Just a thought… correct me if I’m wrong:
In order to make sense buying an airplane (of any manufacturer) you need to be planing spending more than 3years and a half on one specific server… Otherwise it’s not worth it! Am I missing something?
Thank you!
Well yes and no…
On the one hand it is a lot better for starting, of course, but on the other it is important to state that once the aircraft is yours you have no cost at all for leasing, which opens a whole world of possibilities, routed that would not have been profitable before.
It always depends, though…
Hi,
leasing a new plane is always a better investment if you look at profit and growth.
Buying is only a good idea when you start: you buy a few old planes and use them as collateral to obtain a loan from the bank. This way you can get more planes out of your 10 million
Buying is fine if you like to own your aircraft and don’t care too much about growth.
Jan
Will the loan be bigger than the value of the purchased planes?
no, not as far as I know
Then what will be the point in buying a/c in order to get a loan which will be smaller than the sum invested in the old aircraft (for which you have to pay a higher maintenance) knowing that you’ll have to pay interest for it? What am I missing??? Jan…
Thank you!
Hi,
let’s assume you want to buy a new 737-700 BGW…
Cash
If you had enough money to pay cash, you could buy one new plane or lease 20 new planes.
20 leased planes should give you a net profit (after the weekly lease is paid) of 20 times 250.000 dollar, or 5.000.000 dollar.
Your one newly bought plane will then give you a net profit of 250.000 dollar plus 232.000 (you don’t pay lease), or less than 500.000 dollar.
If you end the lease after one year, you get all your money back. The security deposit is fully refunded. If you sell the plane, you get over a million dollar less than what you paid because the plane is now one year older.
Loan
If you don’t have money and the bank trusts you enough, you can ask for a loan. The bank tells you they give you a cheap loan of 0,8% … which actually means they charge you 50% per year. But okay, you sign the loan and pay everything back in 50 weeks.
At the end of the first week, you pay 1/50 of the capital back, or 930.000 dollar, plus 372.000 dollar interest.
At the end of the second week, you pay another 930.000 dollar, plus 364.560 dollar interest.
At the end of the 50th week, you pay your last 930.000 dollar, plus 7440 dollar interest.
Your 46 million dollar plane will have cost you 56 million dollar, and is now worth 45 million dollar.
Old planes
The picture changes when you buy planes that are written off. A 21 year old 737 will cost you three times the leasing deposit of a new 737. Maintenance costs are higher, your image gets a penalty, but the plane will pay itself back in a few months.
Jan
How much does an older plane actually influence pax loads?
Hi,
it doesn’t. Two thirds of my planes on the Tempelhof server are owned. Their age varies between 12 and 21 years and the average load factor is above 90%.
But… the average image rating of your airline is one of the product factors, so it influences your ORS rating. If you own and operate older planes, it is important to keep an eye on the factors that contribute to the image of your individual flights. So I put an extra flight attendant on my planes, make sure staff mood is fine, and I avoid planes who are disliked by passengers.
And your growth will slow down. You can lease 3 new 737’s for the price of one 20 year old 737, and you can lease 10 new CR7’s for the price of one 12 year old CR7. Different players have different goals. Some players likes to recreate the network of an existing airline, others want to be the biggest airline in their country, some want a regional network or they prefer long haul flights. I like the idea of owning my fleet 
Jan
So you’re saying as long as the pax are all green for the particular flight it shouldn’t be an issue if you use older planes or not?
Hi,
what matters, is your price performance ratio. The value for money. That is the basis of your ORS rating, and on a competitive market, your ORS rating decides whether or not the passengers will like your flight. The age of your plane does not matter.
The price performance ratio is based on:
price
on-board service
type of seats
terminals
image of your airline (as a whole)
But… Every individual flight has it’s own image factors, and age is one of them. The average image of all your flights gives your airline an overall image. And that overal image rating is one of the factors that decide your price performance ratio. One old plane will not visibly lower the overall image of your airline. If half of your planes are old, the average image of your airline will go down. And a lower overall image of your airline has an effect on the price performance ratio.
Jan
If I may add, the important rating in ORS is the overall (the second one). Price performance contributes to it but the pax are taking into account the overall rating. Of course, if you have the price performance (first rating) higher, the overall (the second one) will also be higher. But doesn’t matter what you will do, there are some planes which have the overall 92 (DH4) even if you have price performance 100 (first rating).
Success!
Nirod