Dr.

Bijan Vasigh Las Vegas, Nevada October 2, 2012

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Aircraft and Engine Finance and Leasing Americas Conference
Las Vegas, Oct. 1-4, 2012
Dr. Bijan Vasigh
Professor, College of Business
Embry-Riddle Aeronautical University
Daytona Beach, FL
(386) 871-5458
Factors Affecting Aircraft Value
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
WWW.avionconsult.biz
Agenda:
Industry key challenges
Commercial aircraft manufacturing
A methodology for aircraft valuation
Factor affecting residual value
Q&A.
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
WWW.avionconsult.biz
Industry key challenges

Every one-dollar increase in the price of oil adds $1.67 billion in
costs for the global airline industry
The industry-wide fuel bill in 2011 was about $170 billion
The outlook for consistently high oil prices and continued oil
price volatility presents some of the biggest challenges for the
world airline industry.
The demise of Delta Air Lines partner Comair was a result of high fuel
costs that made its 50-seat regional jets too expensive to fly.


Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Industry key challenges
Volatile Demand
Very high elasticity of demand
Airlines can not increase ticket prices without an adverse
effect on revenue
Rigidity in Supply
Very high sunk cost
Expensive to dispose current fleet
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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U.S. Passenger Airlines: 1Q 2012
Index (2000=100)

0
50
100
150
200
250
300
350
400
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Commercial aircraft manufacturing
Duopoly aircraft industry
Early contributions to commercial aircraft industry
Ford Tri-Motor
Junkers German Transport
North America
Boeing Aircraft Company, McDonnell Douglas, and Lockheed
Europe
Airbus
Russia and Eastern Europe
Regional jet
ERJ, CRJ, MRJ, and SRJ

Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Aircraft value
Base Value
o the appraisers opinion of the underlying economic
value of the aircraft
Market Value
o reflect the state of supply and demand in the market
that exists at the time
Actual transaction price
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Financial Relationship
Capital Cost
Operating Cost
Total Cost
Objective find the age that
that Minimizes total
cost
JetBlue: 6.6 years average fleet age
Singapore: 7.1 years average fleet age
Allegiant: 22.1 years average fleet age

Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Aircraft value
Direct operating costs
Aircraft size/range Speed
Engine type
Technology
Geographic distribution
Convertibility
Commonality
In or out of production
Number in service/on order
Number of operators
Market forecasts
Number available
Number stored
Government regulations
Reliability Manufacturer status
Number of operators




Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Aircraft value
The introduction of 737 max by Boeing will
drive the values of 737- classic and 737-NG
down deeply and quickly.
Boeing states the 737 MAX will have a 16% less fuel
consumption than the Airbus A320
and it will have 4% less than the A320neo.
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Aircraft Valuation Model
1 2
1 2
.....
(1 ) (1 ) (1 )
n
Aircraft
n
NCF NCF NCF
Value
k k k
Total revenue
= block hours
RPM= Revenue passenger mile
RTM= Revenue ton mile
RRPM = revenue per revenue
passenger mile (passenger yield)
RRTM = revenue per revenue ton
mile (cargo yield)
AR=Ancillary Revenue
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Direct operating costs

Fuel Efficiency or Average Fuel Burn (Per Block Hour)
Average Aircraft Utilization Block Hours
Average Stage length
Crew cost per Block Hours
Depreciation per Block Hours
Fuel cost
Maintenance Cost per Block Hours

Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Total Costs:
Variable direct operating costs.
Fuel and oil costs.
Flight operations.
Aircraft Fuel & Oil.
Insurance & Uninsured losses.
Lease/Rental of aircraft.
Flight Crew Salaries, Expenses and Training.
Direct engineering costs.
Airport and en route charges.
Passenger service costs.
Direct Maintenance.
Labor.
Repairs (by outside agencies).
Materials.
Fixed direct operating costs:
Aircraft standing charges.
Annual flight and cabin crew costs.
Engineering overheads.
Indirect operating costs (IOC)
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Theoretical Value
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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$361.14
$2,241.39
$24.77
$528.91
$89.24
$214.67
$511.91
$2,005.59
$124.26
$353.67
$258.71
$148.52
Flight Crew Cost
Fuel Cost
Other Costs
Total Maintenance Costs
Depreciation
Aircraft Rent
737-700 Average Block Hour Cost Comparison in different airlines
LCC
Legacy
0
200
400
600
800
1000
1200
Average Flight Stage
Speed miles per BH
Utilization (RH/BH)
*1000
Fuel gallons per BH
Utilization BH/ Day *
100
Fuel gallons per
BH/Seat * 100
Legacy
LCC
Operational characteristics A319 in different
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Theoretical Aircraft Value with varying Maintenance Costs:
A320-200
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Net Aircraft Value Trend Changes
Discount Rate Fuel Cost Maintenance Pax Yield Block Hour
+/- 1% +/- 1% +/- 1% +/- 1% +/- 0.1%
Narrow Body
+ -5,403,298.86 -4,593,908.33 -1,771,205.98 17,973,530.99 1,940,246.46
A320-200
- 6,166,950.61 4,019,127.94 1,490,405.89 -15,821,149.01 -1,941,625.81
+ -3,843,702.44 -3,223,495.48 -1,253,483.90 14,047,543.89 1,578,608.41
B737-700
- 4,386,930.35 2,820,178.34 1,076,016.99 -12,327,185.36 -1,558,857.94
Wide Body
+ -12,994,586.12 -13,254,621.43 -2,850,478.44 48,316,100.60 4,643,621.30
A330
- 14,831,102.01 11,596,230.38 2,410,338.72 -42,398,979.69 -4,585,520.25
+ -12,753,536.92 -12,140,706.04 -3,496,076.36 44,273,757.28 4,554,906.01
B767-400ER
- 14,555,985.49 10,621,685.80 2,954,927.68 -38,851,689.45 -4,497,914.97
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
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Residual Value
Operation Cost, Capacity, Payload and Range
Blended Winglets has demonstrated drag reduction
between 5 to 7%, increases range and fuel efficiency
and consequently the residual value.
Dr. Bijan Vasigh Las Vegas, Nevada October 2, 2012
WWW.avionconsult.biz
Thank You
and
Questions