Dragon Air

Hong Kong Dragon Airlines Limited

Lease VS Buy Decision

Objectives : Engine replacement for V2500 spare engine

Alternatives : - Lease

- Buy

Summary of alternatives

Lease - Non-cancellable 10 years contract

- 3 months rental deposit at contract acceptance

- Monthly Rental : 0.8% of engine price at time of purchase

- Rate per flight hour : US$100 (operate at 27K)

US$130 (operate at 33K)

- Rate per cycle : US$111

- Return conditions 1 : Certified serviceable with at least 9,000 hours(at 27 K) or 6,500 hours(at 33K) remaining until its next heavy maintenance

- Return conditions 2 : Each life-limited part shall have at least 6,000 cycles remaining

- Other expenses : If return condition is not met, additional rent must be paid

Buy - Order lead time is 12 months

- 15% of purchase price(at time of delivery) deposit

- US$1.9 million for major maintenance in 2012

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Expenses (at 2012 price, based on 3% interest rate annually) See attached paper.

Lease : US$ 13,073,235

Buy

- 2.5 mill. Residue value : US$ 9,490, 882

- 3.0 mill. Residue value : US$ 8,990,882

DECISION : BUY

Hong Kong Dragon Airlines Limited : Lease VS. Buy Decision

Purchase Case Lease case

Buy Major Depreciation Tax