Tuesday, March 24, 2009
Ownership Made Easy
New versus old: What you get and what you don’t get
|This week, within the course of about two hours, I received calls from two friends who wanted to buy similar, but different, airplanes. The common thread was that each wanted something fun and simple to own. |
The Cessna 152 is a reliable aircraft that has retained its value well.
Another option is the Jabiru J230, a sexy-looking, sleek, Australian-designed and American-assembled LSA with a 120 hp Jabiru engine that delivers a 120 mph cruise. The aircraft has a reputation for being easy to fly, forgiving and well-designed; it offers a respectable climb rate of 700 fpm loaded and an ultramodern cockpit layout. Costing roughly $110,000, and available now, it should be a real contender.
What did Ralph do? As soon as Mrs. Ralph gets back from flying the new LSA, we’ll tell you which one the couple bought. Mrs. Ralph decided that it would be a “kick” to learn how to fly, and her grandkids think she’s “cool” because none of their friends have a pilot grandmother. Which Is Best?
Both buyers got what they needed and wanted for their price range. Emma doesn’t stress over her monthly payment because it fits her budget. She also likes that her plane is fully depreciated and should hold its value in line with the general economy. It may not be as reliable as a brand-new plane, and she’s had a few delayed flights due to small mechanical and age-related glitches, but she has made the right choice for herself.
Ralph enjoys the sports-car feel of his new LSA and the high-tech avionics. He calculates that his flying days may be fewer than Emma’s because of their age difference, so he wants maximum enjoyment, features and reliability to ensure the most flying days possible. Ralph isn’t overly concerned with the impact of the investment potential of a new versus used airplane, as he has bought enough new cars over the years to understand the depreciation curve.
Emma and Ralph each purchased two airplanes with similar performance and handling qualities. Each airplane, however, offers a different ownership experience, as one is older than 35 years, and the other is brand-new. New or used, inexpensive or top-of-the-line, just being at 3,000 feet behind a purring engine flying across our beautiful country is reason enough for owning an airplane.
|Purchasing Your Plane |
Getting preapproval for financing can be a daunting process, but don’t be intimidated. It will, however, be more complicated than a few years ago; you’ll have to prove you have a job with sufficient income to pay all your bills and comfortably make your payments. In most cases, banks are still using the 45/100 rule. Take 100% of your monthly income and then subtract all your monthly obligations (e.g., credit cards, mortgage and car payments, etc.). If your total monthly obligations don’t exceed 45% of your monthly gross income, then you’re most likely “qualified” in the eyes of the bank. Don’t give up if your ratios aren’t quite in the target range; a good aviation banker can guide you through possible options if you don’t precisely fit the criteria.
Oddly enough, a $25,000 loan is harder to find than a $2,000,000 one. This is because the bank will spend the same amount of time and trouble on paperwork for each loan, but it will make a lot more money on the bigger one. A rule of thumb for a small airplane loan (under $50,000) is generally five to seven years and about 10% interest, whereas the larger loans will probably qualify for 20-year terms and about 7% interest. The 45/100 rule will apply generally in any loan size, and you’ll probably need a credit score in the range of 680 or better. Bank of America (800-62-PLANE) is a good source for loans under $50,000; Dorr Aviation (800-214-0066) provides loans above that amount.
New airplanes are generally sold within a sales territory, so you just need to locate the nearest sales rep. If you’re looking for an older plane, you’ve got your work cut out for you (there are no factory reps selling 1947 Cessna 140s or 1965 Cherokee 140s). The easiest way to find a used plane is through websites such as www.controller.com and www.trade-a-plane.com.
If you’re considering a used airplane, it’s a good idea to find a mechanic who can inspect the plane before you pay for it. Check for consistent, competent maintenance and any evidence of obviously deferred items. For brand-new airplanes with a factory warranty, a prepurchase inspection is less critical. Verify the terms of the warranty before buying.
The general details of the new economic stimulus package are just becoming available (see Ask P&P on page 20 for more), and it appears that the tax incentives will be generous for new and business-use airplanes. Before you buy, check with your CPA or a knowledgeable aviation tax expert to determine if your flying qualifies for any benefits or tax write-offs.
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