Does it make more sense to pay off debt or buy out leases?

[Kazari]

I have a bunch of planes on lease and a small amount of debt.

I haven't worked the numbers.

Usually I pay off all debt before buying a plane out of lease, but I'm wondering if anyone has figured this out so I don't have to break out Excel.

[Riger]

Excuse my ignorance, what does "buying a plane out of lease" mean?

Regards

Richard

[MattDell]

I would think buying a plane out would make more sense since you get to pay only 50% of the remaining lease, vs. having to pay fees to get out of your loan.

-Matt

[Kazari]

After you lease a plane you have the option to buy it if it is from a computerized lessor. You have to pay the cost of 1/2 the remaining lease payments PLUS the cost of the plane.

[DenisG]

Depends on the numbers and game time left.

Take the purchase value in divide it by 144 months (12 years) as depreciation basis. If that value is cheaper than the lease rate it makes sense, if you do have to replace the a/c later on in the game. (However, I had this only rarely in the past games). If you are early in the game, it may make more sense to lease a/c in order to open new routes quicker and most importantly secure the slots at you airport. As you go on, you can redeploy the leased a/c by new and modern purchased a/c later on, improving your operative cash flow.

Denis

[Powi]

It's usually cheaper to buy new planes than buy out leases... Of course this is not an option if there is large queues for the planes.

[Sigma]

Never buy out a lease if you can get in the queue for a new plane.  Even if you've got to wait 1-2 years it's almost always better to wait.

The value of the plane is usually way too high coupled with a large penalty for terminating the lease early.  It can easily cost more to buy-out a lease versus buying a brand-new plane, plus you'll get years worth of additional service with a newer plane.

As for debt, it has such a minimal cost and profit margins in the game are so huge that there's zero point in making an effort to pay it off early.  Borrow as much as you can because the cost of capital is so low compared to the ROI in this game. 

[EYguy]

I would consider 8 years instead of 12... Mainly because the price of a D-check weighs a lot on the price of an a/c.
Anyway, if you consider that an a/c has a "life" of at last 25 years, it could be reasonable to buy an a/c with less than 8 years. You can consider an older a/c only if it has already undergone the D-check. Anyway if you plan to expand you fleet, it would be wise to own about 1/3 of your a/c because it helps to lower your debit rate and you can keep the a/c grounded without wasting too much money. And, you can always lease them to other players!

[DenisG]

D-check incurrance is an issue I did not include in the 12 years. Good point EYguy! I took the 12 based on average fleet age today of the big carriers. But with the D-check, it definitely lowers the decisive value.

Denis

[EYguy]

I learned to cash in the investment on the a/c in 8 years right because the D-check issue... It was a waste of money to lease brand new a/c and then release them on the used a/c market at the 7th year: lot of people were going to get real deals on them just paying a very low lease fee and the D-check price. And they used to buy them back after 1 or 2 years... This is why I like to buy used a/c with 2 or 3 years left before D-check or lease them when they've 4 or more years!

[Powi]

8 years? 12 years? It takes only 6,58-6,75 years to pay a full price of an aircraft in lease payments. Of course there are other factors like purchase discount, long lease discount, lease renewal discount, loan interest and insurance costs, but I would guess that they very much balance each other (or make it even more favorable for purchasing option).

Bottom line: If you can get the money, and plan to keep the aircraft 7 years, you can buy it even if you know nobody will buy it from you. If there is a good possibility that someone will buy the aircraft even at minimum price always buy the aircraft. This all assuming you won't be doing the D-checks.