Usually when referring to leasebacks, flight schools are referring to an arrangement where an aircraft owner makes his or her airplane available to the school. In turn, the school brokers the rental of the aircraft to pilots who will pay on a per-hour basis. In this arrangement schools are essentially making our money by charging a “management fee,” much like a property manager would in the real estate industry. Done properly, these agreements are particularly beneficial for flight schools, as it limits the need to purchase expensive aircraft, and owners, as it reduces their overall expense to fly.
When aircraft owners hit tough financial times they often seek out leaseback opportunities as a cost-effective way to offset the costs of maintenance and upkeep. But what if you flipped the scene and found the aircraft your school already owns are proving too costly to your bottom line during this economic downturn? During more lucrative days, many flight schools found it most advantageous to fill their lines with purchased aircraft rather than leasebacks. However, now times are leaner. Many schools are forced to sell some, if not all of their aircraft, dwindling away the very mechanism needed to generate income, sometimes forcing them out of business altogether. Many don’t realize that before taking that drastic step, there is another option in which they can become lessees of their own aircraft through a sale-leaseback arrangement.
Under a sale-leaseback arrangement, the flight school (or business principal who owns the aircraft) sells the aircraft to a lender, such as a bank, who then becomes the lessor by immediately leasing the aircraft back to them. Banks are usually very expeditious in completing the transaction, making sure that no interruption or disruption of aircraft operations takes place. Instead of making a monthly loan payment, the flight school is making a lease payment, which will typically show up as more cash income. Of course, there may be changes concerning taxes and the way in which the aircraft is accounted for on the company's balance sheet, but most of these changes will be more beneficial than detrimental to the bottom line, especially if it means saving your school from going under.
Here are some of the ways that using sale-leaseback can help your school.
If you still want to be able to take the same tax deductions as an owner, then consider structuring the leaseback as a capital lease; however, while the other perks of leasing still apply, under this leaseback arrangement, the aircraft and corresponding debt would generally need to be reflected on your balance sheet.