I’m a new player, and after two failed attempts at running airlines as straight enterprises with no subsidiaries, I’ve decided to try this round with a parent/holding company and then operate a mainline subsidiary and a regional subsidiary. I have a question regarding holding-subsidiary finances.
As you all know, I started with the initial 10,000,000 AS$. I used $4,000,000 AS$ for each subsidiary, leaving $2,000,000 AS$ in my holding company’s account. Assuming the two subsidiaries I’ve created become profitable, is any portion/percentage/margin of that profit automatically transferred back to the holding company? I only ask because down the road, if I choose to start a cargo subsidiary or an international subsidiary, assuming my first two subsidiaries don’t crash and burn (no pun intended), which would require a minimum of $3,000,000 AS$ startup capital from my holding company, I’ll be 1,000,000 AS$ short.
I’ve read about the workaround for transferring money by having the subsidiary purchase a plane and give it to the holding company, only to have the subsidiary purchase it back again. I wasn’t sure if this was the only way to replenish a holding company’s bank account.
What if at some point I take the subsidiaries public? As majority shareholder, would the parent company receive earnings automatically if the stocks go up?
Thanks for your help and support, I appreciate it.
I don't know if it is wise that you started already with 2 subsidiaries. As you said you already failed twice, so maybe your approach to the game is wrong. I can recon to start with one subsidiary and there you transfer 9-10 mio. Reason is that this game is Hub based! . If you have in mind to start one company with 1 or 2 737 and the other one with Crj or dash to feed the bigger planes you might loose too much money. Start with one company and 10 mio you can lease more crj's or emb's or dash's thus gives you more flights and so more connections. Once your company is profitable after 2 weeks you have the chance to go IPO. If it is successfull you will hold 80% with your parent company and 20% belongs to other shareholders. When you make profit your subsidiary will pay out 15% of the Profit as dividend. 80% will be automatically transfered to your parent company and the rest to the shareholders. Once you have money in your parent company you can open another subsidiary.
In General the Idea to form a holding/subsidiary structure is the most flexible approach, as it leaves you more options on how to generate financial liquidity (not profits). If your subsidiary is not listed on the stock exchange, there is no way of cash transfer other than transfering and selling aircraft between the two companies. If however you sucessfully completed an IPO your holding is entitled to its proportional share of the weekly dividend. Currently dividends are fixed at 15% of a companies weekly total profits. So if your subsidary makes a profit of 15 Mio AS$ and you own 80% of it, you'd be entitled to 800k. You won't make money from a changing stock price automatically, but only if you actively sell shares at a premium.
Also as you are beginner I'd strongly recommend you not to start with two subsidaries but just one large one (9 - 10 Mio As$). The problem with smaller companies is, that you'll burn your inital cash quite quickly and then get stuck with to low to grow profits. The more starting capital you have, the more you can use to operate flights so that you're soon be able to lease / buy more aircraft....
