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Author Topic: Sale and Lease-back  (Read 1079 times)

clive.gardner

  • Former member
Sale and Lease-back
« on: February 03, 2010, 10:16:01 PM »
For when times are tough, and the bank just won't lend you enough money to keep going...

Sale and lease-back of all or part of your owned fleet. Sell your owned aircraft to a leasing company immediately (at less than market rate one would presume), and then lease back without having to lose the aircraft and re-schedule. I believe this is a concept that goes on in many similar businesses, would surprise me if the same were not true for aviation.

I think this could be really useful for airlines who get into trouble.

Clive

Offline Sami

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Re: Sale and Lease-back
« Reply #1 on: February 03, 2010, 10:40:00 PM »
Yes, airlines do this too. This can be added but will be a low priority..

Offline powi

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Re: Sale and Lease-back
« Reply #2 on: February 04, 2010, 07:14:13 AM »
Possible exploit:

If the sale and lease-back can be done at any time, players who has lots of old model aircraft would sale and lease-back them to get them sold more quickly than at used AC market.

Yb

  • Former member
Re: Sale and Lease-back
« Reply #3 on: February 04, 2010, 01:42:45 PM »
Possible exploit:

If the sale and lease-back can be done at any time, players who has lots of old model aircraft would sale and lease-back them to get them sold more quickly than at used AC market.

well yes but there would be a price. If the aircraft would be too old the price the leasing company would pay for it would be low as well. I think in the beggining, for a brand new aircraft, that could be like 20% less than the market price but in the end they will pay you like 20% of the real price for old, worn-out model.

Online schro

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Re: Sale and Lease-back
« Reply #4 on: February 07, 2012, 07:35:58 PM »
Searching for existing requests is fun, but this seems to be the most relevant place to add my outrage.

I have recently been observing a significant number of intra-alliance sale/leaseback transactions happening in order to keep airlines afloat that should not have continued as a going concern. While this is not specifically against the rules, it gives a big advantage to failing airlines who are able to extract hundreds of millions of dollars out of their owned assets based upon their relationships rather than it being an opportunity available to every airline in a similar position.

Since the airlines interested in such transactions within the game are likely on the brink of insolvency, I propose the following:

1. Disallow sale/leasebacks performed with other players as the buying party (i.e. if Airline A buys a plane from Airline B, that plane can't be leased to airline A for a minimum term)
2. Allow the "leasing companies/bank" to perform sale/leaseback transactions with interested airlines under the following terms -
  a. Leasing company pays 60% of the unencumbered aircraft's value (represents risk the leasing company takes on for financing a struggling airline)
  b. Airline pays market rate for leasing based upon value
  c. Minimum 5 year term for new lease (prevents use as a more cost effective/profitable scrapper.. 7 years might even be needed)
  d. Cash received from leasing company would be same as a sale, thus, eligible to be taxed

My proposal would give an option to all airlines that are failing but feel that they're doing enough things right to turn around their operation if they just had more cash handy. The stiff terms are to discourage this from being used as an ongoing method for funding operations.

I would propose that this be moved to a much higher priority due to the fairness to those airlines that are not associated with an alliance that will readily bail them out.

Offline JumboShrimp

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Re: Sale and Lease-back
« Reply #5 on: February 07, 2012, 08:04:24 PM »
Searching for existing requests is fun, but this seems to be the most relevant place to add my outrage.

I have recently been observing a significant number of intra-alliance sale/leaseback transactions happening in order to keep airlines afloat that should not have continued as a going concern. While this is not specifically against the rules, it gives a big advantage to failing airlines who are able to extract hundreds of millions of dollars out of their owned assets based upon their relationships rather than it being an opportunity available to every airline in a similar position.

I am not sure if I see this to be a problem.  Intra-alliance sales are already limited to 110% of market value, which is close to the market value.  I don't really see anything bad in extracting cash roughly equal to market value from the owned aircraft. 

If there is a restriction that might be worth while, it would be an airline that leaves an alliance to be considered as if it was part of the alliance for another year (or 2) in order to prevent avoiding the 110% limitation.

I think that in real world, something like this would be possible (with a leasing company).

Online schro

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Re: Sale and Lease-back
« Reply #6 on: February 07, 2012, 08:26:56 PM »
I am not sure if I see this to be a problem.  Intra-alliance sales are already limited to 110% of market value, which is close to the market value.  I don't really see anything bad in extracting cash roughly equal to market value from the owned aircraft. 

If there is a restriction that might be worth while, it would be an airline that leaves an alliance to be considered as if it was part of the alliance for another year (or 2) in order to prevent avoiding the 110% limitation.

I think that in real world, something like this would be possible (with a leasing company).


Exiting the alliance is a pretty good CI hit, but I do think there should be some "memory" in the post alliance time, though with the current data model, I'm guessing that might be tough to pull off....

I don't see an issue with extracting cash from a plane at market value either - the point is trying to level the playing field with the same access of cash to any player  in the game.  The point of the discount is to represent a "distressed" sale, which would never go at market rates. Also, the calculated "value" of a plane in the game doesn't necessarily represent what it will regularily sell for on the used market. Sometimes it is high, sometimes it is low, depending on its availability and relative efficiency to other types.

Offline JumboShrimp

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Re: Sale and Lease-back
« Reply #7 on: February 07, 2012, 08:36:04 PM »
Exiting the alliance is a pretty good CI hit, but I do think there should be some "memory" in the post alliance time, though with the current data model, I'm guessing that might be tough to pull off....

I don't see an issue with extracting cash from a plane at market value either - the point is trying to level the playing field with the same access of cash to any player  in the game.  The point of the discount is to represent a "distressed" sale, which would never go at market rates. Also, the calculated "value" of a plane in the game doesn't necessarily represent what it will regularily sell for on the used market. Sometimes it is high, sometimes it is low, depending on its availability and relative efficiency to other types.

Good point about the distressed sale.  It might be something to look into across the board.

The second part of the transaction (to lease back the aircraft), it is far less important for the airline in trouble to execute.  Getting cash is far more important.  So I am not sure if Sami should spend a lot of his time implementing limitations there...

Online schro

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Re: Sale and Lease-back
« Reply #8 on: February 07, 2012, 08:48:25 PM »
Good point about the distressed sale.  It might be something to look into across the board.

The second part of the transaction (to lease back the aircraft), it is far less important for the airline in trouble to execute.  Getting cash is far more important.  So I am not sure if Sami should spend a lot of his time implementing limitations there...

I agree the cash is far more important for the distressed airline and the purchasing airline is taking a risk by owning a plane that they might not be able to dump. The leaseback part however is also likely to happen at below market rates, so if anything, would it make more sense to say that alliance members (and those formerly of an alliance, as failing members usually exit but stay in contact to preserve alliance score)  should have a higher floor price for leasing the plane?

Offline JumboShrimp

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Re: Sale and Lease-back
« Reply #9 on: February 07, 2012, 08:56:38 PM »
I agree the cash is far more important for the distressed airline and the purchasing airline is taking a risk by owning a plane that they might not be able to dump. The leaseback part however is also likely to happen at below market rates, so if anything, would it make more sense to say that alliance members (and those formerly of an alliance, as failing members usually exit but stay in contact to preserve alliance score)  should have a higher floor price for leasing the plane?

I would agree about some adjustment.  -30% is still possible within alliance (I think, I never tried).

One slight problem in restricting it too much is that the cheapest price the aircraft can be bought (new) is -26%, that is -20% for 50 a/c order and -6% for 100 % down.  And that is not counting a possible launch customre discount.  So something well below market value may still be at market value for the seller.

But even with above being the case, I would not have a problem in leases within alliance were restricted to -10% of market price.

 

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