Aircraft acquisition optimization under demand and cost fluctuations: Before and after leasing standard changes

Abstract

Given the high-value characteristics of aircraft, fluctuations in air transport demand, and dynamic leasing and purchasing costs, airlines' decisions regarding aircraft acquisition are crucial to their costs and profits. Based on the International Financial Reporting Standard (IFRS) 16 Leases, which has been in effect since 2019, all leases with terms of more than 12 months are on a balance sheet of lessees. This change may impact airlines’ financial performance and aircraft leasing decisions. This paper focuses on optimizing aircraft acquisition before and after applying IFRS 16 under multiple fluctuating factors, including aircraft demand and acquisition costs, by formulating an integer programming model. The results indicate that airlines still have to acquire a few aircraft from a channel similar to operating leases, with short lease terms but high rents. Moreover, a lease type similar to a financial lease in the old standard is increasingly adopted after the enforcement of IFRS 16 in the numerical experiments. Furthermore, aircraft leases and purchases are required for fewer years under IFRS 16 than under IAS 17.