Sharing light A/C
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Sharing light A/C
Hi, can someone please help explain the procedure of buying a share in an a/c? Do you pay an initial fee to cover the share cost of the a/c, followed by monthly payments for fuel & maintainence? What does £60hr wet mean?
Regards,
FS
Regards,
FS
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Your capital payment is your share of the aircraft - normally bought from an existing member. What you pay multiplied by the number of Members is (hopefully) what the aircraft is worth. You should have equal rights, if you have equal shares
Any monthly, standing order payments go towards fixed costs (hangarage / parking, insurance etc).
Wet is the hourly rate you pay including fuel. If the rate quoted is dry then you pay that to the group, the fuel you pay for yourself. The idea is whatecer you pay (wet or dry) covers the running cost of the aircraft including maintenance.
Any monthly, standing order payments go towards fixed costs (hangarage / parking, insurance etc).
Wet is the hourly rate you pay including fuel. If the rate quoted is dry then you pay that to the group, the fuel you pay for yourself. The idea is whatecer you pay (wet or dry) covers the running cost of the aircraft including maintenance.
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What you pay multiplied by the number of Members is (hopefully) what the aircraft is worth.
A one fifth share in aircraft with a 5k engine fund is worth 1000 quid more than a fifth share in the same a/c with no engine fund.
Mike
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Originally Posted by Mike Cross
A one fifth share in aircraft with a 5k engine fund is worth 1000 quid more than a fifth share in the same a/c with no engine fund.
The aircraft share, if you like, remains the constant.
If you have an engine fund - the value stays the same. However, in your scenario I'd say the share is worth £1000 less if there is no fund.
After all - you're not buying the money someone has already paid in through flying the aircraft. They've flown it, they've put the hours on the engine, they pay for it. It's part of the running costs - not part of the share capital.
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Do check whether the group has an engine fund or other reserves. Many don't, but will expect that members will put up any necessary funds as required.
As a 1/5th or 1/10th owner, you will be expectyed to make up any shortfalls as they occur
For example, although it is assumed that an engine might last 2000 hours or so, it may fail at 1000 hours. You will need to put up monies to repair the engine at half the planned life, so never assume the reserves will cover the bills.
Too many share-holders find that they will need to find serious amounts of cash even though the group may have reserves. In my group, recently formed, we have not much in the way of reserves, but accept the risk, in the short term.
As a 1/5th or 1/10th owner, you will be expectyed to make up any shortfalls as they occur
For example, although it is assumed that an engine might last 2000 hours or so, it may fail at 1000 hours. You will need to put up monies to repair the engine at half the planned life, so never assume the reserves will cover the bills.
Too many share-holders find that they will need to find serious amounts of cash even though the group may have reserves. In my group, recently formed, we have not much in the way of reserves, but accept the risk, in the short term.
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So... Before you buy into it, get a financial statement and some financial history, and check whether the "wet" rate indeed does include all maintenance and reserves for replacement parts and such, and that these reserves are, at present, sufficient. (So if the engine is half-time, there should be 50% of the cost of a new engine in the engine fund.)
If you manage to get hold of the financial overview of the last three to five years, then you can easily see if the members were ever required to pay anything above and beyond the monthly and wet price, and see if this was because of bad planning, or because of unlucky circumstances.
And remember that planning your maintenance cost for a very common type (a PA-28, C-172 or something) is fairly easy since there are a lot of maintenance firms and lots of these shared planes around, so lots of experience with the actual maintenance cost of the type. But if you're buying into something unique, less people have experience with maintaining it over a long period, and it is harder to predict the costs of that maintenance.
But at the end of the day you've got to accept that you're owner (even if only part owner) of an aircraft and that you may be unlucky with the engine or whatever, requiring unplanned repairs that are not covered under warranty or insurance, and thus requiring additional funds. If you don't want to run that risk, go rent. (And this equally applies to cars, houses, caravans and other capital goods.)
And there's another tricky thing too. Everybody is interested in low flying cost. So a share in a plane with a 60 euro wet rate will sell more quickly than a share in an identical plane with a 70 euro wet rate. That's because the only thing mentioned in the small ad in the magazine is the monthly fee and the wet rate. Not the present state of the engine fund (if any). So from a marketing point of view it is a good idea to lower the published wet rate, while the members of the group know that they're going to have to put up more money at some point in time to pay for repairs. Not a problem as long as this is out in the open, and you know what you're getting into.
Me, I would get the financial data and prefer buying into the group which seems to have its finances in order, with the wet rate covering all the expected maintenance plus a bit of reserve, both for the 3-5 years past and 3-5 years to come, than buying into the group with the lowest "wet" rate.
If you manage to get hold of the financial overview of the last three to five years, then you can easily see if the members were ever required to pay anything above and beyond the monthly and wet price, and see if this was because of bad planning, or because of unlucky circumstances.
And remember that planning your maintenance cost for a very common type (a PA-28, C-172 or something) is fairly easy since there are a lot of maintenance firms and lots of these shared planes around, so lots of experience with the actual maintenance cost of the type. But if you're buying into something unique, less people have experience with maintaining it over a long period, and it is harder to predict the costs of that maintenance.
But at the end of the day you've got to accept that you're owner (even if only part owner) of an aircraft and that you may be unlucky with the engine or whatever, requiring unplanned repairs that are not covered under warranty or insurance, and thus requiring additional funds. If you don't want to run that risk, go rent. (And this equally applies to cars, houses, caravans and other capital goods.)
And there's another tricky thing too. Everybody is interested in low flying cost. So a share in a plane with a 60 euro wet rate will sell more quickly than a share in an identical plane with a 70 euro wet rate. That's because the only thing mentioned in the small ad in the magazine is the monthly fee and the wet rate. Not the present state of the engine fund (if any). So from a marketing point of view it is a good idea to lower the published wet rate, while the members of the group know that they're going to have to put up more money at some point in time to pay for repairs. Not a problem as long as this is out in the open, and you know what you're getting into.
Me, I would get the financial data and prefer buying into the group which seems to have its finances in order, with the wet rate covering all the expected maintenance plus a bit of reserve, both for the 3-5 years past and 3-5 years to come, than buying into the group with the lowest "wet" rate.
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Chilli
I think where we differ is in how you value the a/c compared with how I value it.
To me the a/c has a market value, which is what someone would be prepared to pay for it, as it stands, now, in the condition it is in now, with the accumulated hours it has now. This is not related to what was paid for it when it was bought or what was paid for the share last time it changed hands, how many hours it has done since it changed hands, or what has been spent on it since it changed hands. Nor is it related to whatever engine fund or spares holding comes with it.
It's a price you think the aircraft would fetch now on the open market.
However the buyer may not just be buying a share in the aircraft, he might indeed be buying a share in the engine fund, and one fifth share of 5k in the bank is 1k.
I suspect you're looking at what the vendor paid for his share as the basis for valuation, I'm looking at the value of the aircraft.
Mike
I think where we differ is in how you value the a/c compared with how I value it.
To me the a/c has a market value, which is what someone would be prepared to pay for it, as it stands, now, in the condition it is in now, with the accumulated hours it has now. This is not related to what was paid for it when it was bought or what was paid for the share last time it changed hands, how many hours it has done since it changed hands, or what has been spent on it since it changed hands. Nor is it related to whatever engine fund or spares holding comes with it.
It's a price you think the aircraft would fetch now on the open market.
However the buyer may not just be buying a share in the aircraft, he might indeed be buying a share in the engine fund, and one fifth share of 5k in the bank is 1k.
I suspect you're looking at what the vendor paid for his share as the basis for valuation, I'm looking at the value of the aircraft.
Mike
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Mike - I don't think we differ that much, just in how we present it.
The aircraft share is worth the market value - agreed? (judging by your posting I'm guessing yes).
Now - if there's money in the engine fund then the share is still only worth the market value - there is no premium to add on to the price for that money. (which your post suggests there is).
However - if there is no money in an engine fund that aircraft (and proportionally the share) is worth LESS than market value by that amount, and if I were buying I would offer accordingly.
Your post suggests that money in the bank is worth a premium on the share price at market value. (Forgive me if I read it wrong). My attitude is I don't care what's in the bank - aircraft depreciate, they have a market value, that's all I'm paying - I'm not buying a chunk of engine fund, that comes with the aircraft.
Hope that's slightly more clear.
The aircraft share is worth the market value - agreed? (judging by your posting I'm guessing yes).
Now - if there's money in the engine fund then the share is still only worth the market value - there is no premium to add on to the price for that money. (which your post suggests there is).
However - if there is no money in an engine fund that aircraft (and proportionally the share) is worth LESS than market value by that amount, and if I were buying I would offer accordingly.
Your post suggests that money in the bank is worth a premium on the share price at market value. (Forgive me if I read it wrong). My attitude is I don't care what's in the bank - aircraft depreciate, they have a market value, that's all I'm paying - I'm not buying a chunk of engine fund, that comes with the aircraft.
Hope that's slightly more clear.
Last edited by Chilli Monster; 14th May 2007 at 15:17.
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I rather think that Mike and Chilli are looking at the same thing just from different directions. At the end of the day you are looking at a share of the group assets no matter how those assets are made up, aircraft/cash/hanger full of spares/farm strip (if owned)/hanger on said strip/teapot in the hangar. If the group own it it comes into the assets and forms part of the share value.
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OK Chilli, Here's the deal.
You go and buy an aircraft, let's say you drive a hard bargain and are satisfied that it's worth the 30k you paid for it and that it's market value is therefore 30k.
Now put 10k of your own money into an engine fund. I'll buy a half share of the aircraft and engine fund for half the market value, 15k. Fair dos?
Alternatively if you reckon that 5k should be knocked off if it doesn't have an engine fund I'll buy a half share without the engine fund for half what you paid less 5k. Can't say fairer than that can I?
You go and buy an aircraft, let's say you drive a hard bargain and are satisfied that it's worth the 30k you paid for it and that it's market value is therefore 30k.
Now put 10k of your own money into an engine fund. I'll buy a half share of the aircraft and engine fund for half the market value, 15k. Fair dos?
Alternatively if you reckon that 5k should be knocked off if it doesn't have an engine fund I'll buy a half share without the engine fund for half what you paid less 5k. Can't say fairer than that can I?
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Mike
It transpires we're probably both right.
Your example - owner who buys an aircraft outright and then decides to sell a share. In that case yes - add the representative amount of the fund to the share value if you have added that amount of cash to the fund, without putting the time on the engine.
My example - existing syndicate, say 5 shares (for example) which has built up an engine fund through use. 1 shareholder decides to sell his share. His share is worth market value - NOT market value plus what they've put into the engine fund because they've paid for their use of the aircraft and engine in the hourly rate. In that scenario the engine fund is ringfenced.
Make sense now?
It transpires we're probably both right.
Your example - owner who buys an aircraft outright and then decides to sell a share. In that case yes - add the representative amount of the fund to the share value if you have added that amount of cash to the fund, without putting the time on the engine.
My example - existing syndicate, say 5 shares (for example) which has built up an engine fund through use. 1 shareholder decides to sell his share. His share is worth market value - NOT market value plus what they've put into the engine fund because they've paid for their use of the aircraft and engine in the hourly rate. In that scenario the engine fund is ringfenced.
Make sense now?
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to start, I have no interest in sharing, however I wonder about Insurance ? I assume that all group members would contribute a share towards it, what happens if ( god forbid ) one member has a momentary lack of reason, and say clips a hedge on landing, causing severe damage to the ac, The insurance would pay, who would be liable to the considerable excess ? all or the group member ?
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The insurance would pay, who would be liable to the considerable excess ? all or the group member ?
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Down to the Group Rules.
Ultimately you have to consider a winding up scenario. You all fall out or there is an expense you can't afford or the a/c is totalled. In that case the assets are disposed of, the debts paid off and the balance distributed among the shareholders in proportion to their shareholding, just like winding up a Company.
Ultimately you have to consider a winding up scenario. You all fall out or there is an expense you can't afford or the a/c is totalled. In that case the assets are disposed of, the debts paid off and the balance distributed among the shareholders in proportion to their shareholding, just like winding up a Company.
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Re Tango Victor's question, in the first group of which I was a member, just after purchase the aircraft promptly had a mechanical failure and a hefty resulting bill, mostly covered by insurance. It just so happened I was P1 at the time but the incident was evidentially not down to me; by consensus, we split both the excess and the uninsured cost.
The second group I was in, a group of friends, decided that we would not want to fall out about linking 'blame' with responsibility for the excess (we can all make mistakes, after all), so we decided to put in the bank, up front, a float to cover the insurance excess as well as some working capital. When the aeoplane was unfortunately written off, the unlucky member on this occasion accepted responsibility and, as a true gentleman and good friend, reimbursed the other members pro-rata for the loss of the remainder of the annual premium, and also covered the full excess.
I make no comment as to whether these two instances are typical of groups in general; I strongly recommend that rules are agreed and written before they're needed!
Slip
The second group I was in, a group of friends, decided that we would not want to fall out about linking 'blame' with responsibility for the excess (we can all make mistakes, after all), so we decided to put in the bank, up front, a float to cover the insurance excess as well as some working capital. When the aeoplane was unfortunately written off, the unlucky member on this occasion accepted responsibility and, as a true gentleman and good friend, reimbursed the other members pro-rata for the loss of the remainder of the annual premium, and also covered the full excess.
I make no comment as to whether these two instances are typical of groups in general; I strongly recommend that rules are agreed and written before they're needed!
Slip
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His share is worth market value - NOT market value plus what they've put into the engine fund because they've paid for their use of the aircraft and engine in the hourly rate. In that scenario the engine fund is ringfenced.
Also I would point out that the person selling his share has donated into the engine fund so why should he not benefit from it? The way you seem to have it a new member can buy into a group that is just about to replace the engine, he buys in for £3,000 (1/5th share of £15,000 aircraft), the group replaces the engine from the engine fund and the market value is now £20,000 so he can sell his share for £4,000 - let me know of any group you know that operates like that as I could do with a quick £1,000.
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Foxmoth - disregarding the group winding up scenario (because that's not what the original poster asked - RTBQ), ask yourself this:
Why should the share buyer pay the share vendor for the use the vendor has had of the aircraft?
That is, in effect, what you're saying should happen.
Why should the share buyer pay the share vendor for the use the vendor has had of the aircraft?
That is, in effect, what you're saying should happen.
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I am with chilli on this. the engine fund has grown out of the hourly rate and is ring fenced. think of it as deferred expenditure. it will have to be spent eventually.
if there are 4 in a group, the aicraft is valued at £20k then a share is worth £5k. If the engine needs replacing then then engine fund is spent on it as the fund exists to cover the flying that has already occured. The remaining bill is covered by the group.
Perhaps it would be easier to think of it as paying the engine fund money directly to the maintanance company every hour and when the engine fails you get a cheap engine with the cost split between the group.
if there are 4 in a group, the aicraft is valued at £20k then a share is worth £5k. If the engine needs replacing then then engine fund is spent on it as the fund exists to cover the flying that has already occured. The remaining bill is covered by the group.
Perhaps it would be easier to think of it as paying the engine fund money directly to the maintanance company every hour and when the engine fails you get a cheap engine with the cost split between the group.
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The engine fund should be there to cover a growing liability in the group accounts and is not an asset which is partly owned by the members.
Unless the group is dissolved in a scenario where the aircraft is scrapped, in which case all bank balances can be divided up between members.
The problem is that there are countless ways one can work out what the engine fund should be, and it will never be exact because engine overhaul costs vary so much according to where you go and what they find needs doing. One could be conservative and budget for a new engine (or some other known-cost option). But if you are conservative on this, you will have a higher hourly rate than other groups... and if you are not conservative then new members will end up subsidising the flying of previous members.
And that's just the engine fund. On the average 30 year old spamcan there is usually a constant stream of bits that need fixing, and somebody selling a share will know more about this than somebody buying a share
This is pretty significant; for example the engine fund might need topping up at £15/hour, but if the next Annual brings a suprise £5000 bill and the group did just 100 hours, that is another £50/hour. I suspect that on most old planes the normal maintenance cost well exceeds the engine fund.
There is no perfect way to do this.
Unless the group is dissolved in a scenario where the aircraft is scrapped, in which case all bank balances can be divided up between members.
The problem is that there are countless ways one can work out what the engine fund should be, and it will never be exact because engine overhaul costs vary so much according to where you go and what they find needs doing. One could be conservative and budget for a new engine (or some other known-cost option). But if you are conservative on this, you will have a higher hourly rate than other groups... and if you are not conservative then new members will end up subsidising the flying of previous members.
And that's just the engine fund. On the average 30 year old spamcan there is usually a constant stream of bits that need fixing, and somebody selling a share will know more about this than somebody buying a share
This is pretty significant; for example the engine fund might need topping up at £15/hour, but if the next Annual brings a suprise £5000 bill and the group did just 100 hours, that is another £50/hour. I suspect that on most old planes the normal maintenance cost well exceeds the engine fund.There is no perfect way to do this.