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Author Topic: What's better when ordering new aircraft........Buying or Leasing ?  (Read 999 times)

Gary

  • Former member
My airline is still small (10-727 & 2-737) and it's getting tougher finding what I want used so I think it's time to start ordering new.

I can order more planes if I lease them but I will want to buy them when the lease is up......does most of the lease money you paid get applied if you decide to buy when the lease is up after 3 years ?

Or is it better to bite the bullit on the first one and buy it (which will take longer) but then after that you have an asset to use for buying more aircraft.

Offline swiftus27

  • Members
  • Posts: 4395
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #1 on: August 27, 2010, 01:31:40 PM »
You have to weigh the benefits versus losing the cash now.

It is always better to buy in the long run.   You essentially pay for an airplane in 6-7 yrs of leasing.  BUT...  Early on, it is often better to lease many more planes because you can capture more market share.

Most airlines in this game will lease a ton of planes and then replace them with purchased ones down the road.

ucfknightryan

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #2 on: August 27, 2010, 01:38:25 PM »
Eh, It's not always better to buy in the long run, just usually  ;D

Don't buy anything you don't plan to keep for 7+ years unless it's in very high demand and still will be in 7+ years.  Also, don't buy until you have enough cash that doing so isn't preventing you from growing.

And since swiftus didn't answer it, no your leasing expenses are not applied to the purchase price if you decide to buy the aircraft at the end of the lease.  Also, be aware that you would want to buy as close to the end of the lease as possible because you will have to pay 1/2 the remaining leasing cost in addition to the purchase price.

I personally wouldn't start buying anything with as few aircraft as you currently have.

ucfknightryan

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #3 on: August 27, 2010, 01:43:25 PM »
Didn't see your last question.

Sometimes that can be a good idea to buy a plane to use as loan collateral.  IMO it depends on if you're currently making enough profit to be able to afford the payment on a loan for a substantial fraction of the aircraft's value.  If it's just going to enable you to borrow a tiny bit more it's probably not worth it.

Gary

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #4 on: August 27, 2010, 02:01:09 PM »
The new aircraft I order will be customized to match my routes and will be much cheaper to operate than my current fleet.
These will be nice aircraft that I would want to keep for a long time.

I would however prefer to start buying used aircraft, the problem is good aircraft that I would want to keep in my fleet are very tough to come by .........and it's getting worse, not better.

I'm trying to stick to my gameplan of fleet consistantcy which is getting tougher and tougher with the used market.

If you do lease a new aircraft and when that lease is up after let's say ....... 3 years, then that aircraft will have depreciated in value and should be quite a bit cheaper to buy then...........right ?

It would be nice if there was a "lease to own" option for aircraft.........just like they have in the real world.
« Last Edit: August 27, 2010, 03:21:08 PM by Cal »

flydreamer

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #5 on: August 27, 2010, 03:16:16 PM »
Depending on used market always sucks, because good planes are hard to find. However, it also depends on the plane type you're looking for. Some good props can easily be found on that market though.

And about the leased and the bought planes, I have my own question in this. I run an airline consisting of 200+ planes, and all of them but one is leased. I always get rid of the planes near the D check and set the leasing period expire just before the D check when I order them. It helps me with my plane age since I will always replace them, every time the D check is due. But, since the rent of the planes is getting higher and higher every time I lease the replacing planes, I'm started to think to buy planes instead of leasing them. Should I stick with this strategy, or should I start buying planes?

Zabuti

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #6 on: August 27, 2010, 04:31:35 PM »
The good point in buying one or two aircraft is that you can secure a bigger loan, and therefore have more aircraft ordered that you can repay later.

As a piece of information, Air France in the real world is leasing only one third of its fleet ( http://corporate.airfrance.com/en/fleet/a-modern-and-rationalized-fleet/ ), so I guess it is possible to be successful with owning A/C and sub-leasing them when they become too old.

However, I'm not sure that the short duration of AWS games enables such strategies on the very long term.

To be discussed.


Gary

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #7 on: August 27, 2010, 07:34:53 PM »
Well I went and did it.........hope this was a good idea.

Just bought a brand new 737-400, about 3/4 of the down payment was cash, the rest I borrowed.

Now I just need another 20 mil in 3 months.
I'm making a good profit so I should be able to handle it.

I started about 3 days ago and I just checked beginners world, there is only one new jet aircraft owned by an airline.......it's also a 737-400.
I don't know if that's a good sign or a bad one..........lol.

« Last Edit: August 28, 2010, 12:02:24 AM by Cal »

Sigma

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #8 on: August 27, 2010, 10:11:47 PM »
It's not a bad decision necessarily, but in a "real game" with a contested airport (i.e. you weren't alone) it would be one that would likely be the end of your airline.

The reason is because the amount of cash you tie-up for several months waiting for a new plane could have been used to lease many, many planes off the Used market.  And even if there were no used planes on the market, it still could have been used to lease many brand-new ones rather than just a single one.  So while you may have a competitive financial advantage to your competition, while you were busy waiting for a single plane, they've leased 20+ of them and have used the income from all those planes to get enough money to lease dozens more and even purchase some.

Additionally, tying up that kind of money into a single purchase prevents you from grabbing a lot of production slots.  This mean that, even if you were to be hugely more profitable as a result of buying (you won't be) by the time you get that plane and get it out there earning all that money, the production queue has only gotten longer and you'll have to wait even longer for your planes.  Meanwhile, your competitor has been leasing dozens of planes and grabbing every production slot they can.

Buying aircraft is for once your expansion plans have slowed considerably and you have established a secure position in your market.  Maybe not the sole presence in your market, but a very secure one where you don't have to worry terribly about the competition making you go bankrupt.  Doing it early on will put your competition so far ahead you have no chances of catching up provided they are even remotely competent.

Gary

  • Former member
Re: What's better when ordering new aircraft........Buying or Leasing ?
« Reply #9 on: August 27, 2010, 10:57:11 PM »
Fortunately I am in an uncontested airport otherwise I would not have been in a position to buy a new aircraft with an airline a little less than 3 days old.
And although I'm a beginner ( started playing 5 or 6 days ago) I think I've built a solid little airline.......after a couple bankruptcy's that is.

And right after I spent all that money on 1 plane it looked briefly like I was headed for another........my bottom line looked like I was headed straight to the poor house, and I had some C checks right around the corner !

But my airline must be pretty solid cause by the next week I had enough cash flow to lease another used 727.......I could've leased 3 if I had ones worth leasing.
That's why I had to look at new aircraft......because it was becoming so tough to find decent used ones.

So, I hope I made the right move with buying new.......time will tell.
« Last Edit: August 27, 2010, 11:02:44 PM by Cal »

 

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