A Step-By-Step Methodology for Commercial Aircraft Valuation: Case Study of Boeing and Airbus

In the previous chapter, we reviewed the foundation of asset valuation and discussed some of the most common methodologies for estimating the value of an asset. In this chapter, we focus on commercial aircraft valuation. The valuation of commercial aircraft is slightly different from other categories of aircraft. Commercial aircraft are primarily owned and operated by for-hire airlines to transport passengers and cargo. Generating revenue and, in turn, profitability is a significant, if not the main, reason for operating a given aircraft. This scenario is in contrast to corporate aviation. Even though some financial justification can be provided for acquiring and operating business jets, it is often challenging to accurately assess the exact amount of revenue generated by flying business jets. In other words, explicit revenue generation is not the primary justification of corporate jets. By and large, a similar observation applies to the majority of general aviation that are mainly focus on leisure and personal use. Even in the case of general aviation fleet used for training, it is often challenging to estimate a regular stream of revenue over a plane’s lifespan since that market is governed by factors that are different from commercial transportation. Therefore, in this chapter, we narrow the discussion to commercial operations of aircraft that makes the most considerable portion of the operators in the aviation industry. The asset valuation for general aviation will be discussed in detail in a dedicated chapter later.