LEASE OR BUY? AN NPV MODEL FOR AIRCRAFT FINANCING IN NIGERIA’S HIGH-COST AVIATION MARKET
Keywords:
Operating lease, aircraft acquisition, Net Present Value, cost of capital, exchange-rate risk, airline financeAbstract
Nigeria’s aviation industry operates in a macroeconomic environment characterised by high lending rates, exchange-rate volatility, and limited access to long-term local-currency finance. These conditions materially affect the relative financial attractiveness of leasing and debt-financed aircraft ownership. This study develops an Integrated Net Present Value–Sensitivity Analysis (INPV-SA) model to evaluate the 10-year financial feasibility of an operating lease versus debt-financed purchase of a Boeing 737 MAX 8 in Nigeria. The model incorporates lending rate, exchange-rate depreciation, maintenance costs, maintenance-reserve escalation, residual value, tax-shield utilisation, and the weighted average cost of capital, using publicly available financial and aviation data. The baseline results show a present-value cost of ₦197.8 billion for purchase compared with ₦158.3 billion for leasing, producing a differential NPV of −₦39.5 billion and indicating a financial advantage for leasing under the baseline assumptions. The estimated break-even lending rate is 18.7%; below this threshold, ownership becomes financially competitive, while above it leasing is preferred. Sensitivity results identify lending rate and exchange-rate depreciation as the dominant drivers of the financing decision. The two-way analysis further shows that the ownership threshold falls as currency depreciation intensifies. The study therefore provides a Nigeria-specific decision framework for airline managers, financiers, and policymakers assessing fleet acquisition under high-cost-of-capital conditions.
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