Financial Considerations

[Missionbound]

Looking for some help in figuring out what it would cost per member to form a 170 group. Not exactly sure how to crunch the numbers to see what it would cost on a monthly basis and then per flight hour.
I am looking at forming a group to by a 170 in real good shape for around $55,000 but would need to finance the plane for sure and also figure out how much to charge per flight hour. Any help would be appreicated as this is the only way I can afford to own a 170.

[dacker]

This is how I figure mine... others may vary.

Variable Costs
$10/hour overhaul reserve (based on my recent overhaul of basically the firewall forward cost about $18 K)
$10-20/hr for annual and misc maintenance cost
$35/hour for oil and Gas (assuming $4/gallon for gas)

Fixed Costs
Paint and Interior reserve ($800-1000/yr 10-15 years depending on a lot of variables... you could probably break this down to about $10/hour or a little less)
$275/month for hangar (no hangar drives the paint reserve, maintenance and avionics maintenance costs up)
$100/month for insurance

A monthly note is often erroneously figured into operating costs, this will vary but with 20% down ($11,000) and 12 years @ 8%, a note would be about $475/month (I think I calculated that right). This is just pure cost of ownership.

So I guess the botttom line I use is about $55-65/hour variable and about $375 for fixed costs.

I don't calculate into this the many thousands of dollars that I spent to get the airplane to its present condition, because basically I have much more init than I could get on the market, I try to use amethod that will keep it in its current condition. You could also calculate the costs by figuring the market value now minus the market value of the airplane after it has been flown for a few years and depreciated due to the time on its components, but most people overestimate the runout values of their airplanes.

I hope this isn't too confusing, but I have seen some really unrealistic methods of figuring this stuff out, and they are usually way to generous.

Good luck,
David

[Bruce Fenstermacher]

David I have no argument with your calculations.

Now I'm very depressed.

Which is why I never figure these things so I'll be no help to this thread.

[Jr.CubBuilder]

Form an aeroclub-LLC with ten members. The LLC buys the plane, but each member (investor) gets a 10 percent certificate of ownership. If you don't have ten members then some people can buy up more of the certificates. These certificates are legal entitilement to a ten percent ownership of the plane, they can be later bought or sold as such at a price set by the owner, if the plane appreciates maybe you can sell your ten percent for more than you paid.

The insurance is paid for as an aeroclub by the LLC. The plane should be rented by the hour wet so nobody runs it out of gas trying to make it back to the airport without having to put fuel in.

The wet rental fee covers the operating costs of fuel, oil, tires, and also a savings for the eventual motor rebuild.

A monthly dues will also be charged of the ten members. This would be a nominal fee that would cover fixed expenses. Insurance, tiedown/hanger, annual (obviously some unknowns with annual expenses but normally $1000 a year should cover it) and this should also be the cost area that covers upgrades. In other words figure out the fixed expenses and then pack it a little so that there is some money going monthly into a savings for upgrades like paint, radios, upholstery, etc.

$25 a month for a monthly fee spread out over ten members/shares gives you $3000 a year. $50 a month and there's $6000 a year. The LLC will have to decide how much to charge, and that will depend on insurance costs and hanger costs.

A couple points. Having the plane insured under the umbrella of the aeroclub and being flown only by aeroclub members will ensure that it is insured if something happens.

If the plane is owned by the LLC then the investors are better shielded from liability should another member have an accident.

I know of an aeroclub that has been going strong like this for many years. They had twelve members, the 1/12th shares would occasionally be posted for sale on the board at the local FBO as members left the club. Usually there were about two or three people that really flew the plane a lot, while the rest of the owners would fly just a few times a year. I believe they wanted $50 a month, rented the plane for $25 an hour dry, and the shares seemed to sell for $4000-$4500.

[jrenwick]

I was a member of a flying club that ran on almost exactly this model. Five aircraft, sixty members. Monthly dues covered all the fixed expenses, so that if an aircraft was not flown at all, the club did not lose money. They also were willing to borrow money, and they did that sometimes to finance improvements or engine overhauls when they didn't have enough cash for it. Dues covered debt service. With five aircraft, economies of scale helped the operation.

This financial model works fine for older airplanes. When they added a new Cirrus to the fleet, the debt on it was so large, and the maintenance expenses so small, that they had to assume a certain minimum number of flight hours per month and set the hourly rate high enough to cover the loan payments. They had no trouble getting the rental hours to cover it, as you might expect.

Clubs like this need good, active management by a core of dedicated members who are willing to take that responsibility. It works out for them because there are always some percentage of members who fly very sporadically or not at all.

Best Regards,

John

[N170CT]

Jrcubbuilder has a winning formula. At least from my experience. We had precisely that arrangement in Orange County California with ten members, of which only three were very active. But luckily, all the members were very reliable at paying their monthly dues which ranged from $150 to $165 per month and that included insurance, annuals and a hangar. The per hour charge was $50 Wet. One of the beauties of our system was No one was expected to return the aircraft with full fuel. On the contrary, each pilot fueled the airplane for his mission before departure using an established account with the fuel depot, i.e. No Cash. Blessed with exceptional members, we never encountered a scheduling problem and in fact, I distinctly recall instances of members freely giving up their scheduled time to help a fellow member who unexpectedly had a need for the a/c. Another rule was any one member could spend up to $500 for the aircraft on behalf of the Corporation at any time without prior approval. This corporation has existed for more than twenty years.
chuck

[Kyle Wolfe]

Ditto on the above comments. Worked well for us to have monthly dues cover the fixed expenses. Everyone shares equally. Then determine an hourly rate to cover gas as well as engine overhaul. We formed a corporation and each owner had one share. The share was sold to new buyers based upon market demand.

I also setup a scheduling calendar using mycalendar.net. That way anyone could put their name in the time slot that they wanted. Only the person who signed up for their use could delete that reservation. That way no one else other than the adminstrator could change the schedule. Works better than the old paper notebook kept in the hanger or at the FBO.