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E-grāmata: Foundations of Airline Finance: Methodology and Practice

3.75/5 (12 ratings by Goodreads)
(Embry-Riddle Aeronautical University, USA),
  • Formāts: 678 pages
  • Izdošanas datums: 02-Jul-2019
  • Izdevniecība: Routledge
  • Valoda: eng
  • ISBN-13: 9780429769559
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  • Formāts: 678 pages
  • Izdošanas datums: 02-Jul-2019
  • Izdevniecība: Routledge
  • Valoda: eng
  • ISBN-13: 9780429769559

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There are few industries that have had a more profound impact on business and society over the last century than aviation. This book is an accessible, up-to-date introduction to the current state of the aviation industry which provides readers with the tools necessary to understand the volatile and often complicated nature of airline finance.

Understanding finance is critical in any industry; however, the financial track record of the airline industry places even more importance on effective financial management. Foundations of Airline Finance provides an introduction to the basics of finance – including time value of money, the valuation of assets, and revenue management – and the particular intricacies of airline finance where there can be wild fluctuations in both revenues and costs. The third edition of this text has been extensively updated to reflect the many changes in the air transport industry that have taken place since the publication of the second edition, and features an expanded chapter on aircraft leasing and many new international case examples.

This thorough introduction to aviation finance is valuable reading as a general, introductory financial text, or as reading in specialized airline finance classes.

Recenzijas

"Foundations of Airline Finance is a comprehensive text book for Aviation Management students and aviation professionals seeking to acquire useful knowledge on budgeting, finance and economic concepts and trends in the global air transportation domain" Dr. Wali Mughni, Dean & Director, Aviation Institute of Management

"An excellent insight into the area of Aviation Finance and a manual that you will turn to time and again during your career" Dr. John A. Kolmos, Assistant Professor CUNY Aviation Institute

List of figures xviii
List of tables xxi
About the authors xxv
Foreword xxvi
Barry Butler
Foreword xxviii
Brian Pearce
Foreword xxx
Greg Hart
Preface to the third edition xxxi
Acknowledgments xxxiii
List of abbreviations xxxiv
Part 1 Theoretical aspects of airline finance 1(158)
1 Airline finance: an overview
3(37)
Introduction and historical background
4(11)
Bankruptcies and consolidation
5(6)
Legacy carriers' response to the low-cost challenge
11(4)
The international nature of the aviation industry
15(4)
Objectives of airlines
19(1)
Accounting profit
20(1)
Economic profit
21(1)
Business organizational structures
22(4)
Sole proprietorships
23(1)
Partnerships
23(1)
Corporations
24(1)
Not-for-profit organizations (NPOs)
25(1)
Comparison between business structures
26(1)
Agency issues
27(3)
Financial markets
30(4)
Primary markets
31(1)
Secondary markets
32(1)
Money markets and capital markets
33(1)
Money Markets
33(1)
Capital markets
34(1)
The federal taxes structure
34(2)
Individual and corporate income taxes
35(1)
Corporate tax rate
35(1)
Income taxes: corporate taxes versus individual taxes
36(5)
Tax loss carryback and carryforward
36(1)
Summary
36(1)
Discussion questions and problems
37(3)
2 Cost classifications and control
40(37)
Production costs
41(4)
Fixed costs (FC)
42(2)
Variable costs (VC)
44(1)
Airline metrics
45(7)
Marginal costs (MC)
47(5)
The use of costs for managerial decisions
52(1)
Opportunity cost
53(2)
Sunk costs
54(1)
Start-up costs
55(1)
Structure of airline costs
55(8)
Operating costs (OCs)
56(5)
Direct operating costs (DOC)
58(2)
Indirect operating costs
60(1)
Non-operating costs
61(1)
Taxation
61(2)
Airline cost-control strategies
63(7)
Rebalancing/restructuring strategies
64(2)
Cost-cutting strategies
66(2)
Productivity enhancement strategies
68(2)
Impediments to cost control
70(1)
Cost control in focus: U.S. airlines
70(3)
Summary
73(1)
Discussion questions and problems
73(4)
3 The time value of money and its setting in the aviation industry
77(46)
Introduction
77(1)
The time value of money
78(1)
Future value of a single cash flow (FV)
79(7)
Simple interest
79(2)
Compounding interest
81(5)
Present value of a single cash flow (PV)
86(6)
More frequent compounding
92(4)
Annuities
96(8)
Present value of annuities
97(4)
Future value of annuities
101(3)
Perpetuities
104(4)
Growing perpetuity
107(1)
Amortization
108(3)
Amortization schedule
109(2)
Summary
111(1)
Discussion questions and problems
111(4)
Appendix 3-A: time value of money calculations in excel
115(4)
Appendix 3-B: tables for time value of money
119(4)
4 Assessments of risk and return
123(36)
Actual and expected rates of return
124(1)
Dividend income
125(7)
Pot-Olio returns
129(3)
Financial risk analysis
132(4)
Variance and standard deviation
133(3)
Financial risk preferences
136(1)
Risk-averse investors
136(1)
Risk-neutral investors
137(1)
Risk-seeking investors
137(1)
Risk diversification
137(5)
Beta
142(3)
Capital asset pricing model (CAPM)
145(2)
Risk in the aviation industry
147(3)
Chapter 7 (liquidation) Bankruptcy
150(1)
Chapter 11 Bankruptcy
151(2)
Summary
153(1)
Discussion questions and problems
153(6)
Part 2 Airline accounting and finance 159(140)
5 Airline financial accounting practices
161(32)
Basic principles of accounting
162(4)
Financial accounting
164(1)
Managerial accounting
165(1)
Differences in airline accounting
166(1)
Issues pertaining to the airline industry
167(5)
Revenue recognition
167(2)
The IATA clearing house and foreign exchange
169(3)
Accounting treatment of frequent flyer programs
172(18)
Incremental cost method for mileage credits earned
174(3)
Deferred revenue method for mileage credits sold (residual estimation)
177(3)
Deferred revenue method for mileage credits earned (residual estimation)
180(3)
Customer loyalty programs
180(3)
Multi-deliverable revenue recognition methods
183(2)
Passenger ticket sales earning mileage credits
183(1)
Sale of mileage credits
183(2)
Interline frequent-flyer miles
185(2)
Frequent-flyer miles sold to third parties
187(1)
Accounting changes related to frequent flyer programs
188(1)
Disclosures
189(1)
Managerial implications of frequent flyer programs
189(1)
Summary
190(1)
Discussion questions and problems
191(2)
6 Financial performance and measurement
193(49)
Financial statements
194(1)
Balance sheet
195(23)
Current assets
196(4)
Fixed assets
200(1)
Depreciation
201(14)
Straight line
202(3)
Straight-line depreciation (SLD) with excel
205(1)
Double-declining-balance (DDB)
205(1)
Double-declining-balance (DDB) with excel
206(1)
Sum-of-years digits methods (SYD)
207(2)
Sum-of-years digits (SYD) with excel
209(1)
Modified accelerated cost recovery system (MACRS)
210(2)
Comparison of depreciation methods
212(3)
Current liabilities
215(1)
Long-term debt
216(1)
Stockholders' equity
217(1)
The statement of stockholders' equity
218(5)
Common stock at par value
218(1)
Additional paid-in capital
219(1)
Retained earnings and dividends
220(2)
Accumulated other comprehensive income (loss)
222(1)
Treasury stock
222(1)
Income statement
223(6)
Common-size income statement
227(2)
Earnings per share (EPS)
229(1)
Cash flow statement
230(6)
Operating activities
231(12)
Investing activities
234(1)
Financing activities
234(2)
Summary
236(1)
Discussion questions and problems
237(5)
7 Assessment of financial statements
242(57)
Introduction
242(1)
Financial ratio analysis
243(16)
Liquidity ratios
245(1)
Net working capital
245(1)
Current ratio (CR)
246(1)
Quick (acid-test) ratio
247(2)
Activity ratios
249(1)
Accounts receivables turnover ratio/days of accounts receivable
249(1)
Inventory turnover ratio/days of inventory
250(2)
Total asset turnover ratio
252(1)
Accounts payable turnover ratio/days of accounts payable
252(1)
Profitability ratios
253(1)
Operating profit margin ratio
254(1)
Net profit margin ratio
254(1)
Return on assets (ROA)
255(2)
Return on equity (ROE)
257(1)
The DuPont analysis
258(1)
Leverage ratios
259(7)
Debt-to-equity ratio
260(1)
Debt ratio
260(1)
Times interest earned ratio (TIE)
261(1)
Stock market ratios
262(1)
Earnings per share (EPS)
263(1)
Price-earnings ratio
264(1)
Dividend payout ratio (DPR)
265(1)
Dividend yield ratio
266(1)
Airline-specific financial ratios
266(6)
Break-even load factor (BLF)
271(1)
Airline industry benchmarking
272(16)
Liquidity ratio analysis
272(1)
Activity ratio analysis
272(3)
Profitability ratio analysis
275(4)
Leverage ratio analysis
279(2)
Stock market analysis
281(1)
Operational analysis
282(6)
Predicting insolvency
288(2)
Altman's Z-score model
289(1)
Summary
290(1)
Discussion questions and problems
291(4)
Appendix 7-A: financial ratios
295(2)
Appendix 7-B: DuPont Model
297(2)
Part 3 Airline capital budgeting 299(172)
8 Airline capital budgeting
301(43)
Capital budgeting and cash flows
302(3)
Project classifications
305(2)
Replacement vs. expansion decisions
305(1)
Independent projects vs. mutually exclusive projects
306(1)
Investment in long-term assets (capital budgeting)
307(1)
Payback period
307(5)
Discounted payback period
310(2)
Net present value (NPV)
312(6)
Internal rate of return (IRR)
318(10)
Modified internal rate of return (MIRR)
326(2)
Profitability index (PI)
328(2)
Break-even analysis (BEP)
330(8)
Production break-even
331(1)
Graphical approach to break-even analysis
332(2)
Project break-even
334(1)
Economic (present value) break-even point
335(2)
Annual production break-even
335(2)
Break-even load factor
337(1)
Summary
338(1)
Discussion questions
338(6)
9 Airline capital structure and cost of capital
344(79)
Equity financing
346(21)
Internal equity (retained earnings)
347(1)
External equity
347(21)
Common stock
348(1)
Stock price (par value, book value and market value)
349(1)
Return on average capital employed (ROCE)
350(5)
Dividend discount models
355(1)
Zero growth (constant dividend)
355(2)
Constant dividend growth
357(5)
Non-constant growth
362(1)
Free cash flow valuation
363(2)
Preferred stock
365(1)
Valuation of preferred stock
366(1)
Stock market overview
367(1)
Debt financing
368(15)
Bonds, notes, and debentures
368(1)
Types of bonds
369(1)
Airline debt instruments
370(2)
Coupon bonds
372(8)
Zero-coupon bonds
379(1)
Valuation of zero-coupon bonds
380(1)
Perpetual bonds
380(3)
Bond market overview
383(7)
The role of bonds and stocks in the aviation industry
390(2)
Cost of capital
392(8)
Cost of equity and retained earnings
393(1)
Capital asset pricing model (CAPM)
394(3)
Cost of preferred stock
397(1)
Cost of debt
397(4)
Tax shield of debt
399(1)
Factors affecting the cost of capital
400(1)
Business risk
401(4)
Demand volatility
402(1)
Input cost volatility
402(1)
Sales price volatility
402(1)
Ability to match price to input costs
402(1)
Timely new product development
402(1)
Operating leverage
403(2)
Financial leverage
405(4)
Weighted average cost of capital (WACC)
409(3)
Step one
410(1)
Step two
410(1)
Step three
410(1)
Step four
411(1)
Cost of capital and financial distress
412(3)
Marginal cost of capital (MCC)
415(2)
Summary
417(1)
Discussion questions and problems
418(5)
10 Management of current assets
423(48)
Working capital policy
424(8)
Cash management
432(16)
Transaction motive
432(1)
Precautionary motive
432(1)
Speculative motive
433(1)
Cash shortages
434(2)
Cash surpluses
436(2)
Liquidity (cash) management models
438(4)
Baumol-Tobin cash inventory model
438(4)
Miller-Orr model: fluctuations in cash flow
442(3)
Foreign exchange
445(1)
Operating cycle
446(2)
Accounts receivable
448(3)
Current liabilities management
451(1)
Terms of credit
451(3)
Inventory control models
454(12)
Inventory carrying (holding) costs
454(1)
Inventory ordering costs
455(2)
Economic order quantity (EOQ)
457(3)
Determining EOQ with quantity discounts
460(2)
Reorder point with safety stock
462(1)
Just-in-time UIT)
463(2)
ABC inventory control model
465(1)
Summary
466(1)
Discussion questions and problems
467(4)
Part 4 Practical applications of airline finance 471(160)
11 Airline fuel hedging practice
473(43)
Concept of risk
474(4)
Identifying risk
475(3)
Fuel-price risk
478(1)
Currency risk
479(1)
Interest rate risk
480(2)
Risk control
481(1)
Hedging principles
482(2)
Should the firm hedge?
483(1)
Introduction to financial derivatives
484(1)
Options contracts
484(1)
Call options
485(2)
Put options
487(6)
Futures and forward contracts
490(3)
Hedging strategies for the airline industry
493(11)
Other risk reduction strategies
496(2)
Swap contracts
498(4)
Zero cost and premium collars
502(2)
Scenario one
504(1)
Scenario two
505(1)
Scenario three
505(1)
Three-way collars
506(1)
Hedging limitations
506(2)
Accounting for financial derivatives
508(2)
Terminologies
510(1)
Summary
511(1)
Discussion questions and problems
511(3)
Appendix 11-A: Black-Scholes option pricing model
514(2)
12 Analysis of aircraft leasing
516(46)
Lease characteristics
517(1)
Types of leases
518(9)
Operating lease
519(3)
Financial (capital) lease
522(3)
Lease vs. buy analysis
525(2)
Other leasing strategies
527(6)
Wet lease
527(2)
Sale and leaseback (SLB)
529(2)
Leveraged leases
531(1)
Cross-border lease leasing
531(2)
Buy vs. lease analysis
533(13)
Net advantage to leasing (NAL)
534(6)
Direct NAL analysis
540(2)
Lessor NPV analysis
542(4)
Major aircraft-leasing companies
546(7)
AerCap holdings
547(1)
GE capital aviation services (GECAS)
548(1)
Air Lease Corporation (ALC)
548(1)
Avolon holdings
548(1)
Boeing Capital Corporation (BCC)
549(1)
Airbus asset management
549(1)
Dubai aerospace enterprise (DAE)
549(4)
Summary
553(1)
Discussion questions and problems
554(4)
Appendix 12-A: key provisions of a dry operating lease
558(2)
Appendix 12-B: key provisions of an operating wet lease (ACMI)
560(2)
13 Application of financial theory to aviation industry
562(38)
Commercial airport and air traffic control (ATC) systems
563(1)
The US. model
564(2)
The Canadian model
566(1)
The British model
567(1)
Rest of the world
568(2)
Airport valuation
570(6)
Applications
574(2)
Commercial aircraft industry
576(4)
Large commercial aircraft manufacturers
577(1)
Regional jet manufacturers
578(4)
Bombardier
579(1)
Aircraft secured bond products
580(2)
Asset-backed securities (ABS)
582(9)
Pros of asset-backed securities
583(1)
Cons of asset-backed securities
584(1)
Conventional equipment trust certificates (ETCs) and pass-through certificates (PTCs)
584(2)
Pass-through certates (PTC)
585(1)
Aircraft lease portfolio securitizations
586(4)
Airline default and credit risk
590(1)
Asset risk
590(1)
Repossession risk
590(1)
Enhanced equipment trust certificates (EETCs)
591(5)
Cross-collateralization
593(2)
Tranching
595(1)
Liquidity facility
595(1)
Cross default
596(1)
Summary
596(1)
Discussion questions
596(4)
14 Airline revenue management
600(31)
Introduction
600(2)
Airline pricing policy airline revenue management
602(7)
Price discrimination
604(1)
First-degree (perfect) price discrimination
604(1)
Second-degree (quantity discounts) price discrimination
605(1)
Third-degree (multi-market) price discrimination
605(1)
Revenue management
605(4)
Revenue management "fences"
609(4)
Advance purchase restrictions
610(1)
Passenger loyalty programs
610(1)
Ticket refundability
611(1)
Change fees
612(1)
Schedule-driven "restrictions" or "fences"
612(1)
Saturday night rule
612(1)
Revenue management in practice
613(3)
Spoilage and spillage
615(1)
Leg-based EMSR model
616(12)
Overbooking
624(1)
Forecasting overbooking levels
625(3)
Other issues associated with revenue management
628(1)
Summary
628(1)
Discussion questions
629(2)
Glossary of Terms 631(8)
Index 639
Bijan Vasigh is Professor of Economics and Finance in the College of Business at Embry-Riddle Aeronautical University, Daytona Beach Florida, USA, and a Managing Director at Aviation Consulting Group, LLC.

Zane C. Rowe is Executive Vice President and Chief Financial Officer of VMware. He has spent more than 20 years in executive roles at a variety of multinational corporations including United Continental Holdings and EMC Corporation.