Essay About Engine Replacement And Engine Price

Dragon Air
Hong Kong Dragon Airlines Limited
Lease VS Buy Decision
Objectives
: Engine replacement for V2500 spare engine
Alternatives
: – Lease
– Buy
Summary of alternatives
Lease
– Non-cancellable 10 years contract
– 3 months rental deposit at contract acceptance
– Monthly Rental
: 0.8% of engine price at time of purchase
– Rate per flight hour
: US$100 (operate at 27K)
US$130 (operate at 33K)
– Rate per cycle
: US$111
– Return conditions 1
: Certified serviceable with at least 9,000
hours(at 27 K) or 6,500 hours(at 33K)
remaining until its next heavy maintenance
– Return conditions 2
: Each life-limited part shall have at least 6,000
cycles remaining
– Other expenses
: If return condition is not met, additional rent
must be paid
– Order lead time is 12 months
– 15% of purchase price(at time of delivery) deposit
– US$1.9 million for major maintenance in 2012
Expenses (at 2012 price, based on 3% interest rate annually) See attached paper.
Lease
US$ 13,073,235
– 2.5 mill. Residue value
US$ 9,490, 882
– 3.0 mill. Residue value
US$ 8,990,882
DECISION
Hong Kong Dragon Airlines Limited : Lease VS. Buy Decision
Purchase Case
Lease case
Major
Depreciation