Flying Group Proposal - Opinions/Criticism wanted!
Join Date: Jun 2003
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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.
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.
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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?
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?
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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
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!
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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.
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.
