A Financial Model Case Study: Creating a Regional Airline

Abstract

The Paper presents a case study of a (bit fictionalized) financial model that has to do with developing a regional airline with the fleet of 3 turboprops. It is a integrated (3-statement) nominal financial model (at the monthly frequency) with a number of innovative features that relate to internalizing the timing of repair and overhaul flags for the fleet. It provides and reconciles the derivation of FCFF and FCFE cashflows under both the direct and indirect method. The model also incorporates some advanced features, such as accounting for aviation subsidies, as provisioning for the overhauls of Airframes and Engines, and the treatment of Tax Loss Carryforwards in situations with the payment of the profit tax in monthly advances.

Keywords: three statement financial model, flags in financial modelling, Free Cash Flow to the Firm (FCFF), Free Cash Flow to Equity (FCFE)

JEL Classification: G31