Reply To: Important Financial Update

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#9841
John PhelanJohn Phelan
Participant

SSI Members,

It’s great to see all the comments, suggestions and ideas on the winch. Open discussion is good, in my opinion, and brings to light ideas that we may not have thought of ourselves.

With that in mind, a few of my thoughts on the idea of entertaining an offer to sell the winch and use the funds to address coming expenses. I have been around long enough to have been through several rounds of challenges to Sky Soaring’s on-going operations. We have survived previous challenges, and this is simply another one to be properly addressed.

One thing I learned in business school a long time ago is to ask the following question: What does the data tell us? We all have a lot of ideas and opinions on what we like or want and how we would like to see things play out. Turning to the data can give us some hard evidence of the situation at hand.

Here is what the data that I have had access to over the life of the winch project tells me.

Going back as early as 2015, the numbers for the winch have been a moving target. The original presentation for building the winch was that it would become a cash cow for the Club. That once paid off, there would be a continuous, positive cash flow that would add to the coffers of Sky Soaring. One of the original set of numbers claimed a cost of around $30,000 to build the winch and an annual rate of over 1,600 flights, each of which would contribute $8 gross profit to the Club ($2.00 in costs from a $10/launch fee). In reality, the winch cost closer to $50,000 to build by the time we got it finished. At one point, the breakeven number of launches was pegged at 625/year. That figure would allow us to cover the operating costs of the winch for a year, and service the debt of a 7-year loan at a 5% interest rate. No ‘profit’. No contribution to the general operating funds. Just enough to cover the operational costs and service the debt. It looked great on paper. The debate back then was lively, with members on both sides of the debate holding strong feelings about the viability of a winch operation. The majority voted for the winch and it became a reality over the next couple of years.

Fast forward a couple of operation years, and as pointed out in John DeRosa’s message, the most launches we have ever had is 427, in its first year of use. This is 68% of what was presented as the breakeven point. From there, for whatever reason, it has declined dramatically. The cash cow never materialized. Sure, there were bad weather days, lack of a full crew, lack of winch operation coordination, etc., etc. Things get in the way of even the best plans. But the data here tells me that the winch has not and, more than likely, will not live up to the projected financial windfall that the project was sold on. It’s a nice winch. It works well. But it is underutilized and represents an asset that is not anywhere near returning its promised ROI.

Now we are looking at the need to collect $20,000 for an engine overhaul for the Pawnee and the looming $80,000 payback of earlier debt to original members. All of this comes due by January of 2022 or earlier. The funds have to come from somewhere and monetizing underutilized assets is a perfectly valid approach to addressing the challenge.

The Board is elected to run the Club and they have a fiduciary duty to properly oversee the financial activities, both current and projected, and manage the Club as an on-going business entity. The buying and selling of assets are in line with those duties. I believe that it is their duty to entertain an offer to sell the winch and to investigate the parameters of such a sale and the use of the resulting funds. While we may not like to hear that assets may be sold to fund upcoming expenses, it is not at all uncommon in business to do so. I would encourage the Board to investigate the offer and see if it makes sense from a financial management standpoint, and if so, to proceed with the sale. They are elected to run the Club. Please allow them do their job.

Best Regards,

John F. Phelan