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PinkJet Airlines is a relatively new, low-cost com...




PinkJet Airlines is a relatively new, low-cost commercial carrier who now wants to expand its aircraft fleet. They have shopped-around for aircraft and what they need sells for about $50 million for each aircraft. They have retained your group as investment advisors. Your job is to present various financing alternatives to PinkJet. Pinkjet operates in an ever-changing competitive and economic environment. In the old days, airlines pretty much knew the routes they would be flying many years out, but that's not true anymore. Flexibility is very important these days, so airlines are less willing to lock-in deals that stretch many years out even though flexibility comes at a higher cost. However, PinkJet is also very interested in how your proposals will impact the financial statements. They already have some debt on their balance sheet, and naturally they would prefer not to have any more. On the other hand, they have no restrictive debt covenants, so they might be receptive to additional debt at the right price and terms. PinkJet wants to see three financing alternatives, and they have told you that one alternative must be straight debt financing where Pinket owns the aircraft (in other words, they receive the tax benefits), and another must be a "short-term" operating lease. The third alternative is up to you, but PinkJet has mentioned convertible debt as a possibility. Another possibility is a capital lease, but that would be attractive only if its afforded off-balance sheet treatment. PinkJet analyzes investment opportunities based on net present value of after-tax cash flows. PinkJet is profitable, and they project taxable income well into the future, i.e., they could use the tax benefits of ownership. PinkJet will tolerate some risk, but they will balk at what they think is excessive financial risk, and that includes accounting risk as well as economic risk. Presentation/Submission: Your FINAL proposal should be addressed to PinkJet's management team and include the following: 1. Comprehensive written report including objective, assumptions, results and conclusions (must inlcude all research to support the accounting treatment for your recommended alternatives) 2. Attached appendices of all calculations contained in the main report supporting your conclusions 3. 10 slide powerpoint presentation that would be used to present your conclusions and findings to the management group 4. Collaborate with your team and upload either a video or audio presentation of the power point presentation Your proposal must include your assumptions. I'm not giving you much to work on so your assumptions will be critical. For example, you have to come-up with your own interest rates, and you will have to do some research to determine a reasonable rate. Also, PinkJet looks at after-tax cash flows, so you will have some tax assumptions. Here too, they must be based upon something reasonable, for example MACRS


Paper#8409 | Written in 18-Jul-2015

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