ABSTRACT
This chapter addresses the valuation of the various parts of the aviation industry in a systematic financial manner. It extends the earlier discussion of net present value (NPV) and internal rate of return (IRR) to encompass the concept of valuation of high-cost assets such as airports and aircraft. Valuation is important in the airline industry, since many resources are government-owned or -controlled, and do not have consistent market-based valuations. Net present value is the preferred method for estimating the theoretical value of resources. The chapter then introduces methods for using discounted cash flows to value aircraft based on measures of revenue and cost such as block hours, revenue per revenue passenger mile (RRPM), and available seat miles (ASM). Finally, the chapter has a lengthy discussion of the new and innovative methods that the industry has developed to guarantee solvency of required short-term debt financing.
