Flying Group Proposal - Opinions/Criticism wanted!

[Oxeagle]

Afternoon chaps,

I would like your opinion on a proposal for a flying group that I have been looking at: The flying group is set up as a private limited company with six shareholders (members) and based around a basic inexpensive but good condition SEP aircraft (thinking perhaps a Robin HR200, or maybe a PFA type). The primary purpose of this venture would be to help low hour pilots who do not have the capital to invest in a share scheme build hours cheaply. The company will have purchased the aircraft via an aircraft loan such as the type that Lombard offer. This group would be no-capital investment.

Based on the breakdown of costs below, the group would charge £190 per member per month (£13,680 raised in total) and all the member pays for is the fuel that he uses and £5 per hour towards an engine fund.

£190 seems like a lot, but if a member does say 6 hours a month thats £190 + the cost of 6 hours fuel (say 25l/h, so £30 per hour fuel) and the £5 per hour engine fund, so it works out at £67 per hour wet, which is a good price considering that the members havn't had to buy a share! If a member does 10 hours a month, this is reduced further still to £54 per hour wet.

To keep good availability, the group would initially be limited to 6 members/shareholders, but there could also be the option of renting the aircraft out to suitably qualified non-member pilots for around £85 per hour wet to help contribute towards costs.

Cost Breakdown (based on 250 hours a year and worst case costs):

Aircraft Mortgage Repayment(£30,000 over 12 years and 5%APR) - £2,625
Annual - £3,000
50 hr Checks - £2,500 (£500 each)
Hangarage - £2,000
Insurance - £2,000
Company admin costs - £250
Oil, cleaning equipment - £100

Total Costs = £12,475 per year

Total Spare = £13,680 - £12,475 = £1,205 (+ the engine fund of £5 per hour, so £1,250 total engine fund per year on top)

These cost estimates are worst case, so there should be much more capital left over at the end of the year to act as a slush fund.

Ok, so that's my idea. I would welcome any comments/criticism, and would like to know the levels of interest for a venture such as this.

Many thanks,

Ox :ok:

[robin]

You will be lucky to get 250 hours a year. Further, the sorts of pilots you are talking about probably won't fly as much as you think (they cost each individual flight and don't average it out....) or have the monthly costs to put aside payment and flying.

In my group the average flying on a much cheaper aircraft is around 15-20 hours per person.

[Oxeagle]

robin,
What aircraft are you refering to by a 'much cheaper' one? The whole idea behind this venture is that the more you fly the less you pay per hour, it wouldn't make sense for someone to join a group like this and only do 2 hours per month. If people wanted to do that fine, as all of the fixed and variable costs are already covered (minus fuel) so it's not costing the group anything if it's not flying. I myself would intend to fly at least 10 hours per month, costing me only £54 per hour. Compare this to renting out a clapped out old Cherokee 140 or 152 for £110 per hour. I know which one I would choose!

Ox

[IO540]

Oxeagle I have sent you an email.

I agree with Robin on the hours. Very very few people fly 50+ hrs a year. That's a pretty significant budget.

How would you measure the fuel each person used? You need to be accurate on that, which tends to imply a flowmeter and one can easily tamper with the totalised figure on those. It's also not a cheap thing to install.

This is not to say that one could not build a group around a particular plane. I have often wondered why there aren't more groups built around high-end piston IFR tourers, for example (the likely answer to that one is that pilots with the commitment to get an IR or whatever are not that numerous, and a lot of them have enough to buy outright).

A zero-equity group could be regarded as inviting zero-commitment pilots (human nature really), and there is no other area of human endeavour in which so many people put so little money where their mouth is.

So, if I was setting up a group, I would start at the other end: put together the pilots first. And get them to buy a share each. If you don't find any, you can be sure as hell you would not have found them later. Pilots can add up what flying will cost them, they know how much they will fly (whether they will tell you up front what they think they will clock up is a whole different question) and most people with the ongoing flying budget of say £5000/year can dig up the capital to buy a share.

A zero-equity group, unless it starts off with a clear business plan to make money (and send corporation tax cheques to the Revenue) is also vulnerable to attack on the Director(s) of the limited company for Benefit in Kind, which is what I sent you the email about.

[EGCC4284]

http://www.aircraftgrouping.com/

No Equity Aircraft Groups
For people who don't want to pay out an initial sum of money to buy a share in an aeroplane, but want all the advantages which come with group flying why not try one of our no equity groups. It's a simple way to operate at cost price per hour with a slightly increased monthly payment. In these groups we can offer Cessna 172 or PA 28 aircraft at a cost price of £60 per hour wet (inclusive of fuel)

Fly both of our immaculate Cessna 152's for just £45 per hour wet (inclusive of fuel)
Monthly standing charge to use both aircraft is £70 per calendar month (no further liability for any bills)
Online Booking System

http://www.aircraftgrouping.com/no_equity_cessna_152.htm

[UV]

Oxeagle
Your engine fund allowance (£5) seems strange.
Assuming you purchase an aircraft with a zero timed engine (unusual?) then £5 per hour will generate only £10,000 over a 2000 hour TBO.Enough??
And what if your purchase has already done say 500 hours?
UV

[Humaround]

How would you measure the fuel each person used? You need to be accurate on that, which tends to imply a flowmeter and one can easily tamper with the totalised figure on those. It's also not a cheap thing to install.

Surely the best way to do this is for each member to buy their own fuel, submit the invoice and knock it off the hourly rate?
We use this system and it works a treat - it's never necessary to calculate exactly how much each person/flight uses, except in a general way to set a suitable wet hourly rate.

[Oxeagle]

Humaround - that's exactly what I was thinking, seems the only logical way of doing it.
UV - I chose £5 because I didn't want to add too much ontop of the fuel costs, and a portion of the saved funds can be used to make up the difference. Like I said, it's only an idea at the moment so i'm open to changes.
EGCC - your groups are based up North, correct? I would be looking to do this down South in the Oxfordshire (or surrounding counties) area, and I believe that there is no similar venture operating in this area.
cjboy - why is that so?
IO540 - I have sent an e-mail.

What about a minimal equity group (£1,000?)

[englishal]

I used to be in a group like this. However rather than charging £190 per month (i.e. a fixed monthly fee independant on how much you fly), we used to buy 50 hours / 25 hours per year, then pay that rate per month by direct debit. If you flew less, you lost the hours. If you flew more, you paid for more hours. The more hours you bought up front, the cheaper they were per hour.

One advantage with the group I was in was that they had 3 aircraft. If one was down you could use the others. We used to pay about £70 per hour (eqv. x50 / 12 per month) dry and fill up when we returned the aeroplane to parking.

One trouble with renting an aeroplane dry is that some people will try and lean the bugger out of it to save a few pence here and there, and hence engine wear and tear could be higher.

It was quite a good idea though, I got to fly far better aeroplanes than the PA28-161's of the flying club for about the same price although the £30 per pop landing at the home airfield took a chunk out if you just wanted to go for a quick spin. In that case the clubs aeroplanes were better as they included landings.

[Oxeagle]

englishal,

I did also consider such a scheme as you mentioned, but I decided to have a fixed monthly costs and just charge for fuel to try to make it more appealing to PPL hour builders (such as myself!) as the members would have to use the aircraft a reasonable amount to make it worthwhile, so the high cost per hour on low utilisation (1-3 hours per month) would hopefully deter casual fliers.

[Flyin'Dutch']

OE,

No reason why you could not work out a scheme whereby you encourage folks to fly more by making the standing costs higher and the hourly on cost as low as possible.

Have to agree with IO540 that no investment means no committment and that is probably not what you want.

People that can not or don't want to invest in an aeroplane are unlikely to be the ones that will do 50 hours per year. I would not hesitate to suggest that you make the group a fair bit bigger than 6 pilots. In the first year people fly the most in their new mount that usually tails off considerably in subsequent years.

If you double the amount of pilots you could halve the amount of the standing orders and still make the sums work.

By having some capital investment you will have a greater chance that people are committed; by keeping that amount low you will keep control and have the ability to boot out any troublemakers.

Always make sure that all your fixed costs (hangarage; insurance and annual are covered by monthlies)

Good luck!

:ok:

[Oxeagle]

Flyin'Dutch,
Thanks for a constructive response! I would like to keep it at eight members maximum initally to make sure that the aircraft has good availability. Thinking about it, perhaps it would be better to have a capital investment. However, I would want to keep the capital investment down to perhaps £1,000. Would you say this is a good figure? Also, I would consider putting entry restrictions on the group and having the other members screen any new members so that only hour builders could become the members. or maybe have the members sign a contract so that when they reach their required hours they revoke their membership, and a new hour builder is initiated into the group. Thoughts?

[Flyin'Dutch']

If you were thinking of running it as a non equity group you will have to run it on the EASA equivalent of Public Transport C of A. The same goes if you want to run it at a group where people have shares of less than 5%.

Pvt CofA and Permit means that everyone needs to have at least a 5% stake in the machine. If you have £1k shares that would mean a capital of only £8k; you are unlikely to buy anything particularly useful in the SEP class for that sort of money!

If you need to borrow the money and do something like that the lender may want to see some kind of business plan (unless you can easily service the loan from your own income without requiring any 'income' from the venture)

As is mentioned in the other post, try to find likeminded people. If your group consists of those that like to fettle the bird endlessly and do little more than have an hour every 2 weeks in the local area an hourbuilder or someone who wants to take the machine away for long trips abroad will upset the applecart!

If your main objective is to build hours and you have not identified a few likeminded folks you could do worse than trying to buy hours off someone that has an underutilised aeroplane gathering dust or approach a school to buy some serious blocks. Especially at this time of the year there may well be a few that would welcome some cashflow.

Identify what your main objective is and act accordingly.

[Oxeagle]

The company would purchase the aircraft via a Lombard aircraft mortgage, somewhere in the region of £30k. Part of the monthly member payments will cover the montly repayment of the aircraft mortgage. The main objective of the group would be to help pre-ATPL pilots build hours towards the minimums for CPL. As for the type of CofA, I havn't decided what would be best as I am just looking at the basic principles of the group - the particulars can come later.

The aircraft I was looking at for the group is a Robin HR200, although i'm open to suggestions.

[Flyin'Dutch']

If the monthlies have to cover the mortgage repayments you will likely have to make it a group where people have a share.

Otherwise:

1. you will be left high and dry if people leave the group and therefore stop paying a monthly contribution

2. folks are unlikely to want to enter a group where they contribute to paying off a loan but will have nothing to show for it when they leave.

If your aim is to build hours (how many?) you are probably better off buying a share or doing a deal as described in an earlier post.

Most hour builders have no interest in keeping their share after the deed is done and they are ready to move up the ladder.

Alternatively buy something cheap (like a Condor) fly your hours in it and then sell it on. They are cheap to buy and some of them are on a permit so cheap to maintain too, they are nice to fly (certainly nicer handling than the average spam can) and you learn to fly a tailwheel machine at the same time.

Whatever you do, bear in mind that borrowing money to save money is unlikely to pay off at the end of the deal.

[Keef]

I've been looking after the finances of an Arrow group for a long time, and agree with what my learned friends above have said.

No capital involvement = low commitment, and less incentive to look after the aircraft properly.

We have six members. Each paid one sixth of the initial price of the aeroplane, and pays one sixth of upgrades (FM immunity, GNS430, Mode S, that sort of thing). The number could have been anything up to 20 (or more on a PTCOA) but we decided six was a good number.

The monthly fee is within a spit of what it costs to keep the aeroplane sitting, airworthy, on the apron. That covers parking, annuals, insurance, GPS database updates, that sort of stuff.

The hourly (wet) rate is what it costs for fuel, hours-based maintenance, engine accrual, and a bit. So we make a profit the way I write the books. The Inland Revenue require us to write off the aeroplane "their" way, which means we make a loss the way the financials are submitted to them. Come the day we sell the aeroplane, there will be a significant capital gain to deal with.

Those who don't fly much pay a lot for the privilege of being an aircraft owner. Those who fly a lot get very good value. Everyone's happy that it's a fair arrangement.

[Dan Winterland]

A few thoughts based on my experience as a group member in several groups.

I think the loan idea is a non starter. The 190 GBP a month charge is too high. Better to get individual loans and go for an individual capital investment. What happens if a member decides he can't affiod it after 6 months - at such a high cost I don't think you will sell their share easily. And 190 will seem a lot if you don't fly it for a couple of months over winter. It will happen!

Don't charge for dry hours. As someone mentioned, someone will lean the engine to save a few pounds and cost you a fortune in early engine repalcement. This happened to one group I was a member of.

Love the idea as forming it as a limited company. I was preparing to fly one day when some sequestrators arrived to 'collect' our aircraft (as neither had a licence I don't know how they were going to do that!). It turns out that one of our members had been decalred bankrupt. The sequestrators went away disappointed when it was pointed out that the only thing this member owned was one share in the company. And it gives you better protection if something dreadful happens.

Five pounds an hour seems cheap for an engine fund. You need to divide the realistic cost of the replacement by the number of hours left on the engine of the aircraft you buy. And factor in a bit of flex. If the TBO is 2000 hrs, calcualte the cost at 1800 hours. This will prevent a nasty suprise.

[Flybywyre]

Oxeagle.................
I'm sure your plan seemed like a good idea at the time but unfortunately it is overly complicated, unworkable, and the figures don't stack up.
Why don't you save yourself a lot of hassle and grief by just going out and buying a share in something to do your hour building ?
£2-3K will get you something half decent near to where you live.
As an example you can get a well maintained IFR PA28 at White Waltham for £2k. £60ph wet and a fixed cost of £60pm, on line booking, excellent availabillity including taking it away for a week if you want. Do your IMC and night training on it while your at it.
When you've done your hour building sell it for £2200 and spend the profit on beer :ok:
(because you will be fed up with hours building by then)
Regards
FBW
PS I do realise that you may like the idea of owning and running an aircraft but that is a VERY expensive way of hours building.

[Riverboat]

I could have bet you that if you had posted what you have posted, Oxeagle, you'd have got the mixed set of replies that you have had.

Personally I think your idea is a good one - not perfect - but nothing is. It has all the ingredients in it that should allow people who want to do a fair bit of flying achieve that, and cheaply. If someone ducks out after 6 months, I think their position could be sold or given to someone else. After all, a couple of posters have suggested you just go our and buy yousle]f a share in an aircraft, yet what you are doing is making a fair number of shares available in the first place, for others to join in.

£5 an hour engine reserve is, of course, fine for a R200. Those who think it isn't don't know what they are talking about.

I would think carefully about a limited company as I am not so sure this is necessary. In fact, I would say it wasn't. A syndicate would work fine. But at the same time I can't see any significant disadvantage to have a company, so if that is what you fancy, go for it!

In fact, that should be your mission now. You have a good idea, you are clearly enterprising, you have read a lot of critical (but friendly) comments, and now is your chance to prove them wrong. Just go for it.

[Dan Winterland]

Back again, had to break off the previous post for breakfast!

.....continued.

Have a effective booking system, internet based is the best. You don't want to turn up to find the aircraft is away on the day you booked it because the guy who took your call wrote down the wrong day. And have a prioity system as everyone will want it for the weekend of the PFA rally.

A Public Transport C of A is expensive and will use up all the money you get from occaisional non group members. Also, it may add to insurance costs. You can get group deals for the members only with a minimum experience. You will also find the aircraft deteriorates faster with non group members flying it. For example, the headsets will go missing. And never ever EVER lend it to a flying school!

Chose your group members carefully. You may be mates to start with but be prepared to fall out. Your suggested 6 is a good number, 8 an absolute max in my opinion. If new group members join, get everyone to agree on them. One group I was in needed new members to help pay for repairs, this clouded our judgement and one experienced guy was taken on even though I had flown with him and wasn't happy with his flying. I was vetoed by the rest of the group and he joined. He later proved me right by crashing the aircraft. May i suggest that hours builders aren't the best syndicate members.(INCOMING!) They will hog the aircraft. Two groups I have been in had a no hours builders policy and they stayed happy as a result. Of course, if you're all hours builders and all happy with that - fine.

And to counter Riverboat's pooh pooh with my own pooh pooh (to quote General Melchett) a fiver an hour won't cover an engine. The sort of cash you're prepared to lay out won't get an aircraft with less than a thousand hours. Five grand won't get you a replacement engine. And be prepared to change it earlier than the TBO with lots of different pilots flying it. One group I was in had two engine changes in two years. That hurt!

And setting up a Limited company is cheap. It takes less than an hour and costs about a hundered and fifty quid. Each member has one share at say one pound value each, although the group value is more much than that. It gives you lots of protection, and in one group I was in it saved our aircraft from being impounded.

This is all advice from hard earned experience from being a member of four groups over 20 years. Don't be discouraged, it's worthwhile. But I can guarentee three things.

1. It's more hassle than you think.

2. It will be more expensive than you first thought.

3. You won't fly the aircraft as much as you want.

[IO540]

Here's a few p more from me:

With a loan, one could easily end up in a position where the customers have b*ggered off and you still have to pay the repayments. The thing could be hard to sell, especially in today's rather soft used market. Some planes are changing hands at perhaps 30% below advertised prices.

I don't know if the loan would be personally secured by the proprietor. I guess that at 5% it would be. HP loans are secured on the asset but their interest rates are normally much higher. However, I have no 1st hand knowledge of this area.

In UK GA, an awful lot of people could be described as looking to get something for nothing. I suppose that is largely human nature but GA is rather good in concentrating that type of customer all in the same place (called an "airfield"). But one cannot get something for nothing; the operating costs must be recovered somehow, across the members/customers. I found this out the hard way not too long ago; a lot of promises of hours flown are made in this game and nearly everybody under-delivers massively.

With renting, 50hr and 150hr checks are mandatory and have to be done by a JAR145 firm. These work out awfully expensive; I used to pay £500 for a 50hr check on the TB20 - yet this comprises of £50 oil, £14 oil filter, and about 5 man-hours of work. The 150hr check costs about the same as an Annual. That's £10/hr for the 50hr and another £10/hr for the 150hr. Add £10/hr for a reasonable engine fund. The 50hr figure would be less for a Robin than for a TB20 but can you really get an Annual on anything for under £1500? And under LAMS the 150hr will always cost close to a full Annual. Only on an N-reg can one avoid 100 or 150hr checks, but there are issues with getting instructors to sit in an N-reg, under DfT rules... one certainly wouldn't go N for cost savings!

Then there are maintenance "suprises". On a 10-15 year old plane these will start to come in.

Without a doubt, the lowest marginal costs are going to be achieved where the plane is purchased outright by the members, is rented out DRY, is on a Private CofA (or N-reg; very similar maintenance costs) and the remaining costs are divided up among the members.

The last thing I would do is set up a geared business which is banking on a number of people in this business putting their money where their mouth is.

The way to do this is to assemble the group first, make sure you all want the same or compatible things out of it, then buy a plane.

[Lucy Lastic]

Looking at the original figures quoted, I can't reconcile the £190 per month and £67 wet figure between 6 people for the type of aircraft you are talking about.

For that sort of price your users would be looking for a pretty good and well-equipped aircraft, not something like a Condor.

The PFA types I have seen are usually go for around £45 per hour wet and monthlies around £60 but then the income does not go towards making a profit and is usually reinvested to maintain the aircraft.

Of course if your aim is to run a profitable business for yourself, that is a different matter. And, rather like 'buy to let' you have to be prepared for your hours-builders to walk away at short notice. It is hard to build it into your calculations, but you have to have contingency.

Say, for example, the aircraft needs expensive maintenance at the start of the season, will your members wait until it is repaired and put their hands in their pockets if necessary? Or will they decide the hours come first and go somewhere else (and asking for money back..)? What happens to your costing model then?

[englishal]

People that can not or don't want to invest in an aeroplane are unlikely to be the ones that will do 50 hours per year
Not strictly true. I used to buy 50 hours per year just because I wanted to broaden my UK flying experience and have the ability to take an aeroplane away without any "minimums". I didn't want to invest in a plane at that stage.

However, one problem with the non-capital groups is that the members can and will leave on a whim.

I would also have a problem with the £190 per month. The reasoning is that in the winter people won't be able to fly as much as they initially thought and so will resent paying the fee in the winter months and may leave. You would be far better off to sell the hours, so that someone who bought 50 hours and only used 10 through the winter can then use the further 40 in the summer, and will stay with the group to at least use their hours up. You may also want to tie people in for an annual term (which is where selling hours is better - if they leave, you're quids in).

One other thing to bear in mind is maintenance and annuals. We had to spend £1700 (quater each) on our plane this year to rectify a brake problem and 50 hr checks.....something you may want to budget for.....and even worse the aeroplane was offline for two weeks in the height of summer. Also insurance for low time pilots may be an issue, and may certainly raise the costs.

I think your model could work for a high end aeroplane, like a Twin Star, where people would pay to have the use of a real go-places IFR, deiced twin, but not nescessarily for a simple SEP type.

Sorry to be negative about your scheme, it is a great idea toeffectively get other people to pay for your aeroplane ;) but having been a member of one group like this I can see many pitfalls along the way.

I think having the group buy the aeroplane together is the best option. I forked out about £10,000 but now my flying costs me £40 per hour wet, which covers routine maintenance. We have just invested another £2500 each into our hangar and now have a hangar for 5 years, which is big enough to sublet half of, which means our hangarage is only £20 per month each (effectively) with no landing fees at home and a hard runway, so we can fly year round. And when I come to sell my share eventually, I'll get something back for my money.

Good luck!

[IO540]

it is a great idea to effectively get other people to pay for your aeroplane

This exact thing is what the Revenue recently used (legally or illegally; one cannot tell without taking it to the High Court, and the particular case I know about was settled with the usual "5 figure lump sum to make them go away" method) to attack the standard and widely relied on BIK defence of making the aircraft available to everybody at the same rate.

They claimed this defence works only for a real "adventure in trade" and if they can establish that a business was set up largely to provide the proprietor with cheaper flying they will go after him for BIK, regardless of how many others were also renting it.

Difficult to know what to make of all this, I agree, but it tends to suggest that if one is using a ltd. co. for a group, the employee(s) of the company should have no access to the aircraft and preferably be non-flyers as well.