Aircraft Financing - A Case Study on a Chinese Airline

Abstract

This study focuses on the issues of airline's aircraft financing, through a case in a Chinese airline. It analyzes the risks and problems in the existing aircraft financing processes, and demonstrates strategies for improving the current aircraft financing.

This study mainly answers the research problem on how to improve current aircraft financing to obtain better economic effects for companies. According to the main research problem, it analyzes three secondary problems about main characteristics of different aircraft financing methods used by Chinese's airlines, identifies the main problems and risks in aircraft financing and provides success criteria for improving the aircraft financing for the case company.

Based on previous studies, the paper first analyzes the main resources of aircraft financing, and shows that the aircraft leasing and purchase on loans are the most important methods in Chinese airlines. It further analyzes that aircraft financing from foreign sources or in funds in foreign exchanges is one of the most distinctive characteristics of Chinese airlines, and thus many problems and risks are generated by such characteristics. Those problems and risks include foreign exchange risks, interest rate risks, and so forth. Then the study develops several improved strategies from financial points of view. Finally, this study applies the strategies of improving aircraft financing in a new scheme of the case company, and the new scheme improves the aircraft financing situation with several economic achievements which can be evaluated by success criteria set according to strategies.