Finance: Be Picky

The charter operator gets paid up front. The aircraft owner gets saddled with additional maintenance and other costs associated with greater aircraft use. Aircraft owners know there’s no such thing as a free lunch, and that’s especially true with Part 135 leasebacks. Any income is likely to be offset by additional maintenance and a decrease in the residual value of the aircraft.

An old rule of thumb for business aircraft ownership is that if you fly less than 100 hours a year, you’re better off as a fractional owner. And if you’re flying less than 50 hours a year, you should consider becoming a charter customer.

Aircraft owners should know that they shoulder the greatest risks when they make their airplanes available for charter, and rewards aren’t guaranteed. Also, don’t look to Part 135 income to help secure an aircraft loan. Lenders typically don’t put any stock in potential charter revenue. If an individual or corporation can’t afford the airplane on their own, the promise of additional charter revenue doesn’t change the equation. In fact, aircraft owners planning to operate their airplanes as charters can expect to pay higher interest rates, bigger down payments, and obtain less favorable loans that must be repaid faster.

It’s easy to criticize the lenders, but here the owners’ and lenders’ interests are aligned. Both need to be protected from higher usage and greater costs reducing the value of the asset. Neither one wants to be upside down by owing more than the asset is worth.

Aircraft owners should carefully consider the Part 135 operators they work with. Do they have a good track record with other owners? Do they have steady demand and highly qualified pilots and mechanics? Part 135 operators that do their own maintenance often bill owners at the full retail rate for work they do on their own charter fleet—a potentially pricey conflict of interest that can haunt owners who must pay those maintenance bills.

The upside of placing an aircraft on a Part 135 certificate is that it can be expected to be flown regularly by qualified crews and maintained to high standards. Modern, efficient turbine aircraft ranging from PC–12s to Cessna Sovereigns are highly coveted by charter operators.

Leasebacks can be done successfully, and there are cases where it’s beneficial to all parties. My advice to owners is to be extremely careful with whom you do business. This is a time to be picky.

Web: www.aopafinance.org