Aircraft pricing, aging and useful life.

[lancersdaz]

I've noticed some aircraft have gone up in price to keep in line with real world pricing. Would it be possible to be able to negotiate pricing on volume? In the real world if I order 1 737 it will cost list price or close but if I'm ordering 5 or 10 I'll get a much more favourable price. Have you also considered also adding real world depreciation and useful life? As the cost of used aircraft on the trading list is very high compared to real world. Aircraft have a UL of 15-25 years in most cases with depreciation at an estimated 4-7% a year for accountancy.

Today I was looking at an Airbus A330-200 on the market for v$134million. The aircraft was originally purchased in 2008 according to the history in FSA, that would make the aircraft just by accountancy depreciation v$79-82 million in value. Realistically in the current market you this would be much lower but there would need to be a baseline.

Others may not agree but I'd love to see price depreciation + useful life come into play with larger status impact on older aircraft.

[Cat]

A valid point you bring up and I think I see where FSAirlines deviates from the normal business use of depreciation:

We have a 737-800 we bought used in 2012 with 168.6 hours, 201 cylces (landings) on it.
The purchase price was $70,650,000.
We have flown it now an additional 374.2 hours / 198 cycles and just had an A service done on it.
So the total time on this aircraft is now at 542.8 hours / 309 cycles.

In the realm of real aviation (to which you are referring we should depreciate value), this is absolutely nothing.
This aircraft would still be considered very "new".
Airlines fly commercial aircraft tens of thousands of cycles before they are considered outdated and ready to retire.

In FSAirlines, the deviation from the normal is this:
The A service seems to have put the value back to "new" at $78,500,000.
Therefore it appears the value of aircraft is tied solely to the current status of said aircraft.

The problem with long term depreciation in the virutal airline world is the fact very few virtual airlines last a long time.
Fly Vegas has been in operation on FSAirlines since 2012 which is an eternity for a virtual airline in today's "gamer" environment.

I would bet the number of long term virtual airlines is an extremely low percentile of the overall count.

The parameters involved to establish a "true to scale" virtual airline depreciation table would have to consider many things including but not limited to:
Time since that particular aircraft was entered into the FSA database.
Total Flight Hours
Total Cycles (landings)
Service to 100% status effect on value
Depreciation Threshold Factor: What is considered "old and outdated"?
Will the new system be retroactive to all aircraft globally or will there be some sort of "grandfather" program?
Severe Crash Damage (high rate of impact in excess of -xxxx fpm) = total write off? (aka not repairable)

And then the final, most important question: Will all this work and use of resource time really be of value to the overall group or just a select few?

[Cat]

Just me again .... To be clear I am not against the idea of depreciation, and if you have a plan to make this work in the virtual environment where the life cycle of airplanes is far different than in the real world, I'd love to hear it.

[lancersdaz]

After digging into this further the big factors seem to be age, hours and status not so much cycles. To me depreciation and inflation of prices are two sides of the same coin.

This wouldn't benefit any existing VA so much as it would realign VA value but would bring a level of realism. For us it would reduce the value of 150 or our 220 aircraft. I still think it's two sides of the same coin, if you have inflation you have depreciation. That's the only reason I brought it up I thought it would add a new dimension having to look out for aircraft useful life span, aging assets and market values.

[Cat]

And I agree with you on the value of having a more realistic depreciation factor than we currently have. HOW to implement it would be the issue I think, especially if current values are "reset to new" every time we perform a service to bring the aircraft back to 100%.

It certainly seems wrong our 8 year old aircraft is worth far more than it used to be when we bought it used and then made $557,932,541 profit with it (income minus cost of purchase/transfers/service).

One factor would be resale value on the Trader List - if we are forced to sell at the depreciated price, that's fine. But what about FSA buying them, refurbishing them back to "new" and selling them at higher prices closer to the price of new airplanes? I guess that would add a new dimension to checking the Trader List for deals before the big company scoops them up. LOL

Another factor would be the status decline on older aircraft.... should they be forced into service more frequently? Would a years factor since the aircraft entered service be used to degrade the status on some sort of scale? That would make sense (and make the whole coding get complicated no doubt) as buyers of used aircraft beware. LOL Would a "refurbished" aircraft with 0 hrs 0 fuel get a new clock as well? Could our Service Centers have the ability to refurbish the aircraft to a point (say the price of a C check) where it gets a new "clock"? You can only do A checks so many times in the real world before it needs a full tear down and C check.

I think the process is worth the discussion ..... If we can all formulate a master plan then Joe can tell us if that plan is even possible. But to just ask Joe to come up with the plan and then implement and then complain (like we tend to do) that's it is not what we wanted is very unfair to the man who single handedly has turned FSAirlines into a great format.

[joefremont]

Volume discounts on purchases would not be a problem. Our normal resale price is 90% so we could do something where for one its 100% and limits down to 90% as you buy more. Of course, unlike the real world you don't have to wait years until your just ordered aircraft arrive.

Depreciation is more tricky. There are some airlines that like to fly the older aircraft, and a realistic depreciation model would make flying those older cost prohibitive. Ultimately the value of the AC comes down to how many hours are left on the airframe and when those hours are used up its done and it's time to scrap it.

So how would it work? Say an VA has just acquired a new A320 or a used MD-82 or DC-6 how much life is left in the aircraft?

[lancersdaz]

Bulk order discount is a standard industry thing. I like that Joe having 100% for one but you can get more than 10% off if you place a serious order. This article talks about airlines getting upto 50% of list when they place orders. That seems a little extreme to me but I'm sure something could be worked. The currency bit if also interesting but that's a step too far on the realism.

https://simpleflying.com/airbus-reveals ... st-prices/

I would categorize aircraft by estimated useful life

A 12-15 years
B 15-20 years
C 20-30 years

IE.

A380 Class A 12-15 years
A320 Class C 20-30 years
C172 60 years+ .


Depreciate over that time and get to the point where scraping and replacing the aircraft would make sense. I do think for this to work ordering older aircraft would have to work as if they are new. So buying a new 707 would give it a full lifespan (the prices would also have to be in line).

[Cat]

Just seems awfully complicated considering the life cycle of the average virtual airline is how long?

[Cat]

If it is to work, we'd need something very simple

Like a "years in service" factor that could be applied to both value and status decline rates.

An operator would not have to scrap it, they could have it 'refurbished' only at an FSA Maintenance Center (full price) for say the cost of a C Check.
That would bring the value back to "new" as well as the status decline rate.

In addition, any aircraft sold by FSA that has been "refurbished" (0 hrs 0 fuel) would come with a new "years clock".

[Cat]

OK after bouncing ideas off our CFO at Fly Vegas, we have come up with this plan. It is just an idea, so don't anyone go bonkers.

Install a "YF" Years Factor that applies in a linear fashion to both the value of the aircraft and the life cycle on the status.
Currently the life cycle to the B Check threshold is 100 flights with landings at rates of -400 fpm or better.

The YF would deduct 10% per year from the date the aircraft entered service from both the value and the life cycle to B Check threshold.
There would be a hard floor at 8 years / 20%.

A checks during this time would return the status to 100% but the rate at which the status reduces is affected by the YF.
So at 5 years the aircraft is only worth 50% it's new value and it requires an A check every 50 flights instead of 100.

The operator can get a "Reset to New" through FSA only which would be a C Check at full price.
This would be done with a new option in the service window - much like the cargo conversion.
All FSA aircraft sold on the Trader List at 0 hours and 0 fuel (including Out of Production Orders) come with a "new airplane" clock.

Make this all optional as part of the advanced finances.

Simple / easy to understand (and hopefully implement)
Tailored to the fast life cycle world of virtual airline flying.

And the end result is a new depreciation engine added for additional realism.

Thoughts?

[lancersdaz]

Cat that sounds great. To keep it closer to real market value the 10% could be changed to 6% to be closer extending useful life a little closer and keeping market values at around the same. A residual value could also be added so the price can't drop below 10% of the original value which would be close to aircraft rock bottom resale value.

[Cat]

Well I took into account the average life span of the typical VA as well. So yes the rates are higher than real world, but we don't fly like the real world either. The final decision of course is all Joe's .... if this is even doable, that's entirely up to him.

At a 6% drop as you suggest, it would be more than 10 years before the value "bottomed out". At 10% drop and with a 20% hard floor, that gets moved up to 8 years which is still a long long LONG time vs. the average virtual airline lifespan.

[joefremont]

I remember not that long ago all the howling that happened when we required everyone to do an A-Check once every two years.

The way we have done things so far is rather than hours or cycles or just months, we have used the maintenance percent, the percent is directly tied to the value of the aircraft (std price * percent = value) and that percent is also tied to how reliable the aircraft will be on flight.

In the last round of maintenance changes we added a 'deprecation factor' where if you don't move your aircraft in 60 days it looses 0.2% of status, 0.3% after two years. The net effect of that is if you let your aircraft just sit there, after 3.5 years, it needs a B-Check.

Now you can always scrap an aircraft and get 33% of its value, and I assume that in this case depreciation would not matter.

So say we add a C-Check timer separate from everything else. As suggested 10% per year until it reaches scrap value. Would we need some other teeth in the system? Say no C-Check in 3,4,5 years and the aircraft is grounded?

Of course my FSA admin brain asks, how will airlines abuse this? Say sell all there aircraft back to FSA and then buy back immediately when the system restores it? Of course that can probably be fixed by the system just scrapping the aircraft if its been more than 2 years since the C-Check.

Now the current maintenance costs are not linked to the value of the aircraft but to its size, engines type/count and years since introduced. So the standard cost of a C-Check on one of my favorite DC-6B's is in excess of 22m (probably 6m with maintenance center discounts) where the value of the aircraft fully restored is about 4.2m so all those airlines with collections order aircraft would find them very expensive to maintain.

[Cat]

There is always my first argument on the subject as well.... Resources Time & Energy vs Benefit to How Many?

I came up with a simple plan solely for the purpose of offering some sort of option to the complex real world plan that was otherwise presented.

You have a valid point about people gaming the system through selling and repurchasing. So perhaps my first impression is the right one? Leave things in the status quo. I do not see any way to easily tie value to time in service and keep people from screaming to the heavens how they are always persecuted for flying classic airplanes instead of new ones.