Valuation Model Based On The Residual Value Of Aircraft Lease

Aircraft is one of the most high-tech and complicated modern means oftransportation. The prices of aircrafts are prohibitive. For the consideration ofhigher ROA (return on assets), a growing number of airlines have adoptaircraft operating lease rather than acquire the aircraft directly. In themeantime, airlines would no longer suffer from the risks of inflexible ofcapital allocation and high debt/asset ratio, as well as the obsolescence ofaircrafts.The risk of aircrafts disposal or the residual risk, then, is transferred toaircraft leasing companies. The residual value of the aircrafts would beinfluenced by a great number of factors which makes it much volatile anddifficult to predict.First, the factors which may affect the residual value are discussed, andas well as the supply-demand relationship which makes the residual valuevolatile periodically. Then, the thesis emphasized on a financial productwhich is designed to hedge the residual value risk. At last, the thesisattempted to establish a valuation mode of the financial product.