Question of the Month

One of the first things a club in formation should do is get a sense of what your operating costs will be. A basic budget should include the club’s expected revenue as well as the sum of the club’s annual fixed expenses and an hourly operating cost for the aircraft.

Revenue for the club will include the initiation fee or new member buy-in, monthly or annual membership dues, an hourly rate for aircraft rental, and possibly assessments for special events or major upgrades or acquisitions.

Expenses are generally divided into two categories—fixed costs, such as insurance and hangar or tiedown fees, and variable costs, like fuel and oil. Most flying clubs use monthly dues to cover their fixed costs and revenue from hourly rates to cover variable costs. However, a club is free to choose how it wants to generate funds for specific purposes. To determine the monthly dues, clubs generally divide the fixed expenses by the number of members.

In addition to monthly dues, the club must consider the acquisition of the aircraft and other club assets. In an equity club, the purchase of the aircraft is usually funded by the initial buy-in of the club members. Membership shares are usually transferable to new members when the club experiences turnover.

Clubs that finance a portion of their aircraft will have lower buy-in costs but experience higher monthly dues to compensate for the aircraft loan. Some clubs that form through financing maintain lower buy-ins even after the aircraft has been paid off, which is a great way to attract new members.

A proposed budget will be required on your IRS Form 1024 if your club chooses to apply for not-for-profit status. It is important to remember that the proposed budget for form 1024 is a rough estimate and actual finances may very slightly from those proposed.

Possible Fixed Costs:

1. Hangar/Tiedown
2. Clubhouse/office space
3. Insurance (Aircraft and Directors & Officers)
4. Financing
5. Annual inspection (A club may choose to make this a variable cost if the aircraft is expected to fly several hundred hours a year. The upside to including this expense in the hourly rate is that the more a member flies the plane, the more he pays to maintain it.)
6. State registrations
7. Charts and database upgrades
8. Club operational expenses (web hosting, scheduling tools, accounting, etc.)
9. Social events budget
10. Marketing

 

Possible Variable Costs:

1. Fuel and oil (Some clubs have a dry rate, others have a wet rate.)
2. Engine reserves (savings toward a future overhaul)
3. Maintenance reserves and aircraft wear and tear (maintenance items that vary with use, such as tires, oil changes, cleaning supplies)
4. Inspections (recommend 100-hour interval)
5. Avionics upgrades
6. Propeller inspection or replacement
7. Other upgrades (ADS-B compliance, paint, interior)
8. Aircraft replacement fund (Although aircraft last a very long time, airframe hours do collect in that logbook. As your airframe nears 10,000 hours you might consider selling the aircraft and replacing it with a newer model. This savings accounts for the difference between the anticipated sales price of the aircraft and the purchase of a replacement.)

 

Costs of Leasing an Aircraft
Some clubs lease aircraft, which makes for a different financial breakdown of fixed and variable costs. Most aircraft leases will have a base lease fee that repeats yearly, usually 5 percent of the value of the aircraft, plus an hourly rate for the use of the plane. The responsibility for maintenance, engine replacement, insurance, and other expenses are negotiable. However, most club leases will include the following responsibilities:

Aircraft owner:

1. Maintains the aircraft
2. Replaces the engine

 

Club:

1. Insures the aircraft
2. Pays for hangar or tie down fees for the aircraft
3. Fuels the aircraft (in a dry lease)

 

The benefit to the above responsibilities is that the aircraft owner can maintain his or her plane to the level they find appropriate and agreeable with the club. And the club pays for insurance rate variances that are affected by number of members, type of members, and accident history. Based on the above example, the base lease fee would be categorized as a fixed expense and the hourly lease rate would be a variable cost.