While the idea of generating some income with your aircraft or at least defraying some of your annual operating costs sounds good, there are a number of hidden costs and issues with Flight School leaseback agreements.
- Your insurance costs will likely increase and often significantly due to the commercial use of the aircraft. For a typical light aircraft, increases are often between $2,000-4,000 per year.
- You'll have to pay more for required inspections. An annual won't cut it anymore so be prepared to fork out additional money for 100 hour inspections that are required for commercial use. These inspections will increase your hourly operating cost as well.
- Last but not least, prepare for additional annual maintenance expenses due to additional wear and tear on the aircraft and engine. You've probably heard the saying that "nothing parties like a rental" and while we'd like to think that pilots take better care of aircraft than we might of a rental car, the reality is still the same. Renters tend to fly aircraft at high power settings since they are typically paying an expensive wet hourly rate and inevitably, things get damaged or broken. Most flight school leaseback agreements put the burden of repair costs on the owner's shoulders. Additionally, the rental use of an aircraft often leads to reduced resale values.
- You don't know who is flying your aircraft and how they'll fly it. Do they manage the engine properly and check the oil level before flying.
- You lose flexibility since you usually need to schedule your own flights with the flight school
That's not to say that leaseback agreements with flight schools can't be successful or worthwhile. It just means that you really need to understand and be able to quantify both the fixed and hidden costs of these arrangements.
Most flight schools take a percentage of the full hourly rate at which the aircraft is offered for rental to its students or clients. One way of helping to make sure that you're not getting the short end of the stick is to base this percentage off of the profit or margin that the aircraft will generate per hour when rented.
Depending on the type of aircraft that you own, pursuing a joint ownership arrangement may be a better option for you. These arrangements allow you to spread out the fixed costs of aircraft ownership among multiple owners without the additional insurance and inspection costs.