lmml 14/32
Posts: 2358
Joined: Tue Jan 30, 2001 2:27 am

Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 7:51 pm

I wonder if you have come across a recent airline balance sheet (since 9/11) and had the opportunity to compare the aircraft values with last year's accounts. Have you noticed any significant depreciation?
 
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RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 8:37 pm

Airlines will only depreciate aircraft they actually own - most airlines lease their aircraft which is an off-balance sheet transaction.

Aircraft are generally written down to a 25% value over a 10 - 20 year periodfrom new; and young second hand the same residual value over a 5 - 10 year timescale. Much older aircraft will be written off entirely on the remaining balance of a D check.
 
lmml 14/32
Posts: 2358
Joined: Tue Jan 30, 2001 2:27 am

RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 9:50 pm

Yes, but with all these airlines grounding their aircraft the residual value of aircraft is a lot less now than it was 6 months ago. I think that this should be reflected on the balance sheet even though it may be temporary.
 
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RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 9:55 pm

No, it doesn't work that way. The only companies that would accellerate the write-downs are those which are parking the aircraft. Remember, this serves to make a bigger dent in your profits - or a deeper hole in your losses!
 
lutfi
Posts: 690
Joined: Wed Sep 27, 2000 6:33 pm

RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 9:59 pm

Yes, as follows.

SQ
Singapore airlines has changed its depreciation policy from 10 years to 15 years, therefore reducing its depreciation bill by 134m SGD. It also transferred its freighter fleet to SQ Cargo (100% owned) therefore was able to recognise a 267m SGD revaluation surplus on those aircraft.

UA
UA took a big charge to reduce value of B744. 20m USD an aircraft IIRC

AA
AA wrote off the value of the F100 fleet

TG
TG bought a 12 year old B744 off lease for 21m USD, gives a good idea of the sort of market value these days

B747-200 are now going for 2m USD each, which is basically the value of the engine life until the next overhaul.

Ceilidh, off balance sheet depends on the nature of the lease. An operating lease just goes through the P&L account. Finance leases in most jurisdictions must be capitalised and put on the balance sheet. Sort of like the difference between renting a house (operating lease) and having a mortgage (finance lease)
 
lmml 14/32
Posts: 2358
Joined: Tue Jan 30, 2001 2:27 am

RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 10:10 pm

Lutfi - The SQ practice of slowing down depricitation is typical of most asian carriers. This will result in reporting greater operating profits.
$M21 for a 12 year old B744 illustrates what I am trying to say.
Maybe that is why most airlines are reporting major operating losses. This is artificial in a way and only reflects the present slump, which, hopefully, will only be temporary. The job cuts may be more permanent.
 
Guest

RE: Value Of Planes On The Balance Sheets.

Mon Dec 17, 2001 10:44 pm

Lufti - you're right, I'd forgotten about finance leases. They're amortised over the term of the lease, which gives them a neutral effect unless defaulted on.

SQ used to use their accellerated depreciation to avoid taxes - they would make huge tax losses as a result, then when they sold their aircraft (usually for a decent price as they would be under 10 years old) they would make a tax free profit.

However, the move to international accounting standards for airlines has forced them to move away from this.
 
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eta unknown
Posts: 1782
Joined: Wed Jun 13, 2001 5:03 am

RE: Value Of Planes On The Balance Sheets.

Thu Dec 20, 2001 4:36 pm

... or in the case of Royal Brunei (and some creative Bruneian accounting) you try to write off a 767-300 over 6 years. And they wonder why they never come close to making a profit- bring in professional accountants!
 
lmml 14/32
Posts: 2358
Joined: Tue Jan 30, 2001 2:27 am

RE: Value Of Planes On The Balance Sheets.

Thu Dec 20, 2001 10:28 pm

Perhaps it is because Royal Brunei are not interested in making a profit. They are a state owned airline which flies unprofitably for social reasons.
 
jhooper
Posts: 5560
Joined: Thu Dec 13, 2001 8:27 pm

RE: Value Of Planes On The Balance Sheets.

Fri Dec 21, 2001 7:59 pm

Which method of calculating depreciation do most airlines use?

straight-line depreciation?

double-declining balance depreciation?

sum-of-years-digits depreciation?

another method?
Last year 1,944 New Yorkers saw something and said something.
 
lmml 14/32
Posts: 2358
Joined: Tue Jan 30, 2001 2:27 am

RE: Value Of Planes On The Balance Sheets.

Fri Dec 21, 2001 8:48 pm

The straight line method is the most commonly used.

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