Has anyone ever heard of a POSITIVE lease-back experience?

spooky981 · Post by **spooky981** » Mon Jul 04, 2011 5:43 pm

It just sounds like such a fantastic way to make ownership affordable. Of course I'm interested in any leaseback experiences you all have. But so far, I'm not hearing anything very favorable.

rfane · Post by **rfane** » Mon Jul 04, 2011 8:53 pm

Have never ever heard of one. When someone tries to sell you on one, just remember when someone (brother, cousins, friends, uncle) took you Snipe hunting. It's like that.

RyanShort1 · Post by **RyanShort1** » Mon Jul 04, 2011 9:41 pm

I've heard of a few, but they are just that - few. I think they have to be VERY carefully crafted. Even then, they are very dependent on several factors, any one of which can ruin the owner's day.

Ryan

drseti · Post by **drseti** » Tue Jul 05, 2011 10:18 am

The reason most aircraft owners enter into a leaseback arrangement is to get somebody else to pay for their aircraft, which they then hope to fly for free. The economic realities don't support this. Think of leaseback rather as an effective tax shelter. If you have sufficient income to put you in one of the higher marginal tax brackets, the investment tax credit (if any) and accelerated depreciation can allow you to buy a new airplane at significantly reduced actual cost. The leaseback income is just about enough to cover your actual operating expenses (if you are lucky, and have an honest FBO). So, absent the tax benefit, you will probably not come out ahead. Talk to your CPA, and approach this as a business decision, not an emotional one.

All that said, folks in the higher tax brackets can benefit, if they don't need to generate current income, and want to make purchase of a new aircraft more affordable. The idea is to put the plane on leaseback for about three years, garner the bulk of the tax benefits, and then take the plane off leaseback and have a paid-for personal plane. If that's not your objective, then leaseback is probably not for you.

To see what a typical leaseback contract looks like, browse to http://avsport.org/docs/AIRCRAFT%20LEAS ... EEMENT.pdf. This is pretty much an industry-standard form. In fact, mine was based upon a generic model obtained from AOPA.

tadel001 · Post by **tadel001** » Tue Jul 05, 2011 10:37 am

Our leaseback owners have down pretty well. It depends on why you are leasing back. Are you looking to make money and this is just an investment? Are you looking to help share the cost of owning your own airplane? If you want to make money, then you need to lease the plane to a school that will use it. I hear of a lot of people doing sport plane leasebacks with larger flight schools (so the only sport plane is the lone leaseback). Of course the school is not geared to sport pilot training and the aircraft gets marginal use.

If you are looking to just help with some of the cost, then you can lease back to a school that won't use it much or you can lease it to a school with restriction, i.e. only pilots with 50 or more total hours and 5 hours in make/model can fly it. This will help with some of the wear and tear. Of course, this will also limit the market.

spooky981 · Post by **spooky981** » Tue Jul 05, 2011 11:46 am

I'm not looking at it as a potential money-maker. It's really difficult to find someone willing to do an airplane share with someone who only has 60ish hours. I really don't care about overall cost per hour of flying.

What I need is the flexibility to fly to the beach for the weekend. Or maybe go visit a friend for a few hours. But flight schools won't let that happen.

I think what I really need is a light sport flying club. As far as I can tell, that's basically renting with the benefit of being able to take trips. Unfortunately light sport flight clubs seem to be pretty rare.

drseti · Post by **drseti** » Tue Jul 05, 2011 1:03 pm

spooky981 wrote:What I need is the flexibility to fly to the beach for the weekend. Or maybe go visit a friend for a few hours. But flight schools won't let that happen.

It depends on your schedule, and the nature of the school. Peak instructional days at my little flight school are weekends. An aircraft owner with a leaseback contract can be pretty sure the plane will be available to him or her during the week, but probably not on weekends.

Jack Tyler · Post by **Jack Tyler** » Wed Jul 06, 2011 8:24 am

"What I need is the flexibility to fly to the beach for the weekend. Or maybe go visit a friend for a few hours.... I think what I really need is a light sport flying club."

Perhaps. But such clubs are rare because the installed base of such a/c and the number of SP's are both still quite small. And don't overlook the fact that a 'sport flying club' brings its own complexities and workload along with it.

What I'd be doing, in your shoes, is determining the viability of a partnership. This could be the best mix of low cost, simple administration, flexibility of a/c access, and limited liability. Let's assume your lifestyle includes a fairly rigid 8-5 M-F work schedule and you expect most of your flying to be on weekends, plus flying trips during vacation periods and some early evening flights during mid-year when there's extended daylight hours. Then you'd be looking for at least some potential partners who have alternative schedules. These days, there are lots of employed individuals who work at home at least part-time, do on-site consulting, do contract work...and then there are the 20% of adults who are retired. All pilots who fall into one of those categories might find daytime weekday flying to be preferred or at least acceptable: after all, they have 5 days from which to pick the best weather, the pattern isn't chock-a-block full, a weekday may in fact 'be' their weekend, and so forth

If there were two '8-5 M-F partners' and two 'alternative workstyle' partners, you'd find the a/c would almost always be available when you wanted to fly it. I know this can be true because that's the system I set up for 5 years, and in the end the partnership expanded to 5 partners because the costs became even lower and scheduling conflicts were almost unheard of. And vacations were easily arranged because, if Partner Bill was agreeable to the plane being gone for Week 23 for vacation reasons, then Partner Bill knew the others would be agreeable when he wanted it for his vacation in Week 36.

There are issues that need addressing with partnerships, to be sure...but it's a viable alternative if the initial partners are thoughtfully chosen and the partnership structured in ways that protect each of the partners. For you, the question is whether there is a sufficient active pilot population in your area, interested in light sport flying, that such a partnership is feasible.

garbageman · Post by **garbageman** » Wed Jul 06, 2011 8:58 am

I have a successful leaseback. I own a Tecnam Eaglet and lease it to a large Sport Pilot school. It flew over 550 revenue hours last year. I flew it about 80 hrs. I do much of the maint myself, or under the supervision of an excellent A&P. That makes the economics much better.

For Prof. Paul: Your discussion of tax benefits is only correct if the lessor is an "active participant" in the business (IRS ruling). If "passive" tax treatment is very different.

I would be happy to discuss leaseback with anyone contemplating a leaseback. Contact me directly.

David

drseti · Post by **drseti** » Wed Jul 06, 2011 9:18 am

garbageman wrote:For Prof. Paul: Your discussion of tax benefits is only correct if the lessor is an "active participant" in the business (IRS ruling). If "passive" tax treatment is very different.

That's absolutely correct, David. That's why I have this clause in Section 8 of the previously referenced leaseback contract:

Material Participation by Owner. FBO acknowledges that it is the Owner's intent to meet the IRS test for material participation in this activity. Accordingly, FBO agrees that neither its principals nor employees will collectively devote more than 100 hours per year to management of the Owner's aircraft, except for maintenance, inspections, and service as contracted and paid for by the Owner.

Out of curiosity -- did you have a chance to skim my contract? How does it compare to yours?

garbageman · Post by **garbageman** » Wed Jul 06, 2011 12:33 pm

To Prof Paul-- In general, my contract is close to yours and the one at AOPA.
I can, however, use my airplane any time I wish. That's one benefit of leasing to a school that has numerous A/C's. My contract is also flexible on maint.