TCA leaseback agreements

How does a TCA leaseback agreement work?

A leaseback is a management agreement between Third Coast Aviation LLC (‘TCA‘) and an aircraft owner wherein TCA uses the owners’ aircraft on its flight line.  The basic process includes TCA:

  1. renting the aircraft generating revenue;
  2. paying owner an hourly leaseback fee;
  3. managing the aircraft’s maintenance; and
  4. helps the aircraft owner grows their equity in the aircraft and lowers their Total Cost of Ownership.

The Process

Aircraft Rental

TCA is a Title 14 CFR Part 61 flight school, and as such, it has a number of aircraft in its flight line that its Certified Flight Instructors (‘CFI’) use to provide dual flight instruction wherein student pilots are directly and safely taught by CFI’s.  The CFI ensures that the aircraft are air worthy, safe, and properly flown, as well as solo flights.  The student pilots’ solo flights only take place after their CFI determines their proficiency for safe flight.

TCA’s rental rates start at $130.00 per Tach hour currently, depending upon the aircraft’s age, avionics, and general condition.

Hourly Leaseback Fee

TCA calculates the hourly leaseback fee based upon many factors, including:

  • airframe – manufacturer year and airframe hours
  • engines – number, size
  • avionics complement
  • estimated flight hours per year (average 400)

Traditionally this hourly leaseback fee is between $50.00 to $80.00 per hour for single prop, non turbo aircraft.  TCA maintains the aircraft’s log(s), dispatch logging and scheduling through its Flight Schedule Pro system.

Managed Maintenance

TCA is required by the Federal Aviation Administration (‘FAA’) as a FAR Part 61 flight school to inspect its aircraft on a higher level than normal civilian aircraft owners usually do, therefore TCA manages the maintenance and inspection of all of the aircraft on its flight line.  We pay direct aircraft flight expenses, including:

  • insurance,
  • tie-down,
  • fuel,
  • oil, and
  • 100 hour inspections (100 hour inspections are required for flight schools).

Aircraft owners pay:

  • parts,
  • upgrades,
  • registration,
  • annual inspections, and
  • maintenance.

Payment to Aircraft Owners

TCA manages the whole process – revenue, maintenance,  through payment.  We collect the rental revenue, net of the hourly leaseback fee and direct aircraft flight costs, and then splits the net revenue 60% to TCA and 40% to the aircraft owner.  Here is an example:

  • Aircraft rented 100 hours in the month (this would be high but makes for an easy to understand example).
  • Hourly leaseback fee is $50.00 per Tach hour.
  • Student hourly rental fee is $130.00 per Tach hour.
  • Direct flight costs are $40.00 per Tach hour.
  • 100 hour inspection and oil change was $900.00 (notice this is taken care of by TCA).
  • Inspection found $2,200.00 worth of maintenance issues during the month.
  • Aircraft owner flew 6 hours.

Calculations:

$130.00 X 100 hours = $13,000 revenue

$50.00 X 100 hours = $5,000 leaseback fee

$40.00  X 100 hours = $4,000 direct flight costs

$130.00 X 6 hours  = $780.00 rental fee for owner usage

And the final amount the aircraft owner would receive at the end of the month would be:

$5,000 hourly leaseback fee
+ ($13,000 – $5,000 – $4,000 = $4,000 * 40% = $1,600) profit sharing
– $2,200 maintenance
– $780 rental fee for owner’s usage
=========
$3,620

Results vary widely but payments average $1,500 or more per month.  We recommend that the owner set aside most of their payments each month for upgrades and unplanned maintenance events.  TCA cannot fly aircraft that are not airworthy, so owners that cannot pay for large unplanned maintenance experience a loss of payments.

The Pros and the Cons

People participating in leasebacks, do it for many reasons.  For instance, they may:

  • be lowering their Total Cost of Ownership until the plane is paid off;
  • have health issues and don’t want to get rid of the plane;
  • have multiple family members wanting a pilot’s license;
  • are a student themselves and want a method of lowering their overall cost of attaining their goal; or
  • want an investment and have a love for general aviation.

Pros

  • Your fixed costs of owning the aircraft are paid for.
  • The aircraft gets flown. An aircraft not being flown is an aircraft in decline.
  • Your Total Cost of Ownership is greatly reduced.
  • You gain equity in the aircraft as it works. It benefits you to refer students to TCA in order to increase your income.
  • Potential for excellent cash flow.
  • Greatly accelerated depreciation tax credits (up to $500,000 in the first year).

Cons

  • Poor or high air frame hours lead to high maintenance cost and can result in little to no payments.
  • Flight training service can be hard on the plane. Many planes can fly an average of 400 hour per year, and some will fly as much as 600 hours per year.
  • You will not have readily available access to your plane. You  reserve the use of your plane and pay a rental rate. However, this is not such a bad thing, considering that you are paying yourself.

Participating in the TCA aircraft leaseback program is not for everyone and is not a guaranteed source of income. With TCA aircraft owners get a fair leaseback arrangement and have the possibility of earning income from the aircraft while decreasing their cost of ownership.

If you think that participating in the TCA Leaseback Program is right for you, contact us at info@thirdcoastaviation.com or call (979) 473-9822 today. For more information on TCA, visit our website at http://thirdcoastaviation.com.


© 2017 by Third Coast Aviation LLC, all rights reserved.

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