Own a Flight School or Rental Business? Leaseback Rant!

Skymac

Skymac

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Justin
Does anyone else with an aviation business constantly get barraged with people asking you to lease back their airplanes? All I want to do is just shake them and say no for the 100th time.

It’s always some high dollar airplane too. SR22, Glass 182, Diamond, etc.

I own my own aircraft, understand the market, and manage a good operation that is customer centric. It’s very successful and everyone thinks if they buy an airplane, that I will lease it from them and they will make money and have a free airplane in basic terms. I just tell them to buy it, and rent it themselves if that’s what they want to do. Start your own business and see where you’re at with it.
 
Interesting. Many flight schools, clubs and rental FBO would love to lease high end airplanes for their fleets but there are not that many owners willing to do that with their baby. You seem to be reporting the opposite.
 
FBO / Airport Standards are often an issue. Maybe it’s because I own my own aircraft instead of leasing them.

I just don’t feel like it’s worth the hassle of expensive insurance, and maintenance to rent at a reduced number of hours compared to a fleet of more modest priced 172’s at higher utilization. Doesn’t seem worth the risk to make a few percent of profit if all works well.
 
Skymac said:
FBO / Airport Standards are often an issue. Maybe it’s because I own my own aircraft instead of leasing them.

I just don’t feel like it’s worth the hassle of expensive insurance, and maintenance to rent at a reduced number of hours compared to a fleet of more modest priced 172’s at higher utilization. Doesn’t seem worth the risk to make a few percent of profit if all works well.
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That I understand. Fleet consistency sells because if one is down, you just grab another. Time after time I've seen really great airplanes that just weren't being rented because they were not only more expensive to rent but different. I've always been a renter or club member and have often been one of the very few to rent something before the owner realized, as one owner said to me, "I'm paying more for insurance and maintenance, and all I am getting back is a tired airplane." For every renter who will grab a Bonanza for a once-a-year trip with the family, there are 10 who won't even do a checkout.

OTOH, consistent fleets work with higher end airplanes too. Operations that rent nothing but Cirrus tend to do well. The club I am with now has 3 DA40s and all three get utilized.
 
It makes sense if you're vertically integrated, and can charge for your maintenance, parts, and fuel on top of your marketing/management cut.

We did fine with leasebacks. Unusually, so did our owners -- I think we had the right balance of "didn't gouge them too much" to provide them access to a very busy student pool for the high utilization. We owned the busiest planes, and often would buy out the leaseback owner when they got bored or didn't fly as much as they thought they would.

I can't imagine being unhappy with people offering to let me use their planes. But okay :)
 
Brad Z said:
Seems the opposite is more common...FBOs and flight schools are hitting up owners to put their bird on lease-back. If you were based at my airport, I promise you'll never hear me offer my plane to you for lease back.
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I was once asked to put an airplane on leaseback. I spent 10 minutes walking around the ramp looking at airplanes that had all gotten new paint and interior in the last 3 years, all of which appeared to need new paint and interior, and declined.
 
The crazy part is they would probably do better at controlling costs and having owner availability by putting the plane in an LLC and getting a few LLC co-owners, which could either be even shares or just limited shares to establish co-ownership of the LLC. A bit of accounting and administrative expense, but far cheaper than paying for commercial rental insurance.
 
Yea, I guess maybe I’m just an odd duck. I feel like owning my own aircraft makes me feel the way I do. A lease back potentially pulls hours from a more profitable aircraft percentage wise. Silly insurance is always my grip. If I didn’t have to spend $10k on insurance for an experiment to see if something worked I might entertain it. Interesting to get the various opinions on it.
 
Skymac said:
Yea, I guess maybe I’m just an odd duck. I feel like owning my own aircraft makes me feel the way I do. A lease back potentially pulls hours from a more profitable aircraft percentage wise. Silly insurance is always my grip. If I didn’t have to spend $10k on insurance for an experiment to see if something worked I might entertain it. Interesting to get the various opinions on it.
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Leaseback plane owner should pay their insurance. The experiment should be theirs, and ALL risk theirs. In fact, for completeness, here's how we structured our deals:

Lease plane pays its insurance
Lease plane pays its maintenance (discounted if using our house shop, actual cost if outsourced)
Lease plane is paid a dry rate of XX per tach hour by the house. (We had a formula to calculate this based on the wet hobbs rate but I've forgotten it)
House withholds 20% of dry rate as management fee.
End of month statement and true-up (check cut, or bill presented -- expectation that deficits are settled immediately, on pain of mechanic lien for unpaid mx)

Renter pays the house wet hobbs and any fuel surcharges.
No fuel needs tracking this way (because ugh)

Only you can know if a new plane would dilute your fleet. We didn't experience that, it just grew the pie, but every market is unique I suppose. But yeah, if you were planning on being a nice guy and chipping in 10-12 grand/yr for commercial insurance, that's never gonna work. Leaseback runners can be really fickle, or surprised how much "get up to scratch" maintenance there is in the first few months as the renters stress (nee tear the stuffing out of) their plane. :D

It can work in a busy market and saves CapEx for the house. We still owned our core planes though, and I never felt that was inefficient/incorrect, though it probably was.
 
schmookeeg said:
Leaseback plane owner should pay their insurance. The experiment should be theirs, and ALL risk theirs. In fact, for completeness, here's how we structured our deals:

Lease plane pays its insurance
Lease plane pays its maintenance (discounted if using our house shop, actual cost if outsourced)
Lease plane is paid a dry rate of XX per tach hour by the house. (We had a formula to calculate this based on the wet hobbs rate but I've forgotten it)
House withholds 20% of dry rate as management fee.
End of month statement and true-up (check cut, or bill presented -- expectation that deficits are settled immediately, on pain of mechanic lien for unpaid mx)

Renter pays the house wet hobbs and any fuel surcharges.
No fuel needs tracking this way (because ugh)

Only you can know if a new plane would dilute your fleet. We didn't experience that, it just grew the pie, but every market is unique I suppose. But yeah, if you were planning on being a nice guy and chipping in 10-12 grand/yr for commercial insurance, that's never gonna work. Leaseback runners can be really fickle, or surprised how much "get up to scratch" maintenance there is in the first few months as the renters stress (nee tear the stuffing out of) their plane. :D

It can work in a busy market and saves CapEx for the house. We still owned our core planes though, and I never felt that was inefficient/incorrect, though it probably was.
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Thanks for the insight on that!
 
Lease backs arrangements are always a dumpster fire


“But this time it’ll be different” lol
 
schmookeeg said:
Leaseback plane owner should pay their insurance. The experiment should be theirs, and ALL risk theirs. In fact, for completeness, here's how we structured our deals:

Lease plane pays its insurance
Lease plane pays its maintenance (discounted if using our house shop, actual cost if outsourced)
Lease plane is paid a dry rate of XX per tach hour by the house. (We had a formula to calculate this based on the wet hobbs rate but I've forgotten it)
House withholds 20% of dry rate as management fee.
End of month statement and true-up (check cut, or bill presented -- expectation that deficits are settled immediately, on pain of mechanic lien for unpaid mx)

Renter pays the house wet hobbs and any fuel surcharges.
No fuel needs tracking this way (because ugh)

Only you can know if a new plane would dilute your fleet. We didn't experience that, it just grew the pie, but every market is unique I suppose. But yeah, if you were planning on being a nice guy and chipping in 10-12 grand/yr for commercial insurance, that's never gonna work. Leaseback runners can be really fickle, or surprised how much "get up to scratch" maintenance there is in the first few months as the renters stress (nee tear the stuffing out of) their plane. :D

It can work in a busy market and saves CapEx for the house. We still owned our core planes though, and I never felt that was inefficient/incorrect, though it probably was.
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And that’s why it doesn’t work, paying for maintenance/insurance on a plane others are paying hourly to abuse is just a looser from the gate, just some owners take longer to figure this out than others


If you’re debating doing a lease back, just sell that plane and buy a smaller aircraft you can actually afford, or just sell and join a club
 
The other way around in my experience. Places were I was were out scrounging for people to lease planes to them.

Leasebacks can be reasonable but you have to treat them like a business proposition which far too few lessees and lessors fail to do.
 
Do you tell them flat-out “no”? Could you give them a ridiculously low lease rate to where the math works out for you, risks included?
 
I did 1 for about 8 months on a C-150 and the airplane just didn’t rent enough to make any money for either of us. It was a dead break even honestly. In todays market the 172’s out rented the 150, 25 to 1. I took $15 per hour and the rest went to the owner, he paid all expenses. I just did it as a friends deal. He wanted a reason to keep the plane for a little longer when he upgraded to something bigger.
 
“Sure, we would be happy to beat on it like a red headed stepchild. We will slam doors, perform high rpm cold-starts, drag the brakes, land flat, land hard, land flat and hard, and possibly wheelbarrow it. Like finger prints on your glass? High maintenance bills? And the possibility to break even?”
 
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Weird...I have had two operators both tell me that lease backs almost always work out financially in favor of the operators much more so than the owners in the context of when I was inquiring about the business side of leaseback viability from an owner standpoint and aviation business operations from the FBO standpoint.

May want reconsider your model of how to monetize other people's assets if they are wanting to hand you the keys.
 
I don’t see how an operator can NOT benefit from a leaseback. Like a casino, they can set the odds to always be in their favor. Worst case, it’s too expensive and nobody rents, but the operator doesn’t lose in that scenario. The owner on the other hand….I have never been able to figure out the benefit to the owner.
 
Not sure that requires a rant. It's a common enough business arrangement in the flight school market. A simple 'thanks for the offer but we are not interested' should be all that it takes.

I had a colleague who ran an entire business of leasing trainer aircraft to flight schools . Never lacked for takers. If done right it's a reasonably profitable business.
 
weilke said:
Not sure that requires a rant. It's a common enough business arrangement in the flight school market. A simple 'thanks for the offer but we are not interested' should be all that it takes.
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Glad I read till the end because this is pretty much exactly what I was going to say. It is a very common business arrangement, so you have to expect people to approach you with the offer. A simple No thank you, we don't do that" should suffice. If they persist, then you can be slightly more forceful with your NO. Only if they keep harassing you do they deserve a rant.
 
I was in a partnership with an Arrow II. The Other Guy is... let's just say he's older than me. He bought the plane new. It was a 1972 model so that shows you how old he is. No offense to you old guys, I'm just trying to set the stage.

In general, the partnership worked out great. I flew more than him, and he did less frequent but longer flights. Scheduling was never a problem. Expense allocation was never a problem. It was a fairly cost effective way for me to fly. My previous plane was a Turbo Arrow III which I owned outright. That was a financial nightmare. In piston single standards, not twins or other Real Pilot's planes.

As you might expect, he was starting to feel his medical slipping plus he planned on relocating to Oregon. He would have liked me to buy him out but the plane wasn't worth what he wanted for his half. It actually wasn't worth what I paid for my half either but whatever and that's another story. But I still came out relatively unscathed as compared to the TA III.

I wasn't crazy about the idea, but I went along with it. And that was to put the plane on leaseback to a local FBO. They didn't have a complex trainer. They wanted a complex trainer, and a plane for people to rent that wanted a little more than a 172 or a Warrior.

The idea was not necessarily that we would get rich on the arrangement, but that MX and storage costs would be absorbed by them, plus upgrades (ADSB) and we would basically fly the plane for free on a dry basis until they paid us in full. We had an arrangement to sell the airplane to them, and the Other Guy agreed to put them on a payment plan.

On the surface, that sounds like a pretty good arrangement. But other life (near life ending) events precluded me from flying for a while, and I never really got to realize the 'fly for free' arrangement. I never saw a dime from the leaseback usage, and eventually a renter did a gear up landing and totalled the plane, and before it was very paid off. I got some insurance money from that, but nothing close to what I paid in to it.

Okay that was my pain. It didn't work out great for the FBO either, frankly. They actually did invest some money in upgrades, (we negotiated a split on the insurance proceeds) and lost their complex trainer. So, basically, it was a lose-lose situation for all involved.

We tried to sell it. The market was not amenable to selling it at the time. At least not at anything close to the price we wanted. I would have preferred that we would have just sold it. Well... we did sell it... to the FBO. But it got wrecked before it was paid for.
 
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I have a plane (Cherokee 180) on leaseback with a school. It has been reasonably profitable but I treat it as a business and have my own personal plane (Dakota) that is not on leaseback. You need to have a good relationship with the school. I am semi retired and a CFI so much of my instruction is actually in my leaseback airplane. I am also often the one to check out renters so maintain some control over things.
 
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