MODELING AN AIRCRAFT LEASE TRANSACTION FOR A LESSOR
Sunder Raghavan · Journal of International Finance and Economics · 2017
ABSTRACT Aircraft leasing has been growing in recent years. According to DSB Research Group the total number of aircraft fleets that are leased has grown from less than 1% in 1970 to over 40% in 2016 (Yong, 2017). Forecasts predict about 50 percent of the world's aircraft fleet will be leased by the end of 2017. While airlines have struggled to remain profitable, leasing companies have been highly profitable. For example, according Airfinance Journal major lessors such as GECAS and AerCap had a net income of $1.05 billion and $810 million respectively in 2014 (Duff, 2015). There is, however, little research on how leasing continues to be profitable and the cash flows that drive a leasing company's returns and profitability. Because of the growing popularity of aircraft leasing, it's important to understand the variables that impact a lease transaction and how to model cash flows. In this paper, I show how to model the cash flows from a lease transaction for a lessor. Monte-Carlo simulation is used to show how to stress test and identify the key drivers in the model. Keywords Aircraft Leasing, Financial Modeling, Lease vs Buy, Capital Budgeting.