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Author Topic: Is Leasing Literally Cheaper Than Buying New?  (Read 629 times)

Online tungstennedge

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Is Leasing Literally Cheaper Than Buying New?
« on: May 20, 2019, 06:13:58 AM »
So I noticed that my company is pulling unbelievable pretax margin of 45% @66%lf and 900 fuel price.

I currently have 52 leased 777 and no other planes, costing 9000000/week, costing 173.000 per plane per week

Leasing only makes up 9% of my costs, and at only 66lf, could expect around 60% pretax margin once they hit around 80%, which they will once route values max out (currently averaging only around 40). Knowing this, I want to compare leasing bargain planes vs buying new, and the associated costs.

So I have quite easily been able to secure 777-300 for around 60mil at 10 years old in my server gw3, so I should only need one D check to make every plane last to the end of the world. I know this is exceptionally low, whereas 787-10, which carry slightly less pax but better efficiency go for around 120-150mil for similar specifications.

Compare these numbers to buying new and I realized that in gameworld like three, where many used planes exist on the market it seems to be more advantageous to lased used that to buy new if you can find enough planes for your purpose. For example, a new 777-8x go for 270million. at the max 26% discount from large order and direct purchase, this drops to 215mil. Depretiation would  result in 215 000 000/24/12/4 resulting in 186.000 per week- slightly more that leasing.

Heres where it gets confusing- Realistically I do not know if people use there new aircraft for a full 24 year period. Less or more can drastically change these numbers. Also, if patient I was able to see 777-300's going for around 30mil at only tens years old, of course buying these are rare but no brainers for economic sense. At the same time, new aircraft use less fuel, 0.85 times the consumption saving 85 000 per week in fuel savings per aircraft. Now I have no idea now maintenance costs scale with older planes, but the nice thing with leased aircraft is within a lease period you can choose to either avoid D checks entirely, or go through only one in almost 16 years of service.

Heres where the math gets a bit convoluted. If you use leases to strategically avoid D checks entirely, I think leasing is a winning strategy, although a company would need to be pretty small, under 300 AC to reliably find cheap leases, and be able to keep up with plane replacement.

While the upfront of the D check is not much, 8000000 for second(I dont have pricing on the first(or I cant find it) but I will the first is 4ish mil) then the d check cost is only 10500 a week, but the lost opportunity of 80 days of paying lease and losing income is about (2.2 mil a week for 23 weeks) averages another 40000 a week, assuming a 24 year life of the plane. I still have no idea how a,b, and c checks would affect the maintenance costs.

Now, overall I know I have missed many factors, a,b,c checks to be big ones (and scrapping income since I have no idea what this is like), not sure about other possible expenses, the numbers for the ownership of planes considering factors such as d check periods come out to:

Leased: 173000/week

New: 186000-85 000(fuel saving)+(50500)(money lost to D check) = 151500/week

Ok so It seems that at the end of day, new planes are still cheaper. Especially for large companies which cannot micromanage plane purchase around d checks and such.
However, I do see that for smaller companies it may be theoretically possible to only use leased aircraft throughout a playthrough, since smaller companies will rarely but in orders getting a 26% discount, and can also be more patient in even picking better bargains of leased aircraft. (Ive picked up multiple 777 for under 30 million around 10 years old, and with these leasing would win by far)

Anyways, I just wanted to compare some numbers, guess I wansnt really onto something, but It is interesting that it may be possible to benifit from only leasing. Also, you could use your cash with this strategy to  buy planes to lease to others(using leased planes yourself which need almost no capital to buy0), which could get very profitable, and this once again makes this strategy seem to make you cash go farther. (you would be making just under the weekly lease expense of whatever plane you choose to buy with you extra cash more per week)

Additionally I want to add that for whatever market and time there is, that I have experienced playing in so far (1999-2027), there always seems to be a bargain plane for the markets I have needed. The A310 was the plane which was ridiculously cheap yet still effective for its cheap lease cost from 1999 onward (although I didnt use it), and im not to sure when but by 2017 the 777's seems to have become bery cheap for long ranged markets.
« Last Edit: May 20, 2019, 08:53:21 AM by tungstennedge »

Offline Talentz

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Re: Is Leasing Literally Cheaper Than Buying New?
« Reply #1 on: May 20, 2019, 07:48:20 AM »
Umm.. yes, sort of? To your question/..

In most UMs of established GWs, there will always be opportunity. Both in route choices and aircraft selection. Being able to analyze your situation and chose the most suitable option is key.

That said, could you keep this up (to 300 "small company" size), I doubt it. Its great to fuel growth but at some point you'll slow down and costs will catch up. At that point your very high profit margin will drop to more normal levels. Even if you mainly fly against yourself. From then on, leases become a growing strain on your expenses. Moving from leased to own is making your company more profitable and able to survive for along time.

Costs increase over time, always ~ Keep that in mind. You have to actively reduce costs to counter this. Switching from leased to owned is one of the few ways to do this. So staying all leased will eventually catch up to you and you'll BK. Given enough time.

So buying is key. With that in mind. Could you just live off the UM w/ cheap frames? No, probably not for two reasons:

1st, you probably couldn't source enough frames for a 300 sized company. At some point you'll run out or be limited by the 2/3 UM per 10d rule. Most aircraft on the UM come from BK players. They took delivery and thus, you can expect aircraft to expire (Hvy Cheks) all within the same time frame. This alone will force you to micro-manage and grab any aircraft alvb to you at w/e price just to avoid Hvy checks on leased aircraft (therefor invalidating your leased strategy vs buy new strategy)

2nd, The UM responds to player actions over time. So while you may be the only one scoping up great deals on a glut of supply. Eventually at some point, the AI will respond to your demand and the prices will slowly reverse course. Cheap frames will become harder to find and you'll end up paying normal or even high prices. At that point, you'll find buying new to be a much better option.

If your goal is to run an actual small company <100 aircraft, then I suppose with enough supply, it may work out. But if your touching 300 frames and trying to replace them as time goes on solely from the UM... No, you'll just be shooting yourself in the foot over time.

Buying and leasing have their Pros & Cons. Understanding what they are, weighing the options and shifting from one to the other, takes experience over many GWs and companies. The more you play, the better you'll get at it. You'll reach that soon enough, everyone does.


Talentz
Co-founder and Managing member of: The Star Alliance Group™ - A beta era, multi-brand alliance.

Online groundbum2

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Re: Is Leasing Literally Cheaper Than Buying New?
« Reply #2 on: May 20, 2019, 08:07:43 AM »
especially for LH it depends on range. Meaning if you can get a non-stop to a far off land you'll trump your opponent. So especially in the early days you don't want to get stuck owning a bunch of planes that whilst at the time of purchase had the best range and gave you an advantage, but now are lagging behind. I guess an example would be DC10 vs A330/A340. As time goes on the A340-500HGW has some seriously long legs so can conquer Oceania from Europe/USA.

So I'd buy LH planes and use them for 24 years if those planes had the best range for those 24 years,.. and a freight variant. And I had the cash of course. If not I'd lease for 8 years or until the bigger range LH plane came along, then buy that.

Simon

Online tungstennedge

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Re: Is Leasing Literally Cheaper Than Buying New?
« Reply #3 on: May 20, 2019, 09:11:30 AM »
Umm.. yes, sort of? To your question/..

In most UMs of established GWs, there will always be opportunity. Both in route choices and aircraft selection. Being able to analyze your situation and chose the most suitable option is key.

That said, could you keep this up (to 300 "small company" size), I doubt it. Its great to fuel growth but at some point you'll slow down and costs will catch up. At that point your very high profit margin will drop to more normal levels. Even if you mainly fly against yourself. From then on, leases become a growing strain on your expenses. Moving from leased to own is making your company more profitable and able to survive for along time.

Costs increase over time, always ~ Keep that in mind. You have to actively reduce costs to counter this. Switching from leased to owned is one of the few ways to do this. So staying all leased will eventually catch up to you and you'll BK. Given enough time.

So buying is key. With that in mind. Could you just live off the UM w/ cheap frames? No, probably not for two reasons:

1st, you probably couldn't source enough frames for a 300 sized company. At some point you'll run out or be limited by the 2/3 UM per 10d rule. Most aircraft on the UM come from BK players. They took delivery and thus, you can expect aircraft to expire (Hvy Cheks) all within the same time frame. This alone will force you to micro-manage and grab any aircraft alvb to you at w/e price just to avoid Hvy checks on leased aircraft (therefor invalidating your leased strategy vs buy new strategy)

2nd, The UM responds to player actions over time. So while you may be the only one scoping up great deals on a glut of supply. Eventually at some point, the AI will respond to your demand and the prices will slowly reverse course. Cheap frames will become harder to find and you'll end up paying normal or even high prices. At that point, you'll find buying new to be a much better option.

If your goal is to run an actual small company <100 aircraft, then I suppose with enough supply, it may work out. But if your touching 300 frames and trying to replace them as time goes on solely from the UM... No, you'll just be shooting yourself in the foot over time.

Buying and leasing have their Pros & Cons. Understanding what they are, weighing the options and shifting from one to the other, takes experience over many GWs and companies. The more you play, the better you'll get at it. You'll reach that soon enough, everyone does.


Talentz

Hmm yes your points seem very valid. I forgot to consider that the UM is changing and will not always yield such consistently good deals. I'm guessing what I'm finding out now is just that the um gets flooded near the end of a gw tho. Also now that I have done the maths it's very interesting to see how much leases overpay.

Also, just looking for some input here, I'm wondering what I should do in current gw3. My goal to regrow into the top 5 for net income before the world ends, I dont know whether it is possible, but I do know I'm going to have to be as efficient as possible.

Basically, since avianca just bk'd out of Heathrow there are basically no slot restrictions anymore, and in addition there is open demand everywhere I'm EU and I need to fill it as fast as possible, with my current restriction is getting frames in as I dont quite have the cash to buy new in large quantities.

Should I be looking to lease new(low margin, most frames), buy new(in small orders so i can start placing planes enroute assap) or just save up for an order of forty(highest margin, slowest growth)? If i lease new i believe my margin would be but from 45% pretax to about 25% for the leased planes, but it would definitely help my uptake speed. I think I'm in an interesting position as I need to max out growth in a extremely short time.

Also right now I'm growing about 500million in net profit per quarter, at a quite linear rate since I am only limited by Um and not demand, so I dont know how that effects and considerations.

Also it is possible to lease 3 planes/7 days at max efficiency, so realistically I might be able to do half that from the um which results in about 500 frames in the next 9 years.

Anyways, thanks alot for you time reading and replying!

Offline gazzz0x2z

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Re: Is Leasing Literally Cheaper Than Buying New?
« Reply #4 on: May 22, 2019, 04:16:22 PM »
I'd like also to add that THIS GW3 has a very differnet dynamic from previous one. The UM is full of 787s, which is usually science fiction, even as late as 2028. Previous GW3, I sold dozens of 783s with a good brokering profit. There, I did order 7-788s, sold 3 at cost, the other 4 are still on the UM (and will stay there until the end of the game).

One has to adapt, and your adaptation to the specifics of this GW3 is impressive. Don't assume it always works. Don't assume either, as others say, that it also works for a bigger sized company. Most AWS guide begin by "one shall lease old or buy new. Once one has enough money, one should only buy new". Considering your niche, even with your current margin, you probably didn't reach yet the level where buying new makes sense. Still, you'll reach this point sooner or later. The end of the game is near, so maybe you won't reach it at all. I don't know.

You have another advantage : you begin so late(and in a LHR more desert than ever) that you don't have to think about fleet renewal. try this kind of strategy in the upcoming GW1, and you'll shine 10 or 15 years. Before being crushed by the veterans who know how to transition fleets.

If you look at my company in GW3(Gazometre au charbon), you'll notice zounds of S2000s. Nearly 800. Most of my upcoming new ones are used only for replacing the aging ones. That's a huge task. I also asked 2 alliance friends to help me with replacement, and they placed orders which I'm buying now. Had you not BK'd earlier, you'd have the same kind of problems with bigger frames. My growth in MAd is stalled mainly because most of my efforts are around aging fleet replacement - even though there is still plenty of untapped demand. Explosive growth is cool, but you have to prepare fleet replacement, even in a 35 years game.

Online tungstennedge

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Re: Is Leasing Literally Cheaper Than Buying New?
« Reply #5 on: May 22, 2019, 05:10:38 PM »
I'd like also to add that THIS GW3 has a very differnet dynamic from previous one. The UM is full of 787s, which is usually science fiction, even as late as 2028. Previous GW3, I sold dozens of 783s with a good brokering profit. There, I did order 7-788s, sold 3 at cost, the other 4 are still on the UM (and will stay there until the end of the game).

One has to adapt, and your adaptation to the specifics of this GW3 is impressive. Don't assume it always works. Don't assume either, as others say, that it also works for a bigger sized company. Most AWS guide begin by "one shall lease old or buy new. Once one has enough money, one should only buy new". Considering your niche, even with your current margin, you probably didn't reach yet the level where buying new makes sense. Still, you'll reach this point sooner or later. The end of the game is near, so maybe you won't reach it at all. I don't know.

You have another advantage : you begin so late(and in a LHR more desert than ever) that you don't have to think about fleet renewal. try this kind of strategy in the upcoming GW1, and you'll shine 10 or 15 years. Before being crushed by the veterans who know how to transition fleets.

If you look at my company in GW3(Gazometre au charbon), you'll notice zounds of S2000s. Nearly 800. Most of my upcoming new ones are used only for replacing the aging ones. That's a huge task. I also asked 2 alliance friends to help me with replacement, and they placed orders which I'm buying now. Had you not BK'd earlier, you'd have the same kind of problems with bigger frames. My growth in MAd is stalled mainly because most of my efforts are around aging fleet replacement - even though there is still plenty of untapped demand. Explosive growth is cool, but you have to prepare fleet replacement, even in a 35 years game.

Yeah even although I'm quite new on the grande scheme of things  I've noticed gw3, especially in the EU is quite different. Its seems the main competition is people getting bored and quitting rather that actually competition.

Also, even though I bk previously, I had started to notice the pains of transition. I just wanted to collected 150 777 frames to replace my md11 and it took like 6 years to collect the cash and when they had finally all arrived, apparently my 777 200 were already reaching 20-21 years. From then on I'm guessing I would have to use all my cash in orders just to keep up plus um, and it would have been a huge hassle all together, I'm not sure if I'd get it done in time to survive anyway, but with now little Heathrow competition at that time I figure I would have.

Anyways, my favourite way to play in games like this is to find markets in the world which are underused and it just seems to to be EU in this one. Also, I've realised how hard it is to get frames in, I'm wondering even if it's a good idea in my future long game world to stick to two fleet type except in transition. Seems like it 2ould make the task infinitely easier.

 

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