Credit Rating

[dmoose42]

The value that the bank ascribes to the aircraft (say for loan purposes) will not match your book value.  But you are right that you no longer get an immediate CV boost from buying undervalued aircraft.  However, your weekly depreciation expense will be less.  SO you will recognize the benefit of your good decision over time instead of all at once.

[Sami]

But the way this game is set up.........it doesn't care what the bank value is, it only cares what you paid for it.

This is exactly how accounting works.

[Gevans]

Sami........I know that's not how it's done in the real world.
Any substantial asset like that would be appraised for it's real value, which is represented in AirwaySim by the banks appraised value.
No lender that can't count on government bailouts would ever lend against an asset based what the purchaser paid for it instead of it's appraised value.


So I'm not an accountant but I also know what a liability is.
In this situation it would be a payment and debt you are responsible for.

Of coarse when you borrow money to buy an asset like a plane the loan that's using another plane as collateral is counted as a liability.
And in this game......... planes you lease are not considered a liability.

So that should mean that if your not liable for that aircraft lease you should be able to cancel it without financial consequences.
But that's not the case is it.
In fact.....unless the lease is nearly up your on the hook for a substantial amount of that aircraft's worth.........usually 1/4 to 1/2 of it's value.
That's a lot of money going away with nothing to show for it.

If that's not a liability I don't know what is.

And it still doesn't make sense why airlines that have all their planes leased, own nothing............. would have a higher net worth than a similar sized airline that owns all it's aircraft but has 1/2 used as collateral for loans that have a much lower interest rate than leasing.
And in a few years when the loan is paid off this airline now as another asset with no debt......... while the airline that leased at a much higher cost has nothing when the lease ends.

[Sami]

Yes, indeed, the lease liabilities are not currently counted in balance sheet. (I'm looking how to add that in the future)

[Gevans]

The ironic thing is....
Even though financing and owning is considered a negative in this game this is what's saved my airline's butt.

My DC-4's and 6's are all leased but most of them are a little too big for the routes there on and mostly running at 50% - 80% capacity.
It's easier to fill up my C-46's and so there running at 60% - 99% capacity.

Normally the larger aircraft are more efficient and they should still be fine but it is very competitive on my routes.

But almost all my C-46's are owned and only half are financed, my cost's of owning these has worked out to about 1/6 of leasing and combined with the higher load percentage of these smaller planes I'm making as much or more profit per C-46 as I do with each of my much more expensive DC-4/6's........at a fraction of the cost.

If it weren't for buying and financing those C-46's I wouldn't have had the money to order new, better planes, I might of even gone bankrupt by now.

[ucfknightryan]

The ironic thing is....
Even though financing and owning is considered a negative in this game this is what's saved my airline's butt.

My DC-4's and 6's are all leased but most of them are a little too big for the routes there on and mostly running at 50% - 80% capacity.
It's easier to fill up my C-46's and so there running at 60% - 99% capacity.

Normally the larger aircraft are more efficient and they should still be fine but it is very competitive on my routes.

But almost all my C-46's are owned and only half are financed, my cost's of owning these has worked out to about 1/6 of leasing and combined with the higher load percentage of these smaller planes I'm making as much or more profit per C-46 as I do with each of my much more expensive DC-4/6's........at a fraction of the cost.

If it weren't for buying and financing those C-46's I wouldn't have had the money to order new, better planes, I might of even gone bankrupt by now.

It's not a negative, whatever gave you that idea...

[Gevans]

Because...........owning and using low interest financing is considered a liability while using high interest leasing is not.

read my post # 41

[ucfknightryan]

Because...........owning and using low interest financing is considered a liability while using high interest leasing is not.

While I agree that leases should show up as a liability that difference in and of itself is not sufficient to turn owning into a negative compared to leasing.  As you pointed out there are numerous other upsides to owning.  Namely improved cash flow, increased access to lower interest loans, and increased flexibility.

[Gevans]

I agree 100%

That's why I think the game is backwards...........leasing should be more of a liability than owning & using low interest loans, if you don't like an aircraft you own sell it or lease it out.
If your in a long term lease you are stuck, if you cancel the lease you are penalized a significant value of that aircraft.  

I think the only advantage leasing should have over buying is reducing your cash outlay for acquiring aircraft quickly, especially when it can take years before new aircraft are delivered.
It defiantly should not have the extra bonus of adding to your company's value.........which is what happens when leasing aircraft is not considered a liability and owning with financing is.  

[Aoitsuki]

I agree 100%

That's why I think the game is backwards...........leasing should be more of a liability than owning & using low interest loans, if you don't like an aircraft you own sell it or lease it out.
If your in a long term lease you are stuck, if you cancel the lease you are penalized a significant value of that aircraft.  

let's see, first you pay the full amount of the aircraft, then you found out the aircraft does not work(happens to me many many times unless you start in the exact same HQ/time era everytime) you might get stuck unable to sell it. You will need to store(something sami added) and then pay maintience(D check) to wait til 10 years to be scrapped because your piece of junk is not wanted in the market... ending up with major loss

[Gevans]

Well, if you make a really bad choice of buying an aircraft nobody else wants to lease or buy even at below market value then you likely have a lot more problems than with just picking aircraft.
Likely in that case you won't be able to buy aircraft because your airline doesn't make enough money anyways.

I have one of my lowly C-46's leased out for more than I paid for it right now and it's one of my oldest planes.
I make fun of them but there actually a very profitable small aircraft......I think the most profitable small aircraft in 1955 anyways.

The problem is going to be my leased DC-4's and later my DC-6's........the new aircraft I have ordered are going to be faster and more efficient for my routes but I can't get rid of those leased planes without a huge penalty.
If I'd bought them I could sell them for close to what their value is because airlines are still ordering new ones.

But because I leased .........I'll be better off to keep them flying even if it's at a loss.
I know, I'll put them on my busiest routes and double the already tripled overcapacity..... that way my competitors can lose just as much money as me.

[leviblack21]

I agree, it is important to understand how to calculate credit rating to avoid credit risk. Apparently, VantageScore 3.0 is the most recent form of the credit rating model produced by Experian, Equifax and TransUnion, the three major credit rating bureaus. With it, thousands of Americans will see a hike in their credit rating, and millions of others can get the credit that has hurt them in the past.