Describe the need and importance of airline finance
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Explanation:
The global airline industry contributes to economic development. The airline industry is an important contributor towards economic development. It has not only increased world trade activity by enabling faster and easier movement of passengers and goods, but has also provided jobs to millions of people.
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Aircraft are expensive. A Boeing 737-700, the type Southwest uses, is priced in 2008 USD in the range of $58.5–69.5 million [1] (although very few airlines actually pay this much)[citation needed]. Airlines also typically have low margins so very few airlines can afford to pay cash for all their fleet.
Commercial aircraft, such as those operated by airlines, use more sophisticated leases and debt financing schemes. The three most common schemes for financing commercial aircraft are secured lending, operating leasing and finance leasing. However, there are other ways to pay for the aircraft:[2]
Cash
Operating leasing and sale/leasebacks
Bank loans/finance leases
Export credit guaranteed loans
Tax leases
Manufacturer support
EETCs
These schemes are primarily distinguished by tax and accounting considerations, particularly tax-deductible depreciation, interest and operating costs which can reduce tax liability for the operator, lessor and financier.
In May 2016, lessors had a 42% share of the market. It was increasing til 2008 but has since stagnated, and should continue so if not for a rise an interest rates, a slowing of airlines' profits, an increase in lessors' share of new airliner deliveries, and market liberalization. Lessors could also increase their market share by including more start-up airlines, more older aircraft recycling, a change in views on residual values, and lower returns acceptance.[3]
Commercial aircraft, such as those operated by airlines, use more sophisticated leases and debt financing schemes. The three most common schemes for financing commercial aircraft are secured lending, operating leasing and finance leasing. However, there are other ways to pay for the aircraft:[2]
Cash
Operating leasing and sale/leasebacks
Bank loans/finance leases
Export credit guaranteed loans
Tax leases
Manufacturer support
EETCs
These schemes are primarily distinguished by tax and accounting considerations, particularly tax-deductible depreciation, interest and operating costs which can reduce tax liability for the operator, lessor and financier.
In May 2016, lessors had a 42% share of the market. It was increasing til 2008 but has since stagnated, and should continue so if not for a rise an interest rates, a slowing of airlines' profits, an increase in lessors' share of new airliner deliveries, and market liberalization. Lessors could also increase their market share by including more start-up airlines, more older aircraft recycling, a change in views on residual values, and lower returns acceptance.[3]
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