Originally Posted by AK26

Nope, the CC income is a continuous income source that is part of/deeply integrated into their airline operations. SLBs are a non-operating revenue source that will go away once the order is fulfilled...SLBs are not a strategy for an airline, and cannot be capitalized -- they are valued separately as a limited-time cash flow stream.

Just for context on the SLBs, the revenue that is booked is the gain on sale, not the price of the sale: lets say they purchased each plane at an average price of $35M at the market lows during COVID, and the market value for each now averages $50M...they can book $15M in revenue. However, lease rates are tied to current market values, so Frontier's leasing costs go up...lessors are financials businesses and they are generally not buying planes (even in a competitive SLB market) if they don't see a good return on them.

The proper way to account for SLB revenue is to separate them from the airline operations business, and to value them as a one-time stream of cash flows. At a high level, with rough numbers and assumptions, let's say you believe the average airline should be worth 6x their profits (lets use EBITDAR in this case), and that Frontier is no different than the average airline in terms of what it should be worth as a business. If Frontier's EBITDAR in a normalized scenario is $700M, then the company should be worth $4.2B. Let's say you spread the cash flows from the SLBs and come up with a value of about $1B for the SLBs...now you have the company as worth $5.2B. To get to the equity value you subtract the debt (including leases), let's say approximately $5B...you get just $200M left for the equity. Instead, if you don't separate out the SLBs and treat them as normal earnings...you would be adding ~$300M to revenue with little to no costs, which you would then be capitalizing at 6x, as if it is recurring the same way your normal airline profits are. That would leave you with $1B in EBITDAR, giving you a $6B value and $1B for the equity...

To put it in another way, imagine you own a small manufacturing business that generates $100k in profits every year. 10 years ago you purchased a factory for $1M, and now that factory is on prime real estate for data centers, and you get an offer to sell that factory for $11M. You sell and book the gain-on-sale profit of $10M (ignoring depreciation). Do you think that your business should be valued like a business generating $100k in profits per year or $10.1M in profits per year?