There’s no getting around it, though. We have, and often are required to have, insurance for our cars, our homes, our health and our lives. And for those of us fortunate enough to own an aircraft, we need insurance for our airplanes, too. Until recently, aviation insurance was a blip on the airplane ownership radar, and arranging and paying for it were just part of the noise of ownership costs. We received some quotes (more on this later), chose the desired options, wrote the check, and likely forgot about it until renewal time one year later. Rinse and repeat.

Times have changed, however. In recent years, aviation insurance costs have increased dramatically, especially during the COVID years. In fact, as Ryan Konrath from Wings Insurance told Plane & Pilot, “We are currently in a hard market and have been for a while. The two prominent areas hit hard by this current market are owner-flown, high-value aircraft (think Vision Jet, TBM and similar), along with pilots nearing their 70^th birthday.” And because pilots tend to be older than the population as a whole, the flying community is disproportionately affected by this age-related bump in premiums. 

It gets worse, though. In some cases, not only have costs escalated, but some policyholders, even those who in the past were deemed low risk, are now finding it difficult, if not impossible, to get underwritten at any cost. 

My research into this hard market found that up until about three years ago, aviation insurance was soft, meaning we saw low premiums, fewer exclusions and generally more beneficial terms to the owner-pilot for well over seven years. 

Now, insurance companies are in the business of making money. Imagine that. And the abrupt transition to this difficult market was a perfect storm of circumstances, all of them related to the insurance market getting less profitable for insurers. At the same time, we saw a dramatic increase in the value of used aircraft, along with soaring parts and labor costs for those aircraft damaged and requiring repairs or total loss payouts, part of a crunch in the maintenance marketplace due to a high volume of business and a shortage of workers. Even with the same number of claims, the payouts resulted in a higher cost to the insurance companies and therefore dwindling or loss of profits, as reported in the industry-recognized Milliman Report. Throw in catastrophic weather events, such as the March 2020 tornado outbreak in Tennessee—which resulted in more than $90 million in aviation-related claims at just one airport, John C. Tune in Nashville, one of dozens of GA airports hit by severe weather in the past few years—and the picture doesn’t get any rosier. 

In addition to the loss of profits, the investments that insurance companies use for their reserves have not been profitable in recent years. This sparked a need to increase premiums to the insured. Finally, there have been a few insurance companies as well as reinsurers who withdrew from the relatively small aviation market. This withdrawal was a direct result of a loss of profitability. Therefore, there is reduced competition in the current market compared to the previous soft market cycle. This supply and demand also are driving higher premiums and leading us to our current insurance dilemma.

Industry experts know that most insurance trends are cyclical. Angelo Manuele from Blue Skies Insurance Group predicts that our current cycle will likely continue for the next two to three years. With that said, what can an aircraft owner do to improve their chance of insurability or renewal at more reasonable rates? 

For renewals, first and foremost, build upon your existing relationship with your aviation insurance broker or underwriter. This is especially true if you are nearing that magic anniversary of your 70th birthday. If you have been with a company for the long term and haven’t been one to chase small savings with multiple brokers throughout the years, that loyalty should translate to more competitive rates and more likely to be underwritten than those who have hopped to other companies like a frog on lily pads. This becomes especially critical if you have had an accident in the preceding policy period.

In addition, if you have thought about adding a rating to your certificate, there is no better time than the present. Industry experts agree that any added rating, whether that is an Instrument Rating, a Commercial Rating or even a Seaplane rating, will illustrate to the underwriter that you want to improve your aeronautical skills continually. It simply makes you more desirable as an insured. 

Even if you do not want to pursue another rating at this time, then consider completing a proficiency check or some relevant online training. When it’s time for your renewal or time to solicit quotes for an aircraft acquisition, any qualified training or ratings that you have completed will be factored into your insurability and the overall policy cost. 

One of the ways pilots attempt to justify and reduce their cost of ownership is to consider taking on partners in an aircraft. If this is something you are considering, please keep in mind that partnerships on high-value aircraft that have dissimilar partner pilot experience may have difficulty finding a company to underwrite that scenario. 

An example of this could be a high-time, experienced 75-year-old pilot with thousands of hours of accident-free time taking on a 40-year-old student pilot partner with little to zero hours. While each of these individuals could likely get insured on their own aircraft, combining them in a partnership coverage would most probably get denied coverage. The solution? Either find a partner with similar experience or reduce the hull coverage by purchasing a less-expensive airplane. 

So, for those who have found their fantasy airplane and are ready to write that check, now it’s time to get some quotes on coverage. 

First, find yourself a reputable aviation broker. Just like a flight plan, going direct is often best. 

Most in the insurance biz will suggest that you should not use your normal property and casualty company (for example, the company that writes your homeowners insurance), as they simply do not understand the market like a specialized aviation insurance broker. 

Instead, find that qualified aviation broker and either request a ballpark quote without going to market or a true quote by going to the market and getting a specific quote on your particular aircraft. 

While requesting a true quote might seem like the best option, keep in mind that once your broker goes out to the market for your quote, you are effectively locked out of the market by those carriers that provide that broker with your quote. And, in most circumstances, you will be locked into that broker. And there’s no gaming the system. An N-number will be required to get a true quote. 

With that in mind, it is imperative that whatever broker or company you utilize, they should have access to all aviation insurance carriers with their associated underwriters. This will ensure that you will have more options for insurance and will not exclude other viable companies. Remember, there are fewer carriers in the market today than in the past, so the more companies you can get quotes from, the better. In fact, it’s more important now than ever. But at some point, you need to do it. Going to market will give you an exact premium price, with specific terms and conditions, along with any exclusions and the ability to bind coverage.

However, if you have not yet selected a specific aircraft or do not wish to tie up your “N” number in the insurance market at that time, then asking your broker for a general guideline quote would be the best approach. Most qualified brokers can review your experience, along with the type of aircraft you are contemplating to purchase, and give you a price range of what type of bite that annual premium will take out of your wallet. When requesting a generalized quote, it is important to specify to your broker that you do not wish this to go to market yet. They’ll understand what that means and why you’re doing it. 

We are in the throes of a difficult aviation insurance market, and we aircraft owners have limited power over the final outcome of our insurance purchase or renewal. But these guidelines will help you get insurance for your plane at the most reasonable rate possible in today’s difficult insurance marketplace. 

The post What’s Happening With Aircraft Insurance? appeared first on Plane & Pilot Magazine.

With many of the big decisions in life, and buying an airplane is definitely one of them, it takes a bit of discipline to make decisions that balance practicality and emotion. That’s understandable, as those kinds of decisions, from buying a house to deciding on a new job, revolve around some of our most important hopes and dreams. So when it comes to finding that perfect set of wings, emotions, understandably, are in the mix. After all, the reason we want to buy an airplane in the first place is because we love flying, and we should never forget that fact. At the same time, emotion can lead us to forget the practical considerations in buying a plane, and after the first blush of that new plane is gone, the practical considerations remain.

So, how does one find the right airplane, one that fulfills the passion of flying while also making sense in terms of mission and expense? We’d suggest that you follow a checklist, just like we do when we go flying.

Granted, a lot of the considerations we outline are more complicated in real flying life than we have space to get into, but by running your overall purchase plan through these rudimentary filters, you’ll likely wind up in a better place when it’s time to rotate on that first flight in your new bird.

What are your needs as a pilot?
When going through the airplane buying decision, it’s tempting to focus on the airplane. That’s natural, but we can get some really useful insights into what the right plane might be for us by looking at the “us” part of that equation. Once we have the airplane safely tucked inside the hangar, we’re left with the realities of operating that equipment. In some cases, that might mean an intensive course of study, hitting the books, flying with experienced instructors and logging time as necessary around the patch and in benign weather before tackling more complex missions. For getting the necessary training and putting in the time.

For pilots without a lot of experience in higher performance airplanes but who still want to go higher and faster in their new plane, the smart thing to do is find a mentor pilot to fly with. Flying single-pilot is a challenging thing to do when things get busy, and when you’re in a faster, more complex aircraft in denser airspace and with weather, a lot more things happen a lot faster. That’s when experience becomes indispensable. Knowing what kind of airplane you want is great. Being realistic with your readiness to fly it is even more important (something your insurance company will reinforce for you). So know your limitations, respect the demands of the airplane you’ll be flying, and make sure to make conservative decisions.

This is where becoming part of a pilot community can really pay off. For a lot of pilots joining a partnership or a small flying club is the best call they can make. Not only do you get more airplane than you could otherwise afford and for less, but you get the benefits of the experience of your partners with operating the specific airplane you’ll be flying while taking advantage of their collected wisdom (assuming these partners are the kind your mom would have been okay with you hanging around with). Such community support can prove invaluable in helping you learn the lessons your new plane has to teach you without having to make all the mistakes we typically make in getting there.

For pilots buying a whole airplane, and there’s a lot to be said for that decision, too, it makes sense to find that community in different places, with friends who fly similar platforms or in owner’s groups online or nearby. It’s also a great way to get more fun out of your plane.

Define your Mission:
The way the airlines decide what kind of planes to buy when there are literally billions of dollars at stake, is by defining their mission as specifically as they can. For us personal flyers, the analysis doesn’t need to be done by a team of eggheads, but knowing what we’re going to use the plane for will help define many of our buying considerations. While we may see ourselves blasting across the country in a Bonanza, when we look at how we’re likely to use the airplane, in many cases we might be better off with a Skyhawk. For some of us, that perfect airplane might not be one that’s intended even remotely for cross-country flying. Do you like exploring the outback or carving loops in the blue skies above? Instead of that Bonanza, maybe a Carbon Cub or Decathlon would be the right plane for you.

If you’re convinced you’ll use the airplane to get places, as many of us do, think about what kind of trip is your typical mission. As much as you might like to jet off to Kona from LA for a long weekend, if your real trip is more likely to be from San Antonio to New Orleans, that’s the one you should focus on.

For some of us, those typical trips will be, well, pretty typical. For others of us, our trips could be all over the map, literally and figuratively. So, how varied are your typical missions? If you might one weekend head up to Wyoming for a grass-strip steak and guitar outing, and the next weekend find yourself off to Seattle for a professional conference, then you need versatility. A Cessna 185 or Maule MX-7 makes great sense. If you’re more likely to do one or the other, you’d be better off with an airplane that’s built for a specific kind of flying, perhaps a nice used Piper Archer for the cross-country flying or a Cessna 180 for the gravel bashing. You’ll pay less for less versatility and very likely be a lot happier with the monthly bills.

If you’re convinced that flying for transportation is the way you’ll use your airplane, then work to define that kind of mission in more detail. A good baseline to start from is the 500-nm trip, because that’s a length that’s pretty common and commonly doable in one leg for most rank-and-file piston singles.

How long is your typical mission?
If you’re convinced that flying for transportation is the way you’ll use your airplane, then work to define that kind of mission in more detail. A good baseline to start from is the 500-nm trip, because that’s a length that’s pretty common and commonly doable in one leg for most rank-and-file piston singles. A trip from Orlando Executive to Peachtree DeKalb near Atlanta, for instance, is just less than 400 nm. You can get this kind of trip done in a Skyhawk, though a Cirrus SR22 will save you a lot of time, around 90 minutes on a trip of this length. While that might not sound like much, it translates into much better flexibility. In this example, it means you’ll likely be able to make it a one-day trip, with travel to the destination, business conducted, and travel home all in one day, something that would be lengthy, fatiguing and possibly risky, depending on weather or other circumstances, in a 172. If your trips are more leisurely and less time constrained, then a slower airplane might make sense and save you a bundle, too.

The demands and risks associated with long cross-country travel are very real, and expensive airplanes often have expensive gear to address those very real concerns. Anti-icing equipment like TKS or pneumatic boots, turbocharged engines, radar, capable autopilots and oxygen gear all increase the price of a plane but are there for very good reasons. Consider how much you’d need them by asking this simple question. Are you going to fly IFR and view your plane as a transportation craft? If so, be realistic about the kind of plane you’ll need. On the other hand, if you plan to fly VFR or IFR in only the most benign actual conditions, then you can get away with less. Certainly a well-equipped Skyhawk with a decent autopilot makes a great platform for such flights.

Another big consideration is terrain. If you’re in the western half of the United States, or some other geographic region of the world where there’s big rocks out there, then there’s probably no such thing as too much power or too much margin. Hot and high days ask a lot of single-engine airplanes (of every kind of aircraft, the truth be told), so having a 235-hp Cessna 182 instead of a 150-hp 172, even though it might be more airplane than you typically need becomes a godsend when the density altitude climbs to a mile high.

Analyze The Costs
As with many big ticket items, the purchase price of a plane represents only a fraction of the overall cost picture. Ongoing costs include insurance, hangar or tie-down, ongoing and regularly required maintenance, fuel, engine oil and care and cleaning, among others. Know the costs going in, and be ready to address them. That will surely mean putting some cash into a reserve account for that new engine and prop when the time comes. If the math doesn’t make sense for a later-model used high-performance plane given the financial realities, look at more affordable options. That might mean an airplane with less range, less payload, or, dare I say it, less speed. Nevertheless, being happy with a modest airplane you can afford is a much happier situation than struggling with a more capable one you might not be able to keep.

Family Matters
Not every family is a flying family. That’s just the fact. Spouses who also fly or who just love airplanes or going places in small airplanes are the best, and if we’re lucky enough to have such a family, then we need to plan our airplane purchase with the entire clan in mind.

As families grow, so too do our airplane needs. When kids are little, a four-seater like a Grumman Tiger is a great transportation airplane. As they grow, you’ll find you probably need more space and more capability, so a 182 or Model 36 Bonanza makes more sense. Sometimes, that means as the family grows there might be the need to step up in terms of payload and utility. Then again, if you can manage an airplane that will grow along with your needs, why not start there?

Great family airplanes run the gamut in terms of complexity, cost, capability and demands, from Skylanes, which can keep a family of four happily traveling from car seats to college, to King Airs, which can theoretically accommodate the grandkids at some point down the line.

Speed and why it’s Our Friend
If you’re flying an airplane for transportation, the whole idea is to get somewhere with it. The flying, granted, is great, but for many of us, an hour of beautiful desert views is as good as three. That said, the acquisition cost difference between a fast airplane, like a nice Mooney 201 and an equally nice fixed-gear Cessna Cardinal, can be substantial (though the ongoing costs of ownership in some cases are less so).

For those trips of around 500 nm, the need for speed is still very real, though it’s when those legs stretch out even farther that speed really matters. A trip of 1,200 nm will require a stop in most fast airplanes, and at a cruise speed of 170 knots, you’re looking at a seven-plus-hour trip, not counting that fuel stop you’ll need. In a 125 knot airplane, that same trip translates to better than 9 hours, not counting the two or three fuel stops that will be needed. And when you work headwinds and short, winter days into the equation, things get ugly. This is even more the case when you consider that those less fleet airplanes are typically less capably equipped, so when adverse weather rears its nasty head, there are fewer options, less safety margin and greater likelihood that the trip will last an extra day or two.

Chances are good that if you’re considering buying your next airplane, you’ve already thought through a lot of these decisions. For those pilots looking to buy their first airplane, running these simple tests is a great way to narrow the field of possibilities from the dream team to the home team and then, hopefully, down to the exact model of airplane that will best fit your needs, your budget and even, if you follow your heart just the right amount, your dreams too.

* Budd Davisson contributed to this article.

VFR vs IFR and Your Purchase Decision

By Isabel Goyer

Without a doubt, the ticket that most changes the way we fly by giving us new tools and new strategies is the instrument rating. After you’re an instrument pilot who practices the craft, you look at flying in a whole new way. With an IFR rating on the certificate in your wallet you are no longer held hostage to the whims of an otherwise benign cloud deck. With an IFR rating, an overcast layer at 800 feet is hardly even considered weather. With this in mind, it makes sense to think about how your next airplane will work as an IFR platform.

There are several big considerations here, but none is as important as having a decent (or better) autopilot. We live in a strange time when many student pilots graduate from a flat-panel equipped trainer with a digital autopilot and then immediately go back in time a few decades to the age of steam gauges, mechanical gyros and adrenaline. S-Tec autopilots (most are what are known as “rate-based” units) are ubiquitous in older airplanes, and for good reason. They work great, they’re affordable, and they are STC’ed (approved for retrofit) into just about every kind of single and twin-engine piston plane you could imagine, and literally many you’d never think to imagine. Now manufactured by Genesys AeroSystems, they are also readily available for retrofit into used airplanes without an autopilot or with an outdated one.

At a minimum, you want a wing leveler, because that can greatly cut the risk of loss of control in IMC, but altitude hold is great for staying on altitude and avoiding trouble with the nice people at the FAA.

For higher-end transportation airplanes, an attitude-based autopilot will capture that glideslope more accurately and hold in turbulence much more doggedly than a rate-based flight control unit can.

The next consideration is a backup source of altitude guidance should the vacuum pump in a legacy system go south. Strangely enough, one of the best backups you can have is a rate-based autopilot, because they do not rely on attitude but on rate of turn data to keep doing their thing. There are also a number of great standby instruments available from MidContinent Instruments, Aspen Avionics, BendixKing, L3 and others that you can install and immediately start breathing a little easier once you enter the clouds.

There are other equipment considerations to make when vetting your future ride for IFR duty. These include anti-icing gear, oxygen, moving maps and more, some of which are pricier than others and some of which are simply unavailable on some platforms.

The best equipment for real IFR flying, it goes without saying is a well trained and proficient pilot. A good autopilot comes right after that.

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The post So You‘re Thinking Of Buying An Airplane appeared first on Plane & Pilot Magazine.

No dream stirs a pilot’s soul more than that of owning an airplane. From the moment a student starts renting aircraft, the idea of owning one never stops calling. As a pilot gains experience in aviation, their mission becomes clearer, and the kind of aircraft a pilot prefers—from technically advanced to vintage classic— starts to surface. From then on, nothing takes the place of that prodding desire to own an aircraft.

It seems almost obscene to be writing about owning an aircraft in today’s climate of half-a-million-dollar price tags. It’s no secret that the cost of ownership has risen to the point where sole ownership of a new airplane takes some considerable resources to pull off, or that fewer of us can afford to own an aircraft outright.

Cheap aircraft ownership was one of the chief reasons that aviation flourished after World War II, ushering in what we now refer to as the “Golden Era” of general aviation. In fact, even though I’m a product of the relatively recent 1970s (in GA terms), I remember “For Sale” signs on Piper Cubs and smaller Cessnas in the $3,000 range! When I was in the fourth grade, a neighbor of ours bought an old P-51 Mustang for the outrageous sum of $10,000. Today, that wouldn’t buy the warbird’s Plexiglas canopy.

Still, aviation ownership is possible. The nature of it has changed—one reason is that flying clubs are starting to flourish—but owning an aircraft is still one of the most rewarding feelings. When I hear pilots complain that “nobody can own an airplane anymore,” I point to the dozen or so ads in every issue of Barnstormer or Trade-A-Plane advertising Cessna 140s, Piper Tri-Pacers, Aeroncas and a fistful of others—all for under $20,000. Put four pilots together to buy an aircraft like that, and you’ve got a dandy, four-gallon-per-hour fun machine that costs less to own than an old Buick. Ownership isn’t impossible—it’s just not as freewheeling as it once was.

If you have the resources, new aircraft offer an experience that matches (and sometimes beats) the airlines, and we’ve written about plenty of those in this magazine. We live in an era of 250- knot, fixed-gear piston singles and air- conditioned cruisers that can transport four people a thousand miles in any direction without stopping. On the light- sport front, a hundred grand will put you in a brand-new little sport coupe with great handling and miserly fuel consumption. Throw in an extra $25,000, and the LSA world opens like an oyster, revealing so many different aircraft that it puts Willy Wonka’s factory to shame.

Financing
Most individuals who want to purchase an aircraft either don’t have the cash to do so or have business and tax reasons that prevent them from buying the aircraft outright. Third-party lenders will loan the money to these individuals. Financing the purchase of a private aircraft is similar to a home mortgage in many ways. The basic financing process for a small personal (or even corporate) aircraft is as follows:

1 The prospective buyer (“borrower”) fills in an application with basic information about themselves and the aircraft they propose to buy and submit the application to a lender.

2 The lender performs an appraisal of the aircraft’s value.

3 The lender performs a title search based on the aircraft’s registration number. They confirm that no liens or title defects exist. The lender might procure a title insurance policy to protect against any undetected problems with the aircraft’s title.

4 Lender prepares the following transaction documents:
Promissory note: This makes the borrower responsible for any loan balance not covered by repossession of the aircraft, if the borrower defaults on the loan.
Security agreement: Establishes a security interest in the aircraft by the lender so they can repossess it, in the event the borrower defaults on the loan.
Third-party guarantee: If the borrower has a questionable credit score, the lender may require a security assurance from a third party (or parties) that confirms they’ll cover the loan if the borrower defaults.

5 At closing, the loan documentation is executed (signed), funds are wired to the seller and ownership title transfer is completed.

An aircraft buyer looking for financing has a choice of lenders to approach. Some banks, like Bank of America, have special relationships with pilots and are accustomed to making aircraft loans. In Bank of America’s case, they’ve established ties with AOPA and offer a number of financial products specially geared toward pilots. The advantage of a bank that has experience with aircraft lending is the speed and efficiency with which the transaction is completed. Experienced lenders can do the title search quickly because they already have relationships with those entities. The same thing goes for securing the right paperwork and accurately appraising the aircraft. Credit unions are similar to banks and often offer aircraft loans.

Independent dedicated lenders are the third option for financing. These include companies like Dorr Aviation, AirFleet Capital, AirLoan and National Aircraft Finance Company, among a few others. Dedicated aviation lenders like these know exactly how to handle your transaction and are experienced in the nuances of aircraft purchases.

In all cases, the best advice for prospective buyers is to get pre-approved. Pre-approval for financing allows a buyer to act quickly if the right deal is found and gives the buyer time to look for an aircraft with the security that financing is ready.

There are some basic requirements to meet before you may qualify for an aircraft loan. Typically, these are:

• credit Score of 700 or better
• debt-to-income ratio of 35% to 45%
• a 15% to 20% down payment
• sufficient “reserve” funds so the aircraft purchase doesn’t leave you with empty bank accounts
• a 20-year payback term is typical, similar to a mortgage

Insurance
Insurance is where many owners are misinformed and where the greatest confusion exists. We spoke with Greg Sterling, senior vice president and global product line manager for AIG, one of the biggest insurers in general aviation, to help dispel the myths about insurance.

Sterling explained that the essence of an insurance policy for an aircraft is that the insurer is weighing the risk that it may have to pay out on a claim in the event you damage the aircraft. The insurance company charges you a “premium” (or fee) in exchange for its acceptance of this risk. The greater the risk, the more expensive the insurance premiums will be. The factors that affect your insurance premiums include the type of aircraft, time in type, general pilot qualifications and ratings, and the nature of your operation. An aircraft insurance policy covers two areas: hull coverage and liability coverage.

The term “hull coverage” originated from the fact that the world’s first aircraft insurance policies were based on maritime (ships and boats) policies, because they were the closest thing available at the turn of the century. This covers physical damage to your aircraft and comes in three types (in order of cost):

• Full flight coverage (this covers the aircraft at any time, sitting still or flying)
• Ground and taxi coverage (refers to any time the aircraft isn’t flying)
• Ground, not in motion (exactly what it says—the engines can’t be operating)

You should only carry as much hull coverage as your aircraft is worth. Thinking that they’ll be “extra secure,” some owners will insure their aircraft for a sum greater than the appraised value. According to Sterling, overinsuring is a mistake.

Under a normal policy, if you have an aircraft accident and the estimated cost to repair that aircraft exceeds 75% to 85% of your hull insurance policy limit, the insurance company will declare the aircraft to be a total loss and pay you the coverage limit (less deductibles). But, if the damage is less than 75%, the insurance company could require you to repair it.

Say you insure a $100,000 airplane for $140,000 and you have an accident that causes extensive damage to the aircraft. If the repair cost is less than $105,000 (75% of $140,000), the insurer could require you to repair it. A $100,000 repair is basically a wrecked airplane. In that scenario, you’d be stuck with an airplane that will take six to 12 months or longer to completely rebuild and will have lousy resale value because of the damage history, not to mention the bad ju-ju of a wreck.

Underinsuring is just as bad. If you underinsure an aircraft to save on monthly premiums, you could lose a potentially valuable aircraft. In that scenario, an owner completely refurbishes a $70,000 aircraft with new paint, interior, the latest advanced glass panel and a slew of avionics, bringing its true value to around $100,000. The owner insures it for $50,000. If the owner experiences a prop-strike or minor collision on the ground, the engine would have to be torn down. That could mean a repair bill of around $40,000. Because that exceeds 85% of the insured value, the insurer could take possession of the aircraft and leave you with a check for $50,000, less deductibles and salvage price. Meanwhile, you lost a perfectly good aircraft with a fortune in upgrades.

The moral here is that you should insure your aircraft for exactly what it’s worth in market value. “Neither over- or underinsuring is of any benefit to the owner,” added Sterling.

Liability is the second feature of aircraft insurance. It protects you from liability or responsibility to third persons for damages they may suffer resulting from the operation of your aircraft. With liability coverage, the insurance company will pay the third party directly, up to your policy limit.

Liability coverage comes in two forms: “sub-limit” coverage or “smooth” coverage. This pertains to the language in your policy that refers to “per occurrence” and “per passenger.” Sub-limit coverage is a policy that provides for $1,000,000 per occurrence and $250,000 per passenger. It means the maximum total amount the insurance company will pay is $1 million dollars, but only in $250,000 increments to each passenger. If you have a two-seat airplane and the passenger is injured, the policy will only pay a maximum of $250,000. The rest must come out of your pocket.

“Smooth” coverage is more expensive but extends the per-passenger amount to the policy limit. In the previous scenario, smooth coverage would mean that the accident would result in the insurance company paying up to $1,000,000 to that one passenger. If two passengers were involved, smooth coverage would pay $500,000 each.

Because insurance can be a complex subject, we also spoke to Jon Harder from Aviation Resources, another large insurer of general aviation aircraft. One of the bits of insurance advice he offered was compelling owners to also purchase non-owned (“renter’s”) insurance. According to Harder, such insurance helps cover the “gap” between your normal policy’s deductible and the insured amount. “Even if they buy non-owned insurance for the liability coverage, it’s worth it,” said Harder. “For the price of an hour with an attorney, a pilot could get a non-owned policy that could be critical in the event of a claim against the standard policy.”

There’s much more to the aircraft- buying game and prospective owners would be well-advised to research all they can, prior to making a purchase. Some additional areas to investigate are pre-qualification calculators to help you determine how much aircraft you can really afford, the pre-buy inspection that’s a key task in buying a used aircraft, consideration of partnerships and fractional ownership, and—as AOPA has been promoting—the idea of purchasing an aircraft for use in a flying club. They’re all factors to consider in fulfilling your dream of finally owning an aircraft. Trust me, there’s nothing like it.

The post Dream Big: Buy A Plane appeared first on Plane & Pilot Magazine.

There’s a verse that goes: “To be successful, all you have to do is work half a day, and most of the time, you get to pick which 12 hours per day you want to work.” Take a standard 40-hour work week. This expands to 160 hours for the month. I would wager that the vast majority of private pilots (noncommercial) fly 200 hours or less per year. This results in flying an average of approximately 17 hours per month.

If you have 160 available hours per month, and your plane is in use 17 hours per month, that leaves 143 hours of unused time that the plane is sitting on the ground and not being a productive asset. Now, if you have a job that allows you to fly your plane 160 hours a month for business, then you’re probably the most envied pilot in the world. But my point is this: Airplanes cost money to own, operate and maintain. Therefore, every hour that it’s not generating revenue and increasing cash inflow, or reducing expenses and saving cash outflow, opportunity costs are lost.

Are Leasebacks For You?
At this time in our economy, we’re searching for alternatives to maximize every possible return on our investments. Yes, an airplane that’s used in business should be evaluated just like any other purchase of equipment. Will it make money for the business, or will it create expense savings for the business? If the answer to either question is “yes,” then consideration should be given to making the purchase or investment in the asset.

Now that you’ve decided that your plane is a wise business investment and will either make money or save expenses, how many hours will it be in use? Can you find a way that the plane can be used in an alternative business arrangement that will generate additional cash inflows during the downtime? If so, this will help with the carrying costs associated with ownership.

If the plane is financed, the note payment will have to be made every month. There are numerous fixed costs that have to be paid every month, regardless of the amount of time the plane is flying in the air. Examples of these expenses are hangar and tiedowns, insurance and inspections.

Lease Options
If you have an asset with excess capacity, there are solutions to improve the return on your investment. Have you considered a business arrangement where you allow your plane to be leased out to either another company or possibly a flight school?

In a situation where you don’t want a partnership or other shared-ownership arrangement, but another business needs the use of a plane for so many hours per month, consider entering into an arrangement where the company purchases a certain number of hours per month. This can be done in a block of time or on an hour-by-hour basis. You may have to agree to give them first opportunity for the use of the plane on a given day, but that isn’t the end of the world when they’re helping you underwrite the cost of ownership and operations.

If your airplane isn’t flying as much as it could be, you may be missing a cash-flow opportunity. Consider a leaseback arrangement for your aircraft.

Another version of a lease arrangement is an association with a flight school. This may be lucrative if you have a high-performance IFR single or a twin. Pilots looking to move up in their ratings generally have a higher degree of pilot skills, and aren’t as rough on the plane as a new pilot climbing into the cockpit for their first 40 hours.

A possibility also exists for you to lease your plane to an air charter company. They could be looking for a plane to ferry passengers or freight.

Each of these alternatives must operate within the guidelines prescribed by the FAA. As such, the plane must be maintained to a higher standard than if you’re the sole user of the plane. If you make a deal with another party to lease your plane, your contract should clearly define what the payment will be or how it will be determined.

Also, who’ll be responsible for what expenses should be clearly defined. Many times, leases involving flight schools and air charter operations state that they’ll be responsible for all of the expenses to keep the plane airworthy, and these expenses are often paid by the lessee. This arrangement will be reflected in lower gross revenue to you, the owner, but this shouldn’t really matter because it’s the net cash flow that will make this deal come together.

Making Sense Of Taxes
About this time in the conversation, the topic of income tax comes up. People always want to know if something is deductible. Funny, they never ask questions about the revenue they receive. But the revenue is taxable and the operating expenses are tax deductible—maybe. It depends on several factors.

Revenue from a lease is pretty straightforward. If someone pays you for the use of your plane, you have income and it’s taxable. Expenses incurred to produce this revenue are tax deductible. This includes the fixed costs for storage and insurance. Variable costs incurred for supplies, fuel and oil are tax deductible, assuming they’re provided by you.

Each taxpayer is unique, and any lease agreement must be individually evaluated. As such, any tax decisions must be evaluated on their own merit for each respective taxpayer.

The costs associated with maintenance can be tricky. Ordinary maintenance made necessary though normal operations is generally tax deductible. But improvements that add value to the plane or increase the useful life of the plane must be capitalized and depreciated. So, deductible maintenance (not capitalized maintenance) along with depreciation becomes the final component for determining the tax-deductible expense of the airplane.

Let’s stay with depreciation for a minute. For 2011, there are numerous ways to compute the depreciation expense for assets placed in service this year. There’s bonus depreciation that only applies to the purchase of new equipment. There’s the Internal Revenue Code Section 179 depreciation deduction that applies to new or used assets placed in service, but with caps on the amount of the deduction. Under Section 179, the deduction could be entirely phased out and reduced to zero. And then there’s the old tried-and-true standardized depreciation tables. All of these methods have an impact on determining if there’s a profit or a loss.

Airplanes generally have a short life when it comes to depreciating the airplane for tax purposes—generally five years. Because of that, an aircraft is likely not to show a profit for the first five years after considering a deduction for depreciation. Then in years six and later, without the deduction for depreciation, the aircraft owner begins to show a profit on the plane.

Whether there will be any income-tax advantages is dependent on several issues. First of all, and probably the most critical question to answer, is centered on the nature of the business activity. Are you operating an aircraft-rental business, or is this a de minimus and incidental part of the business use of your plane?

If the transaction is viewed as a part of the business use of your plane and a part of your trade or business, then there generally are no restrictions on claiming a deduction if you have a loss. If you’re in the rental business, then you’ll come under the provisions of IRC Section 469, which limits the deductibility of rental losses.

The kink with Section 469 is that rental losses are allowed as a deduction against rental income only. In the event that rental losses exceed rental income, then the net rental losses in excess of rental income are carried over to future years and deducted against rental income of future years.

Oftentimes, the expenses during the first five years reduce the revenue down to, but not below, zero. Then in years six and later, as these years report profits, the unused (suspended) losses from years one through five come into play. These early-year unused losses provide a tax deduction against the profit in years six and later to reduce the income to zero for a given year. This will continue until all of the early year losses have been absorbed. What a mess.

Another kink with Section 469 is that there are real-estate rentals and there are “other” rentals. The bad part is that even though they’re both rentals, they can’t be paired together and both must stand alone.

Section 469 contains several exceptions, elections and deals that can be made with the IRS regarding the leasing of your plane. Section 469 also has the ability to completely change the expected outcome of your leasing proposal. I highly recommend that you discuss aircraft leasing with your tax professional before you sign any leasing contract. Most surprises under Section 469 aren’t very pleasant.

Unfortunately, there doesn’t exist one clear-cut definition that will solve everybody’s individual tax situation. Each taxpayer is unique, and any lease agreement must be individually evaluated. As such, any tax decisions must be evaluated on their own merit for each respective taxpayer.

Regardless, any time you can put your airplane to work during the hours it would otherwise just be sitting on the ground, cash inflow will be generated to help fund the airplane operations and ownership. Sit down and work out what the net cash flow will be. If there are tax advantages to be gained, add them in to the equation. Give your plane a chance to do its job and make some money for you.

Leasebacks: Where to Go
AirShares Elite (www.airshareselite.com) is ideally suited to owners of Perspective-equipped Cirrus SR22 aircraft. Their leaseback program is unique in the industry and leverages the company’s size and focused customer base to provide attractive leaseback options. In one scenario, AirShares leases time in your aircraft to members in specific markets. In addition to a high hourly return for the owner, AirShares offers turnkey supervised maintenance and exceptional insurance coverage. Another scenario is to let AirShares sell fractional interest in your plane to other AirShares owners. This allows the owner to reduce their ownership to a level that matches their needs while still enjoying the benefits of ownership, without the capital commitment and ongoing costs. In either program, your airplane is flown only by qualified and carefully trained AirShares owners, and not primary students. Another benefit for leaseback owners is they have access to AirShares’ nationwide fleet of aircraft, something a traditional FBO could never provide. Access to this fleet of identical aircraft nearly anywhere in the country gives members nearly the same availability as full ownership.

O. H. “Harry” Daniels, Jr., is a CPA and a CFP licensee. Daniels has held his license as a private pilot since 1991. He’s a partner with the firm of Duggan, Joiner & Company, Certified Public Accountants, and can be reached at ohd@djcocpa.com.

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A partnership, or shared aircraft ownership, is one of the oldest and sometimes most practical forms of owning an airplane. An aircraft partnership is a lot like a marriage: the good ones are heaven, and the bad ones are a nightmare. A few simple steps up front can make this arrangement a rewarding experience for the pilots whose flying needs fit into the joint-ownership framework. If you can’t or don’t want to own an entire airplane by yourself, this fast-growing segment of aviation can be the ticket to flying on your own terms.

Shared ownership is more common than most pilots realize and has been around for a very long time (we can assume that the world’s first airplane was owned jointly by Wilbur and Orville). It includes large and small airplanes; the very rich and average Joes; and formal, professional management on new airplanes or just good buddies sharing a used Cherokee. Most of the new aircraft manufacturers have a factory- sponsored program, but some partnerships are actually formed on the golf course, in the airport coffee shop, or at your office or place of employment.

The underlying benefits of shared ownership are really for those pilots or corporations that need an airplane for just a small amount of time—not enough to warrant full ownership costs, but enough to need more reliable access than what rentals or charters can provide. The genesis of today’s largest fractional jet program, NetJets, which has spawned similar programs for piston singles, goes back to the 1950s with a company called Beckett Aviation. Mr. Beckett realized that many companies in the upper Midwest industrial belt (Ohio, Michigan, Illinois) needed prestigious, readily available air transportation, but didn’t want the hassles of hiring pilots, keeping a hangar or understanding airplane maintenance issues. To solve this, he sold these large and small industrial titans “shares” in a brand-new Twin Beech or Aero Commander, the prestigious corporate airplane of the day. For a fee, Mr. Beckett’s company would hangar, maintain and crew the airplane for the group of owners. The program worked well, and the partners generally traded up to turboprops and eventually jets in the early 1960s. The idea of corporate aviation proved so valuable that many of Mr. Beckett’s customers went on to buy their own airplane, and the program somewhat withered away because of its own success.

The major benefit of successful aircraft joint-ownership programs is the cost savings to the partners. Hangar, insurance, maintenance and purchase price are shared instead of all coming out of one pilot’s pocket. In modern, professionally managed operations—e.g., PlaneSmart!, OurPLANE and AirShares Elite—there are added benefits, such as predictable costs and no hassles of maintenance, storage and handling. The fractional owners pay a bit more for the convenience and time savings of having someone else “baby-sit” the airplane. The fractional owner just shows up and flies the airplane. The cost structure isn’t onerous: depending on the vendor, a 1⁄8-share in a new Cirrus is approximately $75,000, the monthly fee is in the range of $800 per month, and the hourly rate approximates the cost of fuel and engine reserves. The same new Cirrus, if purchased outright, would run about $500,000; the monthly upkeep expenses would run about $1,800 per month; and the hourly figure would remain about the same as the fractional program. The benefit of being a solo owner is that it’s all yours, it’s always available and you have unlimited use of your airplane. Under the fractional program, you’re generally capped at about 75 hours per year. You can buy more hours, but the cost-effectiveness starts disappearing at about 125 hours per year. Beyond 125 hours or so, it’s cheaper to own it all.

Partnership agreements should clearly define how a partner can expunge a problematic partner, should issues arise.

The other downside to joint or shared ownership is that your airplane is being flown by a lot of strangers who may or may not share your views of proper procedures and your level of overall care. Also, it’s rare, but there can be scheduling conflicts and lack of availability on short-term notice. The fractional programs generally strive to juggle everyone’s needs and make everything work, but there can be times when you’re flying on the airlines.

Many of today’s fractional owners, after seeing the utility of aircraft ownership, are taking the next big step to individual ownership after getting their feet wet on a shared basis.

Why are some partnerships great and others a disaster?

Successful aircraft partnerships all seem to have several common underlying elements, and the unsuccessful, nightmare aircraft partnerships share some common underlying weaknesses. By examining these, you can steer yourself toward a pleasant, rewarding partial-ownership experience. If you’re in a partnership that isn’t working, maybe some of these steps will help fix the arrangement.

There are many common elements of a successful aircraft partnership. Few aircraft partnerships are exactly alike, they seem to be crafted to fit the specific needs of the parties, but the most important idea among the successful ones is that they’re run as a business and not a hobby. Ideally, someone outside the partnership, like a CPA, keeps track of the expenses and accounting. The partnership is kept on a sound financial footing, with engine and maintenance reserves actually being deposited into a bank account. There’s a formal partnership agreement that, most importantly, outlines an exit strategy for a partner. Partners are humans who have financial reverses, remarry to spouses who don’t like airplanes, have disagreements with the other partners, move away or pass away. A partnership agreement should clearly spell out how one partner can exit or how the other partners can fairly and equitably expunge a problematic partner.

A successful partnership doesn’t consist of partners who are struggling to buy and fly an airplane that’s out of their financial means; rather, it includes partners who can easily and comfortably afford the airplane, almost on their own, but choose not to.

Successful shared ownership should have an operating agreement and a set of rules whereby the obvious decisions are already made, such as the amount of insurance carried, the minimum pilot qualifications for members, who is responsible for maintenance, each member’s duties of caring for the aircraft and the scheduling protocol.

The best aircraft partners are the ones who think alike on all the big decisions of operating the airplane, such as maintenance, scheduling, finances, care and operation, and upgrades.

Steve and Gary jointly own a Cessna 210. They have each owned much larger airplanes, but in slow business periods, the bigger airplanes weren’t utilized much and became a financial drain and had to be sold. Their flying patterns indicated that 95% of both of their trips were in a 300-mile radius. And each of them would probably fly 50 hours per year. Gary needed to fly during the week for quick business trips, and Steve only flew on the weekends to golf outings. According to Steve, “We decided to buy a nice Turbo 210 together and ’see’ if joint ownership would be the answer. We agreed that top-notch maintenance was a priority and that state-of-the-art avionics would be the norm, and that bills would be paid on time with adequate reserves ’in the bank’ to cover unexpected maintenance issues.” They signed a formal partnership memo that spelled everything out. “We even signed a ’buy-sell agreement’ whereby one partner could buy out the other or get bought-out if things didn’t work out,” Steve added. Gary sometimes fantasizes about buying a CJ-1 Citation, and Steve admits to occasionally thinking about a Navajo or Cessna 340A, but then they both ask themselves “Why?” By splitting the cost of the annuals and the hangar and insurance, the expenses are hardly noticeable, according to the partners.

Now, eight years later, through good and bad economic times, the Turbo 210 partnership is working fine, and both parties intend to keep the airplane forever.

What doesn’t work, and what changes a joy into a problem, is a partnership that’s quickly thrown together on emotion, with a lack of forethought regarding the financial side of the deal and the expectations of each partner’s usage and care of the airplane. Partners who can’t really afford the airplane sometimes band together, creating a poorly capitalized endeavor that comes apart at the first problem. Partners can have unexpected problems and so can airplanes. A partnership that’s barely staying afloat and has no ability to buy out a financially troubled or problematic partner, or cover an unexpected mechanical problem, can create a bad situation for everyone involved.

Pilots who can agree on decisions involving maintenance, scheduling and finances will make the best partners.

Bill saw an ad in his newspaper for a 1⁄3-share of a really nice Cessna T-182RG. He had sold his fixed-gear 182 many years ago because of the cash requirements of his growing business and his lack of time to fly. He had window-shopped the local Cessna dealer for a new 182, and was somewhat surprised at the sticker price of a new glass-panel 182 ($350,000). The ad offered 1⁄3 of a nicely equipped turbocharged, retractable 182RG for about $45,000. He looked at the airplane and liked it. He liked the fact that the radios were late-generation King and he wouldn’t have to learn the new glass-panel package. He was doing okay financially, and he was eager to get back into flying, so he quickly wrote a check for the $45,000 and began getting back into flying. The prepurchase meetings with the existing two partners amounted to just a few quick lunches at the airport coffee shop. The existing owners already had a mechanic who could do “all the work at really great prices and save everyone a ton of money.”

Bill was as meticulous in his flying as he was in his office and home, where things were neat, bills were paid on time and he had a healthy respect for maintaining machinery (from his family-farm roots in Missouri), but as he points out, “after about six months, I started noticing that the airplane was usually dirty and had stray food wrappers under the seats when I went to fly. At first, it wasn’t a big deal and I enjoyed washing the airplane on Saturday afternoons.”

On one trip, he was running late and in a hurry, and his preflight showed the fuel tanks were empty. Somewhat annoyed, he called the FBO to send a fuel truck. The young lady told him that they couldn’t send a truck and would he mind coming to the office to see the FBO manager? Bill’s good nature was quickly evaporating. The young FBO manager informed Bill, face-to-face, that he was sorry, but the airplane couldn’t be serviced any further until the $1,825 in back fuel charges were taken care of. Bill called Ted, his partner who usually handled the money side of things, but he couldn’t be reached. He called the other partner who said that he hadn’t flown in a while but assumed Ted was taking care of it. Bill put the entire past-due fuel bill on his credit card so he could get fueled and underway, thinking that he would reconcile the error with the partner who took care of the accounting later.

On the return trip, Bill noticed the left mag was running rough and it had reached the maximum limit of tolerance for a mag drop, so he asked the FBO to look at it because he had another trip in two days. The maintenance manager said they could do it, but did Bill want to go ahead and get the annual done, since it expired five months ago?

“I was flying a dirty airplane that wasn’t being carefully maintained, without a current annual inspection, which was a clear FAA violation and a sure way to have an insurance carrier deny a claim had there been an accident. In my book, this wasn’t acceptable any longer,” Bill confided. After a heated confrontation with his partners, Bill learned that the FBO fuel bill hadn’t been paid because there wasn’t enough money in the airplane account to pay for it as two cylinders had to be replaced on the last annual, and the unexpected expense ate up all the fuel money. Ted was waiting for a good-buddy mechanic to finish his vacation and get back to work and schedule their annual, but Ted had simply lost track of time. To the buttoned-down Bill, this wasn’t working. “I told the others I wanted to get out of the partnership and would they please buy me out?” This didn’t work because Ted was retiring in 18 months and didn’t want to take on any more expense or debt, so he couldn’t. Roger, the other partner, was in a messy divorce, and everything was tied up financially, so he couldn’t buy Bill out. Bill then offered to buy out Ted and Roger, but Ted really didn’t want to sell because he was looking forward to doing a little flying after he retired. Bill tried, but gave up trying to deal with Roger, his wife and her attorney, who weren’t in any hurry to discuss an airplane. So, Bill now owned 1⁄3 of a poorly maintained, underfunded situation with no clear-cut way to extricate himself from the deal. When I last checked, Bill was trying to find someone, anyone, who was comfortable with the laid-back style of Ted and Roger.

This is an extreme example, but it’s not uncommon. It’s easily prevented by doing some basic paperwork up front, including a written partnership agreement covering how to exit the deal, how the airplane will be maintained, who handles the money, who schedules the maintenance and how to handle shortfalls.

To be sure, there are probably many more successful aircraft partnerships than horror-story partnerships, and the partnership agreement is, in many cases, the key to which type yours may turn out to be.

Whether you’re just starting your flying career and want to see if flying will actually be a part of your life before taking the plunge to buy a whole airplane, or you’re winding up your flying career and don’t want to be without an airplane altogether but don’t feel justified in carrying the ball by yourself, it’s worth exploring the idea of a shared ownership or partnership to see if it’s the best method for you to own an airplane.

Find a group who thinks as you do on the important issues, shares your goals and expectations, and puts it all in writing. Follow these suggestions, and hopefully, you’ll have a very productive and positive airplane partnership experience. Whether you’re buying into a Cessna 150 or a new Gulfstream V, what can be better than flying your dream airplane and saving money?

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Beechcraft and Cessna have always recognized that they could build and sell two-place Beech Sports and C-152s, even if at a loss, because the pilots who learned today would return in the future for something bigger and more expensive, hopefully all the way up to a King Air or Citation.

Flying is a great utility for some, a great therapy for others, and both utility and therapy for most pilots. Everyone should have the opportunity to experience owning their own bird. It’s always there for you, you don’t have to “schedule” it ahead or risk not having it on short notice when suddenly there’s a beautiful day and you have the need to fly. You know who’s been flying it and how it’s maintained, and most importantly, it’s yours. Large or small, owning your own airplane is a proud accomplishment and a great feeling.

Plane & Pilot Editor Jeff Berlin is dedicated to the future of aviation like very few people in this industry. I think, recently, he must have come back from lunch at an airport café after overhearing once too often, someone complain about how flying is now “just a rich man’s game.” All pilots have heard this, and personally, I cringe when I hear it. Sure, if you’re talking about a new Gulfstream V at $40 million, you’re right, but is that really flying?

Flying, to most of us, is still what you can see at 3,500 feet. It’s being aloft just as the sun comes up on a crystal-clear dawn, or crossing farms and small towns at 120 knots. Or making a perfect landing with passengers on board. Or attending a great Saturday fly-in and enjoying the camaraderie of like-minded aviators. Flying is knowing that no matter how bad your day is on the ground, at 3,000 feet everything’s fine. That’s flying.

Flying is a great utility for some, a great therapy for others, and both utility and therapy for most pilots.

Meanwhile, back on terra firma, Jeff came back to the Plane & Pilot offices energized with the determination of a man on a mission. He called me and asked, “Can a beginning pilot, or average guy on a budget, or first-time airplane owner, really still afford an airplane?”

“Yes, I think so,” I answered.

“Can an average guy own a decent airplane for $500 per month?”

“I don’t know. Maybe. Probably.” I rolled the math around in my head quickly. “Yes, I think so,” I said confidently.

“Okay, then prove it,” he prodded me. I never shirk from a good challenge, or a direct order from the Big Guy. So, in the spirit of a TV-reality-show challenge, I decided to find out: Can a person afford a decent airplane on $500 per month? Here goes!

First, let’s look at the costs and see if we can make this work. Certain airplane costs are fixed, which means you spend the money whether you fly or not; other costs are variable, which means they vary according to how much you fly, like gas or maintenance reserves. Let’s start with the biggest fixed cost: the purchase price and monthly payment.

Twenty-thousand dollars buys a good airplane. A recent Trade-A-Plane listed 174 airplanes for sale at $20,000 or less. These included Stinsons, Luscombes, AirCoupes, Cessna 120/140s, Tri-Pacers, Pacers, Piper Tomahawks, Cessna 150s, a few really tired Beech Bonanzas, and a few Cessna 172s with high-time engines and other assorted maladies.

Because finances will be tight, let’s avoid older, quirky, problematic airplanes. Because of the cost to recover fabric and replace old wood, let’s avoid fabric and wood airplanes. There are many types of under-$20,000 airplanes, and even more opinions as to what’s the “best” under-$20,000 airplane, but for simplicity of upkeep, age, insurance, ease of flying and maintenance costs, let’s set our goal to stay with as new and as simple as possible.

From experience, my picks for this equation are the Piper PA38 Tomahawk and Cessna 150. Both meet all the objectives, and you can easily buy a really good one for $20,000 or less. Note: As finances permit, we can always trade up, or become more adventurous within our budget. Right now, let’s concentrate on a positive experience within the prescribed budget and with the fewest maintenance headaches or flying-skill challenges.

Most airplanes today are financed, even the corporate jets. Some simple calculations show that $20,000 will run approximately $145 per month. I began calling all the normal outlets for aircraft financing to get started. I was prepared. I had my last two years’ tax returns in hand and a copy of my latest credit report, which showed I was a pretty good guy, and I was prepared to fill out a lot of forms and get the money. Flying, here we come!

First Problem
Most aviation banks have a $25,000 to $50,000 minimum on airplane loans. This is largely due to the clerical expense in setting up the loan, the collection costs and overall risks. It’s just hard for a lender in Ohio to keep up with a $20,000 loan in Nebraska. So, how are we going to get to first base if none of the major airplane banks will do our deal?

Here’s a hint: The best outlet for a $20,000 airplane loan is Bank of America or Washington Mutual. Right now, they’ll give you a second mortgage on your home or condo for $20,000, subject to your reasonably decent credit.

Flying without insurance isn’t smart. you’re risking your entire investment, plus your net worth, on trying to save a very little amount of money.

At this writing, Bank of America was quoting approximately 8.74%, or a modest 0.74% over prime. This loan is based on auto-debit of your Bank of America account (saves billing and collection expense). While it’s a second mortgage on your home, they don’t care if you spend it on an airplane. The paperwork isn’t too bad for a $20,000 second mortgage, and most any branch with a home mortgage department should be able to handle it.

Relief. Now We’ve Got The Money. What’s Next?
The next step is insurance. Flying without insurance isn’t smart. You’re risking your entire investment, plus your net worth, on trying to save a very little amount of money. According to Dave Monaco at Southwest Aviation Insurance in Scottsdale, Ariz., full coverage on a modern $20,000 airplane, for a pilot with no accidents or violations, will run approximately $70 per month.

If the budget is tight, it’s not the time to be risky. Things happen. By buying insurance, you’re assuring yourself that, in most cases, if something does go awry, you won’t be out of the flying game. There will be money to fix the bird or replace it.

It’s coming together. So far, we’ve spent $215 per month. What about maintenance? Could this blow our budget?

Every airplane must have an FAA-mandated annual inspection once a year. This is the law, as well as good common sense. Annual inspections can be the trickiest part of our budget since you can’t totally predict what will break on an airplane. Since it’s safety-related, we won’t cut corners in this area, but we can be as wise and practical as possible.

Common logic tells us to find a capable mechanic who knows our type of airplane and is, perhaps, off the beaten path and away from big-city overhead costs. Big-time shops that work on pricey jets and turboprops should be avoided for our $20,000 airplane if we’re to stay within budget. Many mechanics located away from the stress of high-overhead areas will offer, or allow, an “owner-assisted” annual inspection. This is where the owner can do the mundane things, like opening inspection plates, taking the cowling off and generally “prepping” the airplane for the mechanic to have a look.

Most really good mechanics are busy and understaffed, and might welcome this assistance, provided you stay out of their way and don’t become a pest. In this case, you’re literally the helper, not the client, and your job is to make his life easier, not more burdensome. Do exactly what he says, don’t distract him with a lot of small talk or general questions, and the arrangement should work out fine.

A reasonable annual, on a typical all-metal airplane in our category, with no serious problems, will be around $1,200, or for budget purposes, $100 per month. Owner-assisted annuals generally run about $600 plus any unusual or extraordinary items.

As careful as we are, things break between annuals. it’s often cheaper to fix things as they come up, rather than to let them go and become bigger, more expensive problems.

Additionally, many owners enjoy the hands-on “bonding” experience of working with their airplanes. If you’re a hard worker and enjoy being around airplanes, you might even find an opportunity to work part-time for a busy mechanic and generate some additional income to totally swap out or at least partially reduce your own maintenance expenses.

How are we doing? Is airplane ownership for $500 monthly a reality? The tally so far: $315 per month. We now own an airplane, we’re prudently insuring our investment and we have estimated the annual required maintenance expense. What’s next?

Storage: Where Are We Keeping It?
Hangar and tiedown expenses can hugely vary. If we’re on a budget, it’s not going to work to keep our airplane at a fancy big-name FBO with complimentary limo service and freshly baked cookies. Besides, who wants to breathe in all those jet fumes as you await the active runway behind an endless line of corporate jets?

Rural airports are more fun and a lot cheaper. At smaller airports, there’s typically a friendly spirit of cooperation and camaraderie among all the flyers. You can probably even find a water spigot and hose where you can wash your own airplane on Saturdays, or do some minor “tinkering.” The costs for tiedowns at the smaller, fun, good-spirited airports are about $50 per month. Hangars are generally a fraction of the cost of a big-city airport. Because we’re on a budget, one of the advantages of an all-metal airplane is that it can be kept outdoors. It’s not ideal, and a hangar is preferred, but sunshades will help protect the glass and upholstery from the UV rays. Check out some of the outlying fields in your area to see which seems the most fun and best-suited.

We’re now at $365 per month. This is looking better and better. Have we forgotten anything? Yes.

Contingencies, Taxes & Miscellaneous
As careful as we are, things break between annuals. It’s often cheaper to fix things as they come up, rather than to let them go and become bigger, more expensive problems. Tires go flat, cylinders lose compression, oil leaks pop up out of nowhere, and transponders and altimeters go on the fritz. If we’re really trying to do this right, with the most budgetary honesty and fewest fiscal surprises, we should budget about another $100 per month for “contingencies.” Put this money aside, literally, in your cookie jar or flight bag. That way, when something does break, hopefully you’ve got the green tucked away to pay for the repair so you can keep flying without worry or interruption.

Please note, as a matter of practicality, these numbers represent reasonably good estimates of actual airplane ownership costs, but they’re not meant to be all-inclusive or the last word on the subject. I also recommend that you become familiar with the various vendors for new and used parts, so that you can shop around as a wise consumer. Prices can vary considerably, from the big-name shops and suppliers to the salvage houses and mail-order vendors out of Trade-A-Plane or Plane & Pilot. Never sacrifice quality for price when it comes to aviation, just be an educated consumer.

Another possibility is swapping out some of your services and talents for tiedown, maintenance or even a fuel discount with your FBO. One of my clients is a well-respected attorney who handles all of his mechanic’s minor legal problems in exchange for free annual inspections and tiedown on his Mooney. Another client of mine is a CPA who volunteers basic accounting work to swap out for a discounted avgas price for his 172. Another client owns a great hamburger joint and his airplane guy never picks up a restaurant tab. Be creative and generous with your talents and see if it can truly help your FBO or mechanic, and everybody wins.

We haven’t addressed the cost of gasoline or engine reserves. These are the largest variable expenses because, technically, you incur these costs only when you fly, so they’re somewhat more easily budgeted or controlled. Gas expense is obvious. Engine reserves mean that you should sock away so much per hour, for every hour you fly, toward your engine overhaul, so that when your engine reaches TBO, the money is available for a new engine. It’s not mandatory or required, just helpful budgeting. Avgas is a huge variable expense that depends on location, time of the year and your schedule. If you’re super-busy, you’re not flying and not buying gas. If it’s too cold, too hot, too rainy or IFR, you’re not flying and spending money. There are so many variables to this element that we have left it for another discussion.

How are we doing? Pretty good I’d say. The calculator shows $465 per month for payment, insurance, maintenance and contingencies. We wisely have $35 per month for “other” items or a further reserve.

We Did It
We’ve proven the chair warmers at the coffee shop wrong. The great dream of flying and owning your own airplane is within reach for the average guy. Use this article as a guide and come up with new and creative ideas of your own.

Rural airports are more fun and a lot cheaper. at smaller airports, there’s typically a friendly spirit of cooperation and camaraderie among all the flyers.

The Next Step?
Get a copy of Trade-A-Plane or The Controller, and start calling on ads for airplanes that sound good in your area and can be easily inspected. Don’t rush, but do be prepared to buy without undue hesitation when the right one comes up. Get your Bank of America second mortgage set up, call ahead for insurance, then go and inspect your potential airplane. Hire a well-respected mechanic to help you evaluate it, and don’t expect to purchase a brand-new airplane. A $20,000 airplane may indeed have its faults, but they should be limited to mostly normal wear and tear and cosmetic items. Remember, for our budget to work, we need to start with an airplane with the fewest major glitches and no major engine or airframe work coming up soon. If you can make friends with an owner who already has the model you’re looking for, he or she may give you some good insight on what problems are critical and which ones are minor.

We did it for actually a tad under $500 per month. I truly believe that owning an airplane can be one of the happiest experiences you can have, and that it is within the reach of everybody. The average guy or gal can own an airplane.

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Intoxication aside, there are several easy-to-follow but vital steps in the process of acquiring your first new airplane. The following guidelines should assist you on the pragmatic side of this romantic and thrilling adventure. Follow them in their natural sequence, sort of like a “purchasing checklist,” and you should have a very satisfying and enjoyable purchasing experience.

Pick Your Plane
First of all, clearly and realistically decide what kind of airplane you want to own—one that best suits your flying needs, experience level and budget. Indeed, the happiest airplane owners are the ones who have airplanes that are useable, enjoyable and affordable.

Nothing spoils the owner experience faster than being stuck with an airplane that’s a struggle to pay for, a hassle to fly or that sits in the hangar because it’s not practical for your travel and flying needs.

No airplane is perfect and no airplane is capable of accomplishing every mission within all your parameters. Examine the nature of 70% of the trips you’ve taken in the past six months to a year. Apply your findings to your current expectations. What’s my mission? Where will I go? How many people will I typically take? What can I afford per hour or per month? Is my mission weekend fun flying to golf outings or $100 hamburgers? Is it covering a five-state sales territory? Or is it flying to New York on Monday, L.A. on Tuesday and Houston on Thursday? How many people actually go along on 70% of my trips? (Note: Be realistic about how many actually go versus how many you wish would go.) What can I comfortably afford per hour? (Include gas and engine reserve and unscheduled maintenance.) Per month? (Include hangar, insurance, maintenance, annual inspections, taxes, etc.)

Don’t focus on the model you like best, but on the model you like best that also satisfies the practical requirements you’ve worked out for yourself. For the happiest experience, I’d highly recommend buying an airplane that you can grow out of in a few years, rather than one you must grow into. Always daydreaming about something newer, bigger and faster is part of the fun.

The answers to the questions about your true mission needs and capabilities may surprise you. Some find that a new C172SP or Diamond Star is the answer; others find that a new Cirrus, Columbia or Mooney is the rocket-ship they need; and others might find that a Saratoga or G36 Bonanza fits the bill when carrying along the whole family or sales team. A few lucky others place orders for a TBM 850, Pilatus, Meridian or Cessna Mustang.

Sure, sometimes we’re downright envious of the latter group—until we hear them shriek with agony over receiving a $70,000 bill for a fuel pump. Then we’re extremely satisfied with our Cirrus or 172SP.

As your business expands or if you strike it rich, then you can always trade up. For long-term peace of mind, however, use a methodical approach in which you take things one step at a time, in terms of money, your actual skill level and the time required for sophisticated training on higher-performance aircraft. It’s better to daydream about a shiny tomorrow (with a bigger, faster airplane), than to face the dark and stormy nightmare of buying above your price or experience level.

Financing
Now that we’ve decided on what’s going to be fun and smart, we can start shopping and actively looking, but there are a few small steps we need to engage at the same time. These small but vital steps, which require some lead time before signing the deposit check, include confirming your financing, ascertaining the depreciation/favorable tax treatment of your purchase and acquiring insurance.

While most manufacturers have some kind of in-house financing relationship with a major bank, it’s often best to prequalify on your own and thus assure yourself of the best rates and terms. And a prequalified buyer is music to the salesman’s ears—it establishes a stronger buying position for the customer who doesn’t have to rely on qualifying for the manufacturer’s program.

Hint: The clock is always ticking on a new airplane. The new airplane will automatically become a used airplane, chronologically, so the smart salesman or factory rep will want to move new inventory while it’s still new. A prequalified buyer means “sale” to an astute salesman.

There are many good sources of financing, and you should compare terms and down payments. Don’t expect residential-mortgage type rates—they don’t exist—but the rate should be on par with a luxury car or new boat. Expect 20-year terms, with a reasonable down payment. A few excellent resources for financing are Bob Howe at Dorr Aviation—(800) 214-0066, www.dorraviation.com—and Kathy Sterling, who used to be one of the top dogs at the aircraft financing powerhouse, MBNA. You can reach Kathy Sterling at (410) 569-6261 or ks@aircraftbankingcenter.com.

The next step is to call your CPA and quickly get him or her to determine the best way to buy your airplane, or how to take title. Depreciation on airplanes is excellent, better than real estate, so it’s a double scoop of ice cream to have Uncle Sam help pay for some of it. If your CPA isn’t sharp on airplanes, find one that can clearly help you with this valuable tool before you take title to a new airplane.

Insurance
Call now to see what training requirements the insurance companies will have for your new airplane. I highly recommend Mark, Dave or Grant at Southwest Aviation Insurance in Scottsdale, Ariz., (480) 483-7822.

Now’s the fun part. While you’ve been prequalifying, checking insurance rates and setting up an LLC, or whatever device your CPA recommends, you should also be face-to-face with the model, or models, of aircraft that seem best suited for you. Sit in them. Do they feel right? Fly them. Do they perform as advertised? Will they actually fly your typical profile trip? What are the various incentives offered by the different manufacturers?

Now it’s face-to-face time with the salesman. Keep in mind that you both share the same objective: the salesman wants to sell, and you want to buy. Approach the purchase as a team effort that’s headed toward the same touchdown.

Don’t let the relationship become adversarial. In a nice way, up-front,
let the salesman know that you’re serious about buying an “X,” his product, or a “Y,” his competitor’s product. It lets him know he needs to “sell” you a bit. Let him know that you’re prequalified, you have insurance in place and your LLC or ownership entity formed and ready, and you’re ready to sign the check based upon the best offer reaching a satisfactory deal. This is all he needs to know to pay attention and get a deal made.

Negotiating The Price
Back in the ’50s and ’60s, it was much easier to negotiate price because there were independently owned new-airplane dealerships in every town. While the factories tried to enforce a “territory” protection for their dealers, it rarely worked, and a buyer could endlessly shop from dealer to dealer for the same airplane and get very different price quotations. Today, there are just a handful of new-airplane dealerships, with little new inventory sitting around and a much tighter pricing structure from the factory, so hard bargaining and shopping for price are almost nonexistent. The only real bargaining that can be expected is Brand X vs. Brand Y. I know of one customer looking at a new $600,000 G36 Bonanza, and he’s frustrated because he can’t seem to get a “deal.” He has been trying for six months and, despite having the 600 Gs in the bank, he’s still Bonanza-less. I’ve told him to forget about the hard bargaining and just buy. He’s resisting, and as of this writing, is still flying his old airplane with old radios.

Feel free to visit the factory if you have the time, and meet the brass. They often welcome visits by highly qualified buyers and you may get a better sense of what the final, no-dickering price will be.

And here’s the simplest, scariest, most fun and most important step in purchasing a factory-new airplane: hand the salesman your check.

If you’ve done all your research, know the costs, have an insurance quote, have established your preferred tax-advantage method for taking title, know your training requirements and understand the warranty, then by all means, buy, buy, buy.

Trust me, nothing is worse than dotting all the I’s and crossing all the T’s, and then clamming up and stalling about the purchase and losing your dream airplane. Chances are, out of 300 million other souls in America, you’re not the only one seriously looking at that airplane at that moment. It may have been sitting there for a bit, but trust me, somewhere, someone is thinking about doing exactly what you’re thinking about doing right now.

Buy it and start having the time of your life. Oh, and by the way, Jeff Berlin, editor of Plane & Pilot, says to remember to get the salesman to help you get your personalized N number. As the kids say…sweet!

INSURANCE

AOPA Aircraft Insurance
www.aopaia.com
(800) 622-AOPA

Avemco Insurance Company
www.ave.com
(888) 241-7891

Aviation Insurance Resources
www.air-pros.com
(877) 247-7767

Travers & Associates
www.traversaviation.com
(800) 888-9859

FINANCE

Allied First Bank
www.alliedfirst.com
(800) 272-3286

Cessna Finance Corporation
www.cfcloan.com
(866) CFC-LOAN

Dorr Aviation
www.dorraviation.com
(800) 214-0066

Harley-Davidson Financing
www.hdfsi.com
(800) CLUBHOG

Scope Leasing
www.scopeaircraftfinance.com
(800) 357-5773

U.S. Aviation Finance
www.usaviationfinance.com
(888) 654-USAF

The post Buying Your First New Airplane appeared first on Plane & Pilot Magazine.

“Ten to 15 years ago, the average owner had no real idea what his airplane was worth, so deals were a lot easier to find,” explains Brian Jacobson, operations director for the National Aircraft Appraisal Association. “Today, sellers are a lot smarter. The Internet and other sources have made it easy to track the value of every type of aircraft. Also, the market got so hot that owners began watching their aircraft’s value go up the way people watch the stock market. Too many airplanes became overvalued. People were buying sight unseen.”

Understanding The Undervalued
There are good deals out there. You just have to know where to look and what to look for.

“If you’re patient and do a lot of research, you can find undervalued airplanes that are good deals,” says Barron Thomas, manager of Barron Thomas Aviation. “Start by knowing the difference between good and bad undervalued.”

Thomas says that undervalued airplanes are pretty similar to the rest of the planes in their class, but are being sold for significantly lower prices.

He explains that “good” reasons for undervaluing an airplane are things that don’t affect its real value. Those things include circumstances that affect the seller: divorce, tax problems, buying another airplane, losing a medical—anything that causes motivation to sell fast. “Bad” reasons for undervaluing an airplane are all expensive: damage, AD compliances, corrosion, run-out engines, obsolete avionics—all the stuff from which nightmares are made.

Just to keep things from seeming too clear, he adds that there is another category of good and bad undervalued airplanes. “I define these good ones as ones that you can buy for a price below what you would pay for the similar performance from a more popular model,” he says. “These are usually particular models to which the market just doesn’t pay much attention.” You could probably buy one of these, fly it happily for a few years and resell it for pretty close to what you have in it.

“On the other hand are the bad undervalues,” continues Thomas. “These are airplanes that, due to high maintenance, insurance or operating costs, the market has undervalued way below competitive models’ costs. Some are still good airplanes, but you need deep pockets to afford to fly them.” Buy one of these and chances are you’ll be digging a financial hole you’ll never be able to fly yourself out of.

The key to being able to spot the proverbial diamond in the rough is knowing exactly why a particular airplane is undervalued. Is it situational or mechanical?

Uncovering The Undervalued
Now that we know what to look for and look out for, it’s time to find the best places in which to look. A good idea is to start where other sharp-eyed buyers may not be looking, like estate sales and banks. If the aircraft is part of an estate, often the surviving family members don’t know the airplane’s value and may not be interested in doing the homework to determine the current market value. There is no harm done in alerting banks and members of the legal community that you’re in the market to buy a plane. If you’re in the right place at the right time and you make them a good offer, you score a win.

We’ve all heard about the pennies-on-the-dollar deals you can get at those seized property auctions that the U.S. government holds. Today, that’s the exception and not the rule.

“We tend to get fair market value for the aircraft we auction off,” explains Britney Sheehan, a representative of the company that handles auctions for the U.S. Treasury and other departments. “We get an appraisal of the airplane before it’s auctioned, so we know what the value is. Most of the aircraft have no logbooks, have run-out engines and props, and need a lot of work. But every once in a while, there is a great deal in there.”

She shared the story of a guy who sold a Boeing Stearman to a pilot who turned out to be a drug dealer. The original owner was able to buy back the Stearman at auction for a lot less than he originally sold it for.

Sheehan said that the various government branches hold these auctions at many locations around the country. Listings of dates, locations and items to be auctioned can be found on their Website at www.treas.gov/auctions/customs.

While you’re waiting for an auction, Thomas suggests that you contact a reputable broker/dealer. His company has a waiting list of prospective buyers who are all looking for a certain price on a certain airplane.

“If someone is on that list, we call them first before we advertise it,” he says. “You can get first shot at a great deal, if you’re patient.”

Of course, in the meantime, you have to routinely scan the Yellow Pages and other publications. Now and then, you can uncover some gems in all those endless lines of copy. And some of those “deals” often pop up on aircraft based in another country.

“There are deals outside of the U.S., for sure,” says Marion Hope, president of Hope Aviation Insurance. “Just remember, from an insurance standpoint, that you never want to take delivery of any aircraft in a foreign country.”

Why? “There are a lot of reasons, but the biggest is that it might not have a valid U.S. Airworthiness Certificate and it’s not N-numbered,” he adds. “Both can cause an owner huge problems when it comes to insurance. If you really want a foreign airplane, just have it delivered over here and make sure that all the paperwork is in order before you sign anything.”

Having the airplane on U.S. soil isn’t only important for insurance, but also for getting financing. “U.S. banks will only loan you money on an airplane that is physically located in the U.S.,” adds Jim Blais, V.P. of the Aircraft Division for Eaglemark, part of Harley-Davidson Financial Services. “The aircraft also must be registered with the FAA before any loan can be processed.”

Ready, Set, Buy!
Unlike high school, successfully buying an undervalued airplane—or any airplane for that matter—requires that you do all your homework.

“The first thing you need is a good market appraisal,” says Jacobson. “It’s a realistic value inspection. You need to know what the history of the airplane is: use, damage, modifications, etc. Believe it or not, some sellers will misrepresent the actual condition of their airplane, even when they’ve ’undervalued’ it—hidden damage, incorrect or incomplete logs, improper modifications, things that would have been uncovered with a good pre-purchase inspection.”

A big part of that pre-purchase process is a thorough technical evaluation. “A good technical inspection is just like a home inspection,” explains Matt Thurber, A&P/AI and editor of Aviation Maintenance magazine. “You’ll not only find out what is mechanically wrong with the aircraft, but also what it may cost to fix it. The important thing is to really determine the airworthiness of the airplane. That’s where you’re going to spend the really big bucks making it right. If you find that an airplane has had a cylinder removed at every annual for the past five years, chances are it’s a problem that isn’t going away. It’s only going to cost more money in the future, and that money has to be added to the price to determine the real value.”

That real market value will have a lot to do with getting the right financing. “If you’re lucky enough to find an airplane that has a higher market value than what you’re paying for it, you can use the equity to pay for improvements you want to do,” explains Blais. “You can end up with an airplane that’s better than others on the market at a price that was below everything else. It’s a real win for the consumer.”

!Happily Ever After
If your thoughts of finding your undervalued gem are getting a bit bleak, take heart. There are deals out there.

“A few years ago, we found an Archer that had been sitting unused in the desert for about eight years,” says Jacobson. “It was part of an estate sale. It only had 1,100 hours on it and we got it at a great price. We did a thorough annual, including an inspection of the engine, which surprisingly didn’t need any real work. We replaced the interior and glass, and painted it. In the end, we had a pretty nice airplane at a very nice price—way below what the market was asking. You don’t find many deals like this, but when you do, it really works out well.”

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