Lansing Aviation

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Aircraft Rental Instruction Business Plan

Financial Plan

  • We want to finance our aircraft loan through cash flow from our aircraft rental.
  • We want to pay for our engine overhaul at the recommended TBO through cash savings acquired during our aircraft rental.
  • In order to attract larger sums of money, we will offer a 10-hour block of aircraft rental for $730 ($73/hour) which is reduced from our normal rental rate of $75 per hour. Additionally, we will offer M-GLAS employees the same $73 per hour rate for block or non-block rentals.

7.1 Important Assumptions

The financial plan depends on the number of revenue hours flown each month in our aircraft.

The most important assumptions crucial to our success are:

  • The aircraft will maintain flying status other than routine, required inspections lasting a day or two.
  • We will not have any major aircraft accidents or incidents that will result in major downtime.
  • We also assume that student pilot starts will continue to increase and the demand for pilots will continue.
General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 28.17% 28.00% 28.17% 28.00% 28.17%
Other 0 0 0 0 0

7.2 Break-even Analysis

Breaking down our monthly fixed costs enables us to calculate how much the aircraft needs to be flown each month to maintain profitability. Our monthly fixed costs include:

  • Hangar rental.
  • Aircraft insurance.
  • Engine overhaul fund.
  • Aircraft loan payments.
  • Routine aircraft maintenance and inspection costs.
  • Estimated monthly fuel costs.

The following chart and table summarizes our break-even analysis.

Break-even Analysis
Monthly Revenue Break-even $3,447
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $3,447

7.3 Projected Profit and Loss

With monthly fixed costs of hangar rent, renter and instructor insurance, an engine overhaul fund, aircraft loan, planned maintenance and inspections, and fuel, we can actively market our aircraft to obtain the correct number of students to exceed our expenses while making the aircraft convenient for the students to schedule for training and rental.

A loss is expected for the first few months while a student base is carefully chosen and constructed. We hope to increase our number of flight hours flown each month by 25% until the break-even point is reached. At that time, we will assess the number of students and the number of hours being flown to determine how many more students and renters we want to increase our profits and maintain good aircraft availability.

NOTE: You will notice in the year 2003 that the company is showing a net loss for the year. This is the year that we estimate the aircraft engine will require a factory overhaul. This expense ranges from $13,000 to $20,000, depending on several variables. Therefore, we have chosen to show an overhaul expense of $15,000 for that year. However, this was only shown to demonstrate the effect of not properly saving for the overhaul expense. We have allocated a certain percentage of each flight hour toward the engine overhaul savings fund which will cover all of our expenses, thus, hopefully returning Lansing Aviation to a net profit for 2003.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $49,068 $54,007 $55,392 $50,776 $60,931
Direct Cost of Sales $0 $0 $0 $0 $0
Other $0 $0 $0 $0 $0
Total Cost of Sales $0 $0 $0 $0 $0
Gross Margin $49,068 $54,007 $55,392 $50,776 $60,931
Gross Margin % 100.00% 100.00% 100.00% 100.00% 100.00%
Expenses
Payroll $7,833 $12,000 $0 $0 $0
Sales and Marketing and Other Expenses $0 $0 $0 $0 $0
Depreciation $3,300 $3,600 $3,600 $3,600 $3,600
Fixed Operations Costs $27,530 $27,530 $27,530 $27,530 $27,530
Leased Equipment $0 $0 $0 $0 $0
Utilities $0 $0 $0 $0 $0
Insurance $0 $0 $0 $0 $0
Payroll Taxes $0 $0 $0 $0 $0
Aircraft Upgrades $1,500 $0 $0 $0 $0
Mainenance and Repairs $1,200 $0 $0 $15,000 $0
Total Operating Expenses $41,363 $43,130 $31,130 $46,130 $31,130
Profit Before Interest and Taxes $7,705 $10,877 $24,262 $4,646 $29,801
EBITDA $11,005 $14,477 $27,862 $8,246 $33,401
Interest Expense $3,188 $2,791 $2,413 $2,035 $1,657
Taxes Incurred $1,273 $2,264 $6,154 $731 $7,927
Net Profit $3,244 $5,822 $15,695 $1,880 $20,217
Net Profit/Sales 6.61% 10.78% 28.33% 3.70% 33.18%

7.4 Projected Cash Flow

The following cash flow projections show the amounts anticipated from the first few months during the student accumulation period through the company's rental saturation.

Cash flow is critical to our success, for payment of the insurance and aircraft loan payments as well as the fuel costs required to operate and the hangar to house the airplane.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $49,068 $54,007 $55,392 $50,776 $60,931
Subtotal Cash from Operations $49,068 $54,007 $55,392 $50,776 $60,931
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $49,068 $54,007 $55,392 $50,776 $60,931
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $7,833 $12,000 $0 $0 $0
Bill Payments $31,725 $32,873 $35,808 $44,540 $37,787
Subtotal Spent on Operations $39,558 $44,873 $35,808 $44,540 $37,787
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $2,600 $3,780 $3,780 $3,780 $3,780
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $42,158 $48,653 $39,588 $48,320 $41,567
Net Cash Flow $6,910 $5,354 $15,804 $2,456 $19,364
Cash Balance $7,210 $12,564 $28,367 $30,823 $50,188

7.5 Projected Balance Sheet

The balance sheet in the following table shows some very important information regarding our short-term and long-term financial goals.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $7,210 $12,564 $28,367 $30,823 $50,188
Other Current Assets $0 $0 $0 $0 $0
Total Current Assets $7,210 $12,564 $28,367 $30,823 $50,188
Long-term Assets
Long-term Assets $36,000 $36,000 $36,000 $36,000 $36,000
Accumulated Depreciation $3,300 $6,900 $10,500 $14,100 $17,700
Total Long-term Assets $32,700 $29,100 $25,500 $21,900 $18,300
Total Assets $39,910 $41,664 $53,867 $52,723 $68,488
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $2,966 $2,678 $2,967 $3,723 $3,050
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $2,966 $2,678 $2,967 $3,723 $3,050
Long-term Liabilities $29,800 $26,020 $22,240 $18,460 $14,680
Total Liabilities $32,766 $28,698 $25,207 $22,183 $17,730
Paid-in Capital $10,450 $10,450 $10,450 $10,450 $10,450
Retained Earnings ($6,550) ($3,306) $2,515 $18,210 $20,090
Earnings $3,244 $5,822 $15,695 $1,880 $20,217
Total Capital $7,144 $12,965 $28,660 $30,540 $50,757
Total Liabilities and Capital $39,910 $41,664 $53,867 $52,723 $68,488
Net Worth $7,144 $12,965 $28,660 $30,540 $50,757

7.6 Business Ratios

We expect to see flat ratios of profitability during the first year while we build our customer base. We expect these ratios to improve in the second and succeeding years. The following table shows the projected ratios for Lansing Aviation. The Industry Profile comes from Standard Industry Code #8299, Schools and Educational Services.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 10.07% 2.56% -8.33% 20.00% 9.50%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 45.60%
Total Current Assets 18.06% 30.16% 52.66% 58.46% 73.28% 62.40%
Long-term Assets 81.94% 69.84% 47.34% 41.54% 26.72% 37.60%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 7.43% 6.43% 5.51% 7.06% 4.45% 43.30%
Long-term Liabilities 74.67% 62.45% 41.29% 35.01% 21.43% 17.30%
Total Liabilities 82.10% 68.88% 46.79% 42.07% 25.89% 60.60%
Net Worth 17.90% 31.12% 53.21% 57.93% 74.11% 39.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00% 100.00% 0.00%
Selling, General & Administrative Expenses 81.12% 75.41% 73.39% 102.00% 72.25% 73.80%
Advertising Expenses 60.14% 58.82% 57.35% 62.57% 57.35% 5.00%
Profit Before Interest and Taxes 15.70% 20.14% 43.80% 9.15% 48.91% 3.20%
Main Ratios
Current 2.43 4.69 9.56 8.28 16.45 1.33
Quick 2.43 4.69 9.56 8.28 16.45 1.11
Total Debt to Total Assets 82.10% 68.88% 46.79% 42.07% 25.89% 60.60%
Pre-tax Return on Net Worth 63.23% 62.37% 76.23% 8.55% 55.45% 5.50%
Pre-tax Return on Assets 11.32% 19.41% 40.56% 4.95% 41.09% 14.00%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 6.61% 10.78% 28.33% 3.70% 33.18% n.a
Return on Equity 45.41% 44.90% 54.76% 6.16% 39.83% n.a
Activity Ratios
Accounts Payable Turnover 11.70 12.17 12.17 12.17 12.17 n.a
Payment Days 27 32 29 27 33 n.a
Total Asset Turnover 1.23 1.30 1.03 0.96 0.89 n.a
Debt Ratios
Debt to Net Worth 4.59 2.21 0.88 0.73 0.35 n.a
Current Liab. to Liab. 0.09 0.09 0.12 0.17 0.17 n.a
Liquidity Ratios
Net Working Capital $4,244 $9,885 $25,400 $27,100 $47,137 n.a
Interest Coverage 2.42 3.90 10.05 2.28 17.98 n.a
Additional Ratios
Assets to Sales 0.81 0.77 0.97 1.04 1.12 n.a
Current Debt/Total Assets 7% 6% 6% 7% 4% n.a
Acid Test 2.43 4.69 9.56 8.28 16.45 n.a
Sales/Net Worth 6.87 4.17 1.93 1.66 1.20 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

7.7 Long-term Plan

Our long-term plan is based primarily on the short-term future of the business. If the aircraft is able to support its expenses, then the future of Lansing Aviation and our long-term goal plan can be successfully accomplished.

Our long-term plan contains the following elements:

  • Paying off the entire aircraft loan in the first three years of operation.
  • Acquiring partial ownership of a twin-engine aircraft for training and travel needs.
  • Avoiding accident, incident, and lawsuit through our entire longevity.
  • Providing present and future students and renters with a superlative aircraft for all of their flying needs.