eThesis - Kauppakorkeakoulun sähköiset gradut

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Objectives of the study

The purpose of this thesis is to present different lease valuation techniques from the existing literature that can be used when assessing a financing decision of an aircraft and then test these methods in practice with the actual data provided by Finnair. The case framework used is an acquisition of a new Airbus A330-300 widebody airliner. The main question is should the aircraft be purchased or leased under an operating lease. This leads to actual hypotheses which question whether operating lease is more cost-effective than purchasing in less than 10 year period or in the long run. Eventually the analysis provides a financing decision model for Finnair.

Research method and data

The research method of this thesis is a single-company case study. My analysis will be based on cash flow-based valuation techniques such as Net Present Value (NPV) and its more advanced derivative adjusted present value (APV). The results of the model are examined with a sensitivity analysis and further enhanced with a risk analysis tool utilizing Monte Carlo simulation. There a thousand simulations are made to find the deviation of present values. The data includes current and estimated market values and lease rates of A330-300 provided by an independent valuation company.

Findings of the study

My first hypothesis, "operating lease is more cost-effective than purchasing in less than 10 years' time", was clearly accepted as the results from both NPV and APV were indisputable. The second hypothesis, that the above holds also if the time period is extended, remains unanswered or can even be rejected. Although APV still very strongly suggests leasing over purchasing, NPV starts to draw nearer to purchasing. Still statistically leasing is the preferable choice but it is apparent that when the time period is lengthened, the purchase becomes more tempting. As a conclusion, according to my analysis in current market environment Finnair should lease the A330 under an operating lease agreement rather than buy it. This is true especially if the considered utilisation of the aircraft is rather short.

Keywords

Leasing, Operating lease, Financing decision, Cash-flow based valuation, Net present value, Adjusted present value, Monte Carlo simulation, Aircraft, Finnair, Airbus, Aviation, Airlines