Since starting aircraft and starting cash has also been covered in this topic I’m going to begin there. Starting cash should remain the same however starting aircraft could be any aircraft available at the time of starting the airline, instead of a fixed list of aircraft, giving the chance to research them and select engine type. Once the starting aircraft is selected it’s delivered immediately. This would allow airlines that start late in a game to be in an even level playing field by having access to newer and more profitable aircraft from the start.
Now on to leasing companies, here’s a Wikipedia article about Aircraft Finance http://en.wikipedia....ircraft_finance
that looks useful. For AE purposes we could use cash purchase, direct lending, operating leasing and finance leasing.
Cash purchase is pretty straight forward 50% on order and 50% on delivery.
With direct lending, airlines in good financial standing may choose to finance their aircraft purchase by paying 10 to 20% of the aircraft value and pay the rest in 10 to 12 years. When and airline chooses to finance an aircraft, the interest rate is calculated based on the credit rating of the airline at the time of the loan and remains the same for the duration of the loan and an amortization schedule (http://en.wikipedia....zation_schedule
) is created to determine the monthly payment, the amount of principal being paid, the interest expense and the balance owed.
A note on purchasing aircraft is that airlines have the benefit of using depreciation as a non cash expense to reduce tax payments. Commercial aircraft are depreciated during a period of 7 to 12 years either accelerated or in a straight line, for AE straight line is easier to implement (http://en.wikipedia....ki/Depreciation
). After the depreciation period ends you no longer get the tax benefit. Here come into play two different aircraft values. The fair market value (just like the market value we use now and that could also include hours flown, number of cycles, overhauls, maintenance level, etc.) and the book value which is original cost less the accumulated depreciation. When selling an aircraft if the selling price is higher than the book value then you have capital gains which are considered income and have to pay taxes on that income.
Financing an aircraft purchase is useful to take advantage of the tax benefits of depreciation and also opens the market for airlines to become finance leasing companies. For airline valuation purposes the value of financed aircraft is the fair market value less the balance owed.
The current leasing model would become the Operating Leasing where the system is the Commercial Aircraft Sales and Leasing (CASL) company offering leases up to 10 years at fair market value and Airlines would have the option to become Finance Leasing companies which can offer leases for longer periods of time at fair market price or at a discount. To calculate the fair market leasing price the AAA interest rate plus 2 or 3% could be used as profit.
In order to lease aircraft the airline would have to own the aircraft either paid in cash or financed.
As far as making the used market less flooded here are some ideas:
Owned aircraft can be sold either to the system (broker) which charges 30% of fair market value for commission and processing charges or directly to the used market.
When an aircraft is sold to a broker, the airline is paid at the time of the transaction and the broker then places the aircraft for sale at fair market value.
Just like now the broker would place used aircraft in the market randomly and the aircraft would remain in the market for 6 months and then be scrapped.
When an aircraft is sold directly in the used market the airline has the option to set the sale price at fair market value or at a discount but the airline only receives payment when the aircraft is sold.
Aircraft sold directly by airlines remain in the market until sold or removed from the market.
The lease early termination fee is credited to the airline in case of Finance Leasing and is considered income.
Failing to pay a loan for 6 months terminates the loan and the aircraft is repossessed
Airlines may place aircraft in the used market for sale only, lease only or both.
When selling an aircraft that has a balance owing on a loan said balance is automatically paid and the airline receives the difference
Sorry for the long post, if something else comes to mind I’ll add it later.