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Author Topic: Finance leasing  (Read 519 times)

type45

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• Posts: 860
Finance leasing
« on: August 17, 2011, 03:55:50 PM »
I think we need to introduce this kind of leasing now......now we can only make operational leasing, that means the leasing cost we are paying now is only to maintain the right of usage of the plane, which is very bad for airline's operating, especially small airlines due to less income and resource to handle anything wrong or the hit from big airlines.

here is the detail I suggest:
1. available to both new and used aircraft, the length of the payment will be the same as those operational leasing on new aircraft (5-14 years)
2. the monthly payment is counted according to the price of the plane+interest for the lessor, something like this:
price of the plane+no. of months*(1+interest rate)
use a new 333(GE CF-6, +5.0 tn MTOW) in MT5 as example, interest rate=7.25%, leasing time=7 years/84months:
174 088 640/84*(1+7.25%)=2222739
the cost at MT5 now is 2203660
3. shorter the payment, lower the interest rate (due to lower risk and get back the cash faster); can consider adding extra margin interest if the credit rating is lower than a level e.g. B
4. after the end of payment the plane will belong to the airline; airline can choose paying rest of the payment+the interest needed to pay at once and get the ownership of the plane immediately
5. Finance leasing cannot be ended and return to the lessor, if you cannot make the payment the lessor can claim the plane back

what do you all thing of this?

Sanabas

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• Posts: 2161
Re: Finance leasing
« Reply #1 on: August 17, 2011, 04:48:04 PM »
Your maths are bad. Your example is paying a simple 7.25 % interest on the plane. You're suggesting a 7 year loan of 174 million, with monthly payments of 2.2 million. That's an actual interest rate of 2.0%, and fee free too.

7 years, 174 million, 7.25% interest rate is actually 2.67 million per month, before any fees are paid.

Sanabas

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• Posts: 2161
Re: Finance leasing
« Reply #2 on: August 17, 2011, 04:59:00 PM »
Better way to do it would be to need a lump sum payment at the end anyway. Simpler to work out too, as lease prices could stay the same, but simply add a bit in that if you commit to a lease of 7 years, you have an extra option when the lease is ending. Instead of just terminate the lease or renew the lease, you'd also have the option to buy aircraft for 60% of current value. Commit to longer, get the option to buy for a smaller percentage.

60% sounds high considering you've just finished paying 100% of the initial value of the plane. But if the plane depreciates 40% in 7 years, and you pay 60% of that, you end up paying 136% of initial value in order to have clear title to your plane after 7 years. If you take out a 7 year loan at 10%, you pay 139%.

type45

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• Posts: 860
Re: Finance leasing
« Reply #3 on: August 17, 2011, 06:46:12 PM »
that's a simple and easy way to do it......but maybe we also require this can only be done when it's a few months away from the end of contact, like what happen on the fuel contact

Sanabas

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• Posts: 2161
Re: Finance leasing
« Reply #4 on: August 17, 2011, 08:25:32 PM »
Yep, absolutely. Run the lease as normal, so you can buy out the lease by paying full aircraft lease at any time. Simply have an option in the last 3 or 6 months of a lease that is x years long to buy the plane for y% of current value.

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