Aircraft lease-purchase decision making : what influences airline management?

In the airline sector many aircraft are subject to long-term lease agreements in the belief that operating, investing and financing benefits flow to the lessee. This study aims to provide a better understanding of lease-purchase decision-making from an airline perspective. Aircraft acquisition involves core assets that impact on cost structure, profitability and overall corporate performance. Although the lease purchase decision is a common scenario little current attention and limited empirical findings exist in Australia on the process of lease-purchase decision making by firms. The airline industry has been chosen as the case object due to its heavy reliance on lease financing for major expenditure on aircraft. It was found that much of the literature on leasing is based on neo-classical economic theory of the firm and finance theory, which rely on limiting assumptions about the real world. These theories are considered in relation to the findings of the research but fall short of predicting all of the factors taken into account by management in its decision making. Post Keynesian economic theory was found to be more relevant as it pragmatically recognizes the uncertainty inherent in economic activity and the path dependency of decisions over time. The findings address an identified niche in the existing literature calling for empirical research on a) the decision-making rationale of the agent in lease financing b) the actual process and key players involved in lease-purchase decisions and c) the impact such decisions might have on financial reporting. A mixed method approach was used in this study, combining survey data with interviews and other archival data. Statistical as well as a qualitative research software program assist the data analysis. This study contributes to an understanding of the process of making the strategically important decision of acquiring aircraft from an airline perspective in Australia and its ramifications over the longer term on corporate financial performance.