Transferring Funds between your companie, interleasing and loans questions

English Boards General
1

Hello,

I recently tried a new approach in one of the gameworlds: a holding that would invest in stocks for a while, and only later truly invest in creating a new airline, with more funds then the initial 10M AS$. I started however with 1 airline with the minimum cash (3M AS$) as a daughter, with which I'm flying 2 profitable routes.

For future expansion, I have some financial questions:

- Is it possible to transfer cash between both companies (holding and daughter): could I for example send the profits from the holding to the daugther, to get additional planes there? If yes: how? And vice-versa?

- I was thinking of buying an airplane with my holding, and leasing it to the daughter. Can you decide freely on the conditions of the lease?

- If you buy the plane with 90% investment from the bank; can you calculate the monthly repaiment you have to make?

2

- The only way of transferring money in AS is (for example you want to send 2mil from holding to sub). Holding buys an aircraft from the market for 2m. Holding then sells aircraft to sub for free, sub then sells aircraft to holding for 2mil. Downside is then you are stuck with an aircraft you may not want.

- No, the aircraft is leased at market rate

- With a bit of maths yes...I cant figure it out myself though. Buying new aircraft on credit is usually a sign that your airline will fail though..

3

Thank you... I was looking for more flexible ways to transfer non-used funds from one company to another that needs it more... It appears it's not so easy... Too bad then :)

4

- The only way of transferring money in AS is (for example you want to send 2mil from holding to sub). Holding buys an aircraft from the market for 2m. Holding then sells aircraft to sub for free, sub then sells aircraft to holding for 2mil. Downside is then you are stuck with an aircraft you may not want.

- No, the aircraft is leased at market rate

- With a bit of maths yes...I cant figure it out myself though. Buying new aircraft on credit is usually a sign that your airline will fail though..

Just out of interest, why do you say "Buying new aircraft on credit is usually a sign that your airline will fail though"? I'm new around here and was interested to hear why?

Thanks

Dan

5

Because buying an aircraft on credit lacks forsight let me explain with numbers...

Lets look at getting hold of C-AFUF a B739-900ER HGW 0.3 years old, available on the market in gatow now.

Base Price: 69,929,115 AS$

Down Payment: 3,496,456 AS$

Installment: 255,510 AS$

Leasing Depot: 3,496,456 AS$

Leasing Rate: 349,646 AS$

So then we have 3 options....

Cash (buying outright)

Thats simple, thats going to cost you 69,929,115...which is a lot of money to spend. Only large airlines can afford to do this. To give you an idea you can almost lease 20 of the same aircraft, whats going to make you more money, 1 or 20? So then the other kick in the balls is when you decide to either replace or a 737-900 is too big/small for your airline. You want to sell it! So you put the aircraft back on the market and your fairly unlikely to sell at even 80% of cost as you need another airline to buy it. The only gauruntee of selling it is to put it on the market for 2 weeks at 10% of its worth. Then AS will buy it off you. so that  would be 69929115/10 = 6,999,291. Your loss on the aircarft = 63milAS! So if you buy an aircraft you have to be very sure you want to keep it. Bare in mind thats worst case.

Credit

So you buy on credit, where the bank buys it for you and you pay the bank back. You would have to put down the down payment (3,496,456) once. After you have paid this every week you will have to pay the installment which is 255,510, and then interest. With a AAA company you will be paying around 1% interest on whats remaining. So 69,929,115-3,496,456=66,432,659 to repay. So 1% of that is 643,265...so every week you will be paying around 643,265+255,510= 898,775, slowly decreasing per week. Bare in mind thats a AAA company, a BB company which is what a new airline usually is may have a 5%+ rate. Also at the end of the day you have to sell the aircraft which guess what....see above!

Lease

You pay the deposit once...3,496,456, and weekly pay 349,646. If you decide to get rid of the aircraft you send it back to leasing company and get your 3,496,456 back...loss made....0! Far more flexibility and no loss

Also try not to buy aircraft brand new from Boeing/Airbus etc. Have a look at the used aircraft market. You can sometimes get the same aircraft (maybe 1 month old) for substantially less than than factory prices.

Hope this makes sense!

Ian

6

That my friend is what I call an answer J

Brilliant and thanks for your response.

7

Indeed, this is fantastic... Many thanks for this elaborate answer, for a new player, this kind of informations is very important!

8

Awsome. I was trying to figure out why don't people buy aircrafts because monthly installments are lower than the lease. Thanks for calculating the intrest and it makes a lot of sense now.

9

Ianmason, I would 99.9% agree with your analysis.  However, I would be interested to know how often, if ever, aircraft get resold on the used AC market at anywhere near their real value, and not the 10% scrap value that AS offers. My guess is that if you want to try the buy-transfer-sell approach, then it might work for aircraft that are high in demand and have long delivery times. Right now on Meigs there are 21 ATR72-600 on order and only 4 on the market. But like you say, the risk is that you will never sell the aircraft at more than scrap value.

10

For that to happen I would suggest rarely is the answer...and I would certainly not plan on it. What you need is an investor to be interested in the type of aircraft your selling, and for you to be selling at the right price. You might be lucky with a popular type of aircraft such as 737-300BGW but it would have to be cheap for anyone to be interest. There are only 4 ATRs on the market, and 21 ordered... I would say how many of those 21 are been purchased by airline, and how many leased?

11

- The only way of transferring money in AS is (for example you want to send 2mil from holding to sub). Holding buys an aircraft from the market for 2m. Holding then sells aircraft to sub for free, sub then sells aircraft to holding for 2mil. Downside is then you are stuck with an aircraft you may not want.

Sorry to brought this up (and yes, this topic is one year old)

I was wondering about this method.

Lets assume the HOLDING is forever rich. It has two subsidiaries.

It does this kind of method. It buys one aircraft for 2m.

It sells to SUB ONE for free. SUB ONE sells to HOLDING for 2m.

SUB ONE get its 2m from HOLDING. HOLDING loss another 2m, which is okay, as it was its intention though to give 2m freely to the sub.

But then, HOLDING stucked with the 2m aircraft.

My question is, can the holding do the same method to SUB TWO using the "stucked" aircraft?

Or even repeatedly doing the same thing to SUB ONE? Again and again, using the same 2m bought aircraft?

Of course, I personally, didn't see it as cheating, as the holding will loss a lot of money just for the sake of giving the money to the subs.

(And again, it was holding intention to give money.) But will the system accept it? Or will I get the message that what I did is considerably cheating?

And if the aircraft is 24 years old, I bought it when it is 2m, but when its new its 20m, when the sub sell it to holding, will the holding pay for the 2m, or for the new price 20m?

Thank you.

Help me sleep tonite by answering these questions of mine. Hehe.

12

As long as all subs are privately owned you can repeat that process as often as you like.

The transfer price is the book price.

Keep in mind, that the 2m are not a loss for the holding. When you transfer aircraft the value disappears from the balance sheet, but there is no depreciation within the income statement. While this is kind of wrong, you still don’t loose the value, as it is added to the assets of the receiving sub.