Joining a club - which would you rather?

[Flying_Nun]

Let's say you are going to join a club down at your local airport. Assume the planes are rented "dry" and are generic glass panel 4-place.

Would you rather a) pay high monthly dues and a lower hourly rate or b) low monthly dues and a higher hourly rate?

 

[OkieFlyer]

Option 3. Pay lower monthly dues and lower hourly rate for a non glass panel plane

 

[nddons]

Option 3. Pay lower monthly dues and lower hourly rate for a non glass panel plane

 

[AggieMike88]

Some of the answer can depend on type of club. Are we discussing one where I am buying an equity position (which I would want lower dunes/rental than local market) or a non-equity where buy-in is very low, dues are enough to cover my share of the fixed + reserves! and rental is fair for the market and covers operational expenses such as inspections, databases, planned and unplanned MX, etc.

 

[MachFly]

Really depends on what's considered high and low.

 

[Fearless Tower]

Really depends on what's considered high and low.

Also depends a lot on how much you fly. If you expect to fly a lot, the higher monthly dues with lower hourly rate will work better. If you are only going to fly an hour our two a month, then the lower dues/higher hourly rate will work better.

 

[MachFly]

Also depends a lot on how much you fly. If you expect to fly a lot, the higher monthly dues with lower hourly rate will work better. If you are only going to fly an hour our two a month, then the lower dues/higher hourly rate will work better.

That too. I just assumed that the question was for each specific person here, and each of us knows how much they fly, that is why I didn't ask that.

 

[Clip4]

Let's say you are going to join a club down at your local airport. Assume the planes are rented "dry" and are generic glass panel 4-place.

Would you rather a) pay high monthly dues and a lower hourly rate or b) low monthly dues and a higher hourly rate?

I would not be interested in a dry rental.

 

[denverpilot]

Just finding a club that rents dry around here would be enough novelty in and of itself. I'm also still hung up on "generic glass panel"... I guess the toys really are that commonplace now.

 

[Flying_Nun]

Added some specifics to aid in the decision.

Let's say you are going to join a shared-ownership club down at your local airport. Assume the club has one DA40 equipped with a Garmin G1000 that is rented "dry." Also assume that the club intends to add a DA20 in the future.

Would you rather a) pay high monthly dues (~$150) and a lower hourly dry rate (~$70) or b) low monthly dues (~$60) and a higher hourly dry rate (~$100)?

 

[poadeleted21]

Added some specifics to aid in the decision.

Let's say you are going to join a shared-ownership club down at your local airport. Assume the club has one DA40 equipped with a Garmin G1000 that is rented "dry." Also assume that the club intends to add a DA20 in the future.

Would you rather a) pay high monthly dues (~$150) and a lower hourly dry rate (~$70) or b) low monthly dues (~$60) and a higher hourly dry rate (~$100)?

Then it's just a simple math question isn't it?

Fly 2-3 hours a month and you come out ahead with the low hourly option.

 

[gkainz]

Just finding a club that rents dry around here would be enough novelty in and of itself. I'm also still hung up on "generic glass panel"... I guess the toys really are that commonplace now.

My club is dry rate ... but it's not "rentals" since we're an equity club.

Added some specifics to aid in the decision.

Let's say you are going to join a shared-ownership club down at your local airport. Assume the club has one DA40 equipped with a Garmin G1000 that is rented "dry." Also assume that the club intends to add a DA20 in the future.

Would you rather a) pay high monthly dues (~$150) and a lower hourly dry rate (~$70) or b) low monthly dues (~$60) and a higher hourly dry rate (~$100)?

Just for comparison purposes ... our club owns an 1983 Dakota (PA28-236), a 1980 Bonanza (F33A), and a 1988 Saratoga (PA32R-301) with Garmin 430W and Aspens. Ownership share is $3690 initial buy-in (share is re-sellable), monthly dues are $195 and ALL dues are flyable, at dry rates of $60 (Dakota) and $88 for the Bo and Toga. Dues are directly credited to flight hours and never expire.

 

[muleywannabe]

Option 3. Pay lower monthly dues and lower hourly rate for a non glass panel plane

exactly!!!

 

[airdale]

Added some specifics to aid in the decision.

Let's say you are going to join a shared-ownership club down at your local airport. Assume the club has one DA40 equipped with a Garmin G1000 that is rented "dry." Also assume that the club intends to add a DA20 in the future.

Would you rather a) pay high monthly dues (~$150) and a lower hourly dry rate (~$70) or b) low monthly dues (~$60) and a higher hourly dry rate (~$100)?

Years ago I read this:

"To every complicated problem there is a simple answer, usually wrong."

Looking solely at airplane rates and monthly dues could lead you into a very unhappy situation. You really have to look at the club's finances in much more detail. If the club is any size, their tax return/IRS form 990 should be available at guidestar.org. Registration is free, the tax return is free, and there are no negative consequences to registering.

Regardless of whether you get the 990 or not, ask to see the club financials for the past two or three years. If you don't know how to read the documents, find a friend who does.

The biggest wild card is "assessments." For example, if the club does not have a cash reserve or bank borrowing power, when that $25,000 engine replacement comes along are you going to get an assessment for your share? What about that DA20? Will you get an assessment for your share of the down payment or of the full airplane cost?

Another wild card is "who is getting paid?" I know of one medium-sized club in our area where no one lifts a finger without getting paid. The president of the club has been president since Wilbur and Orville walked the earth and he gets a nice part-time income from the club. So does the treasurer, maintenance officer, etc.

Third wild card is yours. From years of involvement in club management I will predict that after the initial "honeymoon" you will fly less than you expect. Are there minimum flying charges? I have never seen a new member indicate concern over this, but 90% of them end up paying minimum flying at some point and some pay regularly. Even if there are no minimum flying charges, do your math for the case where you fly half as much as you expect.

A little bit about flight rates vs dues. The Right Way to set these is to have the flying rates cover the variable costs of flying (principally maintenance but not annuals) and the dues cover fixed costs like insurance, hangar, annuals, etc. Setting things up like this makes the club highly resistant to financial problems caused by flying being below plan. So if you find a club whose rates and dues are wildly out of line with others, you had better start asking questions.

Finally: There is no magic. In the long run everyone's costs (other than paid staff) for similar fleets are about the same. Newer airplanes might cost less for maintenance for a while anyway, but what about problems with those expensive glass panels? If it looks too good to be true ...

So no, it's not just a simple math question unless it is a non-equity club where you are protected from assessments and can walk away at no cost if things get too financially exciting.

 

[JimNtexas]

Let me second what Airdale has said.

The term 'flying club' is hugely overloaded. To me if the member doesn't have proportional equity in the club's assets then it's not a 'club' at all, it's an airplane business and the 'member' is a customer. The aviation version of CostCo.

Assuming we are talking about a club in which the members share ownership of the assets, there is very little trade off between fixed costs and variable costs.

The monthly dues must cover the fixed costs of owning its airplanes even if no airplane ever flies at all. These costs, like hanger or tie down rent, annual inspection basic fee, insurance, data subscriptions, professional services (legal and accounting) can be accurately estimated in advance and are covered by the monthly dues. If your club has employees then those costs should be covered by monthly dues.

Our three airplane club runs entirely on volunteers.

We've often talked about adding a fourth airplane, but always we realize that with four airplanes there would be so much work that some club officers would need to be paid, and we just don't want to go there.

Variable costs require estimates, but in general should cover the costs of actually operating the airplanes (overhaul reserves, avionics, interior and engine maintenance reserves, etc). Over time these tend to even out and are fairly predictable.

You can fudge the dues/rates balance a bit, but not much if you want to have a successful club.


Airdale's point about assessments is very important. How frequent are assessments? How much, if any, club money is set aside to pay for the unexpected and usually costly things that happen sooner or latter to every airplane owner. When assessments happen, how soon must members pay them?

 

[Clip4]

Let me second what Airdale has said.

The term 'flying club' is hugely overloaded. To me if the member doesn't have proportional equity in the club's assets then it's not a 'club' at all, it's an airplane business and the 'member' is a customer. The aviation version of CostCo.

Assuming we are talking about a club in which the members share ownership of the assets, there is very little trade off between fixed costs and variable costs.

The monthly dues must cover the fixed costs of owning its airplanes even if no airplane ever flies at all. These costs, like hanger or tie down rent, annual inspection basic fee, insurance, data subscriptions, professional services (legal and accounting) can be accurately estimated in advance and are covered by the monthly dues. If your club has employees then those costs should be covered by monthly dues.

Our three airplane club runs entirely on volunteers.

We've often talked about adding a fourth airplane, but always we realize that with four airplanes there would be so much work that some club officers would need to be paid, and we just don't want to go there.

Variable costs require estimates, but in general should cover the costs of actually operating the airplanes (overhaul reserves, avionics, interior and engine maintenance reserves, etc). Over time these tend to even out and are fairly predictable.

You can fudge the dues/rates balance a bit, but not much if you want to have a successful club.


Airdale's point about assessments is very important. How frequent are assessments? How much, if any, club money is set aside to pay for the unexpected and usually costly things that happen sooner or latter to every airplane owner. When assessments happen, how soon must members pay them?

So if a club had all lease back planes, no assets, was charted not for profit, and elected board of officers, ect, it would not be a bonifide flying club under your definition?

 

[MachFly]

Added some specifics to aid in the decision.

Let's say you are going to join a shared-ownership club down at your local airport. Assume the club has one DA40 equipped with a Garmin G1000 that is rented "dry." Also assume that the club intends to add a DA20 in the future.

Would you rather a) pay high monthly dues (~$150) and a lower hourly dry rate (~$70) or b) low monthly dues (~$60) and a higher hourly dry rate (~$100)?

With the amount of personal flying I do I'd pick the second option.

 

[flyingcheesehead]

Just for comparison purposes ... our club owns an 1983 Dakota (PA28-236), a 1980 Bonanza (F33A), and a 1988 Saratoga (PA32R-301) with Garmin 430W and Aspens. Ownership share is $3690 initial buy-in (share is re-sellable), monthly dues are $195 and ALL dues are flyable, at dry rates of $60 (Dakota) and $88 for the Bo and Toga. Dues are directly credited to flight hours and never expire.

Another data point: Our club owns a 1977 Archer, a 1978 C-R182(RG), and a 2006 DA40. All IFR GPS + Autopilot equipped. Aspen in the R182, G1000 in the Diamond. $1200 buy-in when a share is available (and they are also re-sellable), $170/month. Your first $50/month of flying is free. Archer is currently $119/tach hour wet, DA40 is $147/airborne hour wet, R182 is $148/tach hour wet.

Looking solely at airplane rates and monthly dues could lead you into a very unhappy situation. You really have to look at the club's finances in much more detail. If the club is any size, their tax return/IRS form 990 should be available at guidestar.org.

I agree, but you'll only find a 990 if the club is a non-profit corporation. Plenty of clubs out there, including my own, that may not be. In our case, we operate as if we're a non-profit but we have some tax advantages to being for-profit. When those run out, we'll switch.

The biggest wild card is "assessments." For example, if the club does not have a cash reserve or bank borrowing power, when that $25,000 engine replacement comes along are you going to get an assessment for your share? What about that DA20? Will you get an assessment for your share of the down payment or of the full airplane cost?

An excellent piece of advice. There are an awful lot of flying clubs that are in the position of needing to borrow or do assessments for big-ticket items. Our club used to be that way. About a decade ago, we added reserves to our hourly rates for engine overhauls and upgrades and we're now in a MUCH better financial position. In fact, we've got enough money in the bank that the next overhaul should be covered.

A little bit about flight rates vs dues. The Right Way to set these is to have the flying rates cover the variable costs of flying (principally maintenance but not annuals) and the dues cover fixed costs like insurance, hangar, annuals, etc. Setting things up like this makes the club highly resistant to financial problems caused by flying being below plan. So if you find a club whose rates and dues are wildly out of line with others, you had better start asking questions.

Amen!

Finally: There is no magic. In the long run everyone's costs (other than paid staff) for similar fleets are about the same. Newer airplanes might cost less for maintenance for a while anyway, but what about problems with those expensive glass panels? If it looks too good to be true ...

The "magic" is really just that sharing the fixed costs makes it cheaper and it's MUCH less risky than sole ownership. IMO, it's the best way to fly.

 

[Flying_Nun]

I'm actually looking at starting a club to get what I, and hopefully some other pilots, want. Being fiscally conservative, my initial projections have fixed costs baked into the monthly dues. That runs the dues up hence the question about what people prefer. Although I should probably be more concerned with finding like minded people.

Initial buy-in would be such to cover a 10-20% down payment on a plane plus a couple of months operating expense.


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[airdale]

I'm actually looking at starting a club to get what I, and hopefully some other pilots, want. Being fiscally conservative, my initial projections have fixed costs baked into the monthly dues. That runs the dues up hence the question about what people prefer. Although I should probably be more concerned with finding like minded people.

Initial buy-in would be such to cover a 10-20% down payment on a plane plus a couple of months operating expense.

Starting a club! A daunting prospect. Don't be tempted to set dues below fixed costs, though. That is a recipe for problems. Re "a couple of months operating expenses" is that with or without the prop strike? Point being that some things are (a) not predictable and (b) expensive. Be ready either with an extra $10K in the bank or with a clearly understood and communicated policy on assessments.

Do you have a banking relationship already? I'd guess that it is better than 50/50 odds that a banker will want a joint and several personal guarantee -- especially with the low down payment you are proposing. A requirement for such a guarantee may be a show-stopper for you.

Whatever cost projections you make, add 20% for the Aw-S#its and I-forgots. Members will be happier if you slightly reduce dues or flying rates in the future than if you get them signed up and immediately put through an increase.

 

[flyingcheesehead]

I'm actually looking at starting a club to get what I, and hopefully some other pilots, want. Being fiscally conservative, my initial projections have fixed costs baked into the monthly dues. That runs the dues up hence the question about what people prefer. Although I should probably be more concerned with finding like minded people.

Initial buy-in would be such to cover a 10-20% down payment on a plane plus a couple of months operating expense.

Do not ever make your monthly dues lower than your fixed costs (the biggest of which will be hangar, insurance, and the inspection portion of your annual). These are all pretty easy to budget for. But, if you put part of the fixed costs into the hourly rate, what happens if the plane goes down for maintenance, the weather sucks, etc? You're going to be losing money.

Also, FWIW, the bank will not loan you the money for the plane if you're not covering fixed expenses with your monthly dues, unless someone is personally liable for the loan.

 

[nddons]

Kent, why "airborne" hour on the DA40, and how do you measure that?

 

[Clip4]

Do not ever make your monthly dues lower than your fixed costs (the biggest of which will be hangar, insurance, and the inspection portion of your annual). These are all pretty easy to budget for. But, if you put part of the fixed costs into the hourly rate, what happens if the plane goes down for maintenance, the weather sucks, etc? You're going to be losing money.

Also, FWIW, the bank will not loan you the money for the plane if you're not covering fixed expenses with your monthly dues, unless someone is personally liable for the loan.

They may not loan you the money if the fixed costs are covered by dues. You are a new company, with no history, no cash flow, and a business plan that at best breaks even.

 

[Flying_Nun]

Thanks to everyone for the constructive replies.

Greg and Kent,

Would it be possible for you to send me the bit from your clubs' by-laws regarding buying/selling shares. In my research I haven't come across this yet.

Thanks.

 

[flyingcheesehead]

Kent, why "airborne" hour on the DA40, and how do you measure that?

Well, while I think it's theoretically possible to get the tach hours, I think you have to go into the maintenance screens to do it. The flight time is right there on the engine page of the G1000 and it accomplishes our goal - To not have to pay full Hobbs rate. (We do have a Hobbs too, and the relationship between them is similar to the relationship between tach and Hobbs.)

 

[flyingcheesehead]

Greg and Kent,

Would it be possible for you to send me the bit from your clubs' by-laws regarding buying/selling shares. In my research I haven't come across this yet.

Sure! Send me a PM with your email address and I'll send you our full bylaws and standard operating procedures. They've worked well for us, with very little modification in the last decade...

As far as buying/selling, a normal sale is a private transaction handled between the current member and the buyer/new member, but the new member must apply and be approved by a member of the BoD (our President generally handles this) based on checks of the person's credit history (including at the FBO), FAA enforcement history, etc. It's very rare for a potential new member to not be approved.

We also have a way for people to get out of the club if they don't want to (or can't) sell their share themselves, which is fairly important IMO and one of the few things that we have added to the bylaws in the last decade. Prior to that it was pretty much a case-by-case thing that had to be voted on by the whole club.

 

[ColoPilot]

We also have a way for people to get out of the club if they don't want to (or can't) sell their share themselves, which is fairly important IMO and one of the few things that we have added to the bylaws in the last decade. Prior to that it was pretty much a case-by-case thing that had to be voted on by the whole club.

I'm curious, how do you handle it when someone wants out but can't sell their share (i.e. no buyers)?

 

[airdale]

Well, while I think it's theoretically possible to get the tach hours, I think you have to go into the maintenance screens to do it. The flight time is right there on the engine page of the G1000 ...

Are you sure? (Not an attack, just my curiosity.) I have always thought of the engine page number as tach time. The G1000 manual calls it "engine hours." There is a flight timer on the Aux Utility page. I have always assumed that the flight timer works like the transponder on/off; starts at a certain ground speed, stops at a certain speed.

 

[flyingcheesehead]

I'm curious, how do you handle it when someone wants out but can't sell their share (i.e. no buyers)?

2 ways.

1) They can pay a year's dues and just walk away, which gives the club a chance to either sell the share or if there are a bunch of people who leave in a fairly short time span, sell an airplane.

2) This one is much more common: A member who is starting to think about getting out of the club (moving, buying an airplane, etc. on the horizon) can get a marketing plan approved by the BoD and execute it. If their share still hasn't sold after 6 months, they pay 6 months' dues and walk away. They retain full flying and membership privileges during the marketing period.

For someone who doesn't even want to try to sell their share or just wants out right now, #1 is the way to go, and it exists because some of the people complaining that they couldn't get out of the club were not putting any effort into selling their shares. The vast majority of people go with #2 as it allows them to keep flying and potentially make some money.

These days, most people are going through the motions to get #2 started but end up selling their share before the marketing period is over. Back in the 2008-2009 timeframe when we instituted this policy, we had maybe 6 people who left with either #1 or #2, but the extra payment kept us stable - We actually bought a new airplane in 2010.

 

[flyingcheesehead]

Are you sure? (Not an attack, just my curiosity.) I have always thought of the engine page number as tach time. The G1000 manual calls it "engine hours." There is a flight timer on the Aux Utility page. I have always assumed that the flight timer works like the transponder on/off; starts at a certain ground speed, stops at a certain speed.

The one on the Aux-Utility page is only for the current flight, and can be set to either power-on or in-flight time.

The one on the engine page is described thusly: "Displays the total flight hours and is activated when the aircraft becomes airborne (note that time airborne does not necessarily correspond to tachometer time)"

The G1000 manuals are different depending on what model of aircraft they're in, and implementation of various features can vary as well. Which G1000 manual are you looking at? FWIW, the above is straight out of the DA40 G1000 manual for both software revs 0321.22 and 0321.23, the only versions we've had since our 2010 purchase of the plane.

 

[ColoPilot]

2 ways.

1) They can pay a year's dues and just walk away, which gives the club a chance to either sell the share or if there are a bunch of people who leave in a fairly short time span, sell an airplane.

2) This one is much more common: A member who is starting to think about getting out of the club (moving, buying an airplane, etc. on the horizon) can get a marketing plan approved by the BoD and execute it. If their share still hasn't sold after 6 months, they pay 6 months' dues and walk away. They retain full flying and membership privileges during the marketing period.

For someone who doesn't even want to try to sell their share or just wants out right now, #1 is the way to go, and it exists because some of the people complaining that they couldn't get out of the club were not putting any effort into selling their shares. The vast majority of people go with #2 as it allows them to keep flying and potentially make some money.

These days, most people are going through the motions to get #2 started but end up selling their share before the marketing period is over. Back in the 2008-2009 timeframe when we instituted this policy, we had maybe 6 people who left with either #1 or #2, but the extra payment kept us stable - We actually bought a new airplane in 2010.

Thanks, that seems like a fair way to do it, for both the club and the pilot. I've been thinking about joining a club, but one concern I have is what would happen if I needed to leave.

 

[JimNtexas]

So if a club had all lease back planes, no assets, was charted not for profit, and elected board of officers, ect, it would not be a bonifide flying club under your definition?

My example above was reduce the scope of the answer to something manageable.

Your hypothetical 'club' describes the typical small airplane FBO rental operation. I don't consider that be a real 'flying club' in the true sense of the word. YMMV.

 

[JimNtexas]

I'm curious, how do you handle it when someone wants out but can't sell their share (i.e. no buyers)?

In our club they are responsible for paying their monthly dues until they sell their share. If their past due account gets to a certain level they are barred from flying the airplanes.

We've never had a situation where a share couldn't be sold, but within the last 12 years I know we had one member who just moved and put us on ignore. The club found a buyer for him, at which point he took us off of ignore.

I wanted to just repossess his share, but a number of members thought that was unfair and perhaps not legal, so we refunded what was left after the sale minus his past due balance and the costs of sale.

Yours is a great question, which was left unanswered by our 1982 bylaws.

I'd suggest anyone starting a new club address this use case specifically in your bylaws.

 

[airdale]

The G1000 manuals are different depending on what model of aircraft they're in, and implementation of various features can vary as well.

Interesting. Thanks. I would have thought that basic features like the engine time counter would be universal but obviously not. My reference is a somewhat elderly (2005) 182 reference manual.

 

[gkainz]

In our club, you are responsible for your monthly dues until a replacement candidate purchases your share. You are placed in the resignation queue in order of resignation date, and these shares are transferred to incoming members on first in, first out.

We have two kinds of exits - resignation and deferred resignation. In both, you are liable for dues until your share is purchased. Resignation means that any hours banked are forfeit at the time your share is purchased and the share price is refunded to you. A deferred resignation means that your share cost is kept on the books, any hours banked remain banked, and if you choose to return to the club, you can do so once a share is available.

I think I have the above correct. It is spelled out in our Charter and Operations Manual, which I don't have with me as I'm travelling away from home this week.

 

[flyingcheesehead]

My example above was reduce the scope of the answer to something manageable.

Your hypothetical 'club' describes the typical small airplane FBO rental operation. I don't consider that be a real 'flying club' in the true sense of the word. YMMV.

No, he specifically said not-for-profit. I know what your point is, and I agree with you, but there are plenty of legitimate flying clubs that are non-equity. In fact, the two other large flying clubs on our field are non-equity, though they do own their planes. We also frequently hang out with some guys from a flying club at another field that is all leasebacks. They're still a real flying club.

To me, an FBO has a facility and a full-time paid staff, things that most (but not all) flying clubs lack. An FBO also probably has departments other than aircraft rental (line services, maintenance, etc). An FBO is also a for-profit business. (Whether or not they actually make a profit is another matter. )