Asset disposals and FCF

If an airline sells 100 aircraft at $20m each, what is the effect on free cash flows?

I have read that CAPEX cannot be negative, so in the standard FCF formula I assume this would not be reflected in CAPEX.

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (3)

Apr 7, 2021 - 4:29pm

Gain or loss from sale of assets should be reversed on CFO section (i.e if sale price>BV then the gain should be subtracted from when calculating Op. Cash flows and vice versa for loss on sale). On Investing cash flows, you should recognise the total sale value of the asset with a positive sign (inflow) which will partially offset capex for the year. For FCF, you need to account only for the non-cash portion (gain or loss on sale) just like you did on Op. Cash flows. Capex will take care of itself since it will be lower (net capex).

Laborare Pugnare Parati Sumus

Apr 8, 2021 - 6:10am

Thank you! Okay, if we have the following formulas:

FCF = EBITDA - D&A* 1-τ+ D&A - CAPEX - ∆NWC

Gain (loss) on sale = Sale price - (Purchase price - Accumulated depreciation))

Then the gain (loss) would be added to (subtracted from) EBITDA, correct?

And I would imagine that D&A in the future is affected as well, assuming that the airplanes were not fully depreciated?

These things would further impact tax expense, but I think CAPEX and NWC should be unchanged.

I could easily be wrong in any of the above, so would really appreciate if you would correct me! :-)

Start Discussion

Total Avg Compensation

June 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (35) $364
  • Associates (203) $232
  • 2nd Year Analyst (115) $151
  • Intern/Summer Associate (97) $145
  • 3rd+ Year Analyst (27) $145
  • 1st Year Analyst (420) $131
  • Intern/Summer Analyst (338) $82