Plane & Pilot
Tuesday, July 5, 2011

Making The Most Of Your Aircraft Asset

Aircraft leasebacks can lower the cost of ownership

There's a verse that goes: "To be successful, all you have to do is work half a day, and most of the time, you get to pick which 12 hours per day you want to work." Take a standard 40-hour work week. This expands to 160 hours for the month. I would wager that the vast majority of private pilots (noncommercial) fly 200 hours or less per year. This results in flying an average of approximately 17 hours per month.

If you have 160 available hours per month, and your plane is in use 17 hours per month, that leaves 143 hours of unused time that the plane is sitting on the ground and not being a productive asset. Now, if you have a job that allows you to fly your plane 160 hours a month for business, then you're probably the most envied pilot in the world. But my point is this: Airplanes cost money to own, operate and maintain. Therefore, every hour that it's not generating revenue and increasing cash inflow, or reducing expenses and saving cash outflow, opportunity costs are lost.

Are Leasebacks For You?
At this time in our economy, we're searching for alternatives to maximize every possible return on our investments. Yes, an airplane that's used in business should be evaluated just like any other purchase of equipment. Will it make money for the business, or will it create expense savings for the business? If the answer to either question is "yes," then consideration should be given to making the purchase or investment in the asset.

Now that you've decided that your plane is a wise business investment and will either make money or save expenses, how many hours will it be in use? Can you find a way that the plane can be used in an alternative business arrangement that will generate additional cash inflows during the downtime? If so, this will help with the carrying costs associated with ownership.

If the plane is financed, the note payment will have to be made every month. There are numerous fixed costs that have to be paid every month, regardless of the amount of time the plane is flying in the air. Examples of these expenses are hangar and tiedowns, insurance and inspections.

Lease Options
If you have an asset with excess capacity, there are solutions to improve the return on your investment. Have you considered a business arrangement where you allow your plane to be leased out to either another company or possibly a flight school?

In a situation where you don't want a partnership or other shared-ownership arrangement, but another business needs the use of a plane for so many hours per month, consider entering into an arrangement where the company purchases a certain number of hours per month. This can be done in a block of time or on an hour-by-hour basis. You may have to agree to give them first opportunity for the use of the plane on a given day, but that isn't the end of the world when they're helping you underwrite the cost of ownership and operations.

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