permit aircraft - but you've to work for it.
When, in July, an exhaust cracked on an exposed strip, 600+ ft altitude, it would have been nice to notify the hire company, and go home. The man hours we put in, at £25 per hour, probably came to about 25% of the value of our shares.
And if you DON'T fly a lot, it's an economic disaster.
I calculated I needed 60 hours to write off my investment in 1990, on savings over hiring. I've done over 1000 hours in the Jodel's the group has owned.

[stevelup]

I've had my share less than a year and flown 50 hours in it so far. The saving I have made over club hire rates has already paid for the share purchase.

[gasax]

Well The500man I would under no circumstances borrow the money for a share - that simply adds too much risk - what happens if a large repair bill lands? We threw people out of the group for not paying their share and given that flying is pretty tight knit sort of hobby it is a bit like being given the 'black spot'.

Given your concerns of depreciation of the value of the share that either means there is a lot of money involved, or money is pretty tight - neither is a good idea to borrow for.

As for getting your own engineer to check out the group wned aircraft - not a good way to introduce yourself to a social grouping and certainly in the two groups I was involved with, we would have told you to 'sling your hook', probably in a rather less polite way! And it will cost at a minimum around £300 - it is money well spent?

If you are that worried about the value of your 'share' might I suggest a 'non-equity' group, a little cheaper than hiring through a club (or it should be otherwise there is no point!) but probably more expensive hour per hour than a share - if you compare like for like.

[Justiciar]

Owning a share is not necessarily about saving money. When I was treasurer of our PA28 140 group I did an analysis of expenditure over 5 years and calculated the hourly rate. It was little different from what then would have been the hire rate at the local flying school. Having said that, share ownership or outright purchase is usually the only way of substantially reducing costs if you want to fly something really cheap to maintain and run, ie. on a permit, such as a Jodel or old Cub, where you will pay £35 to £40 per hour and a few £100s a year in maintenance.

What it is about is convenience, cudos of owning an aircraft and being in control. You have to remember though that when you buy a share you also acquire a liability. If the engine lets go the week after you buy in then you are liable for your share of the cost. So, it is worth checking the finances. I think demanding an engineering inspection is difficult to justify and frankly if you do not have trust in your prospective members to have been properly maintaining the aircraft you should not be joining. Some discrete enquiries around the home field should give you an idea of how the group is run and whether there are issues.

The sale price of traditional aircraft (C of A stuff) has taken a hammering due to recession, maintenance costs and now uncertainties over the future of 100LL avgas. This though is just the time to buy a share. I paid £2,500 for a share in a PA28 180, which would value the aircraft at £20k! Five years ago it would have been worth £50k to £60k. Split amongst 8 members the fixed costs are very manageable giving me a lot of aircraft for the money. If you are paying what appears to be over the odds then the only valid reason for that would be a healthy engine fund, otherwise walk away. I personally think that old aircarft (the PA28s and C172s) have a future as group aircraft, though I would not go into anything now which might not be able to run on 91UL avgas!!

[Unusual Attitude]

As Gasax states above, if money is that tight then you really want to be in a better financial position before joining a group. I've been fortunate enough with my C172 share in that once I'd joined, in 10 years I never had to put my hand in my pocket again, this was a very long established and well run group who knew what they were doing and budgeted accordingly with the hourly and monthly fees.

Having said that, I was also a member for a while of a far less well run group who’s structure was more aligned with one long standing members flying habits resulting in the rest of the group pretty much bankrolling his flying. I wont go into details but in that group I had to put my hand in my pocket repeatedly and could never get use of the aircraft at weekends as said individual was taking it around the airshow circuit and getting free fuel so he didn’t have to pay to fly. (The hourly wet rate had NO engine or maint fund built in, you just paid for the fuel you used.)

As for turning up with an engineer, you would indeed be shown the door, if its on a CofA it should be pretty well maintained. For a permit aircraft if your buying a bigger share 1/3 or 1/4 then its probably getting more worthwhile as your exposure is greater and the maintenance is less rigorous. The most important thing to ask with any share I'd suggest is engine hours, TT / SMOH / STOH and the engine fund that goes with it. You don’t want to join a group with an engine running 'on condition' and no engine fund in place otherwise you could find yourself liable for a share of a very big bill.

As for the purchase price, chances are if its a well maintained aircraft and a well run group with good funds then when you come to sell you'll get the vast majority of your money back. In the meantime however you'll be enjoying much cheaper flying than having to rent with greater freedom about when / where you can fly....

[The500man]

can I ask, are you looking to buy into a syndicate because you have a fair amount of experience and want a share of an aircraft, or have you just finished learning, and are now looking to become a part-owner?


IanPZ I'm not sure I'll ever finish learning... but to give you an idea, I have 95 hours which includes a summer in a non-equity flying group and more recently an AOPA basic aeros course.


The reason I ask is because sometimes the desire to own can override the calculations. I know you say if you were to lose your initial buy-in, then it would only amount to 30 mins a month flying. I assume from that you know how much flying you think you'll be doing.


I am budgeting for a minimum of 3 hours per month. The cost of renting at the best rate I can find is £8100 pa. The cost of the same in the share is £5760. So yes I could afford to rent. hmmm yes my maths in my previous post isn't looking quite right. I would have to fly for 5 years to write off my share entirely! To save you guys from doing the multiplication the share price is £12k.


As for getting your own engineer to check out the group wned aircraft - not a good way to introduce yourself to a social grouping and certainly in the two groups I was involved with, we would have told you to 'sling your hook', probably in a rather less polite way!


gasax, that's an interesting point of view. So you would expect a new member to your group to just accept everything was in good working order with no likely surprises just around the bend?


As for turning up with an engineer, you would indeed be shown the door, if its on a CofA it should be pretty well maintained.


Justiciar, I was thinking the same, but the advice I was getting was to get it checked out anyway. It sounds like this could be a problem if most group members share gasax's view.


I would not go into anything now which might not be able to run on 91UL avgas!!


Yeah this is another possible problem!


In the meantime however you'll be enjoying much cheaper flying than having to rent with greater freedom about when / where you can fly....


Unusual Attitude, this is precisely why I wanted to buy a share.

I'm thinking now that financing a share to get cheaper flying and to get more freedom and flexibility, although it would save me 25% (if nothing went wrong) it could also end up costing me the same or even more than just renting if there are any unforseen bills or damage etc. that the insurance doesn't cover. I still don't know what the insurance does cover.

I have a while to consider this a bit more before making my final decision though. The aircraft I'm looking at by the way is a Pitts Special.

[gasax]

If youare paying £12k for a share in a pitts it is either a large proportion of
a single seater or a quarter or perhaps fifth of a 2 seater. What happens when the engine has a glitch? With far fewer people to share the cost and the much higher likelihood of an aerobatic engine needing attention your calculations are likely to take a real hit.

If you insist on an inspection you are implicitly questioning whatever the group have told you - as I said not a good way to start a relationship with people who actually you have to get on with.

Bluntly you would be better off getting some experience of aircraft part ownership in a lower risk environment. Then you would not need to ask these questions and make these contrived calculations. You seem to be very keen on borrowing your way toward your 'dream aircraft' - which is not a smart thing to do. Having had to throw people out of a group because they could not pay their share of the costs causes a lot of bitterness - you never want to find yourself in that position.

[Monocock]

As for getting your own engineer to check out the group wned aircraft - not a good way to introduce yourself to a social grouping and certainly in the two groups I was involved with, we would have told you to 'sling your hook', probably in a rather less polite way! And it will cost at a minimum around £300 - it is money well spent?

I find that amazing. In the past 20 years I have owned 8 different aircraft and have had each and every one checked by someone I trust the opinion of. Are you saying that a group would black ball a potential new member if he turned up with cash for a share subject to an engineers inspection?

If so, regardless of whether it has a current C of A or not, I would find that very arrogant and would refuse to pay for the share.

What you are saying is "it has a C of A so how dare you suggest it might not be airworthy".

Ignorance is bliss I suppose.....:ugh:

[Unusual Attitude]

No offence but flying a Pitts with only 95hrs is perhaps running before you can walk. If you want to hour build, using a small twitchy taildragger to do it isn't the wisest move as you'll find yourself far more weather limited than in a Cessna or Piper.

[stickandrudderman]

If you insist on an inspection you are implicitly questioning whatever the group have told you - as I said not a good way to start a relationship with people who actually you have to get on with.



Only a group with something to hide would take such a stance.

I find that amazing. In the past 20 years I have owned 8 different aircraft and have had each and every one checked by someone I trust the opinion of. Are you saying that a group would black ball a potential new member if he turned up with cash for a share subject to an engineers inspection?

If so, regardless of whether it has a current C of A or not, I would find that very arrogant and would refuse to pay for the share.

What you are saying is "it has a C of A so how dare you suggest it might not be airworthy".

Ignorance is bliss I suppose.....:ugh:

I couldn't have put it better myself.

I once bought a share in an aging plane but I'd had it inspected by an engineer who was very experienced on this type. He identified several issues, one of which was a paperwork issue and would have cost less than £100 to rectify but until it was done the aircraft was quite conceivably flying illegally, despite the fact that it had been signed off by the same licenced engineer for the last 10 years or so. The other was an apparently innocuous engine problem. The seller was under the impression that I would be a great asset to the group as the membership had been pretty static for many years and they and the aircraft would benefit from a fresh pair of eyes and new enthusiasm so I went ahead and bought the share.
It turned out that the group were not at all interested in some newby coming along and trying to haul all of their heads out of the sand and they refused to acknowledge any of the issues raised.
We argued and over the next few weeks it became apparent that the aircraft was in fact quite dangerous, but still they resisted.
Eventually the embarrased chap who'd sold me the share very kindly gave me my money back. Very soon afterwards two of the "non-existant" defects had been rectified but the engine problem continued to be ignored. Three years later they finally had the engine inspected and it was found to be beyond economic repair.
So, go ahead and have an INDEPENDENT inspection, and any group that doesn't like it shouldn't get your money. Remember, I was very lucky to be dealing with a seller of integrity.

[The500man]

Okay so I've now seen it, and flown it, and have authorisation to talk to the engineers and look at the log books. I've also spoken to an owner with extensive experience of the type about costs and things to be mindful of. (I've also discovered my headset is almost completely useless so I'll have to invest in something with more noise cancellation, perhaps the Clarity Aloft.)

Going back to the share value. It would seem that the price over-values the aircraft slightly based on advice I've received about sale values over the past few years, but there would seem to be reasonable demand for the shares so I'm not particularly worried about it.

Before I look at the log books can you guys give me some tips on what to look for other than checking the total times?

[Maoraigh1]

Get someone to go over their plane's logbooks with you, explaining how they work. It needn't be the same type.

[IO540]

Before I look at the log books can you guys give me some tips on what to look for other than checking the total times?

You could start by looking at gaps in the flying record. Anything more than some weeks means the engine may have rust inside.

A few months or more, take a walk unless the price is discounted by the cost of an overhaul, or the owner is willing to pay for a cylinder pull and a borescope of the cam etc.

Differences in the prop hours and the engine hours may indicate a prop strike, not accompanied by engine inspection. In that case, discount the price by the cost of an overhaul, or take a walk :)

Check serial numbers of engine and prop match the long term records.

This may be asking a lot but if somebody has flown it as his personal plane, his personal logbook should match the maintenance logbooks. If not, he is not logging flights in the latter; the obvious incentive being to reduce maintenance costs.

[FlyingGoat]

If I was a group member I'd welcome an inspection. If a prospective member arranged an engineer's inspection at their cost, the result would benefit the whole group, at zero outlay to anyone else.

If there was a problem, whether mechanical or paperwork, surely it's better everyone knows about it?

[Genghis the Engineer]

You could start by looking at gaps in the flying record. Anything more than some weeks means the engine may have rust inside.

Possibly true, but I doubt very much you'll find any syndicate aeroplane without those occasional long gaps.

G

[silverknapper]

Lots of good advice here to which I have nothing new to add. Except to back up the calls for an independent engineering inspection. Any group hostile to this will be hostile to anything else they deem to be a departure from their normal practice. And as a potential shareholder you should be concerned about such stick in the mud attitudes.

Stickandrudders experience is gold plated for you. Pay it close attention! I have a good friend who recently bought in to a local group. He has a mechanical engineering background, highly experienced and with loads of flight time also. The aircraft in question has one or two snags everyone seems happy to live with even though one of them could really bite them. When my friend questioned this he was basically told to wind his neck in. By the old guy who has been in the group for years and 'likes to look after the maintenance'. The fact he has someone with a great deal of knowledge he could draw on doesn't bother him.
And yes it's on a EASA C of A with full maintenance by a 145. Hence an independent inspection is vital. As is acertaining if there are any stubborn old gits who value their own pride (and purse) before safety.

[IO540]

with full maintenance by a 145

Oh yeah..................... ;) Must be good.

Possibly true, but I doubt very much you'll find any syndicate aeroplane without those occasional long gaps.

I would think you are less likely to find gaps on a group plane than on a single-owner plane. There are many single-owner hangar queens.

The thing is that you are paying five figures of your own money...