armchairceonr1
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Residual value of aircraft after 25 years in service? Case Norwegian

Mon Jan 15, 2018 4:37 pm

This question come to my mind, after I checked Norwegians depreciation policy. They use residual value about 30% after 25 years in service and make depreciation of 70% in 25 years. Last year they sold 11 owned aircraft, which were overvalued in balance sheet about 25% comparing to market price.

In practise, Norwegian depreciation policy means that 15 years old 737-800 value is about 23 m$ in their books and after 25 years it's value is about 12 m$. I assume that there is a lot of cap in their numbers, what do you think?
 
wrongwayup
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Jan 15, 2018 6:19 pm

25yrs to 30% is quite high. Using "straight line" depreciation with a 25yr useful life and residual value of 15% of initial value is fairly common among airlines and lessors. I also believe it's reasonably accurate only at the very beginning and very end of the lifecycle, which is why aircraft sold in the middle of their lives under this accounting mechanism are typically sold at a book loss, even before using Norwegian's aggressive schedule.

Declining balance depreciation to the same % of initial value at 25 yrs would be a better representation of the "market" for commercial aircraft generally.
 
MIflyer12
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Jan 15, 2018 7:12 pm

Lots of carriers have write downs of parts or aircraft when subfleets are terminated. If it's systemic and material, that's something for the auditors and equity listing party to investigate.
 
BestWestern
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Tue Jan 16, 2018 12:37 am

It could be argued that Norwegian are inflating their balance sheets to keep their debt and coverage ratios comfortable, but no doubt the investors and finance houses are shrewd enough to see through this.
Greetings from Hong Kong.... a subsidiary of China Inc.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 9:11 am

I checked AY's depreciation policy and they use 10% residual value after 20 years in service. This is huge differ: Hypothetically after 20 years in service 150 million$ aircraft value at Norwegian balance sheet is 66 million$ and sametime at AY's balance sheet 15 million$. Who want to buy 20 years old 787-9 By 66 million$?

This also impacts to Norwegian financial result around 400-500 million NOK/year.
 
worldranger
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 9:19 am

The depreciation is offset against taxes, is it not? And thus accounting gymnastics are used primarily for this reason rather than reality. It’s up to the taxing State - to determine how much depreciation can be used. Correct me if I’m wrong? I believe this credit can be carried forward to profitable years in event of loss (this year?)
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 9:25 am

worldranger wrote:
The depreciation is offset against taxes, is it not? And thus accounting gymnastics are used primarily for this reason rather than reality. It’s up to the taxing State - to determine how much depreciation can be used. Correct me if I’m wrong? I believe this credit can be carried forward to profitable years in event of loss (this year?)

Yes it's also up to taxing State and majority of Norwegian aircraft's is owned By Ireland based Company. They use this policy to get numbers look nicer, not for tax purposes.
 
StTim
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 9:30 am

It has at least two effects.

Firstly it, as stated above, inflates the assets on the balance sheet, and thus can help with the covenants. Savvy lenders would definitely see through it though.

Secondly as less depreciation expense is written off against the operating revenue it will inflate profits.

But it does not affect the cash position.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 9:48 am

Ryanair's depreciation policy is: Useful Life 23 years from date of manufacture and Residual Value 15% of current market value of new aircraft, determined periodically.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 10:27 am

StTim wrote:
But it does not affect the cash position.

That's true.

But otherwise Norwegian's last year "CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW" is incorrect. They doesn't correct influence of revalued NOFI shares to their "Net cash flows from operating activities" counting. Thus their reported operational cashflow is almost 2000 million NOK too high. Revaluating something on the balance sheet has no cash effect, maybe they correct this to audited annual report.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 11:11 am

armchairceonr1 wrote:
This question come to my mind, after I checked Norwegians depreciation policy. They use residual value about 30% after 25 years in service and make depreciation of 70% in 25 years. Last year they sold 11 owned aircraft, which were overvalued in balance sheet about 25% comparing to market price.

In practise, Norwegian depreciation policy means that 15 years old 737-800 value is about 23 m$ in their books and after 25 years it's value is about 12 m$. I assume that there is a lot of cap in their numbers, what do you think?


I do find that Norwegian depreciates owned frames over 25 years. Where is it stated that Norwegian over this time depreciates only down to 30%?

Reading about depreciation in Ireland, I am a little bit astonished how they should get away with 25 years and 30% residual value after that. Plants and industrial buildings are allowed to depreciate linear with 4% over 25 years, that is down to zero. It would be interesting how airplanes can go beyond that.

Plants and machinery are usually depreciated over 8 years in Ireland.
Last edited by mjoelnir on Mon Feb 19, 2018 11:23 am, edited 2 times in total.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 11:12 am

worldranger wrote:
The depreciation is offset against taxes, is it not? And thus accounting gymnastics are used primarily for this reason rather than reality. It’s up to the taxing State - to determine how much depreciation can be used. Correct me if I’m wrong? I believe this credit can be carried forward to profitable years in event of loss (this year?)



That is a misunderstanding. The deprecation has mainly influence on profits. Only because profits are taxed it has influence on taxes.

If you depreciate fast, you show lower profits, if you depreciate slow you show higher profits. If you anyway operate at a loss, you show lower losses with depreciating slowly.
Investors should carefully read the depreciation policy of a company, it has to be shown clearly in the financial results.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 11:38 am

mjoelnir wrote:
armchairceonr1 wrote:
This question come to my mind, after I checked Norwegians depreciation policy. They use residual value about 30% after 25 years in service and make depreciation of 70% in 25 years. Last year they sold 11 owned aircraft, which were overvalued in balance sheet about 25% comparing to market price.

In practise, Norwegian depreciation policy means that 15 years old 737-800 value is about 23 m$ in their books and after 25 years it's value is about 12 m$. I assume that there is a lot of cap in their numbers, what do you think?


I do find that Norwegian depreciates owned frames over 25 years. Where is it stated that Norwegian over this time depreciates only down to 30%?

Reading about depreciation in Ireland, I am a little bit astonished how they should get away with 25 years and 30% residual value after that. Plants and industrial buildings are allowed to depreciate linear with 4% over 25 years, that is down to zero. It would be interesting how airplanes can go beyond that.

Plants and machinery are usually depreciated over 8 years in Ireland.

30% is my estimate, because they announce it in their annual report 2016 like this:

Aircraft The Group acquired 17 Boeing 737-800 (2015: 10) and 2 Airbus 320neos (2015: 0) during 2016. In 2015, the Group acquired one Boeing 787-8 aircraft. The residual value is NOK 7 000 million (2015: NOK 5 770 million) in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft. The life expectancy of the body of the aircraft is 25 years for the 737, 787 and A320neo aircraft, and the economic life of the owned aircraft is 25 years less the age of the aircraft at time of purchase. The majority of the aircraft in the Group are accounted for in USD by the Groups subsidiary in Ireland, after transfers at December 31, 2013 and during 2014. Hence, the values in consolidated accounts as per December 31, 2016 include effects from currency translation.


Aircraft, parts and installations on leased aircraft Acquisition cost at December 31, 2016 was 27 175 180. 7000 million of 27175 is a bit over 25%, but 27175 include also parts and installations on leased aircraft. So my rough estimate is 30% and aircrafts acquisition cost is about 23000 million NOK.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 12:10 pm

rouelan wrote:
mjoelnir wrote:

I do find that Norwegian depreciates owned frames over 25 years. Where is it stated that Norwegian over this time depreciates only down to 30%?



I have the same question. I was so puzzled by this policy that I went straight to their financial report and did not find more than you did

At the end of 2016 residual value was 7000 million NOK, which you can find from annual report. Read my post above and annual report page 43.
Last edited by armchairceonr1 on Mon Feb 19, 2018 12:12 pm, edited 1 time in total.
 
rouelan
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 12:13 pm

mjoelnir wrote:

I do find that Norwegian depreciates owned frames over 25 years. Where is it stated that Norwegian over this time depreciates only down to 30%?



I have the same question. I was so puzzled by this policy that I went straight to their financial report and did not find more than you did
 
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lightsaber
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 12:15 pm

I'm with others, you should read the depreciation policy of a company. This... puts Norwegian's losses in a new light... Not a pretty light.

wrongwayup wrote:
25yrs to 30% is quite high. Using "straight line" depreciation with a 25yr useful life and residual value of 15% of initial value is fairly common among airlines and lessors. I also believe it's reasonably accurate only at the very beginning and very end of the lifecycle, which is why aircraft sold in the middle of their lives under this accounting mechanism are typically sold at a book loss, even before using Norwegian's aggressive schedule.

Declining balance depreciation to the same % of initial value at 25 yrs would be a better representation of the "market" for commercial aircraft generally.

30% at 25 years is 70% loss over 25 years or 2.8% per year. I'm surprised aircraft sold are only at 25% below book value.


armchairceonr1 wrote:
I checked AY's depreciation policy and they use 10% residual value after 20 years in service. This is huge differ: Hypothetically after 20 years in service 150 million$ aircraft value at Norwegian balance sheet is 66 million$ and sametime at AY's balance sheet 15 million$. Who want to buy 20 years old 787-9 By 66 million$?

This also impacts to Norwegian financial result around 400-500 million NOK/year.

10% at 20 years is a much more reasonable depreciation. That is 4.5% per year. Much more reasonable. Much less time under-water with the aircraft.

Lightsaber
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armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 12:41 pm

lightsaber wrote:
I'm with others, you should read the depreciation policy of a company. This... puts Norwegian's losses in a new light... Not a pretty light.

wrongwayup wrote:
25yrs to 30% is quite high. Using "straight line" depreciation with a 25yr useful life and residual value of 15% of initial value is fairly common among airlines and lessors. I also believe it's reasonably accurate only at the very beginning and very end of the lifecycle, which is why aircraft sold in the middle of their lives under this accounting mechanism are typically sold at a book loss, even before using Norwegian's aggressive schedule.

Declining balance depreciation to the same % of initial value at 25 yrs would be a better representation of the "market" for commercial aircraft generally.

30% at 25 years is 70% loss over 25 years or 2.8% per year. I'm surprised aircraft sold are only at 25% below book value.

Those sold aircrafts were pretty young (Norwegian doesn't own old one :) ) and those 11 737-800's book value was around 2500 million NOK and they sold those for around 1900 million NOK, 172 mNOK or 22 m$/ each. Cap come bigger, when time go on.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:01 pm

armchairceonr1 wrote:
lightsaber wrote:
I'm with others, you should read the depreciation policy of a company. This... puts Norwegian's losses in a new light... Not a pretty light.

wrongwayup wrote:
25yrs to 30% is quite high. Using "straight line" depreciation with a 25yr useful life and residual value of 15% of initial value is fairly common among airlines and lessors. I also believe it's reasonably accurate only at the very beginning and very end of the lifecycle, which is why aircraft sold in the middle of their lives under this accounting mechanism are typically sold at a book loss, even before using Norwegian's aggressive schedule.

Declining balance depreciation to the same % of initial value at 25 yrs would be a better representation of the "market" for commercial aircraft generally.

30% at 25 years is 70% loss over 25 years or 2.8% per year. I'm surprised aircraft sold are only at 25% below book value.

Those sold aircrafts were pretty young (Norwegian doesn't own old one :) ) and those 11 737-800's book value was around 2500 million NOK and they sold those for around 1900 million NOK, 172 mNOK or 22 m$/ each. Cap come bigger, when time go on.


I am still asking where the 30% residual value after 25 years depreciation comes from.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:08 pm

mjoelnir wrote:
I am still asking where the 30% residual value after 25 years depreciation comes from.

I already answered to you once, it comes from Norwegian's annual report. They doesn't announce actual %, but you can estimate it from announced numbers. They announce only residual value, which was 7000 million NOK in the end of 2016.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:13 pm

armchairceonr1 wrote:
mjoelnir wrote:
armchairceonr1 wrote:
This question come to my mind, after I checked Norwegians depreciation policy. They use residual value about 30% after 25 years in service and make depreciation of 70% in 25 years. Last year they sold 11 owned aircraft, which were overvalued in balance sheet about 25% comparing to market price.

In practise, Norwegian depreciation policy means that 15 years old 737-800 value is about 23 m$ in their books and after 25 years it's value is about 12 m$. I assume that there is a lot of cap in their numbers, what do you think?


I do find that Norwegian depreciates owned frames over 25 years. Where is it stated that Norwegian over this time depreciates only down to 30%?

Reading about depreciation in Ireland, I am a little bit astonished how they should get away with 25 years and 30% residual value after that. Plants and industrial buildings are allowed to depreciate linear with 4% over 25 years, that is down to zero. It would be interesting how airplanes can go beyond that.

Plants and machinery are usually depreciated over 8 years in Ireland.

30% is my estimate, because they announce it in their annual report 2016 like this:

Aircraft The Group acquired 17 Boeing 737-800 (2015: 10) and 2 Airbus 320neos (2015: 0) during 2016. In 2015, the Group acquired one Boeing 787-8 aircraft. The residual value is NOK 7 000 million (2015: NOK 5 770 million) in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft. The life expectancy of the body of the aircraft is 25 years for the 737, 787 and A320neo aircraft, and the economic life of the owned aircraft is 25 years less the age of the aircraft at time of purchase. The majority of the aircraft in the Group are accounted for in USD by the Groups subsidiary in Ireland, after transfers at December 31, 2013 and during 2014. Hence, the values in consolidated accounts as per December 31, 2016 include effects from currency translation.


Aircraft, parts and installations on leased aircraft Acquisition cost at December 31, 2016 was 27 175 180. 7000 million of 27175 is a bit over 25%, but 27175 include also parts and installations on leased aircraft. So my rough estimate is 30% and aircrafts acquisition cost is about 23000 million NOK.


So I would say you still have not shown that residual value is 30% after 25 years. The current residual value in the financial reports is the current residual value after the current depreciation, nothing to do with the 30 % after 25 years depreciation you are talking about. I think the calculation you try to do is absurd, exactly because the frames are so new. 25 years linear depreciation amounts to 4%.
I would read the above as the frames are depreciated over 25 years, full stop. Irish law allows you to depreciate down to zero.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:16 pm

mjoelnir wrote:
So I would say you still have not shown that residual value is 30% after 25 years. The current residual value in the financial reports is the current residual value after the current depreciation, nothing to do with the 30 % after 25 years depreciation you are talking about. I think the calculation you try to do is absurd, exactly because the frames are so new. 25 years linear depreciation amounts to 4%.
I would read the above as the frames are depreciated over 25 years, full stop. Irish law allows you to depreciate down to zero.

I think you should try to understand, what this mean:
The residual value is NOK 7 000 million (2015: NOK 5 770 million) in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft.

Norwegian announce all their depreciation of Aircraft, parts and installations on leased aircraft together.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:26 pm

A fast look at the depreciation of Norwegians fleet.

Total acquisition cost on the 31.12.2016 27,175,180,000 NOK
Total accumulated depreciation 31.12.2016 4,603,406,000 NOK
Depreciation as percentage of total acquisition cost 16.94%
If we assume 25 years depreciation linear to zero, than yearly depreciation is 4%.
16,94% / 4% would be 4.23 and that would be near the average aircraft age of the owned fleet.
I think that is not far out.

Average age at Norwegian Air shuttle 5.2 years 52 frames
Average age at Norwegian International 3.2 years 70 frames
Average age Norwegian Long Haul 3.0 years 13 frames
Average age at Norwegian Air UK limited 0.8 years 12 frames
Average age at Norwegian air Argentina 0.9 years 1 frame

I get roughly an average age of 3.67 years, but I am to lazy now to look how many frames are owned and how many frames are leased.
Last edited by mjoelnir on Mon Feb 19, 2018 1:36 pm, edited 1 time in total.
 
tommy1808
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:30 pm

mjoelnir wrote:
I am still asking where the 30% residual value after 25 years depreciation comes from.


local tax law? Usually companies have limited wiggle room how long the depreciate items.

best regards
Thomas
This Singature is a safe space......
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:42 pm

tommy1808 wrote:
mjoelnir wrote:
I am still asking where the 30% residual value after 25 years depreciation comes from.


local tax law? Usually companies have limited wiggle room how long the depreciate items.

best regards
Thomas


As to Norwegian doing it that way.
Local tax law, Irish, does only go down to 4% yearly in regards to real estate, as for example buildings. I can hardly imagine them going lower for airplanes.
The Norwegian financial accounts show 4 to 20% as the depreciation rates, 4, the slowest rate, would give 25 years with a residual value of zero.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:47 pm

mjoelnir wrote:
A fast look at the depreciation of Norwegians fleet.

Total acquisition cost on the 31.12.2016 27,175,180,000 NOK
Total accumulated depreciation 31.12.2016 4,603,406,000 NOK
Depreciation as percentage of total acquisition cost 16.94%
If we assume 25 years depreciation linear to zero, than yearly depreciation is 4%.
16,94% / 4% would be 4.23 and that would be near the average aircraft age of the owned fleet.
I think that is not far out.

Average age at Norwegian Air shuttle 5.2 years 52 frames
Average age at Norwegian International 3.2 years 70 frames
Average age Norwegian Long Haul 3.0 years 13 frames
Average age at Norwegian Air UK limited 0.8 years 12 frames
Average age at Norwegian air Argentina 0.9 years 1 frame

I get roughly an average age of 3.67 years, but I am to lazy now to look how many frames are owned and how many frames are leased.

That 27+ million NOK include parts and interiors of leased aircraft, which they depreciate in their useful lifetime. (much under 10 years)

So, lets make some practise:

Aircrafts 23000
depreciation (23000-7000)*0,028= 448mNOK
Parts+interiors 4175 /5 =835mNOK
= 1283mNOK

Their announced depreciation was 1209mNOK at 2016.
Installations on leased aircraft The installations on the leased aircraft include cabin interior modifications and other improvements to the aircraft after lease commencement. The capitalized value is depreciated over the remainder of the aircraft lease, which is between 1-10 years. Linear depreciation is applied and residual value is NOK 0. In 2016 and 2015 several engines on the leased aircraft were in overhaul, and replacement costs for life limited parts were capitalized to the extent that the costs were improvements to the engines and therefore exceeding the requirements that were specified in the leasing contracts. These components are depreciated at a defined rate per engine cycle, limited to the remainder of the aircraft lease.
Spare parts Spare parts consist of rotable parts for the aircraft and are depreciated over their useful life. The useful life of spare parts ranges between 5-8 years. Straight-line depreciation is applied and 25% of the acquisition cost is calculated as residual value.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 1:51 pm

mjoelnir wrote:
tommy1808 wrote:
mjoelnir wrote:
I am still asking where the 30% residual value after 25 years depreciation comes from.


local tax law? Usually companies have limited wiggle room how long the depreciate items.

best regards
Thomas


As to Norwegian doing it that way.
Local tax law, Irish, does only go down to 4% yearly in regards to real estate, as for example buildings. I can hardly imagine them going lower for airplanes.
The Norwegian financial accounts show 4 to 20% as the depreciation rates, 4, the slowest rate, would give 25 years with a residual value of zero.

No, Norwegian annual report doesn't show 4% depreciation rate for aircrafts. You made your own assumptions against all available data.
 
mjoelnir
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 2:11 pm

armchairceonr1 wrote:
mjoelnir wrote:
A fast look at the depreciation of Norwegians fleet.

Total acquisition cost on the 31.12.2016 27,175,180,000 NOK
Total accumulated depreciation 31.12.2016 4,603,406,000 NOK
Depreciation as percentage of total acquisition cost 16.94%
If we assume 25 years depreciation linear to zero, than yearly depreciation is 4%.
16,94% / 4% would be 4.23 and that would be near the average aircraft age of the owned fleet.
I think that is not far out.

Average age at Norwegian Air shuttle 5.2 years 52 frames
Average age at Norwegian International 3.2 years 70 frames
Average age Norwegian Long Haul 3.0 years 13 frames
Average age at Norwegian Air UK limited 0.8 years 12 frames
Average age at Norwegian air Argentina 0.9 years 1 frame

I get roughly an average age of 3.67 years, but I am to lazy now to look how many frames are owned and how many frames are leased.

That 27+ million NOK include parts and interiors of leased aircraft, which they depreciate in their useful lifetime. (much under 10 years)

So, lets make some practise:

Aircrafts 23000
depreciation (23000-7000)*0,028= 448mNOK
Parts+interiors 4175 /5 =835mNOK
= 1283mNOK

Their announced depreciation was 1209mNOK at 2016.
Installations on leased aircraft The installations on the leased aircraft include cabin interior modifications and other improvements to the aircraft after lease commencement. The capitalized value is depreciated over the remainder of the aircraft lease, which is between 1-10 years. Linear depreciation is applied and residual value is NOK 0. In 2016 and 2015 several engines on the leased aircraft were in overhaul, and replacement costs for life limited parts were capitalized to the extent that the costs were improvements to the engines and therefore exceeding the requirements that were specified in the leasing contracts. These components are depreciated at a defined rate per engine cycle, limited to the remainder of the aircraft lease.
Spare parts Spare parts consist of rotable parts for the aircraft and are depreciated over their useful life. The useful life of spare parts ranges between 5-8 years. Straight-line depreciation is applied and 25% of the acquisition cost is calculated as residual value.


The point you are not looking at, is that Norwegian states how they depreciate aircraft, there is no talk about a residual value of 30%, only about a depreciation over 25 years straight line. No statement of residual value, should mean zero, otherwise you have to state it. That gives 4% depreciation a year.
You can go on about this endless, show me that Norwegian operates with a residual value of 30% after 25 years ownership of an airplane. Up to know I read it as a figment of your imagination.
 
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hOMSaR
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 2:28 pm

mjoelnir wrote:
armchairceonr1 wrote:
mjoelnir wrote:
A fast look at the depreciation of Norwegians fleet.

Total acquisition cost on the 31.12.2016 27,175,180,000 NOK
Total accumulated depreciation 31.12.2016 4,603,406,000 NOK
Depreciation as percentage of total acquisition cost 16.94%
If we assume 25 years depreciation linear to zero, than yearly depreciation is 4%.
16,94% / 4% would be 4.23 and that would be near the average aircraft age of the owned fleet.
I think that is not far out.

Average age at Norwegian Air shuttle 5.2 years 52 frames
Average age at Norwegian International 3.2 years 70 frames
Average age Norwegian Long Haul 3.0 years 13 frames
Average age at Norwegian Air UK limited 0.8 years 12 frames
Average age at Norwegian air Argentina 0.9 years 1 frame

I get roughly an average age of 3.67 years, but I am to lazy now to look how many frames are owned and how many frames are leased.

That 27+ million NOK include parts and interiors of leased aircraft, which they depreciate in their useful lifetime. (much under 10 years)

So, lets make some practise:

Aircrafts 23000
depreciation (23000-7000)*0,028= 448mNOK
Parts+interiors 4175 /5 =835mNOK
= 1283mNOK

Their announced depreciation was 1209mNOK at 2016.
Installations on leased aircraft The installations on the leased aircraft include cabin interior modifications and other improvements to the aircraft after lease commencement. The capitalized value is depreciated over the remainder of the aircraft lease, which is between 1-10 years. Linear depreciation is applied and residual value is NOK 0. In 2016 and 2015 several engines on the leased aircraft were in overhaul, and replacement costs for life limited parts were capitalized to the extent that the costs were improvements to the engines and therefore exceeding the requirements that were specified in the leasing contracts. These components are depreciated at a defined rate per engine cycle, limited to the remainder of the aircraft lease.
Spare parts Spare parts consist of rotable parts for the aircraft and are depreciated over their useful life. The useful life of spare parts ranges between 5-8 years. Straight-line depreciation is applied and 25% of the acquisition cost is calculated as residual value.


The point you are not looking at, is that Norwegian states how they depreciate aircraft, there is no talk about a residual value of 30%, only about a depreciation over 25 years straight line. No statement of residual value, should mean zero, otherwise you have to state it. That gives 4% depreciation a year.
You can go on about this endless, show me that Norwegian operates with a residual value of 30% after 25 years ownership of an airplane. Up to know I read it as a figment of your imagination.



His point is, they do state residual value. 7000 million NOK for all owned aircraft (as of the end of 2016; roughly $900 million USD at today's exchange rate according to Google, which I note only to provide some context for folks, like myself, who don't know what a NOK's value is). So, if reading that correctly, it means they expect the aircraft bodies (so, not including engines and interiors, which are depreciated separately) to be worth $900 million at the end of their lives.
The plural of Airbus is Airbuses. Airbii is not a word.
There is no 787-800, nor 787-900 or 747-800. It's 787-8, 787-9, and 747-8.
A321neoLR is also unnecessary. It's simply A321LR.
Airplanes don't have isles, they have aisles.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 2:45 pm

hOMSaR wrote:
His point is, they do state residual value. 7000 million NOK for all owned aircraft (as of the end of 2016; roughly $900 million USD at today's exchange rate according to Google, which I note only to provide some context for folks, like myself, who don't know what a NOK's value is). So, if reading that correctly, it means they expect the aircraft bodies (so, not including engines and interiors, which are depreciated separately) to be worth $900 million at the end of their lives.

:checkmark:

Exactly, I tried to point out this many times and it comes from Norwegian's annual report. They not tell straight that residual value is 30%, but they announce that 7000 million NOK as residual value, which is rougly 30% of aircrafts acquisition costs.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 2:49 pm

mjoelnir wrote:
The point you are not looking at, is that Norwegian states how they depreciate aircraft, there is no talk about a residual value of 30%, only about a depreciation over 25 years straight line. No statement of residual value, should mean zero, otherwise you have to state it. That gives 4% depreciation a year.
You can go on about this endless, show me that Norwegian operates with a residual value of 30% after 25 years ownership of an airplane. Up to know I read it as a figment of your imagination.

So, maybe you are enough clever to explain what this announced residual value means:
The residual value is NOK 7 000 million (2015: NOK 5 770 million) in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft.
 
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brianK73
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 3:53 pm

I assume aircraft take-off/landing cycles as well as the flight hours figure in the residual as well.
A 737 that belongs to a 70-year old lady who uses the aircraft only on her weekend jaunts to/from the Cayman Islands may retain its value better.

Long-haul carrier's aircraft may have much fewer cycles on their aircraft than those of their short-haul competitors.
 
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 4:12 pm

armchairceonr1 wrote:
mjoelnir wrote:
The point you are not looking at, is that Norwegian states how they depreciate aircraft, there is no talk about a residual value of 30%, only about a depreciation over 25 years straight line. No statement of residual value, should mean zero, otherwise you have to state it. That gives 4% depreciation a year.
You can go on about this endless, show me that Norwegian operates with a residual value of 30% after 25 years ownership of an airplane. Up to know I read it as a figment of your imagination.

So, maybe you are enough clever to explain what this announced residual value means:
The residual value is NOK 7 000 million (2015: NOK 5 770 million) in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft.


A few moments ago I did send an e-mail to investor.relations@norwegian.com and asked how to understand that text, what their deprecation percentage is on aircraft and the residual value percentage after 25 years, let us see if they answer.
 
rouelan
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Feb 19, 2018 4:32 pm

Thanks armchair, it is getting clearer now.

It could also mean that results they post are over estimated, as well as their equity. As we all know, they already have a terrible ratio Debt / equity and it could be even worse. It will actually be much worse when they will have to include their leases (I think in 2019).
 
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Tue Feb 20, 2018 6:33 am

Isn't the 15% vs. 30% mostly a question of what value the engines have at the end of the life of the aircraft? If the aircraft continues to operate for 25 years, even at the end it needs to have well-serviced engines, which can then be taken from the plane and used elsewhere. 15% sounds about right for that, IMO.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Tue Feb 20, 2018 4:41 pm

rouelan wrote:
Thanks armchair, it is getting clearer now.

It could also mean that results they post are over estimated, as well as their equity. As we all know, they already have a terrible ratio Debt / equity and it could be even worse. It will actually be much worse when they will have to include their leases (I think in 2019).

Indeed. Norwegian's equity is only about 4000 million NOK by books, and their aircrafts is valued over 20000 million NOK in their balance sheet. If those aircrafts is overvalued by 10% it means that their equity is under 2000 million and 20% means that their equity is under water.
 
PanHAM
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Fri Mar 02, 2018 10:15 am

Reading that I bet Norwegian will be the next Air Berlin. Depreciation should Show the real value of an asset and there should be no wishful thinking about that. Depreciation ais also tax deductible but most of all depreciation goes into cash flow. Only when re-invested the monies freed by depreciation are not taxed.
Reading through this thread, it Looks like Norwegian Shows book values which are not backed by the real value of theiir assets. In their last full Business year AB lost some 800 Mio €, most of that was non cash items which had a book value only.
Was Erlauben Erdogan!!!
 
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Sun Mar 04, 2018 1:52 am

PanHAM wrote:
Reading that I bet Norwegian will be the next Air Berlin. Depreciation should Show the real value of an asset and there should be no wishful thinking about that. Depreciation ais also tax deductible but most of all depreciation goes into cash flow. Only when re-invested the monies freed by depreciation are not taxed.
Reading isthrough this thread, it Looks like Norwegian Shows book values which are not backed by the real value of theiir assets. In their last full Business year AB lost some 800 Mio €, most of that was non cash items which had a book value only.

Yes, losses combined with a negative book value are not good. Effectively, Norwegian is paying extra in taxes to avoid a negative book value.
You only have the first amendment with the 2nd. If you're not going to offend someone with what you say, you don't have the 1st.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Sun Mar 04, 2018 10:27 am

lightsaber wrote:
PanHAM wrote:
Reading that I bet Norwegian will be the next Air Berlin. Depreciation should Show the real value of an asset and there should be no wishful thinking about that. Depreciation ais also tax deductible but most of all depreciation goes into cash flow. Only when re-invested the monies freed by depreciation are not taxed.
Reading isthrough this thread, it Looks like Norwegian Shows book values which are not backed by the real value of theiir assets. In their last full Business year AB lost some 800 Mio €, most of that was non cash items which had a book value only.

Yes, losses combined with a negative book value are not good. Effectively, Norwegian is paying extra in taxes to avoid a negative book value.

Actually Norwegian doesn't pay any taxes because they have previous years losses. In the end of 2016 they had 241 million NOK deferred tax assets in their balance sheet and last year they booked 768 million NOK more to their balance sheet. 25% of their 4000 million NOK equity is deferred tax assets which have no value if they don't make profit.
 
PanHAM
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Sun Mar 04, 2018 10:49 am

The wonderful world of creative accounting where losses become assets. That is like the tale of the race between the rabbit and the hedgehog. They just have to make sure that the hedgehog does not win.
If they are in a Situation where 25% of their equity is just hot air, the answer is consolidation, not Expansion.
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armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Sun Mar 04, 2018 11:23 am

PanHAM wrote:
The wonderful world of creative accounting where losses become assets. That is like the tale of the race between the rabbit and the hedgehog. They just have to make sure that the hedgehog does not win.
If they are in a Situation where 25% of their equity is just hot air, the answer is consolidation, not Expansion.

And there is maybe coming something more:
In our view, we do not have significant influence in NOFI. If, however, a final conclusion should be that such influence exists, the equity method of accounting according to IAS 28 would be applied to the investment. As of December 31, 2017, this would result in a reduction of the recognized value of the investment by NOK 1,993 million with a corresponding decrease in end balance equity. Effects of a change back to IAS 28 would also reverse financial gains in net profits of NOK 1,657 million, reverse fair value changes recorded in other comprehensive income of NOK 498 million and increase share of profit from associated companies by NOK 163 million.

They have also covenants in their bonds about minimum equity of 1500 million NOK. It's very much possible that their Q1/2018 equity is under 1500 million NOK.
 
armchairceonr1
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Re: Residual value of aircraft after 25 years in service? Case Norwegian

Mon Mar 05, 2018 12:23 pm

mjoelnir wrote:
A few moments ago I did send an e-mail to investor.relations@norwegian.com and asked how to understand that text, what their deprecation percentage is on aircraft and the residual value percentage after 25 years, let us see if they answer.

Did you get any answer to your question?

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