If you are to buy an aircraft

[datafuser]

This is part of my research project about the general aviation aircraft market. I would greatly appreciate if you could pick one of the financing options below given your real resources.

- Outright purchase: you pay the whole cost of the aircraft upfront and own it
- Loan/purchase: you borrow money to buy the aircraft and offer it as collateral on the loan
- Fractional/Partnership: pool resources with your friends/partners to pay for the aircraft
- Operating lease: you pay the leasing company to use the aircraft for a certain period of time and return it at the end of the lease
- Financing lease: you borrow money to lease the aircraft on condition that you buy it at the end of the lease
- Synthetic lease: something between the operating lease and financing lease

Many thanks in advance,
Sunho

 

[TMetzinger]

More info needed.

To start - do we assume that we have the assets to pay for the airplane, and the question is which option is wisest from a money management standpoint?

 

[timwinters]

Never finance anything but your house and you might actually have some money when you retire...

...or actually be able to handle an emergency in your life.

 

[kevin47881]

Never finance anything but your house and you might actually have some money when you retire...

...or actually be able to handle an emergency in your life.

Amen to that! Sounds like another Dave Ramsey fan.

 

[ScottM]

Never finance anything but your house and you might actually have some money when you retire...

...or actually be able to handle an emergency in your life.

Amen to that! Sounds like another Dave Ramsey fan.

Not sure who Dave Ramsey is but, yeah +1

Three cars (soon to be 4), airplane, and a house. House has a smitness of a loan left on it with more than enough in non-401k investments to pay off.

 

[silver-eagle]

I applied for a loan but actually refinanced my house and used the money to buy the plane outright. The house has since been sold but I still have the plane. I did not take the aircraft loan.

 

[datafuser]

More info needed.

To start - do we assume that we have the assets to pay for the airplane, and the question is which option is wisest from a money management standpoint?

It would be nice if you base your decision on what you really have at the moment or what you will have in near future.

As for the question which is the wisest, well I think there is no definitive, single answer for everybody.

Imagine that you are going to open a flight school and a local bank offers a loan at a favorable interest rate, then the loan/purchase option would be the best.

If you need a Cessna to do some work such as aerial survey for a certain period - say up to a year - then you should seriously consider the operating lease I believe.

Sunho

 

[JohnR]

If it's a Cessna 140, I'd save up for outright purchase. Anything else mentioned (didn't say new vs. antique )would be so far out of reach as to be a purely academic exercise to me. But I picked loan/purchase anyway.

 

[BartY]

I've already started saving to buy a Cherokee 180/172 in the next 5-10 years. An airplane would be a toy for me, and I don't go into debt to buy a toy. Not to mention that cash tends to have an effect on people when it comes to negotiating price. Works alot better than, "I've got to get the bank to write the loan" when you've made a decision about buying something.

 

[flyersfan31]

Synthetic leases? I still have nightmares about them from my working days. Never again!!

 

[datafuser]

Synthetic leases? I still have nightmares about them from my working days. Never again!!

An aviation lawyer wrote that the synthetic lease combines "the best of all worlds" by registering the aircraft under your name to obtain the tax benefits of aircraft depreciation while keeping the aircraft off-balance-sheet.

However setting up such an arrangement could take more time and money I guess.

Would you please enlighten me about the synthetic lease based on your firsthand experience?

 

[datafuser]

Just curious, would anyone choose a Cirrus SR22-lookalike from an unheard-of new manufacturer over a genuine Cirrus SR22 if the lookalike is 10% cheaper?

Being new to the market, the unheard-of new manufacturer would have a rudimentary support network and may not have a financing arm such as Cirrus Finance at all.

Given these conditions, I am wondering how much price difference would prompt people to buy lookalikes.

 

[jesse]

Just curious, would anyone choose a Cirrus SR22-lookalike from an unheard-of new manufacturer over a genuine Cirrus SR22 if the lookalike is 10% cheaper?

Being new to the market, the unheard-of new manufacturer would have a rudimentary support network and may not have a financing arm such as Cirrus Finance at all.

Given these conditions, I am wondering how much price difference would prompt people to buy lookalikes.

Well, since we're talking about airplanes here--and not knock-off Chinese electronics, one would have a hard time selling an airplane for 10% less with no reputation and no support network..

Only a fool would buy..of course there are plenty of fools in aviation putting deposits on dream planes that'll never happen.

 

[datafuser]

Well, since we're talking about airplanes here--and not knock-off Chinese electronics, one would have a hard time selling an airplane for 10% less with no reputation and no support network..

Only a fool would buy..of course there are plenty of fools in aviation putting deposits on dream planes that'll never happen.

Any guess at how much percent price difference people would buy the airplane with no reputation and little support network?

 

[wsuffa]

Never finance anything but your house and you might actually have some money when you retire...

...or actually be able to handle an emergency in your life.

+1. And that attitude has paid off for me.

 

[datafuser]

Well, since we're talking about airplanes here--and not knock-off Chinese electronics, one would have a hard time selling an airplane for 10% less with no reputation and no support network..

Only a fool would buy..of course there are plenty of fools in aviation putting deposits on dream planes that'll never happen.

Cirrus itself was a little-heard-of kit plane manufacturer until its SR20/SR22 unseated Cessna.

I guess what made the SR20/SR22 a smash hit were its glass cockpit, parachute and fast speed. I do not know if it had been significantly cheaper than competitors when it entered the market though.

BTW, did Cirrus have a nationwide support network when it began selling the SR20 in 1999?

Sunho

 

[flyersfan31]

An aviation lawyer wrote that the synthetic lease combines "the best of all worlds" by registering the aircraft under your name to obtain the tax benefits of aircraft depreciation while keeping the aircraft off-balance-sheet.

However setting up such an arrangement could take more time and money I guess.

Would you please enlighten me about the synthetic lease based on your firsthand experience?

There are 4 specific tests to run to qualify for the treatment, the main trick is having the lease run just long enough on a PV basis to be a capital lease for taxes, but not for book, where it would be treated as an operating lease (the IRS and GAAP use different hurdles, therefore the loophole). You're really pushing the accounting, and I don't know if an airplane would be a great candidate for it. You'd spend far more setting it up than you would end up saving. Then there are control issues. No, I'd stay far away from a synthetic lease unless you are a big corporation. For a flight school, it's a good way to get burned.

 

[flyingcheesehead]

I guess what made the SR20/SR22 a smash hit were its glass cockpit, parachute and fast speed. I do not know if it had been significantly cheaper than competitors when it entered the market though.

Cirri did not have glass cockpits when they first came out.

They were most certainly not cheaper, either - Just a lot sexier.

 

[datafuser]

There are 4 specific tests to run to qualify for the treatment, the main trick is having the lease run just long enough on a PV basis to be a capital lease for taxes, but not for book, where it would be treated as an operating lease (the IRS and GAAP use different hurdles, therefore the loophole). You're really pushing the accounting, and I don't know if an airplane would be a great candidate for it. You'd spend far more setting it up than you would end up saving. Then there are control issues. No, I'd stay far away from a synthetic lease unless you are a big corporation. For a flight school, it's a good way to get burned.

Many thanks for the reply.

Spending far more setting it up than saving is exactly what the lawyer warned about.

 

[datafuser]

Cirri did not have glass cockpits when they first came out.

They were most certainly not cheaper, either - Just a lot sexier.

Thanks for your input.

What feature do you find most important in a 300-hp four-seater?

1. look
2. range
3. speed
4. ceiling
5. human-machine interface (i.e. glass cockpit)
6. something else

 

[flyingcheesehead]

Thanks for your input.

What feature do you find most important in a 300-hp four-seater?

1. look
2. range
3. speed
4. ceiling
5. human-machine interface (i.e. glass cockpit)
6. something else

Yes.

Actually, what I really like are efficient airplanes. If we're limiting this to 300hp birds, that means fast. The other thing is range - Even if you don't USE the range, having enough space in the tanks for a lot of fuel means you can fuel up at the cheap spots and skip the expensive ones (I do this in the 182 a lot).

The man-machine interface is important, and that's not only glass cockpit (I think the Columbias and Perspective-equipped Cirri win here, with G1000 and keypad) but also control harmony.

 

[datafuser]

Yes.

Actually, what I really like are efficient airplanes. If we're limiting this to 300hp birds, that means fast. The other thing is range - Even if you don't USE the range, having enough space in the tanks for a lot of fuel means you can fuel up at the cheap spots and skip the expensive ones (I do this in the 182 a lot).

The man-machine interface is important, and that's not only glass cockpit (I think the Columbias and Perspective-equipped Cirri win here, with G1000 and keypad) but also control harmony.

How fast is fast enough and how much range is good enough?

Below is a speed (VNE) and range comparision of SR22, DA42 and Cessna 400.

SR22: 204 knots, 1049 NM
DA42: 194 knots, 897 NM
Cessna 400: 230 knots, 1148 NM

Cessna 400 is the fastest and has the longest range but the margin is not that great.

Control harmony is difficult to define and compare though.

 

[jesse]

How fast is fast enough and how much range is good enough?

Below is a speed (VNE) and range comparision of SR22, DA42 and Cessna 400.

SR22: 204 knots, 1049 NM
DA42: 194 knots, 897 NM
Cessna 400: 230 knots, 1148 NM

Cessna 400 is the fastest and has the longest range but the margin is not that great.

Control harmony is difficult to define and compare though.

Just so you're aware---VNE is good for telling you how fast you can dive without losing the wings. As far as how fast you can fly in cruise flight? VNE doesn't tell you much of anything. I don't think SR22s fly around anywhere near 204 knots.

 

[datafuser]

Just so you're aware---VNE is good for telling you how fast you can dive without losing the wings. As far as how fast you can fly in cruise flight? VNE doesn't tell you much of anything. I don't think SR22s fly around anywhere near 204 knots.

OK, here is the comparison of max cruise speed.

SR22: 185 knots
DA40: 142 knots at 6,000 feet
Cessna 400: 179 knots at 65% power, 8,000 feet

Cessna's website says the 400's service ceiling is 25,000 feet but I don't think any 400 pilot would dare to go up that high. Perhaps a professional test pilot may try it.

 

[Henning]

Depends why I am buying it. Is it just a personal use aircraft, a business coincidental use aircraft, or a working aircraft that I bill usage hrs at a profit?

 

[jesse]

OK, here is the comparison of max cruise speed.

SR22: 185 knots
DA40: 142 knots at 6,000 feet
Cessna 400: 179 knots at 65% power, 8,000 feet

Cessna's website says the 400's service ceiling is 25,000 feet but I don't think any 400 pilot would dare to go up that high. Perhaps a professional test pilot may try it.

I doubt your SR22 vs Cessna 400 numbers are with both aircraft at 65% power. As far as the service ceiling--you'd be surprised how high pilots will go to catch the big winds if they have oxygen.

 

[gprellwitz]

I doubt your SR22 vs Cessna 400 numbers are with both aircraft at 65% power. As far as the service ceiling--you'd be surprised how high pilots will go to catch the big winds if they have oxygen.

Well, my T210H manual quotes a ceiling of 30,200'. I don't think ANYONE'S taking it up there anymore! (Think RVSM). But in general, I agree with you!

 

[datafuser]

Depends why I am buying it. Is it just a personal use aircraft, a business coincidental use aircraft, or a working aircraft that I bill usage hrs at a profit?

Let's say it's for "personal" business transportation.

B&CA January 2007 issue said "Cirrus has successfully built its business model around owner-flown aircraft, especially ones using their aircraft for business transportation."

 

[datafuser]

I doubt your SR22 vs Cessna 400 numbers are with both aircraft at 65% power. As far as the service ceiling--you'd be surprised how high pilots will go to catch the big winds if they have oxygen.

I don't know if the SR22's figure is achieved at 65% power. Cirrus website simply says 185 knots without power setting.

BTW, is the service ceiling an important requirement for 4-seat single engine aircraft? I've heard single engine 4-seaters fly mostly below 8,000 feet.

 

[Henning]

Let's say it's for "personal" business transportation.

B&CA January 2007 issue said "Cirrus has successfully built its business model around owner-flown aircraft, especially ones using their aircraft for business transportation."

Well, then the question is, is it for business convienience, or business productivity? If it's for productivity, and the productivity increase is such that the income increase by its use out flanks its cost (or any other situation where the plane is "making you money") then you finance it any way you can or if multiple options are available, however your accountant suggests is best for your particular situation. If it's a money loser, but adds convienience to your life, you have to decide what the value to you is, and what benefits you can pull out of it tax wise. Personally, if that was the situation (costs me to use, but I like it/want it) then I would want to be in a position where I could afford to buy it outright whether I do or not. Whether I do or not would depend then on the other opportunities I had for that money. If I can borrow the money at 7% and use the money I have to put into my business and make 15% or be able to get better terms on other money/purchases or investors by have liquid capital reserves, well, then I'll borrow the money. As you can see, it's not really simple, there are more variables than we can possibly cover here, and is highly dependant on ones personal situation.