Saturday, February 25, 2017

Boeing and Singapore Air Validate A "Sea Change"

The A-380 is bigger than most visionary predictions. Boeing complained when the A-380 first delivered that it had a shorten order book and Airbus wouldn’t turn a profit with the big bird. Boeing believed that from its own waning 747 orders. It didn’t expect to beat the A-380 many attributes, but did want to dampen the Airbus enthusiasm for its Opus Grande rendition of "Ride of the Valkyries". The Airbus A-380 will never make it to Valhalla.

This visual metaphor for the A-380 has a group of back-slapping Boeing execs restraining from singing the “I told you so chorus” as Singapore Air unloads its leased A-380’s (5) and will hold on to its remaining nineteen A-380’s it had purchased.

If Batman’s Robin were in the house you might hear a “Holy flying pig” exclamation! Because Boeing just sold 20 777-9X to Singapore Air. While having only nineteen A-380’s in its fleet, the message is not lost on the aviation world as it will receive 20 777-9X over the next years in a stream of deliveries mirroring the same retirement rate for Singapore’s fleet of A-380’s in total. The icing came when Singapore had already booked 30 of Boeing’s 787-10, thus covering every route Singapore had and will have going forward. It ordered an additional nineteen 787-10’s for expansions of its Markets.

Seats are seats going everywhere:

  • A-380: 545 seats X 19 = 10,355 passengers going 19 places to and fro.
  • 777-9X: 405 seats X 20   = 8,100 going 20 places.
  • 787-10: 330 seat X 49    = 16,170 going 49 places.
There is ample room to replace the A-380, as a planner now has 24,270 Boeing seats that can fly to 69 locations a day. Hanging on to the A-380 would handcuff Singapore Air from its market expansion plans when it goes long or regional risking not filling seats.

Singapore can now open up new routes with the Boeing orders. Even though it was keen on the A-350’s ordered for its fleets, the signal is loud and long Boeing has a critical offering that completes Singapore’s plans. It didn’t order more A-350’s? A two manufacturer fleet gives Singapore dominance beyond it region for years to come, but the A-380 is good until the last 777-9X is delivered from this recent order.

A further danger exists for Airbus if Singapore develops longer thin routes requiring less passenger density. It may order some 777-8X when those routes are established. The flexing of commonality from type to type is way more flexible with Boeing than Airbus in this case.

A final thought, the aviation world watches each other with due diligence because opportunities are shrinking as every airline expands its footprints. The Middle East is ahead of the curve with its order books, however China lags and has notice this Singapore nuance. Then EVA Air ordered 24 787-10’s. There is a sea change happening and Boeing has caught a tailwind from that change.

Thursday, February 23, 2017

There Is A New Mom on The Block, 787-10

Yes, you read it right, the 787-10 is Asia’s MOM and here's why:


  • Groomed for 330 seats
  • Range 6,450 miles
  • 25% fuel efficiency improvement over models it Replaces (777-200).

Image result for 787-10 roll out

What gives with the MOM (middle of the market) moniker? Well Boeing has been deciding what to do with its 757 replacement. Its done nothing that would please Winging It in this case. It hasn't announced a new champion MOM. The 737-9 MAX is a replacement for the 737-900 NG. However, stumbling on to this idea, Boeing suckered punched its rival with the 787-10 offering and roll-out.

The new MOM arrived expanding seating for high density markets going intercontinental. Isn't that what the 757 was designed to do? Fly the pond packing customers on-board. That smells like a MOM template after all and the A321-NEO doesn't pack the same efficiency as the 787-10 does when loading its 330 passengers, and it can't pack the passengers on board like the 787-10 does (second mention in a row). The A-321-NEO doesn't do the Pacific Rim. The 787-10 does with room to spare.

Price is a concern for mid wide body buyers when it comes to any MOM customers. However, the world grew significantly bigger when the 757 was taking its dive 13 years back.

You may think this proposition of being a MOM replacement is ludicrous however, listen to the sales pitch first and catch a glimmer at this devious concept. The A-330 is a minor league player with all its versions. The A321-NEO is bleeding Boeing red. The A-321 price is 126 million listed. The A-330 starts at 231 million and then goes up to 287 million at the top where the 787-10 goes for $306 million. Big price indeed but will customers go for it?




The Middle of the Market 787-10 is for an extended range while getting the bang for the buck. The A-321NEO is a lady in waiting for someone to knock her off her perch. The newest A-330-900 NEO rendition is a fence straddle and tries on the cheap irritate the 787 family.

However looking deeper when the 757 stopped production the largest market in the world had not yet emerged. China grew into a big sphere of commercial influence and can reach everywhere it needs to go under 6,000 miles. This is where the 787-10 model comes in, carrying a higher capacity. The A-321 needs two aircraft to the one 787-10 to get the job completed for moving copious amounts of Chinese passengers going under 6,000 miles. Eva Air saw this and ordered 24 787-10's. Singapore came back and ordered an additional nineteen 787-10's while totaling its own fleet size upwards for 49 of the 787-10's. In all that is an Asian fleet compliment of 73 of the 787-10's ordered before China even weighs in on the aircraft.

Boeing could have made the 787-10 fly a bit further but didn't need to from its own research. The 787-10 can reach 90% of the world's destinations with its range of 6,430 miles. It will probably fly farther than that after testing is complete in 2017. Engine refinements with actual performance numbers will tell if they engineered it correctly.

The single aisle MOM is dead and makes way for the giant 787-10 serving 330 passengers every time it lands. Having the A-330-900 NEO range is not as important as it seats forty-three less revenue seats than the 787- 10, and about a dozen seats less than the average 300 seat 787-9. The only damage was done to the 787-8 comes from the A-330-900 NEO, which acts as a straw replacement after Airbus failed A-350-800 attempt. However the 240 million 787-8 asking price is considerably better than the Airbus A-330-900 NEO. 

The seat capacity and range capability are the 787-10's strong attributes which beats out its competition for many reasons. It has not been mentioned how efficient this aircraft will be once loaded with passengers. It should be Asia's Middle of the Market work horse.



Tuesday, February 21, 2017

Finding Nemo The Flying Fish

The pursuit of the Holy Grail is a much related story by classic writers and movie promoters. In that same mold came the Disney movie Finding Nemo, a story of a fish who lost his way in the deep blue ocean and searched for his home. As vast as the ocean the story had a happy ending as required by Disney productions.

The line-up of airplane classes and the much sought after market sweet spot has been discussed researched and analyzed to no real certainty so the makers of aircraft end up throwing airplane darts at the dart board as in search of the Holy bull’s eye or a Flying fish named Nemo. The makers of airplane framers set-up data sets and forecasting models aiding them in finding the bulls eye or Nemo the flying fish. A Holy Grail for which luck pours over of its edge is expected from this pursuit.

Now comes reality. The airplane wars are a competition between two mega builders vying for the title of world's largest airplane maker. All the money, profits, and riches come from that proclamation of "World’s Largest". A maker only has to make more airplanes than the other maker in any given year. The maker who finds the holy flying fish named Nemo should prevail over the other maker.

Airbus has taken the following rounds to date. The A321NEO and the A-330 tin types over the Boeing 737-900 and 767. In fact the disparity is large enough that the A-330 aircraft has attacked the Boeing 787 from its rear flank. However, Boring has a victory or two as well. It could be said the 787 family has stalled the A350 family. The 747-8i has tripped-up the A380 within a very thin market. The 777X offering has stymied the A350-1000 from making a ripple over the pond. While looking for the flying fish named Nemo both are at a grid lock and remain searching for the over-arching tie breaker. The story has not ended as the 777X has not flown. Something must give but not without a battle. Winning the battle doesn't mean winning the war. It’s so complicated writing stories becomes futile for finding an ending.

Both makers find s sustainability problem of production. The wide body orders are not coming fast enough from an exhaustion of market demand or need. The wide body mark is pausing until it finds itself again. The requiring factor for this market is a catalyst opening up the order books. It won't come from presentations nor marketing technique but will come from external conditions such fuel prices going upward and developing markets are starved of flying fish capability. Bask to the forecasting model. In the beginning was an inference it would get complicated. Both makers hope to happen upon a silver bullet shot unraveling the complexity of finding the Grail or the fish.

Forecasting again comes into play when considering firing a silver bullet. Which caliber and how many grains loaded are needed for the perfect shot at the bull’s eye? Boeing has fired a 777X and Airbus responded with the A-350-1000 and maybe more model numbers are added at the dicey end of the airplane dichotomy, called wide body.

Wide bodies have more profit dollars per frame but less future opportunity within its class. Single aisle has more opportunity as world growth expands but less profit dollars per frame. Airbus has an unwieldy single aisle backlog where Boeing can see the light at the end of its tunnel within its single aisle order book.


In order to find Nemo the Flying fish, one maker must solve the puzzle ahead of the other maker. That can be done once the Holy Grail of aviation is obtained. Then the trillion dollar question is resolved. Once again the key to all this is from forecasting and making the lucky shot before the other does make that shot. Nemo is found when success reveals its lucky character where the other has no answer.

Sunday, February 19, 2017

Part of The Game is Stealing The Wide Body Market

Airbus learned a long time ago as in the 1990's to bring to market a new concept before its competitor could as found in the single aisle market with its NEO A-320's during the years 2010-2016. It romped over Boeing bursting out with more than 5,000 units sold. Boeing came out second with 3,600 737 Max sold. However a bigger influence on this strategy of First to Market comes the condition of Market forecasting. Using the Boeing data of market forecasting demonstrates how Boeing has cut Airbus off at the pass.


Fig. 1 Boeing Data Source as of 12-31-2016



Boeing has stated in its forecast the market will need:

"On the wide body side, 9,100 airplanes are in the forecast, with a large wave of potential replacement demand in the 2021- 2028 time frame. Boeing projects a continued shift from very large airplanes to small and medium widebodies such as the 787, 777 and 777X.

With cargo traffic forecasted to grow at 4.2 percent per year, Boeing projects the need for 930 new freighters and 1,440 converted freighters." 

In this discussion several assumptions should be made. Boeing's forecast is accurate and world conditions remain seasonally straight going forward or in other words the world remains stable.

The below chart opens a discussion of wide body and of the large wide body stealing from Boeing over Airbus starting with the 777-9X.

Fig.2 Looking at the potential. As of 12-31-2016: The Boeing Forecast for demand.





The focus is on the last lines of the market by size and capability of aircraft offered. Both Boeing and Airbus have bracketed each other found in the backlog data and the future is open for single aisle where Boeing seeks opportunity for 4,096 small duo aisles. The large wide body includes the A-350-900 and A-350-1000 with seating between 300-400. Its undelivered advantage is centered on its key aircraft the A-350-900. However Boeing splits this anomaly in the A-350 seating when the 787-8 and 787-9 is at 240 and 294 seats respectively, making the 787-9 classed in the small wide body data by this chart when it could be considered a medium body by seating capacity. The Airbus arrangement pushes ahead of Boeing in a bracketed manner. It tries to undercut Boeing with its A-330 NEO's at one end and then beat it in the large end with the A-350-1000 types of aircraft.

Boeing has beaten back the A-350-900 attempts with its medium WB's (787-9) 787-10, and 777-300- ER's. The Boeing Bracketing occurs with the top end of the market with its 777-9X and 8X order book where Airbus cannot sink billions into an answer for this line- up, since the remaining large market forecast is relatively small. 

That end has forecasted room for 2,391 medium wide Body orders spanning the 300-400 seat capacity over the next 20 years. This number works out for a market wide availability of taking orders for up to 119 aircraft a year from both maker's combined. The 777-9X has stolen the forecasted availability (large wide body) undercutting future aspiration for any new A-380 orders while giving the 747-8i a nice send-off. A 777-10X concept is restrained by how litle room remains at the super large end. That end only has room for only 139 more large air-frames ordered in the upcoming years thus ending the Airbus fantasy for the A-350-2000. 

The market has responded with this deadlock. It isn't ordering anymore A-380's or 747-8i's as that class has already dried up the potential long before Airbus intended. The 747-8i was a lost leader also intended for slowing the A-380 onslaught of orders from the beginning. It did its job and now the market "Big's" have moved on to the 777-9X order book were it now stands at 326 or so orders.

The 777-8X is a one-off gap filler making the 777-9X a stronger proposition as the 8X addresses the 777-200LR retirement. Its range and seating capacity of around 350 seats neatly folds in commonality strategy for having a family of aircraft even though less than sixty have been ordered and no further orders from Boeing for the 777-8X have been taken. 

The A-350-900 and A-350-1000 is an Airbus attempt at bracketing Boeing with these offerings having a 330 -366 seat capacity for its customers. The Boeing recommendations for seat count as follows from its family of aircraft. The 787-9 seats 294, the 777-8x seats about 356, and the 777-9X attacks the Jumbo end with 405 seats. There is no market at this time for a Boeing 777-10X seating about 450. The -10X would truly replace the 747-8i with comparable capacity and superior efficiency.

When reading and studying the Boeing 20 year outlook it appears it is a real dog fight having no end, but Boeing has filled the Big End of the wide body market before Airbus could get a "Big" design into production. This condition is leaving little room for potential orders in the next decade as only 139 remain from predictions when factoring on order  backlog. The 777-9X slots have already stolen this market from its 530 stated potential having 326 of the 777-X's already ordered. This leaves a remainder of 139  "Big's" available for the whole of the market within this forecast until 2035.


Saturday, February 18, 2017

The Art of The Canadian F-35 Deal


Image result for art of the deal

US President Donald Trump is in a position to make a deal with Prime minister Trudeau of Canada, AKA the Canadian government's winner of its national election who had no idea Trump would be the US President. Trudeau believed his deal making would be validated with a Democrat winning the White House back when Obama was still president. The prime minister made a campaign promise. It would suspend the acquisition of its F-35 procurement if elected. Go fish Lockheed but not in Canadian waters was his campaign promise. Trudeau being a sensible leader talked to his military chief and concluded the F/A 18C, "C" for Canada was the popular choice for defending the North Slope.

Boeing promptly popped another beer can gleefully and rendered to Canada a replacement deal for its F/A-18 CF ageing version even written on Canadian paper products. Thus upsetting the balance of power in North America. The power is not military might but a discussion who will defend whom and who will pay for it. Canada positioned itself as a country, if in a fix, will depend on the US taxpayers for bailing out the defense of the Canadian Shield, by coming from Alaska in a time of war. The Canadian brew has left the US with mud in its face on falling down on deal for about 65 of the F-35 type because it was "too expensive".

By the way, Canada still makes an F-35 engineering contribution and is getting US Taxpayer money for that R&D enterprise with the hope of Lockheed building those F-35's paid by the rich Canadian brew dollars going north. However, Canada while going on the cheap, is preferring to refresh its air wings with new F/A-18CF's and then will look to the US for its ultimate defense in time of war or invasion from the great white north.

But the deal maker Trump won the office of president and any self-respecting deal-maker would put pressure on Canada by saying the F-35 is no longer for sale to the Canadian military at any price since it canceled its deal with the US.

The F-18CF suits Canada just fine whether it’s the old aging version or a handful of new built Boeing versions. By the way, if Canada is invaded Trump will defend Alaska with its last F-35. Someone mentioned NATO or some such drivel about a treaty. Then Trump mentioned sending aging A-10's North in time of treaty trouble, as some kind of lend/lease deal coming from the same school of WWII lend/lease deal makers as an upgraded 3.0 deal package.

Trump came forward and tweeted, "keep your hockey sticks, they crack skulls, but we won't sell you Alaskan Dog sleds for your national defense". The follow-on tweet came. “I thought we were neighbors and you were allied with us on defending North America what happened?"

"If Canada has a problem with the F-35 talk to Boeing they will defend your airspace with a slightly used AF1",tweeted Trump. 

North American Defense Memorandum: When the invading hoards get within eye sight of Niagara Falls then we'll do a fifty-four-forty or fight routine and give Oregon back to Canada because we can! 

Tweet three,"The Portlandians will never know the difference anyways as the smoke rises from coffee houses within the greater Mt. Hood eye sore". 

"That's so Trump", said a bystander for treaty rights for which anyone with sense doesn't know America has treaty rights North of South Dakota pipeline. "It’s in the Bill of Right of the US constitution. Doesn't Trudeau know who's he messing with when you cancel a deal?" Tweet four,"One good action deserves an opposite and equal reaction." 

Trump again tweets, "we’ll build a Canadian Wall and take that Trudeau".

An eastern Montana farmer opposes the wall idea as he has 600 acres of good bottom land in Canada. Trump tweets again, "have a head ache- am going in the opposite direction Mar a Lago for some more Lockheed gratuitous shrimp.

"Is the Invasion of Canada still on?” shouts a crowd gathering at the Boeing/Everett assembly airplane center.

Before things get out of hand, President Trump and Prime Minister Trudeau of Canada find common ground in the saving face category. Trump strikes the deal that he will lease 65 F-35's for fifty years at 2 million Canadian dollars a year for each of the lot. The US will buy those 65 F-35 from Lockheed and promises Boeing, it will buy equal amounts of up to 100 each of the F-35C's and FA-18's -v -4.5 for the US Navy. 

Giving the Navy its replacement wings it desperately needs.

PM Trudeau makes a speech to the Canadian Parliament, “President Trump has made a deal with Canada for our F-35's for which no one could have foretold would happen when I was elected. In the best interest of Canadian defense, we will lease 65 F-35 for 2 million Canadian dollars a year based on the 2017 Canadian dollar value found on January 1, 2017. In total that will amount to the number of aircraft each year under lease when delivered and will grow to the full number in the next ten years when Canada receives its last F-35. It won't cost Canada a dime because the American Taxpayer will pay for it. I don't know how, but they’ll pay.

That sent the "press" to their calculators and came up with this. Canada will lease-on to 65 of the F-35's for about 1.5 million US dollars a year. The full potential revenue to the US after ten years will amount to an annual lease price of 94.5 Million in Canadian dollars at which time 65 F-35 (CF's 😀)will have been delivered during the first ten leasing periods. The lease completes December 2077 or there about (😅).

Trudeau quips, "Under the US/Canadian Treaty, we must have one of those somewhere, the US will supplement the Canadian defense budget by $2 Million US dollars a month per aircraft delivered until lease agreement ends in 2077 (maybe?). Canada does not pay one Canadian Dime in this deal even though Donald Trump is the world's best deal maker.

In a Canadian Parliament back room, a Boeing VP, pops open another brew in gleeful anticipation of the 100 F-18's the Navy and the Canadian F-18CF's 25 just ordered in the last 48 hours. The art of the deal isn't dead as everybody wins with a "Canada First" policy and then the "Boeing First" Policy shake of hands for 25 F-18 from its gratuitous F-18C's deal made just before the "speech". Ain't "America First" just a great Trump policy?


Friday, February 17, 2017

Trump Take Aways During 787-10 Introduction

Donald Trump showed both style and substance today in a unique back drop of the 787-10 parked outside the giant factory doors at Boeing Charleston SC facility. The site will be the only producer of the 787-10. It is the last in a series of 787 models to be built. Unlike the July 7, 2007 roll out of its sibling, 787-8, this could fly within a few months as all systems are real and live at this point of production. It just needs to be tested for Quality assurance purposes and then lit up for first flight.

The first roll out in Everett, Wa. was not a paper aircraft but more of a plastic airplane where the Charleston example is a genuine airplane with the President of the United States cheering along with the 5,000 plus Boeing employees seated in the massive hall made for airplane production.

Boeing Chief CEO, Dennis Muilenburg, was in his exuberant demeanor of sell, sell, sell mode; made it clear he was proud of the Boeing accomplishment and believes in his employees who put this key member of the 787 family together. It will seat 330 passengers as designed and more as airline customers may adjust interiors when pushing the 787-10 limits.

Image result for Trump 787-10
Left to right: President Trump, Dennis Mullenburg and 787-10 background. Boeing Employees foreground.


President Trump took the opportunity of validating/reminding about his campaign promises for jobs, American industrial expansion, and world trade conditions for which the Boeing Corporation must compete in an international environment. No mention of the recent IAM union vote failure this week as it was expected a "no vote" the South Carolina region. The comparison with Everett, Wa is stark as the unions in the Northwest represent most of Boeing's airplane workers. The battle line is between Union made verses the competitive ad hoc human resources made found within the south. This is Charleston's first test for building a new version of the 787 all on its own. The factory assembly becomes an important test as much as the fly-away testing.



Thursday, February 16, 2017

Dabbling Spreadsheets Airbus Boeing

Below is some spreadsheet doodling’s from reliable sources outside of Boeing.

The snapshot below will be used each month recapping many of the quick and dirty details regarding the commercial airplane competition between Airbus and Boeing.

Items of interest as follows:

·      Backlog value as of January 1, 2017
·      YTD orders added by both in units and corresponding $dollar values updated each period.
·      Total recap of Backlog units as they stand within 2017 YTD point in time.
·      2017 having the total value of both makers backlog charted.
·      A Book to Bill Ratio going forward after all orders and deliveries are accounted during the YTD 2017 periods.

    Below are January numbers included and a few February numbers as tested for this spreadsheet. The chart should be self explanatory as is viewed. Boeing data includes both months of January complete and the YTD February numbers from its website. However Airbus is derived from January numbers only. A month to month posting will have both makers on  the same page as data is made available during the following first week of the next month's reporting. Enjoy following this data through out the year.


 Fig. 1: YTD Backlog units and Book value for Boeing and Airbus Commercial Aviation progress.

Airbus Is A Suspect In Playing Dirty

Headlines:"from Belfast Telegraph"


The Serious Fraud Office has launched a criminal investigation into alleged fraud, bribery and corruption at civil aviation giant Airbus Group.

Oh my Airbus, as it claims the title "The Most Advance Aircraft In The World". No one paid attention to that baloney in the recent years anyways, only its advertising wing who pushed it forward.

Meanwhile, back in the trench warfare is a little noteworthy snippet. 

"Airbus cheats at marketing." 

A mustard gas like substance is permeating from the market place and investigators would like to know if Airbus is behind the smell.

Another dirty tactic floats up from the mega producer who preys upon Vulnerable Air Wings Inc. world wide. It sounds like a man who is standing on a street corner in his full Euro trench coat with watches wrapped around the forearm available at an incredible price.

Image result for street corner watch dealer



Belfast Telegraph Quote:


"In a statement released on Sunday, Airbus said: "Airbus Group has been informed by the SFO that it has opened a criminal investigation into allegations of fraud, bribery and corruption in the civil aviation business of Airbus Group relating to irregularities concerning third party consultants. Airbus Group continues to cooperate with the SFO."
An SFO spokesman confirmed: "The director of the Serious Fraud Office has opened a criminal investigation into allegations of fraud, bribery and corruption in the civil aviation business of Airbus Group. These allegations relate to irregularities concerning third-party consultants."
The SFO appealed for anyone with information about the case to contact them via a secure and confidential reporting channel on their website www.sfo.gov.uk.
The use of third-party middlemen in major commercial deals has been the target of anti-bribery legislation around the world.
Guidance issued for companies under the UK's Bribery Act 2010 warns that "the bribery risks associated with reliance on a third party agent representing a commercial organisation in negotiations with foreign public officials may be assessed as significant and accordingly require much more in the way of procedures to mitigate those risks".
Will anything happen? Nah, too much money and too many lawyers are involved it will just make it go away. However, the important thing here is it was reported at all, since Airbus has a reputation beyond reproach as it demonstrated by trying to sue Boeing in the World Courts over receiving "special Treatment" when Boeing obtained Tax Credits from the state of Washington, USA. As it was incentivized  for building and keeping the Boeing manufacturing in the Northwest State. After-all Airbus wouldn't receive favorable treatment from the Euro government for building the A-380 or A-350. It is too clean to try that fiasco.

Monday, February 13, 2017

Buy-Sell-Leaseback??? Airplanes!!!

Sell and lease back is strategic financial positioning.
The first thing on the table is get the definitions out of the way;


Winging It Made Simple

Image result for accounting nightmare



Wet Lease:

A wet lease is a leasing arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline or other type of business acting as a broker of air travel (the lessee), which pays by hours operated.

Dry Lease:

A dry lease is a leasing arrangement whereby an aircraft financing entity (lessor), such as GECAS or AerCap, provides an aircraft without crew, ground staff etc.


Sell-Lease back:

Selling an entity aircraft asset to a leasing company and then lease back from same lessor for the same aircraft is usually results in a long term dry lease. The action turns the lease into an income statement type expense coming from its operation. At which point the former asset can no longer depreciate during its limited depreciation term allowed in the balance sheet (assets = liabilities) otherwise stopping any interest expense accrued. 

Blithering discussion:

Example: Tax worksheet modeling takes advantage of depreciation during a five-seven year depreciation schedule allowed, where it has has a limited duration of time for income tax write-offs claimed. In this case a 787 worth hundreds of millions is depreciated with the majority of its value during the first years of ownership. An entity can take a significant portion of any airplane value applying it towards the Income Tax liability during its early years of service.

However, to maximize cash flows and make efficient use of its assets an entity can sell its asset to a leasing company thus eliminating the remaining depreciation towards asset value. The lease back portion of the deal moves the aircraft out of its balance sheet status (which has a limited remaining depreciation advantage with a longer term loan interest expense value remaining) into an operational expense condition by the amount of the periodic lease payment amount. 

Instead of having an asset under generally accepted accounting principles, it morphs the asset into a lease expense on the Income statement. The leverage of this transaction reduces assets and reduces liabilities at the same time while moving cash flows to a monthly leasing expense line found on the Income statement for profit and loss and becomes an EBIT item affecting any Income Tax liability down the road.

The relationship of having aircraft for revenue routes and operating expense is greatly changed. Rather than asset and liability relationship for company valuations, the move has an immediate change in the relationship affecting the profit loss condition reported each year. Cash (liquid assets) is freed up for making more purchases using a leveraging lease back move for its inventory.

What occurs by this example: an airline buys the aircraft valued at purchase price through paying cash and borrowing money for the aircraft. The aircraft value is the asset while the cash is a reduction of its liquid assets. The money borrowed for the purchase is a corresponding liability amount equaling the asset balance reduced by cash plus adding the airplane’s valuation to the asset balance.

There is much more occurring with this example that can be explained reasonably and with limited information. The important point is aircraft companies needing fast access to more airplanes often divide its inventory up with buying and leasing its inventory. An entity can take advantage of both its assets for income tax purposes and/or its profit and loss record growing its retained earnings into an asset value.

Finding error is to human. Accounting is inhuman.

"T" Accounting Example:

Transactions for balancing assets = liabilities

Cash reduced: -10 million down payment

Airplane Value: + 100 million

Loan: -90 million

Asset Balance: 100 million

Loan of: 90 million equals the Asset Balance of 100 million via its -10 million cash reduction combined with $90 million loan.

THE LAST BUT NOT LEAST ITEM: Sale of asset to leasing company at a higher amount than the original purchase price from the manufacturer can become a significant capital gain for an entity strapped for cash.


More definitions and More Coffee Needed

Asset:

Inventory or property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

"growth in net assets"


"For every asset there as an equal liability for said person or company or corporation. Assets equal liabilities and remain in balance of value concerning each person, company, or corporate entity."

Depreciation:

noun
1.  A reduction in the value of an asset with the passage of time, due in particular to wear and tear.
synonyms:
 devaluing, decrease in value, lowering in value, reduction in value, cheapening, 
o   Decrease in the value of a currency relative to other currencies.
 Plural noun: depreciations

Expense:

offset (an item of expenditure) as an expense against taxable income.

Income Statement:

Also known as the profit and loss statement or statement of revenue and expense, the income statement is the one of three major financial statements in the annual report and 10-K. All public companies must submit these legal documents to the Securities and Exchange Commission (SEC) and investor public. The other two financial statements are the balance sheet and the statement of cash flows. All three provide investors with information about the state of the company's financial affairs, but the income statement is the only one that provides an overview of company sales and net income.

Profit or loss:

An income statement or profit and loss account (also referred to as a profit and loss statement (P&L), statement of profit or 
loss, revenue statement, statement of financial performance, earnings statement, operating statement, or statement of operations) is one of the financial statements of a company and shows the ...

Balance sheet:
noun
1.  A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.


Taxes:

What’s left over goes to the government J

The incredible mess above requires a 4-5 years of accounting and another 10 years for understanding. Having the 4-5 years down there remains another ten years for understanding. Therefore, keeping it somewhat simple is the goal and only for making a point. Understand what a “wet lease” and “dry lease” are and then understand what and “asset” and “expense” can do for a company.

If an airplane is an asset then there is a liability offsetting the asset such as loans and stockholder ownership. However, if an airplane is a lease it is not an asset, but an operational expense. No asset, no depreciation expense and no liability. An airline who is strapped for cash when expanding its fleet will buy, sell and leaseback aircraft leveraging its capital support its expansions at the same time.

Moving an asset off the books allows an airline to expense the total aircraft, crew and maintenance applied to a revenue stream as expenses. If the airline makes a profit (P/L), it can add that profit to a retained earnings process. Tax advantages arise in this flow. An asset is not part of the P/L revenue statement, only through depreciation expense, which is limited to Tax laws on depreciation schedules over time. 

However when leasing, it becomes an expense item as described in the above paragraph. This condition allows airlines to leverage its cash stream of uses for down payments and increase its fleet of revenue producing aircraft at the same time. No longer will it have to borrow billions of dollars for aircraft purchases and come up with the cash for entering into those types of financing. The lease becomes a pay as you go proposition matching revenue streams coming from each aircraft it leases with revenue and expenses. 

It must remain competitive with its peers during growth periods and leasing leverages a competitive position extending its inventory. When economic times change in the travel industry, drop those leases within a shorter time period rather than having to sell any owned aircraft risking a severe discount and experiencing a loss.