I know this has been brought up many times, but I physically cannot understand why anyone wouldn’t want to loan purchase (if you have the money) over leasing.
Based on this example the weekly instalments ($86,000) are cheaper than to actually lease the aircraft ($151,00).
Furthermore, you end up owning the aircraft in the end, so surely this is a better option?
Is the interest of 0.17% included in the weekly instalment or is it a separate payment?
I know this is probably an obvious answer, but I can’t understand why everyone says leasing is better than credit?
Annuities incl. interest.
So, yes, loans are a lot cheaper than leasing.
But for the average player, time is key and expansion needs to be fast. Why else should anyone want to play temp game worlds. And here leasing is to be prefered. Add to that the increased flexibility of leasing.
1 - that “personalized interest rate” is only possible after large, very large, airline is established and has good credit histories. For new airlines, the interest alone (I am not sure what that is now) eats them alive.
2 - You have to put at least twice the money down, in many cases more than that. When you are growing, is it better to spread out the $$ across more planes? $50,000 in terms of a plane weekly (especially anything > 100 seats) is oftentimes not the greatest amount to sacrifice for simply having more planes. Is it better to pay a bit more per week but have more expansions? Of course there probably is some kind of human nature and impulses at play here. Waiting to accumulate the $12m will surely take a while until you have over 300-400 planes and a consistent cash flow. For a newer carrier, is it better to wait for the $1.5 to do a deposit or $12 and risk missing out on growth?
3 - You don’t actually own the plane until 5 years time, and you can’t internal lease (a good reason to buy planes) until you fully pay them off (though you seemingly can lease planes bought on credit to UM? paradoxical here imo?). Most airlines never get to this stage, and ST Worlds (where most players play) get nowhere close to this. And at that point, it’s possible to just buy out lease contracts if you really want to sink $ buying planes (instead of using it for other wastes such as massive terminals and other vanity projects)
4 - based on some numbers calculated by an alliance partner a bit ago on a CS3 with 20% down, you pay $54m or something in total, whereas you pay $59m in leases at normal price for 5 years. Those are ballpark figures. The difference isn’t the best.
The interest is included in the loan payments.
Also, as AK points out if you wanna start with an overpowered plane such as the Tup and then get rid of it when you realize the fuel price is unsustainable (especially as it’s tied to RL and there’s a bit of stupid stuff happening in OPEC at the moment), you can really not do that on credits. You’d have to buy off the loan(s), then put it on market, and hope someone buys at regular price, or sell it to ALTO at cut price. Flexibility here is nice, especially when an airline starts with a gazillion fleet types and then realizes that’s probably not the greatest idea for mx costs.
As long as you forget the residual value in the calculation.
A leased one has none, the bought one always gets a guaranteed 50% of its depreciated list value. In case of a new CS3 we’re at around 18m after 5a.
You are not an idiot. Dont think that! This game is complex and will take you years to learn. It isn’t that easy.
Yes, interest is included in the listed weekly instalments but depreciation is not.
To try to give a simpler answer. Buying is better if you know that you will operate that plane for a long time. Especially since you nowadays are guaranteed to always get 50% of the depreciated list price when selling the plane to AS. If you cant afford to buy outright buying on credit can be a good option, especially since interests are pretty low.
When you pay leasing all that money will go away forever. When you buy your plane on credit, interest and depreciation will go away but you will at a minimum “get” 50% of the depreciated list price when selling the plane. Personally, I never operate planes that I get brand new for longer than 3.5 years and I have calculated that even with interest I will save between 20% and 25% compared to paying the leasing cost for that whole period. If you keep the plane for longer you make save more.
With that said, if you keep the plane for a shorter time it will cost you more. Therefore I think it’s very important that you have a solid plan for a plane before buying it. With leasing you can immediately change strategy without loosing much but with owned aircraft it can get costly. Buying planes is nothing for new airlines, expansion and having flexibility is more important at that stage
Book value doesn’t matter here.
You get 50% of the depreciated list price.
Depreciation is 24a, so after 5 years you get a min. guaranteed ((30,250,000/24)*19)/2 = 11,937,958$ for the T/Os example, no matter what you paid for it.
No it’s not. Net or not doesn’t matter. Book values reference to the original cost (total cost incurred) for the asset. That’s what we have exactly NOT.
The achievable sales price has nothing to do with book values.
Book value ≠ market value
That’s essentially one of the things why the aircraft market was updated.
A320neo light, used, 1 year old, bought for 50,000,000, operated for 5 years:
list price: 60,000,000
Book value when bought: 50,000,000 Book value after 5 years (now 6 years old) = (50,000,000/24) * 19 = 39,583,333 depreciated list price = (60,000,000/24) * 18 = 45,000,000
Min. sales price (“50%”) = 45,000,000/2 = 22,500,000 no matter the book value.
How common is it to sell the planes though? most people already have their tried and tested models they will operate decided before they ever consider credit as purchasing options. Unless you’re obsessed with your fleet age or something, you won’t even touch the plane as soon as you get the right gauge and loads on it, it’s too messy to fix a few schedules years afterwards due to slots and other stuff let alone thousands of flights.
And you can always just buy the planes you know will operate for long, and lease the ones you think you might not, and pull the purchase orders if you change your mind on the latter
I use net book value for what you call depreciated list price. In Airlinesim my asset is never worth more than what I can get for it (I am always guaranteed the market value/2) therefore that’s also my net book value. Everything between my original asset cost and net book value is depreciation.
I’ll simplify my original post even though I believe that the OP has understood my point. You certainly have.
I am obsessed with fleet age. So are also many people I know in AS. If you lease a brand new plane after a certain time it is no longer as efficient to operate the plane. Your image will be worse and maintenance costs higher while the lease is the same. As there are no lease renegotiations in AS it is just more efficient to replace the plane with a brand new one.
Usually for leased planes I replace them after the first image drop at 2.5 y/o as the only thing I will loose is my cabin. Replacing planes is also a perfect time to inspect the schedule, upgrade or downgrade or just move around flights. Loads can and do change based on competition (either from yourself or somebody else). Therefore, I think it’s very beneficial to from time to time go through all schedules. Slots are rarely an issue. I can essentially move a schedule between an A321s and a CRJ700s without messing with slots. The wide body to narrow body jump is the harder part and between wide bodies.
For owned planes bought brand new I either run them to 3.5 y/o or to 5 y/o. Never more.
Your point is clear, I just have a problem with the term book value as it is something totally different.
Btw, in case of older airlines (pre-aircraft market patch) there can well be assets having a book value well below the 50% guaranteed. That’s why I’m so picky on this term, just in case this thread comes up again in a future search.
Example from one of my airlines:
A350-1000, 3.7 years old, book value: 20,354,823$ (!!)
For how much and not less than that can I sell it for?
=> ((172,000,000/24)*20.3)/2 = 72,741,666$
not the case for my world