In order to protect its operation from 2007 onwards, Dragonair needed to replace a reserve engine that was deemed beyond economical repair back in late 2002. Three alternatives were available to address this need. First, Dragonair could purchase the engine outright, which would require it to put an order with the producer 12 months ahead of time and pay an upfront deposit.
The airline could choose a sale and leaseback transaction with a leasing company it would sell the engine it bought to the leasing company and then rent it back from the leasing company for an agreed period. Third, a new engine could be leased by the airline directly from a leasing company, in which case the leasing arrangement would be the same as the sale-and-leaseback transaction.
PUBLICATION DATE: January 15, 2010 PRODUCT #: HKU882-PDF-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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