Shared ownership/club arrangement for a 421?

[N747JB]

A friend approached me and asked for feedback on his idea for a shared ownership/club arrangement for a late serial number 421C, nice avionics, new paint, trailing link gear, all the good stuff you'd want in a 421C.
Anyway here's the gist of the program:
1. 1/4 shares $150K each cash, no finance option.
2. $3000 per month management fee that includes hangar, insurance and ALL maintenance and upkeep, engines, props, tires, inspections everything with the exception of cosemetic or avionics upgrades.
3. Owners get 75 hours per year with 70 overnights.
4. Owners pay for fuel and if required pilot services.

I figured the cost to be in the $800.00 per hour range if you used it 75 hours per year, probably not much more than owning it yourself. My comment was two guys could buy and own a pretty nice 421C for $150K each and 800 bucks an hour. It would make more sense if the monthly costs were in the $1500.00 range and the price reflected the market a little closer to $400K?

 

[Ted]

I don't see a 421C being worth $600k, so there's the first hole. The $3k/month equates to $36k/yr. Fixed costs probably around $5k hangar, insurance figure $7k (you'd know those numbers better than me), and the annual and maintenance is probably not too far off for filling the gap there. Like you said, around $800/hr, and I think that $600-700/hr is the typical expected rate these days.

The 75 hours per year thing seems to be the part I'm not so sure on. It seems most of the people who own these planes fly them closer to 200 hours/year. So then what do you pay for overages?

 

[N747JB]

It's $150.00 for each additional hour up to 25, then $400.00 per hour for over 100 hours. The $36K per year is fairly close for operating a 421, BUT it's $36K X 4= $144,000.00 per year!!
I told him his pricing was too high, not many $600K 421's, heck I paid less than that for my 425! They do cover engine overhauls, etc, but from what I can see it's not a reserve account that builds up, it's just part of the fee you pay. It's a great deal for the FBO, not so much for the buyer, or at least that was my take on it.
IF it was $100K to buy in, and $1500-2000.00 per month I think it would make more sense, obviously, I am not a prospect. I don't need another airplane to feed, I just wanted to see what you guys thought since he asked my opinion.

I don't see a 421C being worth $600k, so there's the first hole. The $3k/month equates to $36k/yr. Fixed costs probably around $5k hangar, insurance figure $7k (you'd know those numbers better than me), and the annual and maintenance is probably not too far off for filling the gap there. Like you said, around $800/hr, and I think that $600-700/hr is the typical expected rate these days.

The 75 hours per year thing seems to be the part I'm not so sure on. It seems most of the people who own these planes fly them closer to 200 hours/year. So then what do you pay for overages?

 

[WBI Flyer]

Sounds a bit like someone has accrued debt on a 421 - maybe with upgrades, and is pricing membership according to the debt instead of the value. ??

 

[N747JB]

It's a local FBO, they have a charter operation as well, I think it's more of a way to use the 421, that they bought as a repo a few year ago, to produce some income. I wish I would have sold my 421 like this, $75K per 1/4 share instead of $190K cash!

Sounds a bit like someone has accrued debt on a 421 - maybe with upgrades, and is pricing membership according to the debt instead of the value. ??

 

[weilke]

Aircraft managers allways get greedy and think that people are bad at math.

 

[Ted]

Yeah, the general numbers seem like a setup that nobody in their right mind would go with. I don't think it was well thought out.

 

[N747JB]

Aircraft managers allways get greedy and think that people are bad at math.

That's sort of what I told him, he's trying to make a big score vs making a profit. For the non-pilot it might be an easier sell, but anybody that looks at the numbers as long as they don't replace more than one engine per year, the house still wins. I think I can hangar, insure, and maintain a 421 with reserves for not much more than they are proposing to charge each buyer.
At $600K upfront, he's already covering the value of the airplane and replacing both engines when the need arises. So, the management fee could be much lower and still make a profit.
Here's a similar airplane for under $400K
http://www.controller.com/listingsdetail/aircraft-for-sale/CESSNA-421C/1981-CESSNA-421C/1299559.htm

 

[weilke]

I think I can hangar, insure, and maintain a 421 with reserves for not much more than they are proposing to charge each buyer.

Just for the basic stuff like hangar insurance and fixed maintenance (annual, AD compliance, calendar items), 3k/month should pay the bill, particularly if there is no capital expense involved.

'Managing' part 91 aircraft is the most profitable part of the FBO business, because it turns out, people are in fact bad at math. Or maybe they are not bad at math, but the kind of business that uses 75hrs/year would charter otherwise and relative to that expense, the shared plane can still work out. It is the vacation time share model, sell the same condo 51 times and collect the maintenance fee 51 times.

Even if he can bamboozle 4 people into buying into this, a year in they are going to realize that they are being milked and will do everything they can to get out. Those charges tend to be just the start. There is 'pilot fees', hotels, rental cars for the pilot etc.

He needs to come up with more realistic numbers. Also, rather than rolling all the maintenance into the monthly, I would suggest to have a lower monthly but to charge a reasonable reserve on engines and hourly maintenance on top of that.

 

[Ted]

I don't know, most of the FBOs that manage planes for people more do it in terms of the buyer owns the plane, FBO charges for pilot services, MX, etc. But maybe I've just seen different models. Works well if you have a 135 that's under-utilized, and thus gives your pilots more to do.