What do recent flight school failures mean to new students?
The recent failure of several flight training schools has resulted in many students being unable to complete their training as well as potentially losing a considerable sum of money. Before starting your training there are a few things you need to consider, possibly more so at the moment than previously.
It is probably best to look at this from both sides of the training agreement as both have a big impact on your training.
The Flight Schools
Flight training is expensive to provide to students, there is just no way around it. As a provider you need to have highly qualified staff, extensive facilities and often considerable assets that need funding. As with all businesses at the moment costs are going through the roof. When the National Living Wage goes up by 10% this puts huge pressure to maintain the differential for those earning more. When wages go up so do employer NI costs and pension contributions. Fuel costs in some cases have doubled for aircraft and electricity supplies for base facilities may have gone up 5 times what they were 2 years ago (there is no ‘price cap’ for business electricity in the same way as for domestic supplies)
These huge increases have often all come at once. Many businesses forward buy electricity through fixed price contracts which ended in the last 12 months, just at the same time as salaries were rising and other supplies as well.
All of these pressures lead to cashflow problems for all businesses, but especially ones where the training fees are taken up front with little option to recoup any future increases. This leads to borrowing from the bank or other lending institutions. 2 years ago a typical lending facility would have been at base + 3%, with base rates being 0.1% (3.1%). Today that is 7.5% because of base rate rises, more than double the repayments. Most business’ bank borrowing is renegotiated every 2 or 3 years and often the rate is renegotiated based on the stability of the company and the assets available, so that base plus 3% may now be base plus 5% - see where that is going!
Cashflow problems, big borrowing costs, lots of leased equipment and few physical assets to act as security – it is very easy to quickly run out of cash even though day to day things are running well.
In stable economic conditions over your 2 year training period none of this is really a concern, but in our current very unstable conditions it really is your concern, as we know that some schools are under huge financial pressure and some have even failed.
What can you do to minimise the risks during your training.
You can ask potential training providers about their financial security, but even for those on the edge it is very unlikely they will be completely honest, after all if they start telling potential students they are in financial dire straits then it will rapidly become a self-fulfilling prophecy!
For UK based schools you can look at Companies House information for free where company accounts have to be published. If you are not familiar with reading accounts then a bit of advice from a professional could be money well spent.
Look at what training companies have been doing over the last couple of years. Are they expanding rapidly (for which they need cash), are they contracting? Have they put up their fees? If they haven’t then why not? The profit made per student is actually quite small as a percentage of the fees and if costs are rising but course fees are not, then very quickly that profit vanishes. Look at the most recent reviews here on Pilot network to see if there are changes in student ratings that might give a clue about cost cutting.
Assuming you have chosen a school look closely at how and what you are paying for. Are you paying a large amount up front (very risky) or are you paying piecemeal. Is there any insurance to cover your payments in the case you do not complete the course. Make sure that this isn’t just cover for your failure but also covers the supplier failure. What is behind the insurance policy, it isn’t much use if the insurance is provided by a related company to the training school that could go under at the same time!
Modular courses naturally split the training costs into smaller chunks but the same still applies. Nobody wants to pay for an ATPL theory course and find the school closes a week later.
Additionally make sure the course you are on is worth something if the school closes. If you are on an MPL course for a specific airline and the school closes your training may be worthless and non-transferable.
One final thing to consider is how you pay. If you use a credit card to pay for your course (even if you only pay in part using the card) then you have cover under section 75 for values between £100 and £30,000. This may be enough for modular students to cover each stage of their training as they go along and even for integrated students it provides some protection. You don’t need to pay the whole invoice, just a part of it to get full cover.
The final conclusion is to look carefully at the school you choose. It is a huge investment, probably second only to buying a house. Get advice if you are not sure.