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Faro
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Accounting For Airliner Depreciation

Sun Feb 28, 2010 1:01 pm

Do airlines apply different rates of depreciation to different components of acquired aircraft (engines, avionics, software, etc) or just one unified rate for the whole thing. Conceivably, components have different useful lives which should be reflected in their rate of depreciation.

Faro
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flipdewaf
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Joined: Thu Jul 20, 2006 6:28 am

RE: Accounting For Airliner Depreciation

Sun Feb 28, 2010 1:12 pm

I'm not sure if this is exactly how the airlines do it but when we did it at uni we just depreciated the aircraft over 14 years I think and if anything had a life of less than that it was calculated under scheduled maintenance costs. I'm not sure this is how its done in the real world though.

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steve6666
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RE: Accounting For Airliner Depreciation

Sun Feb 28, 2010 10:40 pm

Read the Accounting Policies note to a set of published accounts for a listed airline.

Different GAAPs will result in different treatments - I believe IFRS permits capitalisation of individual items, but not sure how much more granularity airlines typically go beyond airframe and engines.

Quoting faro (Thread starter):
Conceivably, components have different useful lives which should be reflected in their rate of depreciation.

Not really, that's why you expense maintenance that brings the capital item back up to its original condition.
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m11stephen
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RE: Accounting For Airliner Depreciation

Mon Mar 01, 2010 10:41 pm

A big off topic here but I thought I'd share. I assume we're all familiar with the crash of AA191. Its turn out that due to inflation the DC-10 was worth 50 million dollars when it crashed however AA only payed 25 million for it when they originally purchased it. So technically AA initially made 25 million off of the crash of flight 191. I'm sure that all the wrongful death lawsuits quickly ate through that 25 million however.
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Braniff747SP
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RE: Accounting For Airliner Depreciation

Tue Mar 02, 2010 12:35 am

Quoting m11stephen (Reply 3):
I'm sure that all the wrongful death lawsuits quickly ate through that 25 million however.

Doesn't the insurance pay for that? or it's AA?
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m11stephen
Posts: 372
Joined: Tue Aug 05, 2008 12:16 am

RE: Accounting For Airliner Depreciation

Tue Mar 02, 2010 2:44 am

Quoting Braniff747SP (Reply 4):
Doesn't the insurance pay for that? or it's AA?

I thought it was AA but I could be wrong. Like your car insurance policy any airline liability policy has a policy limit and I'm guessing close to 300 wrongful death lawsuits would have burned through that quickly. I should point out that I'm not entirely sure.  
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