When is it still cost effective to own the airplanes for a commercial carrier?

2 
1 SUMMARY 
1	
   INTRODUCTION	
   4	
  
1.1	
   SEVERAL	
  ASPECTS	
  NEED	
   TO	
  BE	
  ASSESSED	
  IN	
  ST RATEGIC	
  DECISIONS	
  AB OUT	
  ACQUIRING	
  AN	
  AIR CRAFT	
   4	
  
1.2	
   GIVEN	
  THE	
  CHOICE	
  OF	
   “WHAT”	
   TO	
  ACQUIRE ,	
   THE	
   AIRLINE’S	
  CHOICE	
  IS	
  BETWEEN	
   LEASE	
  OR	
  PURCHASE	
  OF 	
  
THE	
  AIRCRAFT 	
   6	
  
1.3	
   WITH	
  A	
  FLOW	
  MODEL	
  IT	
   IS	
  POSSIBLE	
  TO	
  DISPL AY	
  THE	
  BEST	
  ACQUISIT ION	
  STRATEGY 	
   7	
  
2	
   THERE	
  ARE	
  THREE	
  KEY	
   MACRO	
  VARIABLES	
  THAT 	
   INFLUENCE	
  THE 	
   DECISION	
  MAKING	
  
PROCESS	
   8	
  
2.1	
   THE	
  STAGE	
  OF	
  DEVELOPM ENT	
  OF	
  THE	
  COMPANY	
  I S	
  THE	
  PRIMARY	
  CONDIT ION	
  TO	
  BE	
  CONSIDERED 	
   8	
  
2.1.1	
   STARTING	
  UP	
  AIRLINES	
   GENERALLY	
  LACKS	
  CAPI TAL	
  AND	
  CAN	
  NOT	
  BEAR 	
   THE	
  OVERALL	
  RISKS 	
   OF	
  BUYING	
  
THE	
  PLANES 	
   9	
  
2.1.2	
   AN	
  ESTABLISHED	
  CARRIE R	
  HAS	
  THE	
  KNOWLEDGE	
   AND	
  THE	
  COMPANY	
  STRU CTURE	
  NEEDED	
  TO	
  OPER ATE	
  
OWNED	
  AIRCRAFT 	
   12	
  
2.2	
   DEPENDING	
  ON	
  THE	
  PURP OSE	
  OF	
  THE	
  BUSINESS	
   PLAN	
  THE	
  PERMANENCE	
   OF	
   AN	
  AIRCRAFT	
  INTO	
  THE 	
  
FLEET	
  DELINEATES	
  THE 	
   OPTIONS	
  THAT	
  FITS	
  BE ST	
   13	
  
2.2.1	
   FOR	
  SHORT -­‐TERM	
  PROJECTS ,	
   CARRIERS	
  BENEFIT	
  FRO M	
  RENTING	
  THE	
  AIRCRA FT	
  AND	
  PAYING	
  IN	
  
INSTALMENTS	
   14	
  
2.2.2	
   ON	
  LONG -­‐TERM	
   BUSINESS	
  IT	
  IS	
  BETTE R	
  TO	
  PURCHASE	
  THE	
  LI NERS	
  AND	
  KEEP	
  THEM	
  F OR	
  THEIR	
  FULL	
  
LIFESPAN	
   18	
  
2.3	
   THE	
  CHOICE ,	
   ON	
  WHICH	
  IS	
  THE	
  MOST 	
   PROFITABLE	
  PURCHASIN G	
  MEAN ,	
   OCCURS	
  THROUGH	
  THE	
  
STRATEGIC	
  EVALUATION 	
   OF	
  THE	
  SOUGHT	
  PURPOS E	
   19	
  
2.3.1	
   A	
   WET	
  LEASE	
  OUTSOURCES 	
   OPERATIONS	
  AND	
  MERGE S	
  DIRECT	
  AND	
  INDIREC T	
  COSTS	
  IN	
  PERIODIC	
  
INSTALMENTS	
   23	
  
2.3.2	
   A	
   DRY	
  LEASE	
  ALLOWS	
  A	
  C ARRIER	
  TO	
  OPERATE	
  AN 	
   AIRPLANE	
  WITHOUT	
  THE 	
   NEED	
  TO	
  OWN	
  THE	
  ASSE TS	
  AND	
  
SIMPLIFIES	
   THE	
  ACQUISITION	
  PROC EDURES	
   26	
  
2.3.3	
   BUYING	
  THE	
  AIRCRAFT	
  C OULD	
  BE	
  COST	
  EFFECTI VE	
  FOR	
  THOSE	
  AIRLINE S	
  WITH	
  SOUND	
  FINANCE S	
   28	
  
3	
   GENERALLY	
  THE	
  COST	
  E FFECTIVE	
  DECISION	
  WH ETHER	
  TO	
  BUY	
  AN	
  AIRC RAFT	
  COULD	
  
DERIVE	
   FROM	
  A	
  FLOW	
  MODEL	
  CO MBINING	
  THE	
  THREE	
  MA CRO	
  VARIABLES 	
   33	
  
3.1	
   NOWADAYS	
  FOR	
  A	
  START -­‐UP	
  IT	
  IS	
  COST	
  EFFECT IVE	
  AND	
  SAFER	
  TO	
  LEA SE	
  THE	
  AIRCRAFT 	
   34	
  
3.1.1	
   WITH	
  A	
  WET	
  LEASE	
  IT	
  C OULD	
  OUTSOURCE	
  COMPL ETELY	
  THE	
  FLY ING	
  OPERATIONAL	
  TASK S	
   36	
  
3.1.2	
   THE	
  DRY	
  LEASE	
  ALLOWS	
   THEM	
  TO	
  MINIMIZE	
  INV ESTMENTS	
  AND	
  RISKS	
  M AINTAINING	
  THE	
  CONTR OL	
  ON	
  THE	
  
SERVICE	
  PROVIDED 	
   37	
  
3.2	
   FOR	
  AN	
  ESTABLISHED	
  CA RRIER	
  WITH	
  SHORT	
  TER M	
  PROJECT	
  IT	
  IS 	
   GENERALLY	
  COST	
  EFFEC TIVE	
  TO	
  LEASE	
  
THE	
  AIRPLANE 	
   39	
  

3 
3.2.1	
   WITH	
  A	
  WET	
  LEASE	
  IT	
  C AN	
  GENERALLY	
  SATISFY 	
   A	
  TEMPORARY	
  NECESSIT Y	
  EXCEEDING	
  ITS	
  OVER ALL	
  
OPERATIONAL	
  CAPACITY 	
   41	
  
3.2.2	
   A	
   DRY	
  LEASE	
  IS	
  USEFULL 	
   IN	
  CAS E	
  OF	
  FLEET	
  INADEQUAC Y	
   43	
  
3.3	
   FOR	
  AN	
  ESTABLISHED	
  AI RLINE,	
   WITH	
  LONG -­‐TERM	
  PROSPECTS ,	
   IT	
  IS	
  ACHIEVABLE	
  TO	
   BECOME	
  THE	
  
AIRCRAFT	
  OWNER 	
   45	
  
3.3.1	
   IF	
  THE	
  CARRIER 	
   HAS	
  SOUND	
  FINANCIAL	
   STATUS	
  THE	
  COST	
  EFFE CTIVE	
  SOLUTION	
  IS	
  TO 	
   BUY	
  THE	
  AIRCRAFT
	
   46	
  
3.3.2	
   FOR	
  AN	
  ESTABLISHED	
  CA RRIER	
  WITH	
  FOUNDING	
   DIFFICULTY	
  A	
  DRY	
  LEA SE	
  COULD	
  BE	
  ADVANTAG EOUS	
  EVEN	
  
WITH	
  A	
  LONG -­‐TERM	
  VIEW 	
   47	
  
4	
   CONCLUSION	
   49	
  
4.1	
   ONLY	
  FOR	
  AN	
  ESTABLISH ED	
  AIRLINE	
  IN	
  A	
  LONG -­‐TERM	
  PERSPECTIVE	
  CAN 	
   BE	
  COST	
  EFFECTIVE	
  TO 	
   BUY	
  THE	
  
AIRPLANES	
   49	
  
4.2	
   IT	
  WOULD	
  BE	
  USEFULL	
  T O	
  ESTABLISH 	
   AN	
  INTERNATIONAL	
  FRA MEWORK	
  TO	
  BETTER	
  CLA SSIFY	
  THE	
  
PURCHASING	
  SOLUTIONS 	
   50	
  
5	
   BIBLIOGRAPHY	
   52