Newb Q: Buying 1st a/c

[JumboShrimp]

The bank is willing to lend me money for new a/c in secured loans, but I have nothing to secure the loans with (1st a/c).  Is there a way to use newly purchased a/c to secure the loan?

[Powi]

The plane will be delivered even if your bank account is negative at the delivery time. You will only go deeper to red. After the aircraft have been delivered you can use it to secure a loan.

If you don't have enough money to pay the order confirmation fee you're out of luck.

[JumboShrimp]

Thanks, good to know.

One thing I am still wondering about: If I make a down payment on the plane, how will it be reflected in Company Value (will it go negative or not).  Loan Amounts (credit limit) seems to be affected (among other things) by the Company Value.

I just don't want to go bankrupt over this first purchase...

[GDK]

Company value = Asset + Cash

When you order the plane, you pay and your cash go down. But your aircraft haven't reach and that is an expense.
When you get your aircraft, then only your asset value go up. By that time your CV will go up back.

[SACEO]

Thanks, good to know.

One thing I am still wondering about: If I make a down payment on the plane, how will it be reflected in Company Value (will it go negative or not).  Loan Amounts (credit limit) seems to be affected (among other things) by the Company Value.

I just don't want to go bankrupt over this first purchase...

Although I am a big proponent of owning your a/c, do not try to do this too early.  The money you spend on buying an a/c might be better spent in leasing additional a/c in order to open new routes or satisfy additional demand on existing ones.  Only begin to buy your a/c when you are comfortably profitable and reasonably stabile financially.  Owning your a/c will not make you rich ... but it can help make you richer once you are firmly established.

[JumboShrimp]

Good point on not rushing to buy.

But, I have a couple of questions on loan interest rate:

- Is the interest rate spread the same whether the loan is secured or unsecured?7
- Does the interest rate spread depend on the credit rating?

My newb airline managed to survive 8 months, and recently, my credit rating improved to "B" (from "CCC").  I don't know what the spread was before, but right now it is 5% for an unsecured loan.

[JumboShrimp]

One more question about buying first a/c, this time used a/c:

A hypothetical scenario:

Used a/c cost: $30,000,000
Cash in bank: $10,000,000
Credit limit (unsecured): $20,000,000
Credit limit (secured): $150,000,000

Can I buy this by going into negative $20,000,000 and then getting a secured loan, or do I have to first get the $20,000,000 (and later change it to secured loan)?

[Jona L.]

you first have to take the 20 million loan...

but generally:
if it is your very 1st a/c, you should lease one (esp. used ones) because that makes the start-up faster, and easier, since you can get a bigger plane, for less money...

[JumboShrimp]

Thanks, I finally bought my first a/c.

I did not mean to say that this was going to be the very first a/c I am operating.  I have another 20+ leased a/c.

Being a proud owner of 1 a/c, I am starting to wonder if it was a good idea.  Maybe when player is operating a mature large airline, and is drowning in cash - probably.  But early on, leases are the way to go...

[Sigma]

Well, yes, as was mentioned earlier in this thread, it's generally a better idea to lease more planes and grow your routes than it is to purchase your planes.  But wait too long and you may find yourself bumping into competition that owns many of their aircraft and therefore has a huge competitive cost advantage over you.

Generally speaking, it takes about 6 years or so to break-even on your purchase.  So it will pay for itself a few times over during its life, but that's a fairly large amount of capital that you tied up.

However, that said, you can borrow against the plane right away.  As such, you're not exactly tying up all the capital beyond the time you waited for delivery.  I often purchase a cheaper plane fairly early on as it seems to aid in my credit rating going up quicker.  I then repeatedly use this plane to borrow money against on a 1yr secured loan.  I use that money to either lease many more planes or to purchase a couple more (then repeat that process with more purchased planes).

[swiftus27]

owning is great on the long term.  It helps you make a bit more money.

However, early on, you will make a TON more money securing a route. 

My $0.02.

[JumboShrimp]

However, that said, you can borrow against the plane right away.  As such, you're not exactly tying up all the capital beyond the time you waited for delivery.

That part is a bit of a quirk in the system.  When I purchased the a/c, the company value and credit rating dipped while waiting for the delivery.  Then, it jumped back to normal once the a/c was delivered.