Fixed vs. Operating Costs

Mon Apr 6 13:10:56 EDT 2009

The spreadsheet is 90% there, and I'll send it out this evening.  I've broken the expenses into three categories.  Capitalized cost(the cost of the plane(note) itself), fixed cost, and then variable cost. 

I have two scenario's running...the first is where we "lease" 976 from eagle, and the second is where we go out and buy a plane from someone else.  You can input # of members, # of flying hours per year per member, monthly note, etc., and it gives a good estimate of our monthly or yearly fixed costs per member and the variable costs associated with hobbs time.  I'll provide more instruction in my email tonight...does everyone have microsoft excel? 

Mike 
----- Original Message ----- 
From: "Bob Irving" <rhirving at verizon.net> 
To: toddmbs at yahoo.com, eefc-core at workingcode.com, "Steve Gordon" <steve at media-phile.com> 
Sent: Monday, April 6, 2009 12:38:15 PM GMT -05:00 US/Canada Eastern 
Subject: RE: Fixed vs. Operating Costs 

Sounds like we need more conversation and specific definitions, estimates of the fixed costs and the operating costs.  Accounting is not my strength so somebody needs to facilitate so we can all understand the numbers. 

With respect to 979 – I have a call in to Tim (unfortunately he is out of town) and will try to meet with him to flesh out his proposal.  In general, I agree that it would be “easier” to work with 976 but the aircraft is not up to a reasonable IFR standard. Let’s see what kind of a fix EE might be willing to apply here.  Also, the question of what equity (if any) we would have in the aircraft is important. If we pay the note, the maintenance, upgrades,  and upkeep for 5 yrs and then end up with nothing… I’m not sure this is a good deal.   I also agree with opening membership to any private pilot… but individual members should need to go through an application process and member vote. We can talk about this when we discuss bylaws. In my personal opinion I think new members should be subject to a credit check – I think it is a reflection of a person’s character. 

Bob Irving 

From: eefc-core-bounces at workingcode.com [mailto:eefc-core-bounces at workingcode.com] On Behalf Of toddmbs at yahoo.com 
Sent: Monday, April 06, 2009 12:17 PM 
To: eefc-core at workingcode.com; Steve Gordon 
Subject: Re: Fixed vs. Operating Costs 

I agree.  

This should be fairly easy to break out, and I don't think we'll have to reinvent the wheel.  We will simply have to break out all the costs incurred with owning and operating the plane, and put each cost under the list of either Fixed Cost (which are incurred whether the plane flys or sits there) or Operating Cost (incurred when you turn the prop on) and figure each column accordingly.  A couple will overlap, such as inspections, but that is only dependent on how many hours we fly it in a year. 

As far the leaseback goes, I think it's clear that there is no need to think about a leaseback.  I just had to hear Sean's take on it.  With this many potential members, the cons outweigh the pros to do a leaseback.  With even only 10 members, the fixed costs should cover fairly reasonably and I'm not concerned about meeting a minimum number of hours. 

My only concern is in regards to the plane itself: the soon upcoming overhaul, the upgrade from a "trainer plane" to a viable club plane, what Tim's plan is with the ownership and how much we'll be overpaying if he keeps the plane after the note is paid off, etc.  That being said, after some thought, I am thinking that this path is probably the easiest, least risky, and cheapest way to get started. 

Also, I would vote to open the club up to any private pilot at LWM after we get established with the first group of Eagle pilots. Sure, why not? 

Todd 

--- On Sun, 4/5/09, Steve Gordon <steve at media-phile.com> wrote: 

From: Steve Gordon <steve at media-phile.com> 
Subject: Fixed vs. Operating Costs 
To: eefc-core at workingcode.com 
Date: Sunday, April 5, 2009, 11:37 PM 

Thank you James for setting up this mailing list so quickly, for the 
thorough minutes from today's meeting, and for the very detailed squawk list 
on 976.  I am extremely excited to see the progress made already. 

First I have a question I would like to pose to the group.  EAA chapter 106 
which is based at LWM has a roster of over 200 members (myself included). 
Some EAA members may be interested in joining a flying club (I spoke with 
one today who is actively looking for a club).  Would anyone have an 
objection to announcing our forming club to the EAA folks?  Perhaps we can 
pick up a few more members. 

Second point: During today's meeting I detected a bit of ambiguity regarding 
what should go in the fixed cost column and what should go in the operating 
costs.  Here's an excerpt from AOPA's FAQ on flying club costs I want to 
throw out to the group for consideration: 

" Problems frequently stem from the fact that some clubs try to recover a 
portion of their fixed costs along with the direct operating costs. This 
often forces the total hourly rate, which should equal the direct hourly 
operating cost, higher than necessary. It may also compel members to pay for 
a minimum number of hours per month whether or not they fly. The result is a 
vicious cycle with members flying less because the hourly rate is high 
which, in turn, pushes the hourly rate higher because members fly less. In 
some areas, a spate of poor weather may be all that it takes to reduce 
flying hours and begin the vicious cycle." 

The above paragraph articulates a minor concern of mine.  During today's 
meeting we entertained the idea of lease-back as a means of meeting an 
assumed minimum number of hours required to meet the basic costs to keep the 
aircraft airworthy.  The idea of having to meet a minimum number of hours 
concerns me.  In my humble opinion, if an aircraft needs to meet a minimum 
hour requirement to balance the budget, then something is in the wrong 
column.  The club should be able to keep that aircraft airworthy whether or 
not it leaves the ground. 

In order that we do not fall into the "vicious cycle", I submit that only 
those costs that are directly proportional to the number of hours flown 
should be included in the operating costs.  These should be limited to 
fuel/oil, overhaul, and any other maintenance directly tied to hours flown 
(oil changes, tires, vacuum pump, magnetos, and routine avionics 
maintenance).  All other costs, maintenance or otherwise, should be covered 
by monthly dues.  Keeping fixed costs out of operating costs will produce a 
much more predictable budget and keep us from scrambling to meet some 
artificial minimum flight hours. 

Thanks, 

-Steve 

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