Tuesday, January 28, 2014

Aircraft financing

Thinking of buying an aircraft?  

Dream planes don’t come cheap.  If you are the type of person that is buying an aircraft for personal use (which is probably 95% of the buyers) the money is probably coming out of the discretionary income account.  That’s the extra stuff you have burning a hole in your pocket every month.  The money we spend on the things we really don’t need, but want.  Don’t get all up tight and try to tell everyone how important an aircraft purchase is, how you need it!  We've all been there and done that!  It may be necessary, but it’s not always rational!  Buying an aircraft is a very emotional decision.  Since an aircraft is extremely hard (if not impossible) to rationalize, you need to think of the money that you spend like fun money or maybe a stock market account.  And just think most aircraft have increased in value better than blue chips stocks.

If you have to buy...and it is always a have to... you need to come up with the money.   Either you dig into the savings accounts or you borrow money from a lending institution (or you've got the money stored in your mattress).  Do you need to finance?  That’s really a personal decision.  Many a good aircraft deal was missed because my funds were tied up in the wrong place (food, housing, clothing, etc.) 

But borrowing money can sometimes be the right means to the end!   Financing comes into play when you need to preserve your existing cash or when you need cash to begin with.  It’s even been said that another good reason to finance is because the average aircraft is only owned for a few years.  Why tie up one’s own money in equity in an aircraft that you don’t plan on owning for a very long time.  And one other thing, at this time, borrowing money is relatively cheap. 

Where will you go for the money?  After you've exhausted all your friends’ relatives and neighbors, you can go to your local lending institution (bank, credit union, savings bank) and ask for an aircraft loan.  In fact, most aircraft lending groups recommend that you check there first.  It may even be easier to get a local loan because of the existing banking relationship the buyer has with the institution.  But most local banks are not fluent in aircraft.   If the loan officer didn't bust out laughing, you might have a chance.  If they stared glassy eyed straight past you at clock on the wall, mumbling something about a break, start looking elsewhere.

Below are six basic tips to make your financing experience a good one. 
1. Choose a finance source that understands aircraft
2. Select an aircraft that fits your needs (be realistic)
3. Review your credit history prior to applying for a loan (make sure your information is current and correct)
4. Put together a complete financial package which include: detailed loan application, Up to date personal financial statement, at least two years of income Verification (w-2, Payroll stubs, Tax returns and business tax returns if self-employed).
5. Provide a thorough description of the aircraft which could include log book copies, airframe and engine hours, equipment lists, result of pre-purchase inspection, pictures
6. Explain how the aircraft will be used, estimated hours of use, location of home base and any other details.

If you plan ahead and contact the loan underwriter with the above information the loan process can be completed in a few days (and that includes title searches, credit checks and insurance binders.)  Whichever airplane is your dream plane and no matter how much it cost or whatever financing method you use...remember, it’s only money!

Thursday, January 23, 2014

Simulator or stimulator

I've always felt that flying was very stimulating.  I think that most pilots feel the same way.  It brings out another side to the personality that a pilot craves.  And one way to fulfill that desire is to use a PC Simulator.  One of the simulator programs that I have is the Microsoft Flight Simulator Professional.  I know there are other systems, but I have had this for years and it has always worked great.

This version offers me a chance to actually download weather from the Internet and overlay it in the simulation I’m in.  Another neat thing is that I can use the simulator program to pick a city and plan a cross country flight, before I make the flight.  And many times the airport in the simulation has many of the topographical things to give me a perspective of the area.  No, it is not the same as being there.  But I’m not there!  I’m pretending to be there.  And that makes it fun.  I can pretend to be almost anywhere.  And I can fly aircraft I don’t own or can’t fly in real life.  My desire has never been to fly an airline, but I can, on the simulator.

And if I want, I can make the flight, shoot a couple of approaches (and I’m not even instrument rated) and be prepared for the trip.  It’s a rehearsal for the actual flight.  And the old line “practice makes perfect” has never been more accurate than in aviation.  The more you fly the better it is.  And that doesn’t mean just flying in an aircraft. 

Want more?  There are lots of extras in today’s flight simulators such as real time weather, lots of cool visual effects and quite an assortment of airplanes.  One of which is my dream aircraft, the Cessna Caravan on amphibious floats.  I have always felt that the Caravan on amphib’s could replace a fifth wheel travel trailer, a testosterone filled truck and my airplane. 

 It could be a flying motor home…although I don’t foresee owning one in the near future.  Now that I think about it, I don’t foresee owning one in the distant future either.  Not unless all of you readers want to contribute to the “SkySmith, I want to own a Caravan on amphib’s fund”.  But until then, I’ll be stuck flying the computer version.  Which really isn't too bad.  I was able to fly to a lake, land and see the wave’s splash around the floats while I taxied to the dock. 

And when it came time to refuel…I shut the program off and didn't have to worry about paying for the hundreds of gallons of fuel that I burned during the flight.  My Discover card thanked me.  Kind of a nice thought. 

Monday, January 20, 2014

Thursday, January 9, 2014

Google Glass

I have my self on the list to buy a Google Glass.  In my mind it seems like a great way for a pilot, motorcyclist, boater and all around gadget nut  to stay connected.  Okay, yeah, it seems crazy. 

But in the grand scheme, could it be a marketing tool?    I don't know either. Just thinking out loud.


Tuesday, January 7, 2014

Instruction in your own aircraft.

Last time I mentioned the question about buying an aircraft to get your license in. This time its about getting instruction in your own aircraft.

Many an aircraft owner has future training plans for their aircraft.  These plans may include an advanced rating or a friend or family member that needs to get a license.  And if you own an aircraft, why in the world would you want to rent someone else’s?  That’s great question.  And the first place you should start is with your insurance policy. 

Most policies have specific language that addresses the use of the aircraft. And the use is usually limited to pleasure flights and limited business flights that might be done in conjunction with your pleasure flights (but nothing for hire).  The use might include instruction for advanced rating, but not for the primary rating unless it is specifically stated.    

This little clause is important to the owner and insured.  If they, the owner, would like to work on their instrument rating and they are not flying the aircraft in actual IMC, they are usually considered to be the PIC.  Coverage under the policy is normal.  The problems start when there is someone in the aircraft giving or receiving dual instruction that is not listed as a pilot on the policy (but might be considered PIC). 

In the past we have discussed the pilot warranties and who is protected and who is not.  If you remember, the open pilot warranty is a pilot category that, if a person meets the listed requirements, that pilot can fly the aircraft and the owner (insured) is covered by the policy.   But there is a small clause in ,many aircraft insurance policies that states that unless the pilot is listed on the policy they cannot receive any training in that aircraft.

This basically says that if you have a friend that wants to get their instrument rating in your aircraft they wouldn't have any coverage…and neither would you.  Of course, as always there is a “gray area”.  If the friend meets the open pilot warranty (OPW) and they borrow your aircraft to get advanced training they might be covered.  The key here is might be!  If that person meets the OPW and they are the pilot-in-command (PIC), then yes they (and the owner) should be covered under the policy. But each insurance company has a different interpretation of the training clause.   It would be in the best interest of the insured to have the agent contact underwriting and check for sure.  It would even be a better idea to list the friend on the policy and make sure the owner has coverage.

We see this problem pretty regularly.  Usually it is a situation where the cost to add a student pilot to a policy is very expensive.  The owner decides to try and circumvent the cost by allowing the “student” pilot to get their training under the supervision of an instructor that meets the open pilot warranty.  While the thought might be correct, it is flawed. 

A good example would be the owner of a light twin-engine aircraft.  This owner didn't have a multi engine license and needed to get dual and take the check ride with the FAA.  To put that person on the policy would have cost about $1000 more a year in premium.  In this instance the owner decided that the quote we got (with him on the policy), was too expensive and he went to another agency to quote coverage without him listed.  In the month after buying coverage through the other agent, the owner and his instructor had an unfortunate gear up landing.  Of course their defense was that the instructor met the OPW and they would have coverage under that clause.  But what he discovered is, as we told him, if he wasn't on the policy there was no coverage.  There was a clause about non-listed pilots receiving dual instruction in that aircraft.  The owner attempted to convince the claims department that the instructor was PIC but when the claims adjuster made copies of the owner’s logbook they found entries that included dual instruction in the aircraft.  If he didn't have the entries he might have had coverage, but then, what good would the training have been if he couldn't record it.  In this case the claims cost him a lot more financially than the premium increase would have.

The same situation can happen in just a normal “run of the mil” aircraft.  We have had numerous owners that have wanted to allow another pilot access to their aircraft but that pilot didn't meet the OPW warranty.  When we check on adding them to the policy there is a significant increase in premium.  In a few of those cases the owner has decided that they will let the person fly the aircraft with someone that meets the OPW, say an instructor.  But again, if they log the hours and then have a claim, it will probably be denied. 

It’s also important to know that your instructor might not be covered. Many polices require that the instructor meet the OPW if they are giving instruction in your aircraft.  If they don’t meet the minimums, the instructor needs to have his or her own coverage or be listed on your policy.   A good example is transitioning into a high performance aircraft or light twin.  Your instructor might be qualified by the FAA to give training in a twin or that big single but the insurance company will probably require a minimum number of hours in the make and model.  If the instructor doesn't have the minimum, he can’t really give you the training (from the insurance standpoint).  This also can be like a domino affect.  If he didn't meet the minimums and still gives you the training and you (later in life) have an accident, the claim might be denied.  The claims department will want copies of your logbook and they will be looking for any entries that show compliance with the training requirements.  When the instructor’s logs are copied and they find he didn't meet the OPW (or whatever the insurance companies requirement was) they will have the opportunity to decline the claim.

So what can the owner do?  Make sure if someone flies the aircraft they meet the open pilot warranty or the underwriter approves them.  This doesn't stop people from getting dual in the aircraft.  It doesn't stop your friends from using the aircraft for training, it just means that, as the owner, you need to make a few decisions, take a few preliminary steps and possible pay a few additional bucks to insure coverage during that time. 

As a side note, lets say your spouse wants to take a “pinch hitter” course, but doesn't want to be a pilot, don’t worry.  Usually the underwriters will allow a spouse to take pinch hitter or safety courses with qualified instructors in your aircraft and often it’s for no cost.  

Friday, January 3, 2014

Should you buy or rent when learning to fly?

Thinking of getting a private or sport pilot rating? Should you purchase an airplane to use during instruction?  Can it really save on rental fees and can you buy more affordable than rent?

Buying can be a good way to go.  Ownership frees up the planes schedule and you can get it whenever you want.  No overnight charges if you take a trip.  You know the maintenance history and as an owner, you get comfortable with the aircraft.

But, the biggest problem is buying something that might not be what you want at a later time.  Surprisingly, the wants and needs get mixed up, so what you want, might be different than what you really need.

If possible fly a few different models of aircraft.  That might mean going to a few different FBO’s and getting in their aircraft.   But after you get a few hours, you will be able to tell the difference between a Cessna 150 and a Cherokee 140.  You know, high and low wing, landing, visibility, all these factors are important to every pilot in some manner. 

Make sure you try them all out before you purchase.