Overhaul of the Interest rate calculation mechanism

English Boards Suggestions and Ideas
1

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Have a look at the image above, which is current in the tristar world.
Prime rate of 7.26% and unsecured loans at 166.5%.

The spread is extreme and at no point it could be the case for the globalised economy as is currently simulated in airlinesim.

Weekly rates for unsecured loans, in my instance are at about 3.2%. On a yearly basis this is indeed 166% which is unheard of in any developed economy.

Currently, we are in a high-rate environment, yet in US the average business loan yearly interest rate is between 7-9% and in EU about 5%. Which is translated to 0.17% weekly rate at the worst case scenario.

@martin mind you please have a look at it since it is hugely unrealistic?

2

Business grow much faster in the game than real world, and thus the high interest rate is needed I think.

3

This is understandable, yet there could be a cap at something more reasonable.

Furthermore, the large airlines in real life have different tools to replace and grow their fleet such as issuance of bonds etc. The economic model in airlinesim works in a way that relies almost solely in free cash flow for any action taken. In real world, Lufthansa has on order a number of aircraft acounting for half of its fleet. This doesn’t and cannot rely only on FCF, yet we do not have in-game 10 years for bonds to mature and for planes to be delivered at the real production rates.

Talking Lufthansa, for 2023 they had an operating profit of 2.7B after capex investments in airframes of over 4.5B. This is not unreasonably away from the in game economy. A successful 300-400 aircraft company can make about 7B in yearly EBITDA.

4

I think it is because Tristar is a medium term game world so the figures are higher then you would expect for the longer game worlds.

I believe its done this way to make the shorter game worlds more appealing & allow more users to play on the servers. Because it reduces the overall rate of growth across the board.

5

I can see the point. Yet I do not believe that it succeeds in reducing the growth for larger airlines, it is more of a burden for smaller ones instead.

In Tristar, my airline is one of the larger ones in the game world. How am I using debt? If the second hand market gets flooded -especially with wide-bodies, I will utilize the debt ceiling to get as many as possible. Then in a week’s -or two- time, I will repay it in full, of course not paying the absurd amount of interest. Successful airlines with more than 400-500 aircraft generate a net result that is way greater than what they can spend on new aircraft.

At the end of the day, this is how global markets work, you can raise capital for a brief period to increase the free cash flow for any operational expense. In game, utilizing the capex financing, as it is currently developed makes 0 sense, I sincerely wonder if anyone is using it.

Let’s switch the table now, pretending that we are a much smaller holding, that just got access to raising capital from AS Bank. A smaller holding, might raise capital to purchase a single airframe or two, to finance week-closing costs and most probably will not be in the fortunate situation to repay it switfly.

How on earth are we helping this holding if they hold the debt for 6 months and pay 70% of the original amount in interest?

If the dynamic interest rate is capped at something reasonable like 15-20% for unsecured loans, while it makes zero difference for the larger holdings, it will indeed help the smaller ones.

6

It is not about “cap” and it is not abour size of business either.
Interest rate of loan represent the amount of profit borrower need to generate from the loan to make the borrowing worthwhile.
If the interest rate is let say only 3% p.a. in game, then borrower will only need to generate more than 3% returm from the loan in a year for the loan to be worthwhile. Which would be far too cheap.

7

It is all about the rate ceiling that is hardcoded as well as the business size. For me, I will use debt it as a free cash flow injection for 3-5-10 days, no matter if it is 170% p.a. or 500%, it makes zero difference.

If this is about helping smaller to medium sized businesses, it fails.

8

Honestly I don’t really get the issue. I mean I can get the idea of trying to balance the system but after all its just the way of the world, companies with the most resources will always have an upper hand no matter what is done because its just the nature of a capitalistic market.

But I don’t think there is an issue with how the markets are done in AS. There are many game worlds with different market outlooks.

I just looked at the newest long term game world added to AS Yeouido with 4.94% rate & the oldest Kaitak with 2.25% rate. Screens attached & to me these rates look pretty good.

I can also say that I have obligations right now that at best gives me a 0.12% weekly rate & at worst 0.25%

There is nothing wrong with shopping around a little bit to find a game world you like :wink:

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9

Several areas are currently under consideration for proposed changes due to the significant overhaul underway.

I find it difficult to comprehend the resistance to acknowledging that the existing system, while functional for some, is both highly unrealistic and demonstrably detrimental to growth. This resistance persists even though the proposed changes are still in the formative stages of development, far from acceptance.

Any realistic in-game economy, when conceived, logically necessitates the inclusion of some form of borrowing mechanism.

This borrowing capacity has been correctly categorized into unsecured and secured loans, reflecting the fact that the underlying assets for these financial instruments are the aircraft purchased. It should be noted that airport buildings, while considered assets, are ineligible for financing via secured loans.

Let me elaborate further.

Loans and other forms of business financing are fundamentally tools that drive expansion. For a company to secure a substantial unsecured loan, it typically requires a fleet exceeding 150-200 aircraft of A320/B737 size. At this scale, an airline can generate weekly profits several times the loan amount, enabling swift repayment. Subsequently, as an airline grows, its capacity to repay loans increases correspondingly. This dynamic is inherent to capitalism and is not inherently negative.

The issue, in my view, lies in the imposition of annual interest rates of 100-200% on unsecured loans, coupled with the unattractive nature of secured loans for aircraft purchases. This unattractiveness stems from the fact that the down payment for aircraft acquisition is approximately double the security deposit required for leasing. Furthermore, it is impossible to finance the purchase of a leased aircraft using the secured loan interest rate.

Given the significance of free cash flow within the game, the substantial disparity between secured and unsecured loan interest rates, as well as the spread between the prime rate and secured loan rates, is illogical and demonstrably unrealistic.

Thus, while the intent to create a more robust and realistic economic system is commendable, the current implementation of its core financial mechanisms undermines this goal. The incongruities in interest rates, down payment requirements, and financing restrictions create an artificial and ultimately detrimental barrier to organic growth within the game, especially for medium sized holdings.

10

I am pressed on time right now, see need to keep this very brief. But this sentence is the key:

We have no issues in AS with “expansion” aka growth. In fact, one could say that growth is a key problem of AS as it’s happening far too quickly. That’s to be expected, of course. After all, most growth is exponential by nature. But throw in leverage in the form of even more cash and it explodes.

The limits of and high cost for unsecured loans are a conscious game design choice. We do in fact have a lot of financing and quite a bit of leverage in the game…after all, every leasing contract is a financing contract and without those, playing the game would be unacceptably slow.

That doesn’t mean the current solution is perfect (nothing is). But just cranking down interest rates for the sake for “realism” would be a dangerous thing to do in this case.

11

What you just said mean the rate is too low.