Aircraft Financing: Fixing leasing and credit financing


We just released the first maintenance patch of the year and we are already preparing the next one: Maintenance patch 2019-02 will focus mostly on changes and improvements affecting the aircraft market, including long-requested “safety features” to keep people from accidentally stepping into the “credit financing trap”.

This got me thinking, though: Obviously, the way loans work at the moment isn’t very realistic, doesn’t add much to the game and is even dangerous (see above), especially to new players. Those safety features are essentially treating symptoms of an underlying problem: Credit financing has been broken since it has been put into the game literally ages ago.

For the past few years, my design goal for AS has been to strive for a realistic simulation, especially in terms of nomenclature and mechanics, while making sure that new and updated features actually add tangible game play benefits and don’t just exist for window dressing. Hence, let’s start with analyzing how leasing and credit financing typically work in reality and what their differences are (In rough terms! Reality is a lot more complex, as always-):

Disclaimer: The term “leasing” can have various different meanings in English, including that of what we call a “credit financing” here. What we call “leasing” in AS would probably be called an “operating lease” in American English.

  • Both are ways so finance an aircraft, while leasing in AS currently is more akin to renting one.
  • In both cases, it’s typically a bank or a bank-like institution that provides the financing, not another airline (while such models do of course exist, like wet-leasing, )
  • With credit financing, the aircraft becomes the property of the airline and the airline has to bear amortization while also paying interest and redemption on the corresponding loan. With leasing, the bank/lessor owns the aircraft and the airline pays a combined rate that only shows up on the income statement, not on the balance sheet.
  • In both cases there’s typically a down payment, a set amount of installments and a final payment. After the latter, the aircraft typically becomes the full property of the airline and the leasing/loan contract terminates.
  • In case of leasing, there might be the option to not pay the final payment and return the aircraft to the lessor or renewing the lease instead.
  • Loan payments typically are annuities, so the rate stays the same each period but the ratio of repayment to interest changes over time, with the latter initially making up the majority of the rate.
  • The lessor will of course have to finance the asset somehow as well and they will pass on the respective costs to the lessee, meaning that leasing rates are just as affected by general interest rates as loans are.
  • In either case, cancelling the contract early is either impossible or involves penalties/the loss of the aircraft.
  • Oftentimes leasing companies will buy aircraft in bulk and/or without having a customer for them yet to get better rates from the manufacturer.

With this simplified model, we can immediately spot some major differences compared to how AirlineSim handles this:

  • The two weeks a leasing contract is binding in AS make no sense. The amount of installments must depend on the general financing terms.
  • The very simple formula by which leasing rates are currently computed puts them completely out of touch with actual financing costs.
  • The way loans work in AS (at least for financing a concrete asset like an aircraft) is bonkers. It should really be annuities instead of “constant repayment + interest on the full outstanding loan”.
  • The option to buy an aircraft when the lease ends is something that should be part of the contract to begin with and that should happen (semi-)automatically.
  • I am unsure about how realistic it is for AS airline to be able to provide classical leasing at all or whether airlines should just be able to sell an aircraft but a “bank” provides the financing (if any) to the customer.

Consequently, there are several possible changes that I would like to discuss:

  • Harmonize leasing and financing costs by taking into account interest rates and amortization for the involved parties and calculating constant installments based on that.
  • Move to proper contracts. All parameters of a contract should be set at the beginning and they should be interdependent:
    • Down payment
    • Amount of installments
    • Final payment (if any)
    • Size of installments (depends on the three parameters above)
    • Leasing: Option to return or purchase equipment or to renew the lease at the end of the contract. Also which one of these is available and/or whether the lessee can pick them over the course of the contract duration and which one is the default.
  • No premature cancellation of contracts at all (because penalties hold huge cheating potential on their own as long as they are paid by one contractual party to another and both are players).
  • On the aircraft market, players can choose their desired contractual terms and possibly different financing providers (we could introduce “state-run banks” that support new players with cheap financing or similar) and terms would provide to any aircraft they purchase.
  • Loan-financed aircraft offer the owner more flexibility (thinking of future conversion features, for example) and are probably a bit cheaper, but they come with the higher risk and accounting downsides.

Open question: How to deal with player-provided leasing in general? Leasing out an aircraft (if we stick to “leasing” meaning “financing”, not “renting”) is actually two separate transactions: Selling the aircraft (albeit “in pieces” and over a long period of time) and providing the financing for said aircraft. In principle, both transactions allow the provider to generate profits (by selling the aircraft at a price higher than its currently book value and by charging a higher-than-market interest rate). I am wondering whether we should still allow this at all or whether we should introduce a new kind of contract (renting) for inter-airline leases. Or whether to still allow leasing between airlines but with minimal influence on the contractual parameters (no variable financing terms) similar to how it is done today.

All in all, these “more realistic” contracts would make aircraft financing a lot more dependable for players while risks and opportunities would be nicely factored into the contractual terms.

What do you think? My gut tells me that it would make sense to approach this topic before putting bandaids on the aircraft market (some will still be required, but maybe not as many).


Additional thought: Obviously, the “minimal solution” could also just be to address credit financing with new formulas and contracts, while leaving everything leasing-related more or less as it is. It can always be extended and improved in the future. I just imagine it to be hard to get the loan installment sizes right without touching the leasing rates at all. Although I haven’t done any number crunching in this yet.


Will there be also a German thread regarding this?


Not planning one…far too much text.


Pretty sad as there are quite some of your customers not able to understand English.


Not having this discussion here for the gazzilionst time. Back to topic please.


Great initiative to work on the leasing and crediting! Even though I do not have any good input I would like to see leasing and crediting that is closer to real life even if that means making AS more complex.


Just a rough draft from my side,
AS public operating lease … Make minimum OP lease 1 month, maximum lease 1 year, default option renewal, OP lease rate recalculation at lease renewal. Ability to pay more OP lease installments for a discount. Keep aircraft available for purchase during lease duration.

AS financing… As mentioned, via annuities. AS bank could offer interest free financing for the first year (we can limit net assets of customer to allow only small companies to take advantage). Financing would be non cancelable as Is right now. Recalculate annuity payment every month, for the next month, based on average interest rate for the past month.

Player OP lease … Mostly as is, same conditions as public OP lease, allow premature cancelation with 2 weeks notice. Allow price leases between 10 and 150% of price. Make leases with under 50% hard coded for 6 months.

Player financing … Allow only non-flying companies to finance aircraft. Player could set an interest rate up to 100 percent higher than market rate but rate would remain fixed for the duration of term. Allow flexible finance terms of up to 5 years. Financing would be non cancelable.

Allow transfer of both OP lease and financing between airline companies. Allow secondary market for outstanding financing among non-flying airlines.

For purposes of this proposal we can define non-flying airlines as 0 pax and 0 cargo transported ever.

Allow aircraft repurchase off market by AS bank for 50% as well as purchase for that amount during liquidation.

Offer wet lease market where lessor would offer aircraft on a fixed weekly fee. Lessor would pay maintenance and wages based on Lessor’s own settings. Make wet lease minimum 1 month and maximum 6 months. Wet leased aircraft would not count towards maintenance categories. Lessee would pay fuel and airport and navigation fees.


Don’t see a reason for a maximum duration in AS. And if there has to be one, it should probably be based on some residual value of the aircraft.

Afaik, this is not how this typically works and I think it also would also take some potential depth out of loan-based financing. I would keep the interest rate fixed over the term of the contract but make the rate at least in part depend on the duration of the contract. This way, you can decide whether you want to bear higher repayments for a shorter contract duration but with slightly lower interest rates (less risk for the bank) or whether you go with many installments over a long period with the bank charging extra for the higher risk of interest fluctuations. Combine this with varying interest rates and you have a bit of speculative element in there. Just an idea, though.

Alternatively, contracts could have a (long) fixed-interest period and once that has passed, the interest rate is adjusted in shorter interval. Although I find 4 weeks to short for the former and maybe ok for the latter. Either way, it would introduce more complexity than I had hoped.

As said, I would get rid of this altogether. Let players define terms in the beginning and then let them stick to it. Alternatively, let them define a custom cancellation period. As said in my OP, penalties are not an option here due to cheating implications. For AS leasing, premature cancellations are basically a protection feature for new players (they need an easy way to switch out aircraft when they made a mistake), but here we could actually charge a penalty or (again) waive the penalty for new players while experienced/large companies get longer or no cancellation periods and higher penalties.

Haha, you wish :smiley:

There are no plans for inter-player loans at the moment.

While I like the idea, “markets” have a bad history with AS. Extremely unlikely we are going to introduce any new ones for the foreseeable future. More likely the existing ones will get removed or cut back.

Despite the similar terminology, this would be a very different and technically unrelated feature. It’s somewhere on the roadmap, but I don’t see it happening anytime soon.


This is a very essential point in my opinion. If the leasing contracts are without a fixed duration, then the leasing rate will remain the same, even if the aircraft is nearly worthless after 10 years, you still pay the rate for the new aircraft.

With fixed durations (but auto-renewal), the rate gets adjusted every term and the aircraft becomes cheaper over time.


If you have no fixed term, then you will have leasing rates that are computed based on the assumption that you pay until the aircraft belongs to you. Whether this makes a lot of sense is a different story and it most certainly doesn’t make sense to continue paying leasing rates (essentially renting the aircraft) after you’ve paid for both the aircraft itself and the interest. But that’s what I meant by residual value: If you say you want to have a down payment of 20% and a final payment of 10% you can either fix the amount of leasing installments or the size of each installment to arrive at the final contract conditions.

But you guys are probably right in that in practice, people would most likely want to select the amount of installments, so providing a sensible range of options is important. But whether it is going to be a year (just because) is yet to be decided…I really need to start a spreadsheet and look at some numbers.


I think Matth was talking about renting lease, not capital finance lease (credit).

Right now players return aircraft after 1 or 2 years back to market because the lease rate is way too high after 1 or 2 years. Then they lease back at lower, most current, rate. Which reflects decreased value of aircraft.

Leases for a term with auto renewal and actual value lease would auto adjust the rate after that time periods to correspond to the real value of that aircraft. That’s what Matth meant.


Ok, I’, solely talking about credit and lease financing, not any renting models. Ideally, I would like to move AS’ financing models more towards reality and away from the “rent oversimplification” that we currently use.


Why not renting models if we talk about reality? The fact is that 50% of aircraft currently in operation are leased on operating lease basis, and the other 50% on credit financing basis.


Can’t open your link as it requires Flash.

I think we need to agree on terminology. This is what I’ll be referring to from here on out when talking about AirlineSim:

  1. Credit Financing: Financing model with the end result of owning the aircraft at the end of the contract term. Aircraft on customer’s balance sheet. Customer bears most of the risk.
  2. Leasing: Financing model with the option of owning the aircraft at the end of the contract term. Aircraft on lessor’s balance sheet. Lessor bears most of the risk.
  3. Renting: Short- and or limited-term contract without the option or goal to own the aircraft at the end of the contract. Aircraft on lessor’s balance sheet. Lessor bears all of the risk.

I see 1. and 2. as two variations of the same thing that differ in practical details, mostly that in case 1. there is a loan contract involved with the aircraft technically in the customer’s possession from day one while option 2. is an off balance sheet financing where the lessor bears the risk of dealing with the re-marketing of the aircraft at the end of the term should the lessee decide to not execute the purchase option.

I am aware that technically, the renting model described in my list is what leasing currently looks like in AS. I am not familiar enough with financing theory and/or practice in the aviation industry to know where to draw the line between 2. and 3. exactly and how common each model is. But I assume it is easier (for now) to work with 1. and 2. and base their respective models on the underlying assumption that they are financing schemes (as in: A company wants to finance an asset - new or second hand - and there are two ways to do it. The terms don’t change over the duration of the contract.). We can then discuss how a more flexible renting model could work afterwards.


I’m not getting this point, why should only non-flying companies be allowed to finance the planes?!? I’m currently leasing out 350 planes, most of them are 20+ years old A320s, and my policy is to lease them to new airlines whenever it is possible, in order to give them the possibility to enjoy the game and try their strategies in a gameworld where much bigger and older airlines are clearly advantaged and harder to compete with.
I couldn’t do this with your proposed restriction. Not really fair in my opinion.


You could easily create a new company and shift the planes to that non-flying sub then.


@FL Group, you didn’t get the point… And it was about financing on credit, not about renting (op leasing).


This would be the ideal solution if the airline is not listed on the stock market, since in that case shifting planes wouldn’t require a huge investment. Currently, for listed airlines this option would require creating a new company with several hundred millions AS$, money that could be spent in a much better way.

My bad, sorry


Under IFRS accounting rules you basically ALWAYS have to show a leased asset in your books as an asset. So technically there is not much difference.