Volume 20, Number 21c

November 26, 2013

DiamondShare: Buy It To Share It

DiamondShare, a cost-sharing program for new Diamond DA40 aircraft, isn’t designed to be a cheaper way to fly. Instead, it's intended to make the high cost of new aircraft ownership more compelling, especially for owners that don’t plan to fly more than 100 hours per year. For the non-owner, it’s a way to gain access to a new DA40 without the restrictions of renting, without the complexity of traditional shared equity arrangements or without participating in pricey fractional programs. Whether it sells more new DA40 aircraft remains to be seen.

The $1000 Club

The original DiamondShare concept was originally created—and failed—as a shared, three-way equity partnership program in 2008 by John Armstrong, the president of Dominion Aircraft Sales (also a Diamond Aircraft distributor). Armstrong, who recognized that many owners were looking for an airplane in the $100,000 price range, rather than the $300,000 Diamond, quickly recognized the challenges that partnerships might create.

“It wasn’t so much a problem finding three owners to share a new Diamond as it was getting the partnership to stay together long enough to launch the deal. Once spouses and different personalities got involved, it just got weird,” said Armstrong. When the airplane market slowed in 2010, Armstrong revisited the idea, but got rid of the equity concept.

Armstrong did a lot of market research and found that many pilots planned to fly 100 hours per year and were spending around $1000 per month to do so; something Armstrong labels the “$1000 per month club”. Armstrong found that a majority of potential buyers he surveyed were considering older aircraft, a common thread among a broad range of pilots who could afford to purchase a new airplane and ones that couldn’t afford it.

“Some buyers could afford to pay cash for three new aircraft if they wanted to, but had trouble justifying the purchase because they might only fly 100 hours per year or less. It’s the equivalent of buying a pricey beach condo that you know you’ll use twice a year,” said Armstrong.

Recognizing that smart people manage their money with an eye toward proper utilization, he re-crafted DiamondShare based on two core elements: People want and can afford new airplanes but have a hard time justifying it, and there are those that can’t afford to buy or own an airplane but can spend roughly $1000 per month and will fly at least 100 hours per year.

Simple Numbers, Simpler concept

The concept is simple. The owner buys a new Diamond DA40 XLS and qualified members (up to three) pay a monthly fee to fly the airplane, much like a lease agreement. Each member can use the aircraft up to 100 hours per year. Go over that 100-hour mark and pay additional usage charges, much like a vehicle lease program.

Once Armstrong qualifies the Diamond DA40XLS as the right aircraft for a potential buyer, the structured DiamondShare Share and Save Plan package includes delivering the owner a factory new DA40 XLT. The aircraft has a Garmin G1000 glass cockpit with SVT synthetic vision, DFC700 digital autopilot, active traffic alerting system, XMWX satellite weather and XM entertainment, plus the new “luxury package”, which includes leather seating and significant interior enhancements..

One example (these aren’t guaranteed numbers) of a total DA40 XLT buy-in, including the FAA licensing fees and delivery charges, is a total investment of $416,650. With $100,000 down, the monthly payment on a 5.15-percent, 20-year note is around $2100. The idea is that two non-owner members, paying roughly $1000 per month each for access to the aircraft, will cover the monthly loan payment on the aircraft . Members have access to the aircraft for one year and are eligible for renewal, should the owner wish to do so. Members are generally required to have a private pilot license or higher. These prices do not include taxes, member fees and security deposits. With a third member, Armstrong says the owner can end up with a surplus, as that third member contribution covers most of the expenses.

Here's one example of a DiamondShare Share and Save Plan with three participating members.

The current DiamondShare promotion includes the first year of insurance and G1000 navigation data subscription costs. Additionally, there’s a $1000 training credit, redeemable at a DiamondShare partner flight center and a $3000 rebate for annual inspections and oil changes. This is in addition to the two-year factory warranty. 

“The structure is not like a leaseback arrangement that is trying to make money, but instead a means to give an owner full control while dramatically changing their economic outcome,” Armstrong said.

Armstrong makes it clear that DiamondShare ownership is applicable to many pilot types and situations, and can be particularly attractive for business owners that are early-stage pilots trying to find a justifiable way to get into modern aviation. As they ponder using an airplane for their business (50 percent utilization is required to qualify for the tax deduction, under the current tax structure) and for learning to fly or for earning an instrument rating, the concept could be compelling.

"When properly structured, the member usage can be considered business hours. This can lead to positive tax implifications for the owner," Armstrong noted.

Another point that Armstrong made clear is that DiamondShare is a non-commercial, Part 91 fixed cost-sharing structure that’s limited to a maximum participation of the owner plus three members. It’s up to the owner to decide how many members they want using the airplane and the owner always makes all the decisions related to aircraft operation, including scheduling, maintenance, storage and usage rules. There are no hourly rates involved.

Speaking of hourly rates, Armstrong argues that the industry places too much emphasis on hourly costs. Instead, he thinks in terms of monthly and yearly costs. It’s the amount of time you fly that determines the hourly rate, he notes.

“When pilots learn to fly, they see the cost of flying as the hourly rate that’s posted on the flight school wall.  When you want to get out of the rental game and start using an aircraft for travel, it’s a different mindset that makes the hourly rate useless,” he said.

New versus old

We challenged the DiamondShare concept by looking at some rough numbers for a traditional partnership. Those numbers are pretty simple, too.

Take for instance an early 1970s Cessna T210, bought at around $100,000, plus a $30,000 engine overhaul accomplished soon after purchase. A three-way partnership (all are equal owners) set up to cover all maintenance, hangar costs at Denver Centennial airport, a major avionics upgrade, interior refurbishment, plus a paint job, costs each partner around $950 per month for 60 hours of flying time per year.

An older aircraft like a turbo Centurion could have a broader mission profile than a DA40, plus it’s a six-place aircraft. On the other hand, it’s not new and it doesn’t have a G1000 glass cockpit—one marketed value of DiamondShare. Still, the traditional partnership gives each person ownership, which isn’t the case with Diamondshare. Only the buyer owns the aircraft.

Armstrong, who’s sold enough new Diamond models to know, admitted that sole ownership of a new DA40 is going to be in the $2500-3000 per month price point. We ran some rough numbers on a 2014 Cirrus SR20 Perspective and came up with a fixed monthly expense of roughly $4000, when factoring a 20-year loan, insurance, annual inspection and reserves, plus storage and nav data subscriptions. Financing represents nearly half of the fixed monthly costs.

We heard from Rich Kulesa, a DiamondShare member (not an owner) based at a DiamondShare arrangement in New Jersey. According to Kulesa, DiamondShare isn’t a long-term option for him, one of the downsides of the program.

“The arrangement is only for 12 months at a time and less so—with some notice—if the owner were to move the aircraft.  As a result, I'm somewhat dependent on the owner wishing to keep the plane nearby— and myself—as a member.  So I don't consider it a long-term option, but I am enjoying it year-to-year while it’s available," said Kulesa.

Still, it’s easy to recognize the appeal of having access to a brand new airplane at a fixed monthly rate.

“I receive high availability of a very modern aircraft at a cost I find palatable. I can actually budget for my annual flying by setting aside the monthly fee, plus extra for fuel, but no other unanticipated expenses,” Kulesa said.

There could, however, be additional expenses, including a location surcharge for high-priced hangar space at premier locations.

Gerry Kaplan, a DiamondShare owner, had good things to say about his experience so far.

"Sole ownership proved to be costly no matter how I sliced it, while starting a partnership before owning a plane had endless complications and delays. I placed an ad on AOPA's website looking for a partner that would be interested in one of several planes. I was specific as I could be in terms of the required financials, but the majority of responses I got seemed like people were window shopping. The DiamondShare model allowed me to be a sole owner with predictable cash flow for the aircraft," Kaplan said.

DiamondShare ownership isn’t for the pilot that doesn’t like other people touching his stuff—something Armstrong establishes up front. In other words, if you’re uncomfortable with other people flying your aircraft, this won’t work for you. Remember, members don't own the airplane—they pay to use it.

According to Armstrong, the program could expand to the more advanced Diamond DA42 aircraft and DiamondShare locations are expanding, with new locations at Farmingdale, New York, Caldwell, New Jersey, and Raleigh, North Carolina.

Armstrong summarized DiamondShare in simple terms. “You buy a new aircraft that you can fly as little or as much as you want, while other people help pay for it. While those people are privileged members—since they have access to flying it— you, as an owner, are still 100 percent charge."

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Partial Panel Peculiarities

Probably the most difficult task on the Instrument Rating (IR) practical test is Area VII, Task D: Approach with Loss of Primary Flight Instrument Indicators. But why is the FAA so concerned about this? In their own words from the IR Practical Test Standards (PTS):

“The FAA is concerned about numerous fatal aircraft accidents involving spatial disorientation of instrument-rated pilots who have attempted to control and maneuver their aircraft in clouds with inoperative primary flight instruments (gyroscopic heading and/or attitude indicators) or loss of the primary electronic flight instruments display.”

The Impact Of Glass And EFB's

As we transition from the typical light aircraft of the 20th century to the far more sophisticated glass panels of the 21st century, the philosophies of both training and testing are changing. From the classic 6-pack of flight instruments with electric turn coordinator and vacuum-driven attitude and heading indicators, to the multifunction displays with redundant attitude/heading reference sets, (AHRS), powered by redundant electric power supplies with backup attitude, altimeter, and airspeed indicators of classic design.

The addition of non-attached cockpit devices, such as the Garmin handhelds with their 5-instrument display, and uncertified backup units such as the Dynon D1 Pocket Panel, is also increasing the options available to pilots of aircraft legacy panels (or even pilots of glass panel planes if the lights ever do all go out).

Perhaps the first question to ask is what partial panelmeans. The Instrument Practical Test includes a task involving the loss of primary flight instrument indicators. The PTS says that this covers loss of the gyroscopic heading and/or attitude indicators (typically the attitude indicator, AI, aka artificial horizon and heading indicator, HI, aka directional gyro or loss of the primary electronic flight instruments display (usually the primary flight displayor PFD).

For classic 6-pack panels, this usually means the result of a vacuum pump failure which takes out the AI and HI. Simulation of these failures remains the classic instrument covers.

With glass panels like the Garmin G1000 or Avidyne Entegra Rev 9, the PTS doesn’t specifically say what this means, so we’re left to some analysis based on possible system failures. For the G1000, Garmin provides a nice pamphlet on training for this situation (http://snipurl.com/guidefordpesandcfis). In addition to simply dimming the PFD to black as one simulated failure, it also sug- gests pulling the circuit breakers on the Attitude/Heading Reference Set (AHRS) and/or Air Data Computer (ADC) as means of simulating realistic failure modes.

However, Cessna recommends against pulling circuit breakers, and their guide suggests dimming the PFD or MFD, or dimming both to simulate failure of the underlying systems (AHRS/ADC). Another option is to make some custom overlays that can be hung from the knobs at the top of the PFD, with red X covers for the appropriate parts of the screen. Internet discussion boards suggest that several instructors have done this, but there does not seem to be any commercial availability.

Realistic Training Scenarios

In developing training scenarios, I think it’s important to tailor the training to the actual configuration of the aircraft with regard for the likelihood of multiple unrelated simultaneous failures. The purpose of the exercise is to prepare pilots for realistic failures in the aircraft they normally fly.

When working with a pilot whose aircraft has vacuum attitude/heading indicators but also an electric backup attitude indicator, I don’t simulate the highly unlikely combination of vacuum pump failure along with a simultaneous failure of the electric AI. Likewise, if a standard 6-pack aircraft has a Garmin GNS530, I do not take away the 530 along with the two vacuum gyros. Instead, I want to see the pilot select the Nav1 page (HSI display) on the 530 and use that. Even if the aircraft doesn’t have an installed GPS, if the pilot has a Garmin x96 or Aera handheld with the 5-instrument display, I want to see them use that.

Some may argue that this doesn’t exercise all of the skills, which might possibly be needed. However, if instructors insist on taking away the backup tools, which the pilot is nearly certain to have available, the pilot will not be practicing the use of them, and the laws of exercise and primacy suggest the pilot may in the actual emergency not even attempt to use them.

In fact, I know several designated pilot examiners who, when testing the primary flight instrument failure task on an instrument rating checkride, will fail the applicant on judgment if they do not make use of every tool available in the cockpit, whether installed/IFR approved or not. They point out that while those tools may not be certified, in a critical situation, the pilot is not only encouraged but legally authorized to deviate from the rules about navigation/flight instrument system approval by 14 CFR 91.3(b), which excuses such deviation in an in-flight emergency.

How Far To Go

Another consideration is just how far to take the exercise. To my thinking, when the primary flight display/instruments are lost in instrument conditions, the only consideration is getting the plane on the ground safely at the earliest time consistent with safety. One should not overfly a suitable field just because it doesn’t have an instrument repair shop.

At the same time, one should understand, for example, that some vacuum pump failure modes may have the potential to cascade resulting even in engine failure. For that reason, partial panel missed approaches may not be appropriate—in that situation, it may be better to take one’s chances with an ILS or LPV to the runway rather than going around and trying to continue flying without those instruments.

One other question often raised in discussions of partial panel situations is whether or not to declare an emergency. Many pilots fear using what they often call the E-word (they cannot even bring themselves to say emergencyin such a discussion). In some cases, they think that just declaring an emergency will necessitate written reports and forms to fill out. This isn’t true, since the regulations (91.3(c) and 91.123(d)) only require such a report if the FAA asks for one, and ATC typically does not do so—they hate paperwork as much as pilots. In fact, failing to declare an emergency is more likely to get you in trouble than the declaration, since declaration of an emergency widens the scope of things controllers are allowed to do, and that means less chance of creating a conflict which does have to be reported by the controller.

Other pilots think the word "emergency" should be used only when there is an immediate threat of death, such as failure of the only engine or being on fire. The Pilot/Controller Glossary says the following:

EMERGENCY—A distress or an urgency condition.

DISTRESS—A condition of being threatened by serious and/or imminent danger and of requiring immediate assistance.

URGENCY—A condition of being concerned about safety and of requiring timely but not immediate assistance; a potential distress condition.

While a well-trained and proficient pilot shouldn’t be in “imminent danger” just because the vacuum pump quits, such a system failure and consequential loss of primary flight instruments should make any pilot at least concerned about safety, and thus being in an emergency situation as the FAA defines it. Better to have available all the help you might want and end up not needing it, than to need it and not have the controller prepared to render it as fast as you may require it.

This article appeared in the March 2013 issue of IFR Refresher magazine.

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Are You a Deadbeat Owner?

In the admittedly dwindling universe of aircraft owners, there is some small percentage of people who are not ethically or morally qualified to own airplanes. I’m probably deluding myself by saying it is a tiny fraction of owners, but it may very well be growing.

I’m referring to the deadbeats, the hustlers, the malcontents and those extra special people who consume aviation services but don’t feel they have to pay for them in a timely fashion. I hang around the airport enough to see this sort of thing as I did this week. I’ve been working on getting the engine back into the Cub after an overhaul, wrenching alongside our regular IA, Danny. While we were working, an airplane sped by on the taxiway and Danny happened to mention that the owner had a weeks-old unpaid annual invoice. You wonder why shops want to be paid before they release the airplane? That’s why.

Personally, I can’t stand this kind of behavior. It’s wrong at so many levels that I don’t know where to begin. I’m sure the owner of that airplane would be justifiably pissed if his paycheck was two weeks late but he’s perfectly okay jerking around his maintenance shop on an invoice delayed for a month. When I see this, I can’t help but want to sit the owner down in front of the ledger and show him how much money the shop has to front—in parts and labor—just to get even basic work done, much less an annual involving major repairs and alterations. For shops that have to make payroll, this can be a cash flow nightmare and it’s little better for a one-man shop.

I would just as soon eat cold beans from a can and become a crack addict than I would have someone chasing me for money I owe them. So when I get the invoice, I write the check and drive to the airport and hand it to the mechanic or shop supervisor that very day. If an invoice is late coming, I usually hector the shop to get it done. I don’t like throwing money around promiscuously, but I don’t like hanging invoices, either. Long delays make it impossible to manage the expenses of owning an airplane with anything approaching clarity and organization. If I’m going broke owning the damn thing, I at least want to know the dimensions of the disaster in real time.

And that gets me to owner-assisted work, which I do a lot of on the Cub. This is a bit of a gray area when it comes to shop billable hours. But the way I look at it, if I’m standing there scratching my ass over some particular problem and the mechanic diverts from other work to bail me out, that’s billable time. Similarly, if we’re working side-by-side, that’s billable time. And there needs to be some basic contribution to overhead. I don't work this out ahead of time, I just pay what I think is fair.

When I was removing the engine, I needed a little help with a couple of components and borrowed a hoist, cylinder wrenches and a thin-walled socket to loosen the exhaust manifold nuts. All that took Danny 30 minutes, maybe, but by my standards, it’s a billable hour, at least, accounting for tools. I log that time and even though he doesn’t invoice me for it, I make sure I pay him anyway. As for the tools, I try to bring my own, but borrowing some is unavoidable. I make sure they get back where they came from.

Does any of this mean we, as aircraft owners, shouldn’t expect anything for free from service shops? That’s not an easy question to answer, but I tilt toward saying no, we shouldn’t expect free things. Two examples: I was having trouble with a VOR indicator in our Mooney and stopped by Sarasota Avionics for a quick look. The tech crawled under the panel, found a loose connector and snapped it home. Total time: five minutes. As a regular customer of the shop, I asked what I owed and they quite naturally waived it off. Fair enough.

A year later, I had a similar problem with the autopilot that the tech sweated over in 92-degree heat for just under an hour. It was a broken wire. Once again, the shop waived off an invoice, so I paid the tech $100 directly. Call it a tip. It struck me as fair and kept me as far away from the deadbeat column as is possible. Regular customer or not, I believe that when a shop or mechanic does work on the owner’s behalf, payment of some kind is due, unless it’s agreed-upon warranty or goodwill work. I’m not really interested in working for free, why should I expect others to be?

Now I’m sure none of the readers of this blog would remotely qualify as deadbeats, but I’m equally sure you know people who do. I doubt if they can be shamed into mending their skinflint ways, but hey, it never hurts to at least bring up the subject. Anyway, if you happen to have a shop invoice there on your desk you meant to pay last week, well, you know what to do.

You can wish the shop a happy Thanksgiving when you drop the check off. And same to you, my friends.

Join the conversation.  Read others' comments and add your own.

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