Question about Leasing costs/Depreciation

Greetings everyone! Here i am with a new question.

I looked over the forum to get an understanding about what was the leasing/depreciation cost. I learnt that, for a leased aircraft, it’s the repartition of the leasing price over the flights, according to their distance and other parameters.

But here is my wonder: in the financial schedule, we got also each week a payment for aircraft leasing. If the costs of the leasing are spread over the flights and deducted from the flights revenues, doesn’t it mean we have to pay TWICE for the leasing? One at the weekly schedule (ex 145 000 for a crj 900), and then an other time, represented by the lesser revenues we got from our flight due to the “leasing/depreciation” line ? I must say this has been bothering me for a little while now.

Absolutely not. The position you see in the financial schedule and bank account is the deduction of the achtual leasing rate, the positio you see in the flight details is just the proportional amount for this specific flight. So you only pay the rate once a week, the calculation however is to show you whether your flights can cover the complete costs.

Ah okay, thanks for the answer. I jsut checked the bank account and, indeed, the line “leasing” is never deducted. It’s just an information; that’s good to know :P

I purchased a few aicraft and I noticed that me depreciation price went sky high. I would have been better off just leasing. Why is it that when you purchase, you end up paying more in depreciation than if you would have just leased?

I.E.

I had 180 aircraft on lease, my depreciation was only 12 million.

I purchased 13 aircraft cash, and now my depreciation went up to 93 MILLION

Not 100% sure, but presumably when you own the aircraft the depreciation is for the entire aircraft, whereas when you lease, the depreciation is only for the aircraft equipment, i.e. the cabin seating, which is the only part that you own

Hi,

depreciation of flight equipment is not something you actually pay. I am not even sure it should be listed on the profit and loss statement…

The activa of a company lists all the assets of that company: money, buildings, planes, aircraft seats…

When you buy a 10 year old aircraft for 30 million, you have 30 million less on your bank account but you have 30 million more in flight equipment. Aircraft however become less valuable as they become older. So every week your plane is worth (let’s say) 50.000 dollar less than the previous week. These 50.000 dollar are listed on your profit and loss statement as depreciation of flight equipment.

Let’s say you decide to sell the plane after one week. You want 100% of the value and there is one bidder. That means you should get one or two millions more than what you paid. Then your profit and loss statement would say

Aircraft sale revenue: 32 million

Depreciation of flight equipment: 30 million.

Again, you don’t pay that 30 million depreciation. But on your balance, you see 30 million less flight equipment and 32 million more cash.

The same goes for aircraft seats. When you install the seats, they are put on your balance as an investment in flight equipment. When you cancel the lease of a plane, or you sell it, the seats are lost. That’s when they show up as depreciation. Not because you have to pay the seats again, but because your airline is worth less when you "throw away" these seats.

If your depreciation went up to 93 million, you probably sold a few planes. Unless you got rid of a million seats

Jan

Jan…

Hi. Are you an administrator or a very smart player?

My entire fleet is leased except for 1 airplane that I bought, a 737-700 HGW (winglets).

I pay approximately $80,000 a week for that airplane but my depreciation is $749,000.

#1. I do not understand how the depreciation expense that is deducted each week on the income statement can be so much more than I’m actually paying for that airplane.

#2. When I bought the above aircraft it said the weekly payment would be approximately $75,000 which I assumed included interest since nothing said interest was excluded. After I bought the airplane I was very surprised to see that the interest each week was approximately $225,000. first of all if the interest is not included in the payment the game should have said so and indicated what the actual interest is. had the interest only been 1%, 2% or 3% I would not be so concerned but the interest is actually 300% per week which I simply do not understand how that is even possible. In the US interest expense is always computed per annum not weekly. Weekly interest of 300% is a roughly equal to annual interest of 15,000%!!!! obviously that could not possibly be correct.

Please help enlighten me. Thanks so much for your information.

Hi,

I am only a player, and not smart enough to explain why depreciation of one plane is 749.000 dollar ;)

Depreciation for that airplane should be around 200.000 per week. The only thing I can come up with, is that you also ended the lease of a few planes or changed the seats of a few planes. In that case the depreciation would include your plane and the seats. Give it a week - don’t dump any seats - and see how much depreciation is then.

The interest rate is shown, not the amount you pay every week. But there is a warning that says "Your current interest rate for aircraft purchases is 2.75%. Note that weekly interest payments have to be added on top of the loan installments stated in the offers! " Weekly interest is probably not shown because the interest you pay goes down week after week. Every weekly payment makes your loan smaller, so every week you pay a little less interest. You are free to pay back the loan faster, to further diminish the weekly interest. And if the plane is a real burdon, put it up for sale and find someone who is willing to lease it.

You cannot compare AS interest rates with the real world, unless you also compare AS profits with real world profits. Real companies are very happy if they make a yearly profit of 30%. Many airlines in the game make a weekly profit of 30%. And I don’t think you pay an interest rate of 300% per week…

Success with your airline !

Jan