Value of an airline business

[nomorecatering]

I''m looking for some advice from some wiser business heads for a paper I have to write for uni.

Have been give the task to establish the value of an airline for the porposes of a sale/takeover I picked REX.

How would one value the airline, I know it has anual revenues of around 100-120 million. Would that give u a rough estimate of its market value?? To buy it outright.

What other factors should I consider??

Anyone got a figures that I could work on.

I'm not going to buy it, merely an exercise to get a pass in the course so only after academic, business advice please.

[Lodown]

This will confuse you even more...

Have you done some accounting things like NPV, ROI, IRR, EVA, etc? You'll need measures of the economic condition of the company.

If not, get hold of a management acounting book and have a quick read (if that is possible with a book like that). I just had a quick look on Rex's website. You may want to pick a company where you can access an annual shareholders' report.

And don't forget to factor in the price of oil over the next few years and its effect on travel demand. The world is close to peak production and oil costs are expected to rise rapidly as supply dwindles.

Have fun.

[7gcbc]

Nomorecatering,

Two ways :

Easy:

Look at smh.com.au, go to the business section,

Qantas
http://markets.smh.com.au/apps/qt/quote.ac?section=quotedetail&sy=smh&type=delayedquote&code=QAN#tabs

Value = Market Capitalization, share price = issued/ market cap

That gives you the current market value of QF.


Economists way:

Look at the P&L Statement from last published term, and the most recent financials, including cashflow and Balance Sheet.

Work out what the net profit after tax, the ROI (ROIC, ROCE) these all mean the same thing, Return on Invested Capital, Return on Investment, or Return on Capital Employed, ie how well are the assets the company owns working for them, a key indicator of value.

Look at direct costs, ie fuel, airport usage, etc, these are all on the P&L in the first "block"

Look at Overheads and indirects (i.e salaries and wages, advertising, HQ charges and so forth).

subtract these directs from the income (usually first line on P&L) and thats your current simple value.

Add in the real assets from the BS, Subtract the real Liabilities and that gives you a fairly good yardstick of what she's really worth.

Then you have off balance sheet liablities (ie it might happen bad) and off balance sheet assets (it might happen good) - this includes forward hedges on currency, long term contracts and so forth.

and you need to wet your finger, stick it in the air and make a call on what you think these suppose'd future events will have on the airline.

Then look at the market, competition, oil, and any forward yahoo-ing that GWB might decide to do , and see if that will impact the forecasted income that QF will have published.

obviously each one of these items can be broken down into gazillions of components , but thats the basic method.

Then you have the "uniqueness" of airlines, for one, they usually don't purchase outright their assets (i.e Ryanair hardly owns a plane, they are all leased), thus the IRR (Iternal Rate of Return) calc's and other asset gearing shen-anagins that go on are quite complex, that said, its still a dollar value at the end of the day. This should appear clearly on their financial statements and as such , you can just take this figure as vanilla.

Airlines also make a bunch of cash from ancilliary, or support services, would you be surprised to hear that the Carparking at Kingsford Smith is a huge income earner for SACL, and QF have a slice of that, or similar operations, or agreements with the service provider, ie the airport authority.

Shopping ? Been to Dubai ? enough said, its probably more profitable for some airlines to flog gucci hand-bags to wealthy "no-tax-state" people who pay in hard currency, than it is to fly a bunch or 30 something Londoners to Ibiza for the weekend.



Beancounter Way: :mad:

Take every thing down to the detail at [tediously nitpicking and anal retentive ] detail level, ie, copy , route for route, all the airlines services, work out the type of aircraft, an estimate of the leasing agreements, an estimate of the overhead per leg, work out all the movements at a detail level, and so forth, add all this up in a mother of consolidations, add on the overheads, and you get your cost base, subtract this from the income (at the same level of detail) and do it for weeks and weeks and weeks and you will arrive an a number that bears no humanly resemblence to what the said company publishes as its value. :D

in otherwords guess :uhoh: !
cheers

7gcbc