by Stewart S. Koesten, M.S.F.S., CFP®, CIMA®
KHC Wealth Management
Not all financial planners know much about aircraft ownership, and others may discourage the idea of owning an aircraft. They’re the ones who say if it floats or flies, rent it. Not bad advice but let me share my story with you.
I used to rent, but it became impossible to plan ahead. The FBO I rented from had a small fleet of rental aircraft that were also used for flight training. They were well maintained, but that meant your need for the aircraft might conflict with their need to do a 100 hour inspection. It got unmanageable and unreliable so I decided it was time for me to look for an alternative.
I considered existing flying clubs in the area, fractional ownership and direct ownership. I felt owning my own aircraft was preferable. One problem with owning an aircraft is the amount of flying you think you’ll do. I seldom fly more than 100 hours a year. That’s really not enough to keep an aircraft mechanically healthy and the costs per hour reasonable. I looked for an aircraft partner, and I found a great partner in my personal dentist. The good doctor (seriously) was elbow deep into my mouth one day and asked, knowing I was a pilot, whether I’d be interested in partnering with him in his Bonanza. It was hard to respond at the moment, but in time we developed a fine relationship with mutual respect for the aircraft. That’s important. Having a partner who abuses the aircraft can be a very bad and likely costly situation. Along the way we added another great partner, and between the three of us we were able to fly around 250 hours a year. Eventually the Bonanza became a turbo-Aztec. Two of us are still in that partnership but today we own a Twin Cessna 414.
No aircraft is perfect, but we found the large Cessna meets 75% of our mission requirements. It is fast, pressurized, turbocharged and seats grandparents, children and grandchildren on the same flight. It has legs too. At 65% power, with five on board we can go just under 1000 statute miles. We own the aircraft outright through our not-for-profit S-corporation. We are set up as a flying club, and can have as many as five members. The system works for us. I maintain the books and records, and my partner maintains the maintenance and avionics. We chip in a monthly amount for insurance, income tax preparation, oil changes, hangar rent, and annual inspections (the fixed expenses). We pay in $100 for every hour we fly for engine and prop reserves (variable expenses), and we pay for our own fuel as used.
When I fly for business my company reimburses me sufficiently for the expense of using the aircraft. I don’t play games with taxes, and we keep good financial records. I’ve never attempted to depreciate the aircraft since it isn’t used exclusively for business and I’d rather not get into a debate when audited. All in, our aircraft runs about $500 an hour to fly. That’s a bit less ($50/hour) than average for a large Cessna but our annual inspections, hangar costs and annual maintenance expenses have been considerably less than in other locations around the country. That’s still a lot of money so it is important to make sure you can cash flow the routine expenses. Occasionally, there are surprise expenses, and having extra resources to meet your obligation is critical both from a financial point of view as well as just feeling comfortable with the situation.
Having an aircraft partner has been great, but what really works for us is that our schedules match up perfectly. Seldom do we conflict. We are respectful of each other’s need for the aircraft, and occasionally swap dates to accommodate each other. We fly together sometimes.
Recently, I’ve discussed with my own financial planner how to factor flying expenses into my retirement plan. Here’s how I’m thinking about it. If my financial plans indicate that I cannot afford to continue flying when I retire, then I’ll work part-time to fund my flying expenses. When I can no longer work, or I am not physically able to fly then I will hang up my flying suit and discontinue part-time work. Until then, working part-time is a great way to fund my love of flying that I would not otherwise be able to fund in my baseline retirement plan. Talk about motivation!
Owning an aircraft is expensive, but with careful planning and analysis you can choose the right aircraft. Choose one that you can afford (first and foremost) and one that meets 70% or more of your mission. There are financial planners who know little about aircraft ownership or financing. If you are considering buying an aircraft make sure your financial planner and CPA are familiar with the financial and tax issues involved.