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A transport economic appraisal of airline financing

D.Comm. / The airline industry is one of the fastest-growing industries in the world today. The average international air traffic growth will be approximately 5.1% per annum, compared to an average worldwide economic growth of 3.2% per annum, for the period 1996 — 2015. This would lead to an estimated yearly demand for aircraft financing of between US530 and US545 billion. However, fundamental changes experienced by the air transport industry, due to liberalisation and deregulation resulting from globalisation, led to excessive competition and industry losses. Airlines and financial institutions alike are therefore pressurised to apply innovative financial techniques and methodologies (or new applications of old techniques) to meet the growing financing needs of the industry. Likewise, the expansion of the domestic and regional South African air transport industry and the isolation of the South African financial institutions prior to 1990 also necessitated an assessment of the airline environments and the factors influencing it. The aims of this study are therefore to contribute to the South African field of knowledge of international aircraft financing techniques and methodologies, in order to assess, from a transport economic point of view, the interface between the internal and. external airline environments in terms of a systems approach and the impact of this on aircraft financing; to assess the extent to which airlines could redress their creditworthiness to ensure profitable operations; and to make an original contribution towards this study field in the form of a more accurate calculation of the net present value (NPV) when options are considered for assetbased financing. In order to achieve the aims of the study, the external, internal and. intangible market airline environments are assessed from a financial manager's viewpoint. The way in which financiers evaluate airline management's ability to manage threats and opportunities from the controllable and uncontrollable variables emanating from these environments was also assessed. The capital markets, transaction structuring, securitisation, and financing techniques and methodologies are then discussed. Finally, some ways in which management could counteract threats and constraints from the environments to maximise system output, and therefore address airline creditworthiness, is discussed. It is concluded that the air transport industry is multi-dimensional, extremely complex and dynamic; that uncontrollable factors, for example, technology and regulation influence an airline's profitability and. thus its creditworthiness; that quality airlines are sought after by financiers; that financiers are evaluating management's business acumen in particular; that a mixture analyses will determine a project's risk, debt capacity and profitability; that strategic planning and a business plan is critical in airline operations; that individual investments should be part of a long-term financial strategy; that a few new developments in aircraft financing are anticipated; that there are numerous ways in which management can cut costs and procure income and that management should be acquainted with available financing techniques and methodologies. This study contributes to an information database of aircraft financing techniques and methodologies that could be used by the South African banking industry. Lastly, a more comprehensive NPV formula makes an original contribution to this study.
Date10 September 2012
CreatorsScholtz, Antoinette
Source SetsSouth African National ETD Portal
Detected LanguageEnglish

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