AN instructor pilot safely guided his light plane back to earth after one wing was seriously damaged in a mid-air collision.

The Piper Warrior VH-UMB instructor and his student were doing circuit training at Coldstream Aerodrome, in Melbourne's outer east, last December when they collided with another Piper Warrior returning to nearby Lilydale, a transport safety report reveals.

The VH-UMB crew issued a mayday call but despite almost losing the right wing and a stabiliser, the instructor managed to regain control of the plane before landing safely at Coldstream.

The pilot of the second Warrior VH-BZA, who was also instructing a student, also managed to land at Lilydale safely, despite suffering slight wing and nose damage.

The VH-UMB instructor was preoccupied with helping his student maintain good distance from powerlines and other traffic, the Australian Transport Safety Bureau (ATSB) report says.

"The instructor's focus during the circuit would have been directed towards the aerodrome and providing the student with visual pointers to maintain consistent circuit spacing," the ATSB says.

"As a result, the instructor's attention to altitude-keeping and maintaining a lookout for conflicting traffic may have been affected.

"The BZA crew also had a responsibility to see-and-avoid other traffic during their overflight of the Coldstream Aerodrome ... their possible view of the circuit area at Coldstream may have been slightly obscured."

While acknowledging the limits of manually looking out for other aircraft, the accident was a reminder to all pilots to maintain an effective lookout and accurate altitude-keeping, the report says.