Sharing light A/C

[slim_slag]

I think people are trying to prove how clever they are, and it's having the opposite effect

[foxmoth]

Go back to my previous comment. The engine fund belongs to the engine overhauler.

What rot - If this were the case you would have to have this fund as a private owner and pass it on to the buyer (or to the engine shop) when you sell. With whole ownership you just put any fund in your pocket - with a group this does not happen, the fund stays with the aircraft - and the new share owner needs to pay for it.
As far as liability goes, the liability for the new engine is there with or without the fund and is why the same aircraft costs (say) £30,000 with a new engine, £28,000 mid life and £25,000 time expired, and I STILL cannot see how you can say the share is worth the same with or without the fund.
(And you did not say which share you would have gone for Bose)

[slim_slag]

1) Assets - liabilities = shareholders equity


Part used Engine = asset
Cash in bank = asset

(Eventually part used engine becomes unfit for purpose purely because of regulatory law, it is still an asset though as it has at least scrap value, but has to be replaced because CAA says so.)

Invoice for new/overhauled engine = liability

Liability 'removed' from balance sheet using cash (so also removing asset)

New/overhauled engine = asset

------------------------------------

Your shareholders equity is dependent on how many shares you own, and how shares are classed. Now, the trick is sell your shareholder's equity for more than (assets - liabilities), and the trick is to buy it for less than (assets - liabilities). That is where the free market value comes in, if you like it enough you will pay more than it is worth.

One drives a 4 year old Ford Mondeo Estate that gets >50mpg and cost me £3500 at auction. Thus proving that the car one owns has nothing whatsoever to do with one's business acumen

[Chilli Monster]

Originally Posted by slimslag

That is where the free market value comes in, if you like it enough you will pay more than it is worth.

Which gives us the biggest rule in aircraft / share ownership:

Don't get emotionally involved - it's a business transaction, treat it as such

[S-Works]

I give up.....

Just don't be winging about how you can't afford to fly because everything is so expensive when you cant even grasp the basics.

Enough from me, I am going to go and wash the Poles wash my car.

[foxmoth]

2x £5,000 (nominal value)shares available in the same location - 3 buyers, shares will probably go for £5,200+, only one buyer that share will probably go for £4,700 or less depending on how desperate the sellers are - those are market forces - but it is how you get your nominal value that is being argued over here.

[dublinpilot]

I am going to go and wash the Poles wash my car.

Seems like a strange agreement to me.....you wash the Poles, they wash your car???

Bose, I'd be interested in the values you'd place on my earlier senario. I somehow suspect you'd arrive at the same values as me, just with a different logic. If you do, then it make little difference that you hold a different understanding on an asset and a liability. The final result is all the matters.

If on the other hand you come up with the same values as CM then

dp

[BackPacker]

Chili - exactly. It's first and foremost a business transaction. First you need to value what the share is worth. For that you need to know the value of the aircraft and any other assets and liabilities (mortgage anyone?) that are part of the share you intend to buy. Then you decide on an offer price.

Best advise here is if you don't know how to read a balance sheet, value assets and liabilities, make sure to get some advice from someone who does! That would mean a licensed mechanic to determine the condition of the aircraft, and an accountant of some sort to take a look at the books.

[slim_slag]

Originally Posted by dublinpilot

I'd be interested in the values you'd place on my earlier senario

IF you mean in post 30 (http://www.pprune.org/forums/showpos...4&postcount=30) and assuming nothing else on the balance sheet, the answer you gave is correct.

[Kirstey]

But you don't backpacker.. you work out the market value of the AEROPLANE and then pay a share of that.. that's it. Simple as that. The Cessna 150 I'm starting a group with has no engine fund, but 1100 hrs to get a fund (with luck!!). Everyone is paying a 10th share of 16000. If there was an engine fund I'd pay... yup a 10th share of 16000.

In three years there may be an engine fund of 6000. The aeroplane maybe worth £12,000. I'll sell my share for 10 % of 12,000 NOT 18,000. How can my share increase in value for an aeroplane that was even sh1ttier than when i started!!???

in reality i'll probably ask £2,000 for it.. but that's me, not the market!

[slim_slag]

Originally Posted by Kirstey

How can my share increase in value for an aeroplane that was even sh1ttier than when i started!!???

Because in your example the value of the cash asset in the bank has increased more than the value of the engine asset has decreased.

Assets - liabilities = shareholders equity

Cash is the ultimate asset until you have spent it. You have only spent it when you have paid the invoice. (There are things like tax which might be considered due before they are in real life, but not engine maintanance)

The only purpose of the engine fund is to prevent cash flow problems i.e. having to put a liability (loan) on the books at a later date. It is an asset until spent.

[IO540]

They might be female Poles, DP

[dublinpilot]

Supermodel female poles??

Hell, I might offer to help wash his car.....or the Poles

[foxmoth]

Kirstey,
If you owned the aircraft by yourself you would sell the aircraft for £12,000 and pocket the £6,000 fund - not pass it on for free to the new owner,netting you £18,000, so why when you sell a share shouldn't you pocket your share of that fund in the same way?

[BackPacker]

Kirstey, If indeed in 10 years time the aircraft is worth 12.000 (actual market value) and has a 6.000 engine fund, and you're still prepared to sell your 1/10th share for 1200, give me a call. In fact, please encourage all the other members to do likewise.

That means I pay 12.000 in total and get a 6000 engine fund thrown in for free. Sounds like a good deal to me.

===

Think of this. If I buy your share of the aircraft, who becomes the owner of the engine fund? You're no longer the owner, since you've got nothing to do with the aircraft. As part of the transaction, you're selling your share in the engine fund to me. Because despite all the hoopla about deferred liability, there is a bank account somewhere with 6000 pounds in it. This bank account is owned by somebody, or has joint/shared ownership. And neither the money nor the bank cares whether that account is called an "engine fund" or something else. It's money, and it's owned by someone. So it's an asset. And you're selling it to me as part of me buying a share in the group.

If you want to do it real properly as a bookkeeper, what you need to do is deprecate the aircraft engine with each flying hour, and offset that depreciation with the formation of an engine fund.

Here's an example for your case, where I assume that the engine, zero-time is worth 10.000 and to get it overhauled or replaced at TBO costs 6000, and needs to be done after 1000 hours.

First, everybody in the group puts up 1600 UKP. Balance sheet

Debit (asset) side
======
Money in the bank - 16.000 UKP

Credit (liability/private equity) side
=====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP
Total assets: 16.000 UKP

The group buys an airplane:

Debit side
====
One airframe- 6.000 UKP
One aircraft engine, 1000 hours to TBO - 10.000 UKP
(Split into two for bookkeeping reasons - because they depreciate differently)
Total assets: 16.000 UKP

Credit side
====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP

Now everybody starts flying and generally having fun. The engine overhaul will cost 6000 UKP after 1000 hours so for each flying hour they put 6 UKP in the engine fund. Here's what the balance looks like after 100 hours flying

Debit side
===
One airframe @ 6000 UKP
One aircraft engine, 900 hours to TBO - 9400 UKP
One engine fund, stored in a bank account - 600 UKP
Total assets: 16.000 UKP

Credit side
====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP

See that the balance does not change? Your private equity is still worth 16.000 UKP, or 1600 per head.

Now the engine is totally run out. It did its 1000 hours and all that's left is a recyclable core which indeed happens to be worth 4000 UKP:

Debit side
===
One airframe @ 6000 UKP
One aircraft engine, at TBO, recycle value - 4000 UKP
One engine fund, stored in a bank account - 6000 UKP
Total assets: 16.000 UKP

Credit side
====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP

The engine is overhauled for 6000 UKP:

Debit side
===
One airframe @ 6000 UKP
One aircraft engine, 1000 hours to TBO, recycle value - 10000 UKP
One engine fund, depleted - 0 UKP
Total assets: 16.000 UKP

Credit side
====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP

But now for the interesting bit. Suppose after 500 hours of flying someone in the group decides to sell his share. Here's the situation at that point in time:

Debit side
===
One airframe @ 6000 UKP
One aircraft engine, 500 hours to TBO, recycle value - 7000 UKP
One engine fund, stored in a bank account - 3000 UKP
Total assets: 16.000 UKP

Credit side
====
Private equity - 10 shares @ 1600 UKP = 16.000 UKP

As part of his pre-purchase survey, the aircraft is valued against current market value, taking into account that the engine is half-time. The surveyor finds that similar aircraft, in the current market, sell for 12.000 UKP, but also confirms that an engine with 500 hours left is still worth 7000 UKP if sold separately, so it's the airframe which has depreciated (or valued too high to begin with) and is now worth 5000 UKP. This information leaks to the group and they realise that their aircraft (more precisely the airframe) needs to be depreciated. So they rewrite the balance sheet and it now looks like this:

Debit side
===
One airframe, now depreciated by 1000 UKP: 5000 UKP
One aircraft engine, 500 hours to TBO, recycle value - 7000 UKP
One engine fund, stored in a bank account - 3000 UKP
Total assets: 15.000 UKP

Credit side
====
Private equity - 10 shares, nominal value 1600 UKP, now worth 15.000 UKP

So each owner now has been 'had' due to the depreciation for 1000 UKP. Nevertheless, a fair value for each share of the group is 1500 UKP: total assets minus debts (of which there aren't any) divided by number of shares. Now depending on the hurry of the seller and the buyer of the share, the actual share sale price as negotiated between the buyer and seller may be more, or less, than 1500 UKP. But 1500 UKP is what the negotiations should start with.

To sum it up: the shareholders are the owners of all the assets in the group, minus any debts that the group might have (which they don't in this example). An airframe is an asset, an engine is an asset, and money in the bank is an asset. If you buy or sell a share in the group, all the assets should be taken into account.

[S-Works]

They might be female Poles, DP

Well there is a rather attractive young lady who has joined the team and does seem to enjoy washing my car.......

And I have lost interest in this conversation with people manipulating the facts to meet their arguments. We have gone from an engine fund to a whatever you want to call it fund.

If the group sold all the shares to one person the would sell the aicraft at its current market value which will represent as Kirstey points out its real value depreciated and they would pocket the "whatever you want to call it fund".

When you buy an aircraft share you are not buying the cash reserves. When you leave you don't take the cash reserves with you (unless point above).

There was an AA5 group at our place, the decided to end the group, had the aircraft valued and sold it. They split the proceeds between the group and bought an new aircraft.

[foxmoth]

When you buy an aircraft share you are not buying the cash reserves.

And why not? As you pointed out yourself this is money put aside by the seller

I was only involved in a group once I bought a share for £8k. The engine fund stood at about £10k. I flew a few hundred hours in it and paid the wet rate. £20ph went into the engine fund to offset my (my italics - Foxmoth) libaility for the hours I had "worn" on the engine.

so why give the money you have set aside for your liability to the next guy?
And going back too my 2 groups you have still not said which one you would go for if you had to - or is that too difficult.

[S-Works]

what 2 groups? I was ignoring you just lost with all of the explanations of how you are using your cash to buy more cash in a group..... Is it a new method of money laundering?

[foxmoth]

You need to go back up the page - but here it is again:-

OK Bose/Chilli etc.
Just before I stop banging my head against the wall a last question :-
2 otherwise identical groups with the same £20,000 value aircraft, the second having a £4,000 fund. According to your arguments both groups 1/4 shares will be worth £5,000 - so which group would you buy into, the first at £4,950 (obviously a bargain), or the second at £5,300?

And I certainly cannot see how I am using cash to buy more cash the way you say.

[slim_slag]

foxmouth, your logic makes perfect sense, just remember not everybody is able to see it that way.