Buying aircraft is no small undertaking for airlines, and the list prices of an airplane often run into huge numbers, from tens to hundreds of millions of dollars.
For example, a single Boeing 787-9 Dreamliner can cost in excess of $250 million. Airline companies can attempt to negotiate good discounts when placing big orders, but how do such enormous sums get paid for?
The purchase price of the aircraft – before any discounts that may have been negotiated – can be covered by a combination of airline funds and financing. Airlines tend to require significant amounts of capital just to cover the upfront payments, so they often take out large commercial loans or other forms of debt finance to cover the costs.
These are then paid back over time with interest and other fees. Additionally, leasing can be an alternative option for some airlines; many airliners lease their aircraft rather than buying them outright due to the more stable nature of leasing compared to many other forms of finance.
Long-term rental plans also help spread the cost out over several years for shorter aircraft usage which helps reduce upfront investments.
The cost of a plane
The cost of a plane can vary depending on its size and purpose, but the average price for a Boeing aircraft is around $90 million. Last year, SimpleFlying took a look at the published list prices of various aircraft from Boeing, with the cheapest model being the 737 NG -700 at $89 million.
The most expensive Boeing aircraft for sale was, at the time, the eagerly anticipated 777-9 with a list price of an astonishing $442.2 million.
On the other hand, if you’re looking for a more cost-effective airplane from Airbus then their A318 model comes in at just over $77 million — significantly lower than the 777-9. However, if you don’t mind splurging out quite a bit more then their flagship A380 costs around $445.6 million.
All in all, it’s clear that no matter what kind of airplane you want to purchase there will be plenty of options and different prices ranging from hundreds of thousands to hundreds of millions of dollars.
Why do airlines place aircraft orders and delivery options years in advance?
Leasing is an incredibly common practice in the aviation industry, with around half of the operational aircraft currently on lease.
This is primarily due to the favorable tax conditions provided by countries like Ireland, which are home to some of the biggest leasing firms in the world such as Aercap, Avolon, and GECAS.
These companies provide airlines with the opportunity to source aircraft quickly and cost-effectively without actually having to purchase them outright.
The decision to lease or buy an aircraft can be a difficult one as there are pros and cons associated with both options.
For example, purchasing outright offers more control over the aircraft and any decisions regarding its use; however, it also involves more up-front costs compared to leasing which may appeal better to businesses that don’t have the capital for full ownership.
Leasing can provide access to current technology at an affordable cost but often requires higher long-term payments due to maintenance fees built into the lease agreements.
Ultimately it depends on what airline needs are most important and if their own financial ability allows for outright purchase or if leasing might be more suitable for their business case.
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When airlines want to purchase an aircraft, they have a few options available. Firstly, they can raise capital through direct lending. This involves getting loans secured or unsecured from banks or possibly various lenders who work in a consortium.
These loans enable the airline to buy the required plane and pay off the loaner over time, thus becoming close to the owners of that asset.
Finance leasing is also an option for airlines, allowing them to ‘own’ their planes without fully owning them, using convoluted paperwork and complex transactions between themselves and the financier.
The benefits of ownership are clear though, since companies that own their assets can benefit from having more value in their business as well as having short-term liquidity in case of financial difficulties.
How much of a discount do airlines get?
With any large-scale purchase, it pays to haggle for the best deal you can find. This is particularly true when it comes to buying planes, as airlines typically don’t pay the list price.
Instead, carriers will often strike a bargain with the airplane manufacturers and secure a generous discount – on average, this is said to be about 50%. With a bulk order for such costly jets, this really starts to add up!
So how do airlines go about making such huge purchases? Well, usually they’ll either make a direct payment or take out an aircraft loan.
In recent years many have chosen to instead lease the planes they use; this makes much more financial sense as extra payments are only made when there’s enough cash flow available. The truth is nothing ever guarantees lower costs in aviation but these strategies certainly help!
Crew training and hangar infrastructure
Crew training forms a vital part of the air travel industry, ensuring pilots are equipped with the necessary skills and knowledge to operate safely and efficiently in an aircraft cabin.
To become an airline pilot, pilots must gain a private pilot’s license after completing between four and 12 months of training followed by an additional two years of training as well as 1,500 hours of flight time to attain an Airline Transport Pilot License (ATPL).
Crew and pilot training can take upwards of six months not including the retraining process that may be necessary when switching to different aircraft types.
Another major consideration for the air travel industry is hangar infrastructure. The importance of making sure there are always aircraft available for the flight cannot be understated—it takes technical expertise, large resources, and meticulous planning to make sure that certain parts of the fleet won’t fall idle due to unexpected maintenance needs or other issues.
Smart hangar infrastructure ensures that planes can easily get from one region to another on short notice in order to meet demand when needed, creating a reliable air travel system thus essential for the industry’s success.
