Bit Lease An Ethereumbased Solution to Leased Aircraft
Bit. Lease An Ethereum-based Solution to Leased Aircraft Audits Team 8: Andres Florez, Paul Lee, Junaedy Liem & Lyanna Lim
Problem: Current leasing process is highly convoluted Multiple parties generate records in aircraft leasing Manufacturer Aircraft Lessor $ $ Airline Lease Compliance report External auditor Records Aircraft MRO Service $ MRO service MROs Record review is challenging due to a lack of organized and reliable database § Review of physical documents § Rebuild aircraft maintenance history § Verify signatures in maintenance documents of internal auditors vs. regulator’s database § Identify possible modifications to records Current leasing process generates multiple, independent records that mandate costly audits at the end of each lease 2
Solution: Bit. Lease will solve cumbersome aircraft lease audit process Bit. Leases record storage & auditing § Bit. Lease is an aircraft leasing implementation of Ethereum Manufacturer MROs Records Airline Records Bitlease Bit. Lease enables immutable record keeping that benefits lessors & lessees § Enables & enforces smart contracts between lessors, lessees and all other leasing parties § Immutable records on private, permissioned blockchain enables faster, cheaper audits Bit. Lease reduces the cost and time of aircraft leasing audits 3
Solution: Bit. Lease will simplify the aircraft leasing industry Blockchain: a game of winners and losers How Bitlease Works MROs Any repair and maintenance work is recorded onto the blockchain. The transaction is verified only if all relevant parties agree, i. e. consensus Airlines Regulator The regulator monitors maintenance records and validates signatures of airlines’ internal auditors. Smart Contracts on Ethereum Manufacturers The manufacturer adds the model, aircraft identification number, and maintenance records to the aircraft template as permitted by the smart contract. The internal auditor registers the aircrafts’ maintenance records onto Bit. Lease. Lessors § Airlines (lessees) and aircraft owners (lessors) will benefit from reduced audit costs, immutable record of service, transaction confirmation efficiencies (from days to minutes) and higher consistencies § External auditors will be partially displaced; disintermediation occurs § Abusers will be discouraged to undertake fraudulent activities 4
Solution: High feasibility due to market structure and existing technology Requires only one lessor buyin • • • Simplifies processes for regulators & lessors • Leverages existing Technology • • Once leading lessor adopts Bit. Lease, airlines will follow Lessors are few and concentrated: Top 10 lessors have 66% market share Air lease market growth is high: CAGR of 6% through 2021 Lessors have significant information asymmetry once aircrafts are on lease, see value in a common database Physical audit is mandated by international aviation agencies – process must be done and is highly expensive Solution exists in already-established blockchains (eg: Quorum, Smart Contracts & Digital Twins) Airlines already use internal software for MRO purposes Guarantees privacy to all parties involved 5
Implementation: A deployed product will be available in 5 -7 months Definition 1 month Development 2 -3 months Proof of Concept 1 month Deployment Expansion 1 -2 months 5 months § Train personnel § Expand to other airlines § Identify lessor and airline § Develop software § Develop test scenarios § Clarify business process § Develop storage system § Perform tests § Launch application § Define development guidelines § Develop user interface § Make adjustments § Monitor progress § Expand to other lessors § Develop training materials 6
Future Work: Potential Upside for other Applications • Oil & Gas Equipment: ü Oil & gas companies which lease drilling rigs and crews from oil-field services companies can utilize blockchain to record equipment lease and equipment repair and maintenance. • Heavy Industrial Equipment: ü Lessors and lessees of land drilling and excavation equipment, heavy construction machinery etc can utilize blockchain to keep records. • Medical Equipment: ü Hospitals and clinics which rent medical devices for fixed-term use can keep records on the blockchain ledger. • Container Ships: ü Charter owners (lessors) and liner companies (lessees) can also utilize this blockchain technology to keep records of lease contract conditions and repair records 7
Risks & Mitigation: Mitigations plans have been formulated for high risk issues Risks Mitigation No lessor is on board right now Hire industry expert with connections in lessor companies Regulator buy-in Encourage lobbying from lessors and lessees First mover disadvantage Quickly increase barriers to entry through regulatory mandates Low barriers to entry (Bitcoin / Ethereum is non-proprietary) Bit. Lease application to be proprietary Security attacks Usage of Ethereum blockchain 8
Financials: We require $770 k in exchange for 30% share in Bit. Lease ( + ) ( - ) ( - ) ( = ) ($ 000’s) Revenue Developers Management Software licenses Rental Other overhead Total Operating Expenses EBITDA Taxes Net Income Free Cash Flow Terminal value Present Value 2, 407 Year 1 13 -120 -200 -4 -30 -0 Year 2 250 -180 -250 -6 -30 -23 Year 3 500 -300 -10 -32 Year 4 1, 000 -450 -400 -15 -30 -45 Year 5 2, 000 -600 -400 -20 -30 -53 -354 -342 120 -222 -489 -239 84 -156 -672 -172 60 -112 -940 60 -21 39 -1, 103 898 -314 583 -233 -156 -112 39 583 5, 007 Investment 770 ROI 3. 1 x 9
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