Application Of Real Option Method In The Aircraft Operating Lease Decision

The leasing business has developed prosperously in recent years all over the world. The airlines update and expand its fleet through aircraft lease nowadays, which is one of the basic means. China Airlines also follow this trend, and they regard the aircraft leasing as the method of finance. The leasing business derived many ways during development, and each has its own characteristics, so companies often need to choose an optimal one in face of the choice of a variety of leasing. Leasing decision-making is just to make the best choice through analyzing the pros and cons of different ways, through comprehensive, effective economic analysis under different conditions. Leasing decision, right or not, is an important guarantee of using funds reasonably and scientifically in companies.With the fluctuations of the air transport market under the global economic environment, the uncertainty of the future market has become an important factor affecting the airline investment decision. Operating leasing aircraft becomes the realistic choice of airline for its lower cost and higher flexibility. Traditional methods of net present value (NPV) often imply some unrealistic assumptions while evaluating lease project, such as leasing projects cannot be withdrawn or renew or lien. The net present value method (NPV) projects cannot be considered to make any adjustments in the future. Thus evaluating flexibility or strategic growth projects, NPV always tends to underestimate the value of the project, which results in missing investment opportunities. There are options similar to financial options during aircraft operating lease decisions. If the option value can be calculated quantitatively, then it is a great help for us to make a scientific decision.This article mainly researches the application of real option in the leasing decision on the basis of domestic and international leasing decision theory research, and this method makes up the shortcomings of NPV. The paper firstly analyzes the uncertainty in the process of leasing, and points out the limitations of the traditional leasing decision-making while dealing with these characteristics, and then the real option theory is introduced. And as an example, real option in aircraft operational leasing decisions is analysis, and a real option decision model is built. Finally, the conclusion that real options method is more scientific and effectively than NPV is made through comparing the differences between traditional method and real option method in the case of aircraft operating leasing.