Looks like California is now regulating flight schools

[drunkenbeagle]

That $100,000 would have have returned an average of $9,000,000, per year, to the legitimate California flight schools based on the recent four year time period. That seems like a pretty good return on investment to me.

Don't kid yourself, the money is coming from somewhere. That $9,000,000 would be coming from the 0.75% tax on revenues.

The hypothetical $100,000 is lost money - bureaucratic overhead.

Student loans are going to be a requirement in this industry as costs continue to increase.

Right now the student loans have dried up. That's why the flight school industry is suffering. Without student loans, this industry loses over 90% of the domestic US students. It's now close to $50,000 just to get your ratings not including flight instructor ratings.

I highly doubt that. Out of my college class, no one took out a loan for flight training. Granted, we were on Air Force Scholarships, and Uncle Sam was picking up the tab for UPT. But we were also getting paid to learn how to fly.

At my local FBO, they do a brisk business. And everyone I know there pays out of their pocket. And actually, I don't know anyone from outside this site that has borrowed a dime for any aeronautical rating in the last 10 years I've been flying.

Schools have to submit financial statements to the regulators to prove that they have the have the resources to provide this training. That's also a good thing.

Joe

Again, I respectfully disagree. Aviation is a capital intensive business. A flight school has almost nothing in terms of assets other than current receivables. Half million dollar airplanes are bought with borrowed cash. The federal tax code favors this. Now, you just won't see any new 182s or Cirrus's in California.

Most airlines are not able to maintain a 1:1 asset/debt ratio, and they can raise cash in the capital markets or sell equity. FBO's can't exactly do that. EDIT: And before anyone points out that the numbers on yahoo or google finance say the airlines have a 50% debt/assets%, those numbers lie The airlines carry tens of billions of dollars in Goodwill and Intangibles on their books (accounting trick, goodwill is worth nothing when a company fails), and they keep a lot of their debt off their balance sheets. Small businesses can't do this (easily).

 

[JOEFRIDAY2]

I thought you said the money was lost/stolen and the students had no redress? Looks like there was redress after all, and without the benefit of this new regulation.

The students hired attorneys and the banks reduced the Silver State loan amounts outstanding. (not to zero)

All students are still on the hook for a minimum of 25% of the original loan even if they did not fly one single hour.

Most student are on the hook for at least 50% of the student loans. Some for more.

The bad guys still got the money. The banks took the reduction here.

This did not benefit those students that paid cash or borrowed money elsewhere (parents, home equity, etc) and paid Silver State. Those students received nothing.

The flight school scammer days are over in California. This type of Silver State scam can not happen again in California with these new regulations.

 

[JOEFRIDAY2]

"At my local FBO, they do a brisk business."

Great! You should get with the FBO's in California and show them how it's done because they are crying that business is so bad and they can't come up with $5000 and they are going to have to leave the state. You may have found the key to keeping the flight schools in business.

 

[drunkenbeagle]

The flight school scammer days are over in California. This type of Silver State scam can not happen again in California with these new regulations.

You are assuming a scammer will not break the law (and not pay into the fund). Fly by night operations probably won't.

I'm not sure a company going out of business qualifies as a "scammer" necessarily. There are a lot of reasons a company can fail, nothing necessarily illegal about that. And the owners of the debt are entitled to assets before customers are entitled to refunds (like any other business). They can join the line at the courthouse as creditors, but they are last in line. Caveat Emptor.

 

[drunkenbeagle]

"At my local FBO, they do a brisk business."

Great! You should get with the FBO's in California and show them how it's done because they are crying that business is so bad and they can't come up with $5000 and they are going to have to leave the state. You may have found the key to keeping the flight schools in business.

I would guess that high cost of doing business in California, I would probably relocate out of the state too. Less competition will mean higher prices, so I don't see anyone winning here.

What does a 172 with an IFR GPS go for out there? $95/hour wet is pretty standard around these parts.

 

[HVYMETALDRVR]

Sounds like job creation. Well done, Arnie Obama. Who regulates the inspectors? Is the state now auditing the finances of private industry?
QUOTE]

Its not perfect but thats what the government does (or tries to) on Wall Street... the IRS does the same thing... and its better than setting up a slush fund with other flight schools' money.

Just doesn't seem to make sense to penalize the guy that didn't do anything wrong. All government regulation isn't socialist...

 

[Mike H]

The students hired attorneys and the banks reduced the Silver State loan amounts outstanding. (not to zero)

So they did, in fact have redress. You previously maintained that they didn't.

This did not benefit those students that paid cash or borrowed money elsewhere (parents, home equity, etc) and paid Silver State. Those students received nothing.

The flight school scammer days are over in California. This type of Silver State scam can not happen again in California with these new regulations.

They wouldn't have been protected at all under the new regulation unless they were California residents- which few of them were.

 

[amjon]

Don't be surprised if flight school regulation comes to Florida since students have lost over ONE HUNDRED MILLION DOLLARS in Florida over the past 10 years to flight schools that have stolen their money and not provided the training.

It's coming folks. Get ready.

Joe

I doubt the government cares too much about. If I'm not mistaken it is mostly the foreign students that have no recourse that are taken advantage of. They are the ones that are asked to pay thousands up front, then their visas are pulled and they are forced to flee with money still in their "account". If they had someone handling visas that wasn't the flight school and they couldn't be pulled because they are using too much of their account (of course not the reason the school would give) there wouldn't be as much of a problem.

 

[JOEFRIDAY2]

You are assuming a scammer will not break the law (and not pay into the fund). Fly by night operations probably won't.

I'm not sure a company going out of business qualifies as a "scammer" necessarily. There are a lot of reasons a company can fail, nothing necessarily illegal about that. And the owners of the debt are entitled to assets before customers are entitled to refunds (like any other business). They can join the line at the courthouse as creditors, but they are last in line. Caveat Emptor.

It will be so easy to check if a fly by night operator has a license and is paying into the fund. I'll be happy to do that myself for anyone that does not know how.

As far as the owners of debt being entitled to assets before the students, when a business closes, you are correct and that is why the regulation is so important because this is the only method available in California to protect the students tuition money. Without this regulation the students get nothing.

The only other way that I know to protect the tuition money is with a bond and a trust account that would not allow a school to spend any of the money before a student actually uses it. The California regulation is easier than this method and does not restrict how and when the tuition money is spent.

Keep in mind that this private secondary school education regulation has been in place for many years. It was originally put in place because people were setting up trade and vocational schools, charging tuition and students were ending up without what was promised.

There are 1500 private post secondary schools in California already subject to this regulation.

 

[JOEFRIDAY2]

I doubt the government cares too much about. If I'm not mistaken it is mostly the foreign students that have no recourse that are taken advantage of. They are the ones that are asked to pay thousands up front, then their visas are pulled and they are forced to flee with money still in their "account". If they had someone handling visas that wasn't the flight school and they couldn't be pulled because they are using too much of their account (of course not the reason the school would give) there wouldn't be as much of a problem.

You are correct in that the government doesn't care too much this until they start getting overburdened with complaints from students that have lost their money. (which happened in California and Florida)

And yes regulation is coming to Florida. I'll put money on it.

You are mistaken that mostly foreign students are affected. In Florida, over the past 10 years over ONE HUNDRED MILLION DOLLARS has been stolen from mostly US students. Here is a list of the schools that have scammed students in Florida:

http://www.jetuniversitysucks.com/closedfloridaflightschool.htm

So while there are those that choose to say there is not a problem and choose to bury their head in the sand and look the other way, there are those of us that do care about getting this industry cleaned up and putting the bad guys out of business once and for all.

People can choose to support the good guys or support the bad guys.

I'm choosing to support the good guys.

Joe

 

[drunkenbeagle]

No avenues of redress already exist for a student that has been harmed by a flight school

That is the problem! Millions of dollars have been stolen from students in California over the past few years with no refunds.

Well, the money wasn't "stolen." I assume these students all signed a contract and forked over the money willingly. Same reason I wouldn't buy $50,000 in gift certificates from a retailer I thought was going out of business.

When either party breaches a contract, there is always an avenue of redress. It is called a lawsuit. Why someone would want to take on the risk of being an unsecured creditor in back of secured creditors is beyond me if they aren't getting substantial premium for it. But that is up to the students to negotiate more favorable credit terms, not the government.

In addition there are potential CRIMINAL penalties for those that steal money from students and do not comply with the regulations. That can mean jail time for those that break the law.

Wouldn't make me want to own a flight school in California. What happens if a local mayor sends bulldozers in the middle of the night to tear up the airport (wouldn't be the first time)? My flight school goes bankrupt. I go to jail too? Thanks but no thanks.

 

[JOEFRIDAY2]

Well, the money wasn't "stolen." I assume these students all signed a contract and forked over the money willingly. Same reason I wouldn't buy $50,000 in gift certificates from a retailer I thought was going out of business.

And how do you know a retailer is going out of business? Do you ask them for a financial statement and copies of their bank statements?

Wouldn't make me want to own a flight school in California. What happens if a local mayor sends bulldozers in the middle of the night to tear up the airport (wouldn't be the first time)? My flight school goes bankrupt. I go to jail too? Thanks but no thanks.

No one is going to jail if they comply with the regulations. Even if a California school does go out of business they will not go to jail and the students will get their refunds if the school has complied with the regulations.

If the school has not complied with the regulations and students lose money because of it, then the people that broke the law probably would go to jail.

 

[Mike H]

Joe, you're claiming this regulation will do such and such and not do so and so, yet it's clear YOU DON'T KNOW WHAT YOU'RE TALKING ABOUT.

You claim the studen't have no avenue of redress, and then post a link that shows they clearly DO have redress. You claim the regulation will protect foreign students despite the plain language of the regulation that says only California residents are covered.

 

[drunkenbeagle]

And how do you know a retailer is going out of business? Do you ask them for a financial statement and copies of their bank statements?

Well, most larger retailers are publicly traded, so anyone can see their balance sheets. Pretty easy to spot the ones in trouble (declining same-store sales is a good tipoff).

I would never buy gift certificates, for anything. By design, they are a great deal for the party selling them and a poor deal for the party buying them.

When you hear about smaller business trying to pay their vendors with discounted store credits, that is a good sign they are having cash flow problems.

No one is going to jail if they comply with the regulations. Even if a California school does go out of business they will not go to jail and the students will get their refunds if the school has complied with the regulations.

If the school has not complied with the regulations and students lose money because of it, then the people that broke the law probably would go to jail.

Well, for a small school, I think it would be very easy to not be in compliance with these rules. They are quite onerous. And you could easily not be in compliance without your students losing a dime.

As these rules currently read, it applies to ANY SCHOOL providing commercial instruction. And it doesn't matter if you charge tuition up-front or not, even if it is a pay-as-you-go operation ONLY, you are still forking over 5 large plus $1,000/year plus .75%/revenue plus whatever your compliane costs are ($15K/year isn't an unreasonable guess, auditors aren't cheap).

I see nothing that explicitly states this is for part 141/142 operations only. If it is, I would guess they would just go part 61 and save themselves the hassle. So then, what's the point?

I think this essentially means you will cease to see commercial certificate training done in California.

 

[JOEFRIDAY2]

Which brings me to another point that needs to be covered.

There are many well intentioned people in this country that start a business with every expectation of success.

Unfortunately most new businesses do fail. There are two main reasons for failure when you look back at these businesses.

1. The number one reason for business failure is under capitalization.

2. The number two reason for business failure is because of non-payment of taxes (usually payroll witholding) to the IRS.

Which brings me to reason number three which is lack of proper experience and or management skills to realize they are under capitalized.

In working with business people over the years, I often find the most forward and positive thinkers on earth. Many times they are so deep in trouble and have no idea they are heading for a disaster. But they have a lot of optimism!

It's ok to open up an ice cream shop (which I never recommend to anyone) and give it a go. If you fail, your customers aren't really out anything. They didn't pay you in advance for the ice cream. When you go out of business, they might be sad that you are gone but they will buy their ice cream somewhere else.

Your business failure of your ice cream shop may put you in bankruptcy and your creditors may lose money, but they knew that when they did business with you. They evaluated your financial condition and it just didn't work out.

On the other hand, if you are going to open something where you are going to hold a customers money (like a bank, insurance agency, collection agency, mortgage company, trade school or flight school) then you are subject to a higher standard. The money that you collect is not your money. The money belongs to someone else. While you may make a commission for providing goods or service for that money, it is still not your money until that good or service has been delivered.

We as consumers can not evaluate the financial condition, business experience or management of every bank we use, every mortgage company we use or every trade school or flight school we use. We just don't have the experience to do this in most cases.

In fact I doubt any flight school would give a prospective student a copy of their financial statement or bank statements. So we have no possible way to evaluate their financial condition.

So the government does it for us. For better or for worse.

In 2008 Wachovia Bank was one of the 5 largest banks in the United States. Wachovia got into a liquidity crisis and was basically bankrupt. The government had to step in and arrange a quick merger so that the bank would remain open. I don't think anyone on here or anyone that I know could have had the experience to know that Wachovia was going to fail.

In the end Wachovia did fail and the regulators stepped in. No deposits were lost. The bank stayed open. Without regulation customers would have lost all of their money they had on deposit in the bank. No customer lost a penny.

Another case:

Let's say you want to buy a new car and trade in your old car. You still owe $15000 on your old car and the dealer you trade it in to agrees that he will pay off your $15000.

You drive your new car home and you are so happy.

About 45 days later you get a call from your bank where you had your old car financed.

They tell you your payment is past due. You politely explain that you traded in the car and the dealer is going to pay it off. Your bank makes the notation on your file.

Now 90 days goes past and you get another call from your bank. The car is still not paid off.

The bank is demanding payment from you. You call the dealer and ask him what is going on and he tells you he doesn't have the money to pay your old car off and he is very sorry. Things just didn't work out. The next day he goes out of business.

You go down to the dealership and no one is there and all of the cars are gone.

Your old bank is now calling you every day wanting their money. You are stuck with paying for a car that you do not have in addition to having to make the payment on the new car.

If we go with the attitude that some have around here we have this scenerio:

A. You should have checked the car dealer out before you did business with him. You were stupid to have financed a car. No one I know would ever finance a car. If they can't pay cash for it then they don't buy it. Tough luck you are going to have to pay for the car you no longer have. Buyer beware.

Or we have this scenerio:

B. The government should have regulated this dealer to make sure that he paid off my trade in. There should be a bond in place with the state to protect me. The guy should be in jail!

Which side are you on? A or B?

Joe

 

[JOEFRIDAY2]

Joe, you're claiming this regulation will do such and such and not do so and so, yet it's clear YOU DON'T KNOW WHAT YOU'RE TALKING ABOUT.

You claim the studen't have no avenue of redress, and then post a link that shows they clearly DO have redress. You claim the regulation will protect foreign students despite the plain language of the regulation that says only California residents are covered.

Mike if you want to write a check to the Silver State Helicopter Students and the Jet University Students that lost their money then they do have redress. Otherwise those students (and thousands of other students) are are out millions of dollars even after the actions.

Tell the Silver State student that still owes over $20,000 after all of this even though he never flew one flight hour that he has redress.

Tell the Silver State student that paid $69,000 one week before the school closed with a home equity loan that he still owes $69,000 on plus interest that he has redress.

I have never said the regulations will protect or not protect foreign students. I simply don't have that information at this time. They are still in a state of flux on this in Sacramento. My hope is that it will protect all students.

What I do know if that the weak schools will be out and the strong schools will be in. And that is a good thing. We don't need any more weak flight schools. It screws it up for the rest of the industry.

I will be happy to help anyone in California that is having compliance issues with this regulation. It's not near as bad as some of you are making it out to be.

Joe

 

[drunkenbeagle]

In fact I doubt any flight school would give a prospective student a copy of their financial statement or bank statements. So we have no possible way to evaluate their financial condition.

Which is why you are insane to let them hold a dime of your money.

Which side are you on? A or B?

Joe

A. Why would you sign the title of your car to someone in exchange for their promise to pay for it in the future?

Anyway, that is called counterparty risk. One reason I wouldn't want to be party to such a transaction. (one where I have no control and assume almost all of the risk).

In any case, the bank has a lien on the car. It can't be sold until that lien is satisfied. Tell your bank to reposes the car, pay bank, get car, (optionally) sell car.

I guess you would be out the cash you were upside down in the car (if it sounds too good to be true, it is). You are probably out that cash twice over (the new loan you probably took out for the new car included the amount you were upside down in the last one).

If you were a smart consumer, you would see why this transaction is not good for you in the first place.

 

[drunkenbeagle]

I will be happy to help anyone in California that is having compliance issues with this regulation. It's not near as bad as some of you are making it out to be.

Playing devils advocate here, say I own a flight school training for commercial certificates in an Arrow and a C172, what must I do to comply? Let's assume I make about $25,000 on $225,000 in revenue and $50,000 in payroll. I owe $300,000 on the aircraft (Which I currently could sell for about $180,000, declining A/C market the last few years) and $10,000 in fuel, and have $35,000 cash on hand. (these are made up numbers)

Can I continue to provide instruction for commercial certificates?

 

[Mike H]

Mike if you want to write a check to the Silver State Helicopter Students and the Jet University Students that lost their money then they do have redress. Otherwise those students (and thousands of other students) are are out millions of dollars even after the actions.

The key words here are "AFTER THE ACTION" Just because the action didn't make these students whole does not mean they had no redress, nor that they weren't partly successful in getting that redress, it only means that they weren't made whole.

Tell the Silver State student that still owes over $20,000 after all of this even though he never flew one flight hour that he has redress.

Easy. He's gotten redress already. Instead of the (for instance) $60,000 he promised to pay A LENDER (not Silver State), he only owes $20k to THE LENDER (not Silver State). If anybody got screwed in that case, it was the lender, not the borrower. Sorry the student took a hit, but some folks took a bigger hit.

I have never said the regulations will protect or not protect foreign students. I simply don't have that information at this time. They are still in a state of flux on this in Sacramento. My hope is that it will protect all students.

Oh, that's just dandy: a Florida lawyer hopes the clear language of the California regulation changes to suit his hopes. Why not hope they regulate rainy days away while you're at it?

What I do know if that the weak schools will be out and the strong schools will be in.

Oh, you know this do you? More like you hope it.

And that is a good thing. We don't need any more weak flight schools. It screws it up for the rest of the industry.

Yeah, and we'd be better off with fewer weak Law Firms too, wouldn't we?.

 

[Mike H]

Playing devils advocate here, say I own a flight school training for commercial certificates in an Arrow and a C172, what must I do to comply? Let's assume I make about $25,000 on $225,000 in revenue and $50,000 in payroll. I owe $300,000 on the aircraft (Which I currently could sell for about $180,000, declining A/C market the last few years) and $10,000 in fuel, and have $35,000 cash on hand. (these are made up numbers)

Can I continue to provide instruction for commercial certificates?

Clearly, you're an unscrupulous scam artist! [/sarcasm]