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Return on Investment

by David Wyndham 1. April 2005 00:00
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It's not just for bankers.

When working with our clients on an aircraft requirements analysis, we almost always look at several forms of ownership and in the case of full-ownership, look at several ways to pay for the aircraft. Often, we compare a lease or loan with cash purchase. On the surface, the loan should cost more, right? After all, you pay interest on the amount borrowed. That's not quite the full story.

Whether you are an individual, a sole-proprietorship or a WalMart, there is always a limited amount of money. Successful companies keep a close control on their cash and look at something called "return on investment" or ROI. Depending on the context used, this term can also be called the "hurdle rate" or even "cost of capital." Individuals can also manage their money in much the same way.

One way is to use cash to invest in items that generate income. Unless the aircraft is used for hire it does not directly generate income any more than the computer I am using to write this article generates income for our company. If a company buys an aircraft for cash, it is cash that they cannot put into something that directly generates income. If money is tied up in an aircraft, that money cannot be out there "working" for you.

Large companies typically try to generate fifteen cents or more (on average) for each dollar spent. That amount is their ROI. When evaluating a large purchase, a company applies ROI to the purchase to see if that is the best use of their capital. High net worth individuals also make the same comparison, "where can I put my money so that it has the most return for me?"

For example, let's assume that Company A has a 15% ROI and the bank is willing to loan money to buy and aircraft at 8%. Company A can use their cash to generate income at fifteen cents for each dollar and it will "cost" them only 8 cents on each dollar loaned. In an over-simplification, Company A will make 15 cents and spend eight cents in interest for a net of seven cents. If our fictitious Company A were acquiring an aircraft, they most likely would not pay cash, but instead take out a loan and "invest" the cash somewhere within the company where it could earn returns greater than the cost of the loan.

Of course, the calculations are a bit more complex, but for many companies and individuals, it does not "pay" to buy for cash. The IRS even encourages loans by allowing companies to write off the interest as an expense.

As part of the calculation, risk must be considered. A loan is either for a fixed rate, or variable. The fixed rate has a guaranteed cost, so there is essentially no financial risk. A variable rate of interest involves some risk in that the cost of capital may increase. Similarly, investing in something that generates income also involves the risk of that investment not making its return.

As you can see the lease/loan/purchase decision isn't as simple as whether you can afford to pay outright. It involves a decision on whether you do more with your money and still have an aircraft.

Please take a moment and tell us what has worked best from your flight departments' perspective. Your participation could be invaluable to the other readers of this article, not only in monetary practices but also in determining which methods are better than others.

What Happens?

by Greg Reigel 1. April 2005 00:00
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What Happens to Your Certificate Following Suspension Or Revocation?

Is a certificate suspension or revocation the end of the story for a certificate holder? Not usually. A certificate holder has some additional responsibilities, as well as liability exposure if he or she fails to fulfill those obligations. However, before we talk about the aftermath of certificate suspension or revocation, we should briefly discuss how a certificate holder can find him or herself in that position.

A certificate issued by the FAA can be suspended or revoked in one of several manners. At the beginning of an FAA enforcement action, the FAA issues a Notice of Proposed Certificate Action ("NPCA") to the certificate holder seeking to suspend or revoke a certificate for alleged violation of the FAR's. The NPCA provides a recitation of the facts supporting the FAA's allegations and also includes a list of options from which a certificate holder may choose how he or she wants to respond to the NPCA. Under the first option, the certificate holder can elect to simply admit or concede the allegations and surrender the certificate to the FAA.

Suspension or revocation of a certificate can also be imposed by an NTSB administrative law judge following a hearing on the merits of the allegations contained in an NPCA. In the case of suspension or revocation following a hearing, the law judge will also order that the certificate holder surrender the suspended or revoked certificate to the FAA. The FAA also follows up with a letter to the certificate holder demanding surrender of the certificate. But, does the certificate holder have to surrender the certificate? The answer is yes.

If a certificate holder fails to surrender the certificate, the FAA can and will seek a civil penalty against the certificate holder for failure to surrender the certificate as required by the order of suspension or revocation. Under 14 CFR 383.2, depending upon the type of operator (e.g. individual, small business, air carrier etc.), the penalties can range from $1,100 for an individual (and in some cases a small business) to $2,500, $5,000, $10,000 and up to $25,000 per day.

A recent NTSB case illustrates the consequences of failing to surrender a certificate following suspension or revocation. In Administrator v. David Michael Reid, the FAA issued an NPCA proposing to suspend Mr. Reid's pilot certificate for 120 days and revoke his medical certificate based upon Mr. Reid's failure to report an alcohol-related motor vehicle action and his falsification of a medical application by failing to report a prior conviction for driving while intoxicated (DUI) and a related driver's license suspension. The FAA subsequently issued an order suspending Mr. Reid's pilot certificate and revoking his medical certificate. Mr. Reid did not appeal the order.

The FAA then sent, and Mr. Reid received, two letters directing him to surrender the suspended and revoked certificates. The letters also advised that if he did not surrender the certificates he would be subject to a civil penalty of up to $1,100 for each day he did not surrender them. When Mr. Reid failed to surrender the certificates, the FAA issued an order of assessment of civil penalty alleging violations of 14 CFR 61.19(f)("Surrender, suspension, or revocation. Any certificate issued under this part ceases to be effective if it is surrendered, suspended, or revoked.") and 14 CFR 67.415("Return of medical certificate after suspension or revocation. The holder of any medical certificate issued under this part that is suspended or revoked shall, upon the Administrator's request, return it to the Administrator."). The FAA sought a civil penalty of $5,000.00 against Mr. Reid.

Mr. Reid then appealed the order assessing civil penalty and requested a hearing. The apparent basis for Mr. Reid's appeal was that he claimed his certificates should not have been suspended or revoked in the underlying enforcement action because he did not violate the FAR's in question. However, the administrative law judge ("ALJ") rejected Mr. Reid's arguments and entered summary judgment in favor of the FAA, finding that: "(1) respondent had constructive service of the March 31, 2000, order suspending/revoking his certificates; (2) because he failed to file a timely appeal from that order, it was final and not now open to attack; (3) respondent ignored repeated warnings that if he did not surrender his certificates a civil penalty action could be filed against him; and (4) the $5,000 civil penalty was de-minimus compared to the amount the Administrator could have ordered in light of the extended length of time for which respondent had refused to surrender his certificates."

On appeal to the full NTSB Board, the Board upheld the ALJ's grant of summary judgment holding that Mr. Reid had his opportunity to dispute the underlying suspension and revocation and failed to take advantage of it. The Board also noted that even if Mr. Reid's arguments were properly before the court, Mr. Reid failed to produce any evidence to rebut the violations as alleged in the underlying action.

We can learn several things from this case. One, if you receive a NPCA you need to take action immediately and, if you dispute the FAA allegations, you need to properly and timely appeal the order and request an evidentiary hearing. Second, if your appeal is unsuccessful and your certificate is suspended or revoked, you are required to surrender your certificate to the FAA. If you fail to do so, you risk being assessed a civil penalty that may or may not be the "de-minimus" amount assessed in Mr. Reid's case. Hopefully you will never find yourself in this situation.

Unfortunately it does happen whether it's to you, someone you know, or a friend of a friend. When it does, the NPCA is not something to be taken lightly. In some cases it can turn very nasty and in other cases, when common sense does not prevail (which happens every so often), the situation can be almost comical. Please feel free to share your past experiences and tell others of any situations you have experienced. We can all learn from the experiences of others and, at a minimum, they make for some interesting reading!

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Greg Reigel

For the Love of Aviation

by Jeremy Cox 1. April 2005 00:00
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Have you ever been walking along a crowded street and heard the distant whine of an aircraft as it flew overhead, and you amongst hundreds others are the only person to stop, tilt your head back and squint against the sun to try and catch a glimpse?

It happens to me all of the time.

How about the Discovery Wings Channel?
(At least when this was still part of the channel line-up offered by my Satellite company; it was replaced with ‘The Military Channel'.)

I would drive my wife insane, because the "only thing that you would want to watch out of the 150+ channels that we have is that ‘damn' Wings channel!" She detested that channel.

Does this sound familiar to you?

Okay, what about the type of Books and Movies that you own, and cherish?

Here are some Authors from my home bookshelf: Ernest. K. Gann; Antoine de Saint-Exupéry; John. J. Nance; Desmond Bagley; Wolfgang Langewiesche; Richard Bach; Rittmeister Manfred Freiherrn Von Richtofen…

…And from my Movie collection: Hells Angels; The Great Waldo Pepper; Top Gun; The Battle of Britain; Airport; 633 Squadron; Memphis Belle; The Blue Max; Airplane; and Those Magnificent Men in Their Flying Machines, to name but a few!

If you are still with me, then like me, you are probably what can be labeled: ‘an enthusiast.'

Let's continue.

Pilot Officer John Gillespie Magee, Jr, a Spitfire pilot of the Royal Canadian Air Force stationed in England wrote the following after a test flight to 30,000 feet in his ‘Spit' in 1941:

Oh, I have slipped the surly bonds of earth
And danced the skies on laughter-silvered wings;
Sunward I've climbed, and joined the tumbling mirth
Of sun-split clouds-and done a hundred things
You have not dreamed of-wheeled and soared and swung
Hung in the sunlit silence. Hov'ring there,
I've chased the shouting wind along, and flung
My eager craft through footless halls of air.
Up, up the long, delirious burning blue
I've topped the windswept heights with easy grace
Where never lark, or even eagle flew.
And, while with silent, lifting mind I've trod
The high untrespassed sanctity of space,
Put out my hand, and touched the face of God.



Sadly Pilot Officer Magee, Jr perished in combat over the skies of England, only three months after penning these now famous words. He was nineteen.

Fortunately for me, I have never had to defend my countries freedom by strapping into an aircraft and then forced to skillfully strafe to survive, or be strafed and die!

I have however, enjoyed almost thirty years of peace-time, civilian aviation, both as a pilot, a mechanic, an administration person and an enthusiast.

My dad started it all for me by taking my brother and me to a gliding club at an old WWII Bomber base near my home where I grew up in Dorset, England.

Both of us, that's Justin my Brother and me, are active pilots and mechanics. He is still in England where he flies all sorts of business people, sportsmen/women and celebs around Europe.

It is always fun to look back in your pilot log book. When I do, my memories come flooding back.

Some of my favorite memory making moments include:

My friend John. He was in advertising and learned to fly at the same flying club as me. John learned to fly in his own aircraft, a bright Yellow and Blue Rollason Condor. The Condor is a low-wing, two seat, side-by-side, single engine, wood and fabric monoplane. When he got his PPL, we would both go out and share adventures in this ‘Yellow- Peril' of his. Many times when he was out flying around and I was at home, John used to fly over my house and drop a rough pencil-scrawled note that told me the time and the particular Pub that we were to meet at later for some Badger Beer.

Or, the times that I used to drive the Red Tractor with the orange Flail-Mower, and cut weekly swaths up and down the Zero Eight-Two Six Grass Runway at Compton Abbas (EGHA.) I would be grooving to tunes while always on the look-out for landing or departing traffic, which often included: DeHavilland Moths, the occasional Spitfire, numerous Cessnas and Pipers, a local Air Charter Partnenavia, maybe a Druine Turbulent, a few Jodels, several Rallyes, Robins, and sometimes an airshow Pitts Special, etc. It is amazing what you can learn by sitting on a tractor a hundred feet or so away from maneuvering light aircraft. It's kind of like sitting at the sea-side watching the gulls play in the up-drafts along the cliffs.

There were times when I was not in the tractor, but I was out working on the runway repairing or painting a runway marker or something. Sometimes Barry, an expatriate New Zealander, Aerial Spray Company Owner/Pilot, would come in for fuel and if he saw me, before I saw him, he would take great pride in making me dive to the ground by sneaking up on me in his Ag-Waggon or Pawnee. Even though I cursed him, I still loved to see his grinning face hunkered down behind his windshield, while he concentrated on zooming over me at ten feet and a hundred knots.

My memories of Cutting Grass, Painting Runway Markers, Washing and Fueling Aircraft, Stacking and Un-stacking the Hangars, Taxi-ing the flight school aircraft back up from the line to put them to bed, are all remembered as Halcyon days for me! Especially when I collected most of my pay in Minutes of Flying Time, instead of Pounds and Pence. Later on when I left High School the same flying club employed me as an Apprentice Aircraft Mechanic (called Engineer in England.)

I did my first solo in G-BDEX (a Cessna 150 Aerobat) on my seventeenth birthday, which in England is the earliest possible age to Solo. I am reminded of this event every time I lift my Pewter Beer Tankard to make a toast. My Tankard is inscribed with the details of my first-solo flight (we do things differently across the pond. I think I had almost forty hours of dual logged before my solo; not because I was really bad, instead because I was too young to legally solo.

How about you? Do you still think back to your first-solo?

Here is Richthofen's memory of his first-solo in 1915:

"One fine evening my teacher Zeumer told me: ‘Now go and fly by yourself' I must say I felt like replying, ‘I am afraid.' But this is a word which should never be used by a man who defends his country. Therefore, whether I liked it or not, I had to swallow it and get into the machine. Zeumer explained to me once more every movement in theory. I scarcely listened to his explanations, for I was firmly convinced that I should forget half he was telling me. I started the machine. The aeroplane went at the prescribed speed and I could not help noticing that I was actually flying. After all I did not feel timorous, but rather elated. Now I did not care for anything. I would not have been frightened whatever happened. With contempt of death I made a large curve to the left, stopped the engine near a tree, exactly where I had been ordered to do so, and looked forward to what would happen. Now came the most difficult thing, the landing. I remembered exactly what movements I had to make. I acted mechanically and the machine moved quite differently from what I had expected. I lost my balance, made some wrong movements, stood on my head and I succeeded in converting my aeroplane into a battered school bus."

It has always surprised me that Richthoffen's first solo ended in a ‘prang', when he would very quickly become a legend and was later described in late 1918 by Mr. C. G. Grey, the Editor of The Aeroplane as: "…a brave man and a most brilliant pilot." Unfortunately the Baron perished in a dogfight over the Valley of the Somme in early 1918.

Have you ever been issued a clearance by Air Traffic Control whereby you are cleared to temporarily own a piece of the sky, and then with this clearance you proceeded to carve a trail of vortices through the towering valley walls of cumulous that are fortunately manifestations in your ‘cleared' block of ether?

I called this ‘cloud dancing' and boy, in my opinion this is the best fun you could possibly have!

How about practicing Crosswind Take-Offs and Landings on a summer's day in a J3 Cub? Both the Door and Windows are clamped open and you can stick your whole upper body outside of the aircraft into the slipstream to look out to assess your drift and line. The runway has just been mowed and the sweet scent of grass tumbled with the metallic smell of Mogas exhausted through the muffler of the Continental A65, blended with the unique cologne of Seat leather and Doped Fabric, absolutely drives your senses into overload. Well it does mine anyway.

Oh yes, and there was the time I flew an entire summer, taking Aerial Pictures of peoples homes and farms. Somewhere near Salisbury in Wiltshire, there was this gorgeous looking lady who liked to show off to passing aircraft, while she was laying beside her swimming pool at her secluded country home; Wowee!!

Then there is the year that I flew a BE55 Baron and a C441 Conquest for a British Government contractor who provided a Target Towing Service for the NATO navy fleet. I was officially the Mechanic and Target Tow Winch Operator, but a trusty white haired, handlebar mustached captain that I flew with, always let me fly and log the time. Operations would pack us sandwiches and we would punch holes in the sky flying racetrack patterns while young ‘Ack-Ack' gunners would try and destroy the windsock target that we towed ten or twelve thousand feet behind and below us.

Another memory, this time in my new country, America, is of the ferry delivery flights in an old Cessna 170B that had been derelict and parked in hangar in Oklahoma awaiting a buyer. My job was to prepare it for safe flight and then take it to Dallas to a local aircraft broker. About a week later the Broker called me up and said: "Can you come back down to Dallas and take the 170B up to Chicago for me?" Of course and what a momentous trip it was. No electrical system; No Radios; No interior; Many Inspection Covers missing; No Heat-Box Air Filter and No GPS. This trip gave a new meaning to IFR (I follow Roads/Rivers/Railways.)

Richard Bach once wrote:

"The airplane is just a bunch of sticks and wires and cloth, a tool for learning about the sky and about what kind of person I am, when I fly. An airplane stands for freedom, for joy, for the power to understand, and to demonstrate that understanding. Those things aren't destructible."

And let's not forget the quilted vista as viewed from FL 410 in air-conditioned comfort. 0.86 on the Mach meter, the FMS is clicking the miles off at a rate of 11 NM every minute because you have a 120 knot tailwind. The air is smooth, air-traffic is light, you've got another hour to go before you need to pull the destination charts out and start planning your descent, your co-pilot is still working on his lunch and all you have to do is make the occasional scan and take in the gorgeous view.

As the Guinness man say's on the television: "Brilliant!"

So now let me take you back to the beginning of this article and allow me to ask you the following questions:

"What is wrong with us all?" and "Can you put it in your own words?"

I for one know that there is nothing wrong with any us really. In fact we all should be envied for our enthusiasm, fascination, dedication and passion. The medical term for this affliction, if it can be called that, is: LOVE OF AVIATION.

So now please rise up and share with every reader of this forum, your own unique story. Who knows, maybe the aviation tales shared here at this forum will become folklore in their own right.

So, what is your love of aviation?

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Jeremy Cox



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