ABSTRACT
This chapter addresses the scope of an investment appraisal concerning a change in an airline’s fleet, and examines the most common methodologies applied in order to value an investment over time. Depreciation is a function of the price paid for the asset, of course, and it is worth considering the elements that go into aircraft price and the extent to which they can be influenced. There is a tendency to think of the aircraft and its related investments, such as spares, as the only item to be considered in the appraisal. The investment project may comprise a whole series of subsequent and related investments. The age of an aircraft can explain anything from 50% or more of the value of an aircraft. However, age is far from being the most reliable indicator, especially as residual values tend to behave in a cyclical pattern. Comparison of residual values between competing aircraft types is just as important as comparing their operating economics.
