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. The most widely applied investment appraisal methods involve net present value (NPV) and internal rate of return (IRR). The chapter also addresses the overall background of aircraft financing. Escalated prices should be applied in the investment appraisal where current values, as opposed to real values, are used. The investing cash flow involves that money associated with the purchase and sale of assets, including not only the aircraft but also any investment in equipment or property. The payback method is whereby the accumulated forecast profits of an investment are compared to the magnitude of the original investment. Equity investment may be supplemented by money from other sources, such as banks. Indeed, banks, along with the capital markets, are a common source of funds for aircraft.
