FLEET PLANNING

&
FLEET FINANCING
ASSIGNMENT SUBMITTED BY:
Muhammad Faraz
ASSIGNMENT SUBMITTED TO:
Miss Areeba Shabbir

Subject:
Commercial Aspects of Aviation
Date:
13 / December/ 2020

LET’S BEGIN
 FLEET PLANNING
INTRO
Fleet planning is carried out by airlines to determine the quantity and type of aircraft
to be purchased or leased in order to provide a profitable service throughout the long-
term planning horizon. A strategic fleet planning is vital as it has a great impact on the
economic efficiency of airlines. In addition, the supply of oversized aircraft can
implicate an increased cost while a composition of undersized aircraft results not only
in unsatisfied demand but also in substantial financial loss to airlines 
There are found to be two influential factors in fleet planning.
1. Travel demand
2. Service frequency
A thorough understanding of aircraft performance, aircraft economics and the
lease/finance sector that is essential to the fleet planning decision. There is a close
relationship between the type of aircraft, aircraft quantity, travel demand of
passengers, and the service frequency in fleet planning. 
For Example_-------_The operating quota of aircraft movements at Orly International
Airport, France, is 36 take-offs and 34 landings per hour during peak hours

FLEET PLANNING DECISION

In order to make fleet planning decision, DOZIC and KALIC developed a THREE-STAGE
ROBUST MODEL to determine the aircraft size and the corresponding composition,
particularly for short- and medium-haul flights. The optimal fleet planning decision is
made by using the fuzzy logic and heuristic and analytic approaches. However, the
developed model is not applicable for long-haul flight. Besides, the quantity of aircraft
is determined solely based on the heuristic technique (instead of optimization).
Developed a STOCHASTIC DYNAMIC PROGRAMMING MODEL to purchase, lease, and
dispose aircraft optimally. The results show that airlines tend to lease aircraft to meet
demand fluctuation. Besides, the fleet composition is formed by using a single type of
aircraft. By considering airlines alliance, Hsu et al. formulated a dynamic programming
model to purchase, lease, and dispose aircraft. It was found that the airline can achieve
more cost savings through interactive bargaining (for aircraft acquisition/leasing).
However, did not tackle the occurrence of unexpected events in demand modelling.
Furthermore, their models might be too simplistic by capturing demand as the sole
constraint.
 Operators must consider many factors when selecting a new or replacement
fleet:

 match capacity to demand  maintenance cost and support

 optimum number of fleet types
 fleet commonality
 aircraft payload range capability
 aircraft take-off performance
 relative fuel consumption
 relative revenue driven by seat
count
capability
 the value of passenger comfort
 cargo capacity
 old versus new trade-offs
 aircraft pricing/lease rates
 aircraft buy versus lease trade-offs

We select an aircraft on the basis of

1) Aircraft specifications
2) System configuration equipment
3) Cabin configuration
4) In-flight entertainment configuration

 Why Fleet Planning Is Necessary

Fleet planning is very important for any airline. Fleet planning determines what type of
aircraft the airline should buy, and how many of them, in order to achieve the airline
goals. Fleet planners also get involved in the negotiation deals with aircraft and engine
manufacturers, most of the decision making would be through fleet planning.
The dilemmas of fleet planning of an airline are that
 The fleet is highly complex
 Decisions must be long term
 Market is volatile
 Networks are heterogeneous
Fleet planning (selecting the „right” aircraft at the „right” time) is one of the most
important steps in the airline fleet planning process. Fleet planning, in simple terms,
needs to answer two questions:
1) Which aircraft are needed? 2) When to acquire them?
When answering the “Which”-question an airline needs to consider a number of partly
conflicting selection criteria, including aircraft economics, technical, operational and
environmental performance and cabin comfort. Another important influencing factor
is fleet commonality. It describes the number of aircraft of the same type, the same
aircraft family or the same manufacturer in a fleet. When answering the When
question the airline will take into account the development of demand for transport
capacity, the age and cost of its current fleet and the availability of new,
More efficient aircraft. Airline fleet planning varies from airline to airline, depending
e.g. on the airline’s business model and its operating characteristic
The objectives of airline fleet planning are:
1. Modelling “static” (fleet selection and composition) and “dynamic” (fleet
development) trade-offs in fleet planning
2. Estimating the effects of commonality on fleet planning
3. Analysing differences in fleet planning subject to airline business model and
operating characteristics
4. Analysing the impact of changes in the economic, ecologic and technological
environment

\AMERICAN AIRLINE | UNITED

AIRLINE/ \DELTA AIR AIRLINE/
-FLEET PLANNING-

But each airline is taking a slightly different approach to mainline re-fleeting. 

American is focussed on adding new build aircraft to replace ageing MD-80s while
United has tapped the used narrow body market during 2015. The attractiveness of
used aircraft obviously increases in a low fuel-cost environment, but those jets also
become more attractive as deliveries of next generation narrow bodies drive down
values of existing models.

Delta Air Lines has long adopted a philosophy of sourcing used narrow bodies,
concluding that the lower ownership costs of those aircraft provide overall financial
benefits. The airline is also taking delivery of new narrow bodies, but is opting to stick
to current generation models, reflecting a conservative approach to hastily adopting
new aircraft technologies.
 FLEET FINANCING
INTRO
Have you ever wondered how commercial airlines finance the planes they fly? This
section of the Assingment describes the financing of passenger and freighter aircraft,
through both purchasing and leasing’s methods.

PASSENGER AIRCRAFT FINANCING

Passenger aircraft are very expensive. For example, a brand new Airbus A380 sells for
$445 million before volume discounts. Commercial airlines sometimes purchase the
aircraft they operate, but often they prefer leasing. In fact, many airlines have mixed
fleets of owned and leased aircraft.

 Secured debt
 Unsecured debt
 Equipment Trust Certificates (ETC)
 Enhanced Equipment Trust Certificates (EETC or Double-E TC)
 Government guaranteed loans
 Export credit agencies
 Commercial banks
 Insurance companies, usually through syndicates
 Private equity, including hedge funds and loan brokers
 Passive funds, including sovereign wealth funds and large pension plans
 Cash
Aircraft finance transactions are based principally on one or a combination of three
basic structural concepts: „
 A secured loan whereby a borrower incurs from a bank or other financial
institution a loan secured by a mortgage over the aircraft.
 The ownership and lease of the asset (involving either an operating lease or a
finance lease).
 A capital markets transaction whereby an entity issues bonds or notes secured
by a mortgage on the aircraft.

LEASING STRUCTURES
 There are many types of leasing structures that may be used to finance aircraft,
including:
I. Operating leases (see Operating or True Lease).
II. Finance leases (see Finance or Capital Lease). „
III. Leveraged leases (see Leveraged Leases). „
IV. Japanese operating leases (see Japanese Operating Leases (JOLs). „
V. Sale and leaseback transactions (see Sale Leaseback).

While there are many differences among these leasing structures, they have many
characteristics in common. These include: „
1st. The airline or leasing company does not own the aircraft. „
2nd. At the end of the lease term, the airline returns the aircraft to the lessor
3rd. Although in certain structures the airline has the right to purchase the aircraft.

 I will only discuss the first type i.e. OPERATING LEASE

 OPERATING LEASE

o Types of Operating Leases :

There are two types of operating leases.„

 DRY LEASE
In which the lessor only provides the aircraft and the lessee is responsible for
operating, maintaining, insuring, and providing a crew for the aircraft. This is typically
the case where the owner or lessor is an owner trust and neither it nor the equity
investor is in the business of (or has any interest in) operating aircraft. „

 WET LEASE
In wet lease the owner or lessor:
 Retains operational control of the aircraft
 Operates flights for the airline
 Maintains and insures the aircraft
 Provides a crew for the flights

 FINANCE OR CAPITAL LEASE

In a finance or capital lease structure, the lessor
  Buys an aircraft from a manufacturer which it leases to an airline or other lessee.
„
 Provides the aircraft’s purchase price.
Structures the lease so that:
o Rent payments return all or substantially the entire purchase price;
o The lessee is required to purchase aircraft at the end of the term.

 ECA CAPITAL MARKETS

An ECA financing may also be combined with a capital markets issuance supported by
an ECA guarantee. This transaction is typically structured in two steps: „ First, an initial
loan financing by bank lenders under a structure similar to other typical ECA lending
arrangements. „ Second, the loans are refinanced in the capital markets with the SPV
issuing secured notes guaranteed by the ECA.

REFERENCES
https://www.hklaw.com/-/media/files/insights/publications/2019/02/structuring-
aircraft-financing-transactions
https://en.wikipedia.org/wiki/Aircraft_finance
https://assetsamerica.com/airline-finance/
https://centreforaviation.com/analysis/reports/us-airline-fleet-strategy-and-finance
https://www.dlr.de/lk/en/Portaldata/57/Resources//FLottenplanung_Rosskopf-EN.pdf
https://www.sciencedirect.com/science/article/pii/S2352146514002658
https://pdf.sciencedirectassets.com/
https://www.hindawi.com/journals/jopti/2016/8089794/
https://www.aviadopartners.com/aircraft-fleet-selection
http://www.aviasolutions.com/airline-solutions/aircraft-evaluation-fleet-planning/
THNAK YOU SO MUCH…..……

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