Components of Aircraft Acquisition

8/10/2019 Components of Aircraft Acquisition

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Introduction 3

Components of aircraft acquisition cost 4G eneral requirem ents 4

K ey considerations for the passenger airline industry 4

Depreciation and residual values 10

U seful life 10D epreciation m ethods 11

R esidual values 11

Impairment testing 12

Aircraft revaluation 13

Disclosures 14

Appendix 1 Useful lives, depreciation 15rates and residual values disclosedby airlines


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2 C om po ne nts of A ircraft A cqu isition C ost


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C om po ne nts of A ircraft A cq uisition C ost 3

Introduction

The airline industry has contended w ith several significan t events inrecent tim es that have led to m ajor losses, bankruptcy or bankruptcyprotection of a num ber of m ajor airlines.

This h as includ ed the terrorist attacks in N ew York and Lo nd on , SA R S,

the Iraq w ar, B ali bo m bing s an d avian flu. Th ese events h ave im pacted thesecondary aircraft m arket and consequently the valuation of aircraft asse tsin finan cial statem ents. A ircraft an d aircraft-related asse ts are high-co stassets. Th e list price of a new w ide-bodied aircraft m ay b e in the hundredsof m illions o f dollars. A cco unting for such high value and com plex assetsinvolves co nsideration of several factors.

Th e acquisition of aircraft and related fixed asse ts w hether financed by leaseor purchased outright represents the single m ost critical channel of investm entfor m ost, if not all airlines. A cquisitions of asse ts can be structured under avariety of term s w hich, although im posing sim ilar econom ic obligations on

the airline, offer po tential for disp arate acco unting treatm ents.

M any airlines only provide sum m arised p ublished inform ation in regard toaircraft acquisition costs on such issues as useful lives an d residual values w hichcan m ake it difficu lt to determ ine how certain acquisition costs are treated.

The principal objective of this publication is to outline acco untingconsiderations in relation to com ponents of aircraft costs, associateddepreciation and im pairm ent testing under International Financial R eportingStandards (IFR S).

Th is p ublication is n ot intended to provide guidance on the circum stances inw hich an interest in an aircraft should m ost appropriately be dealt w ith eitheron or off balan ce sh eet, an d in particu lar it does not ad dress the classificationbetw een o perating and finance leases. C lassification o f lease s and relatedlease accounting is ad dressed in a separate KPM G publication A cco untingfor Leases of A ircraft Fleet A ssets in the G lobal A irline Industry.


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C om ponents of aircraft cost

G eneral requirem ents

IA S 16 Property, Plant and Equipm entsets out the accoun ting treatm en t anddisclosure requirem ents for property,plant and eq uipm en t. IA S 16 req uiresm ajor com po ne nt parts of assets tobe capitalised an d ap propriatedepreciation policies ap plied toeach ide ntified com po ne nt.

Prop erty, plant and equ ipm en t

com prises tangible asse ts h eld byan entity for use in the productionor supply o f goods o r services, forrental to others, or for ad m inistrativepu rpo ses, that are exp ected to beused for m ore than on e period .Property, plant and equipm ent isrecognised if, and only if, it isprob able that future econ om icbenefits associated w ith the itemw ill flow to the entity and its costcan be m easu red reliably. Property,plant and eq uipm en t is recog nisedinitially at cost.

C ost includ es the pu rchaseprice , including im port duties andnon-refundable purchase taxes, afterdeducting trade disco unts, rebatesand all exp enditure directly attributab leto bringing the asset to a w orking

condition for its intended use .Intended usem eans being cap ableof operating in the m anne r inten de dby m anagem en t. This w ill includ epu rchase-righ t paym en ts and m ay

also include capitalised borrow ing

costs w here the funds are borrow edsp ecifically or a n otional allocation ofgeneral indebtness for an aircraft thatis d eem ed to be a qualifying asse t.A qualifying asse t is one thatnecessarily takes a su bstantialpe riod of tim e to be m ade read yfor its intended use or sale.

C urrently, under IFR S there is achoice as to w he the r bo rrow ing

costs relating to a qualifying assetare expensed or cap italised. In M arch20 07 the IA SB issued revised IA S 23

B orrow ing C osts , w hich is effectivefor annual periods beginning o n o rafter 1 Jan uary 2009; earlierap plication is p erm itted. The revisedIA S 23 rem oves the op tion toexpen se bo rrow ing costs asso ciatedw ith the acquisition, co nstruction o rproduction of a qualifying asset.Thus e ntities h ave to capitaliseborrow ing co sts d irectly attributab leto the acquisition, co nstruction orproduction of a q ualifying asse t aspart of the co st of that asset.

Key considerations forthe passenger airlineindustry

A ircraft asse ts g enerally com prisea num ber of com pon ents, the m ajoron es includ e:

airfram e

eng ines

m odifications including In-FlightEntertainm en t (IFE ) and B uyerFurnished E qu ipm en t (B FE )

rotable assets parts w hich areno rm ally m aintained and reu sed

repairab les parts w hich arecap able of being repaired andreu sed, bu t w hich can on ly

be rep aired a lim ited nu m be rof tim es.

A ltho ug h ind ividu al com po ne nts areaccounted for separately, thefinancial statem ents continue todisclose a single asse t. A n airlinegenerally w ould disclose aircraft asa class of asse ts.

In relation to the purchase of newaircraft, the follow ing particularissues h ave been chosen for m oredetailed co nsideration:

(1) option paym ents andrefundable deposits

(2) capitalisation o f intereston advance paym ents andincrem ental costs o f deferring

delivery dates

(3) capitalisation o f foreignexchange gains an d losse sarising from the financing of


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the aircraft purchase, prior to

it being brought into use

(4) m anufacturers' credits

(5) em bed ded m aintenance.

C onsideration is also given to thetreatm ent of aircraft m odificationcosts, (w hich m ight m ore com m onlybe an issue either affecting aircraftalread y in use , or aircraft acquired

under an operating lease) and theacquisition of second hand aircraft.

Each of the above issues are d ealtw ith in paragraphs be low .

(1) Option payments andrefundable deposits

A irlines frequently acquire options topurchase aircraft in the future, thecom m ercial rationale b eing to keepaircraft acquisition capacity as flexibleas possible as w ell as establishing aposition in the m anufacturer'sprod uction qu eue. The op tion s areusually effective ly aircraft deposits. Ifthe option is su bsequently exercised,it is ap propriate to capitalise the optionexpenditure as part of the total cost ofacquiring the aircraft. C onverse ly the

cost should be w ritten off to the profitand loss account at the earlier of:

the date the op tion lapses

the date a d ecision is taken

not to exercise the option.

C om m on place today is the paym entof refundab le deposits, w here cashdeposits are paid to the m anufactureran d held ag ainst future aircraftpu rchase s. These allow foracquisition flexibility, providing theab ility to tran sfer deposits ove rindividual aircraft types and obtain arefund on am ounts depo sited w here

a decision is m ade no t to takede livery. These am ou nts shou ldbe capitalise d into the aircraftacq uisition costs w hen the relevantaircraft is acquired.

(2) Capitalisation of interest onoption and advance paymentsand incremental costs of deferring delivery dates

The capitalisation of interest onoption and advance paym ents tom anufacturers is relatively com m onpractice in the airline industry. G iventhe interrelationship betw een the levelof any advance paym ents and theultim ate purchase price of an aircraft,interest on advance paym ents can beregarded as a cost directly attributab leto bringing the asset to w orking

condition . W ith regard to the m etho dof calcu lating the capitalised interest,tw o m ethod s are:


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identifying the actual interest cost

of the specific b orrow ings used tofinance advance paym ents

de term ining a w eigh ted averageor increm ental cost of generalborrow ings, based on the airline'sborrow ing profile to be applied tothe advance p aym ents.

C learly the first alternative can onlybe applied w he re specific borrow ings

exist, in w hich case the actualbo rrow ing cost shou ld be used.The second op tion seeks to ide ntifythe opportunity cost to the airlineof fun ding advance p aym en ts incircum stances w he re no specificborrow ings can b e identified.

The point at w hich the capitalisationof interest un de r IA S 23 ceasessho uld b e the date o n w hich theasse t is substantially com plete.C ertain airlines m ight interpret thisas m eaning that capitalisation shouldcease at the date of delivery, w hilstothe rs w ou ld select the date theaircraft com es into service . Theappropriate date w ill be im pactedby the leve l of w ork required p ostdelive ry to b ringing the aircraft intoservice. H ow eve r, w here an airline

delays bringing an aircraft into service ,it w ould not be appropriate tocontinue capitalising interest beyondthe planned service entry point.

D elivery dates are subject to chang e

due to the requirem ents of bo th b uyerand seller. Th e reaso ns for the deferralw ill determ ine the appropriate dateat w hich interest capitalisationcease s. For exam ple, a delay in them anu facturing process w ou ld usuallyindicate it is ap propriate to co ntinueto cap italise interest. H ow eve r, allcontract term s require considerationin d eterm ining the appropriateaccounting treatm ent.

(3) Capitalisation of foreignexchange gains and lossesarising from the financing of the aircraft purchase prior to itbeing brought into use

W ith the aircraft m arket large lydenom inated in U nited S tates do llars,m any airlines are required to fundadvanced paym ents in foreign currency.

B orrow ing costs as de fined inIA S 23 m ay include foreign exchangedifferences arising on long-termcurrency borrow ings financing aircraftfixed assets to the extent that thesedifferences are regarded as anadjustm ent to interest costs. Th ere isno further guidance on the conditionsun de r w hich foreign exchange

differences m ay b e cap italisedand in practice there are differentview s abou t w hat is acceptable.

In K PM G 's view , foreign exchange

differen ces on bo rrow ing s can bereg arded as an adjustm en t to interestcosts only in very lim itedcircum stances. Exchang e differencesshould not be capitalised if aborrow ing in a foreign currency isentered into to offset another currencyexposure. Interest determ ined in aforeign currency already reflects theexposure to that currency. Th ereforethe foreign exchange differences to

be capitalised should be lim ited to thedifference betw een interest accruedat the contractual rate and the interestthat w ou ld apply to a borrow ing w ithidentical term s in the entity'sfunctional currency. A ny foreignexchange differences arising from thenotion al am ou nt of the loan sho uld bereco gnised in profit or loss.

W hen exchange differences qualifyfor capitalisation, in KPM G 's viewboth exchange gains an d losse sshou ld b e conside red in de term iningthe am ount to capitalise .

If an entity changes the currencyexp osure of future interest paym en tsin a foreign currency using a crosscurrency interest rate sw ap, thenin K PM G 's view it w ould not be

appropriate to treat all chan ges inthe fair value of the derivative as aborrow ing cost. H ow ever, in K PM G 'sview , the interest accrued on theliability and the hedging instrum ent


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10 C om po ne nts of A ircraft A cq uisition C os t

D epreciation and

residual values

Tw o o f the m ost basic bu t

im po rtant accoun ting estim atesairline m anagem ent m ake are theuseful lives and residual values ofaircraft. These estim ates determ ineeffective depreciation rates. U se fullives an d residual values of existingaircraft fleets are increasingly beingim pacted by 'new gene ration 'aircraft. These aircraft have reducedoperating costs an d are adverselyim pacting the values of older aircraft

in the secon dary m arket. W hendecisions are m ad e to retire aircraftearlier than an ticipated, acce leratedde preciation m ay nee d to b e app liedprospectively to reduce the carryingvalue of aircraft. A ircraft-related,asse t depreciation policies andresidual value assum ptions varyacross airlines based on differingpractice and expectations. Th is m aycause significant difference s inperiodical profitab ility an d im pactthe com parability o f businesse sw ithin the industry.

A ppendix 1 sum m arises the ind ividualasse t typ e, use ful lives, depreciationrates and residual values of variousairlines taken from the relevantpublicly availab le regulatory rep ortsnoted in A ppendix 1. G enerally aircraft

asse ts are depreciated over 15-25years to residual values of betw een0-20 percent. Th e straight-line m ethodof depreciation is the m ost com m onlyused. A irline disclosures dem onstrate

that a sm all change in e stim ate can

have a large im pact on profit or loss.A pp en dix 1 show s that the re issignificant divergence in depreciationassu m ptions. In ou r experience thisis likely to reflect the different flyingpatterns o f each airline as w ell asdiffering ailrines view s on this m atter.

Useful life

A s per IA S 16 (paragraph 6) 'useful

life' is the period over w hich an asse tis expected to be availab le for use byan en tity; or the num ber of productionor sim ilar units expected to be obtainedfrom the asset by an entity.

A s a general principle, depreciationshould be charged to the profit andloss acco unt in order to reflect theconsum ption of an airline's investm en tin aircraft asse ts over the period oftheir use ful lives. Thus depreciationshou ld usually com m ence from thedate that the aircraft is available toenter into se rvice .

Factors w hich are like ly to req uirecareful consideration in determ iningthe use ful live s of aircraft asse ts areas follow s:

the estim ates o f econ om icrepair lives provided by aircraftm anufacturers an d other specialistorganisations (e.g. aircraft valuers)

the flee t de ploym en t plans of the

airline in question including tim ingof fleet replacem ents thisshou ld e nsure that estim atedlives are se t by reference to theparticu lar use to w hich an aircraftis being p ut, bearing in m ind thatdiffering route structures an drotation patterns m ight havea m aterial bearing on theap propriate rate of aircraftdepreciation

the likelihood of technologicalchange or obsolescence, includingthe im pact of regulatory m atterssuch as environm ental constraints

the overall develop m en t of theportfolio of aircraft assets - forexam ple, there m ight be a risk thatsignificant levels o f older generationaircraft spares w ill rem ain on handat the tim e aircraft replacem ent hasbeen substantially achieved

the rep air and m ainten ancepolicy of the airline

aircraft operating cycles(long-hau l aircraft m ay h ave adifferent depreciation profile tohigh cycle sh ort haul aircraft)

legal constraints on the use of anasse t (e.g. the exp iry of leasesrelating to aircraft assets)


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C om po ne nts of A ircraft A cqu isition C os t 11

aircraft-related fixed asse t

depreciation rates, for exam ple,rotables and repairables m ayreflect the airline's ability to usecom m on com ponents acrossdifferent aircraft types.

W ithin the airline industry, both theinitial asse ssm ent of the useful lifeof aircraft asse ts and any subseq uen treview w ill in practice be dealt w ithalongside an assessm en t of residual

values. R esidual values areconside red m ore fully below .

A irlines review periodically (at leastat each financial year-end) w hetherthe use ful lives attributed to aircraftassets have been appropriately se t.If the estim ated useful life is ch anged,the depreciation rate is adjusted forthe curren t and sub seq uent period s,w ith disclosure of the financial effectof any such change in rate, if m aterial,in accordan ce w ith IA S 8 Accounting Policies, C hanges in A ccounting Estim ates and Errors as a changein accounting estim ates.

Depreciation methods

The m ethod o f depreciationshould reflect the pattern in w hich

the b enefits associated w ith the assetare consum ed, and m ust be review edat least at each annual reporting date.IFR Ss d o not require a specificm etho d of depreciation to b e used ,

and m entions the straight-line

m ethod, the d im inishing (or reducingbalance ) m etho d and the sum -of-the -units (or units-of-production) m ethod.

A cross a range of industries, avariety of depreciation m ethods areap plied. For airlines, it appears thatthe straight-line m ethod is that m ostcom m only adopted.

W hilst you can use d ifferent

depreciation m ethods for differentcom ponents, w hichever depreciationm ethod is used for aircraft, the sam em ethod should b e used for relatedspares and en gines.

Residual values

A s pe r IA S 16 (paragraph 53) anasset's depreciable am ount is its costless its residual value. R esidual valueis the am ount that an entity co uldreceive for the asset at the reportingdate if the asset w ere already of theag e and in the co ndition that it w ill bein w hen the en tity expects to d isposeof it. R esidual value does not includeexpected future inflation.

For m ost airlines, it has h istoricallybeen the case that aircraft assets are

not retained throughout their entireeconom ic life and accordingly theassessm en t of the residu al valueof the asse t is a critical feature ofthe depreciation policy.

A ircraft m ay be rep laced for a

variety of reasons, for exam ple,du e to p lann ed op erating need s,change s in m arket cond ition s ortechno log ical develop m en t. Thesefactors w ill im pact on operators indifferen t w ays and he nce it w ou ldno t be un expected for estim atesof residual values for the sam epiece of equipm en t to vary fromcarrier to carrier. O ther factorsw hich w ill influence residual value

estim ates are the average len gthof flights, num ber of cycles, thecost of m aintenance , prevailingm arket prices and the trend inprice o f seco nd han d an dreplacem ent aircraft.

The residu al value of an asse t m ustbe review ed at least at each an nu alreporting d ate and changes in theresidual value are accounted for asa change in accoun ting estim ate.A s noted earlier, revision of use fullife estim ates w ould im plicitly giverise to a n eed to re-assess residualvalues at the revised an ticipatedpoint of disp osal.


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Im pairm ent testing

IA S 36 Im pairm ent of A ssetsprescribes the procedures thatan entity applies to test asse tsfor im pairm en t and recog niseim pairm en t losses.

The airline industry is highlycapital intensive. M any airlineshave hundreds of m illions to billionsof U .S. dollars of tan gible asse tscapitalised on their balance sheetrepresenting aircraft and relatedinfrastructure and support asse ts.W hilst capital investm ent is h igh,earnings have historically beenvo latile. The airline industry isvulne rable to econ om ic recessionand external dem and sh ocks suchas those caused by terrorist acts,

pandem ics o r ove rseas conflicts.Th e latest challenge b eing recordhigh fuel price s. The industry, inparticular the U .S., has lost billionsof dollars over the past five years.

A chieving an acceptable return o ncapital is a co nstant challenge.The directors and m anagem entof airlines not m eeting requiredreturns o n capital or su fficientleve ls of profitab ility are likely tobe regularly review ing the carryingvalue of aircraft asse ts. A review forim pairm en t m ust be u nd ertakenif events indicate that asse t-carryingam ounts m ay not be recoverable.

Im pairm en t testing shou ld b epe rform ed on the sm allest grou pof assets that w ork together togene rate ind ep en dent cash flow s(i.e. C G U s).

D eterm ining the approp riate asse t

group to use as a basis for im pairm en ttesting requires significant judgem ent.Th e disclosure of asset groups islim ited in the reports surveyed inKPM G 's D isclosure H andbook. It

appears that airlines have assessedasset groups on a num ber of differen tbases including:

A ssessing that all aircraft asse tssho uld be grou ped for im pairm en ttesting (based on eco no m icinterdependencies)

G rouping asse ts on an aircraftfleet typ e basis

C on side ring im pairm en t on anindividual aircraft asset basis

A llocating aircraft asse ts toindividual routes o r route groups.

D ifferent airlines' circu m stances w ill

be the critical factor determ iningthe asset groupings forim pairm ent testing.


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A ircraft revaluation

U nd er IA S 16 an en tity m ay elect

to m easu re a class of property, plantan d equipm ent at fair value, if fairvalue can be m easured reliab ly. Ifthis accounting policy is chosen, thenrevaluation s m ust be kep t up to date,such that the carrying am ou nt of anasset at the reporting d ate d oes notdiffer m aterially from its fair value.A ny surplus arising on the revaluationis reco gnised directly in a revaluationreserve w ithin equity except to the

extent that the surplus reverses aprevious revaluation deficit on thesam e asset recognised in profit orloss, in w hich case the credit tothat extent is recognisedin profit or loss. A ny deficit onrevaluation is recognise d in profitor loss except to the extent that itreverses a previous revaluationsurplus on the sam e asse t, inw hich case it is taken directly tothe revaluation reserve. Th erefore,revaluation increase s and decrease scan not be offset, even w ithin aclass of asse ts.


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A pendix 1

Sam ple d isclosures of the follow ing airlines have been review ed:

U seful lives, depreciation rates and residual values disclosedby airlines

A ir France KLM G roup

A litalia Linee A eree Italian e S.p.A

A M R C orp/A m erican A irline s Inc

B ritish A irw ays plc

C athay Pacific A irw ays L td

C ontinental A irlines Inc

D elta A ir Lines Inc

D eutsche L ufthansa A G

easyJet plc

Ibe ria L ine as A ereas d e Espara, S.A

A nnual report and 20F M arch 31 ,200 5 French G A A P, U .S. G A A P 1 andSep tem ber 30, 20 05 half year underIFR S as adopted by the E urope an U nion

A nnual report D ecem ber 31 , 20 05IFR S as adopted b y the E urope an U nion

10k D ecem ber 31, 2005 U .S. G A A P

A nnual report and 20F M arch 31 , 2005U K G A A P, U .S. G A A P 1 and IFR S asado pted by the Europ ean U nion finan cialinform ation release for year en de dM arch 31 , 20 05 (issued July 20 05)

A nnual report D ecem ber 31 , 20 05H ong Ko ng A ccoun ting and F inancialR ep orting S tandards



A nnual report D ecem ber 31, 2005IFR S as adopted b y the E urope an U nion

A nn ual rep ort Sep tem ber 30 , 20 05U K G A A P and IFR S as adopted by theEurop ean U nion financial inform ationrelease for the year ended Sep tem ber

30 , 20 05 (issue d Janu ary 20 06 )

A nnual report D ecem ber 31, 2004

IFR S as adop ted b y the EuropeanU nion, U .S. G A A P 1

IFR S as adop ted b y the European U nion

U .S. G A A P

IFR S as adop ted b y the E uropeanU nion, U .S. G A A P 1

H ong K ong A ccoun ting and FinancialR ep orting S tand ards (IFR S base d)

U .S. G A A P

U .S. G A A P




Airline Regulatory filing surveyedand reporting GAAP

GAAP under which 2006financial regulatory filing

will be prepared


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Jap an A irlines C orporation

JetBlue A irw ays C orporation

N orthw est A irlines C orporation

Q antas A irw ays Lim ited

R yanair H oldings plc

SAS G roup

Singapore A irlines Lim ited

Sou th A frican A irw ays

Sou thw est A irline s C o.

Sw iss International A irlines (G roup)

U nited A irlines U A L C orporation

U .S. A irw ays A m erica W est H oldingsC orporation

Virgin B lue H oldings L im ited

A nn ual report M arch 31, 20 05 JapaneseG A A P



D ece m be r 31 , 20 05 half year, IFR S

A nnual report and 20F M arch 31 , 20 05Irish, U K G A A P and U .S. G A A P 1 and IFR Sas adopted b y the E urope an U nionexplanation of the financial im pact for theyear end ed M arch 31 , 2005 (issuedA ugust 2005)

A nnual report D ecem ber 31, 20 05 IFR Sas adopted by the E urope an U nion

A nnual report M arch 3 1, 20 05 SingaporeFinancial R epo rting S tandards

A nn ual report M arch 31 , 20 05 Sou thA frican G A A P


H alf-year report June 3 0, 2005 IFR S



A nn ual report S ep tem be r 30 , 20 05 ,A ustralian G A A P

Japanese G A A P

U .S. G A A P

U .S. G A A P

IFR S

IFR S as adopted b y the E urope anU nion, U .S. G A A P 1


S ingapore F inancial R epo rtingS tand ards (IFR S b ased )

S outh A frican G A A P (IFR S based )

U .S. G A A P

IFR S

U .S. G A A P

U .S. G A A P

A ustralian equivalents to IFR S

Airline Regulatory filing surveyedand reporting GAAP

GAAP under which 2006financial regulatory filing

will be prepared

1 Securities and Exchange C om m ission (SEC ) Foreign Private Issuer in the U .S.


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Set out in this ap pendix are the use ful lives, depreciation rates an d residual values in relation to aircraft an d aircraft

related assets. U nless otherw ise noted, the m ethod of depreciation used is o n a straight line basis. Som e airlineshave used estim ated cycles to determ ine the useful life of the aircraft and note that the useful life m ay change if thecycle assum ption s are revised.

Assetcategory

Airline Asset category Useful life(years)

Annualdepreciationrate

Residualvalue

Aircraft A ir France K LM A ircraft 20 * nilA litalia Long haul (B 777, B 767, M D 11) 20 5% 10% aA litalia S hort-m edium haul aircraft (A 3 21, A 3 20,

A 319, M D 80, E R J145) 18 5.5% 5 - 10%A litalia Turboprop aircraft (ATR 72) 14 7.14% 0%A litalia H eavy m aintenance 5.5 to 8 * *A m erican A irlines Jet aircraft and engines 20 to 30 * 5 - 10%B ritish A irw ays B oeing 747 - 400 and 777 - 200 * 3.7% 1 *B ritish A irw ays B oeing 767 - 300 and 757 - 200 * 4.7% 1 *B ritish A irw ays A irbus 321, A 320, A 319, B oeing 737 - 400 * 4.9% 1 *B ritish A irw ays E m braer R J145, B ritish A erospace 146 * 4.8% 1 *C athay Pacific Passenger aircraft * * 0 - 10%C athay Pacific Freighter aircraft 20 * 0 - 20%C ontinental A irlines Jet aircraft and sim ulators 20 to 27 * 15%

D elta O w ned flight equipm ent 10 to 25 * 5 - 40%easyJet A ircraft 7 * *easyJet A ircraft im provem ents 3 to 7 * *easyJet A ircraft pre-paid m aintenance 3 to 7 * *Iberia A irlines A ircraft cells 22 * *Iberia A irlines A ircraft com ponents 4 to 7 * *Japan A irlines A ircraft U seful life of * *

aircraft type 2


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Asset

category

Airline Asset category Useful life

(years)

Annual

depreciationrate

Residual

value

AircraftJetblue A irw ays A ircraft 25 * 20%Jetblue A irw ays A ircraft parts fleet life * 10%Lufthansa N ew aircraft 12 * 15%Q antas Jet aircraft and engines 20 * 0 - 20%Q antas N on-jet aircraft and engines 10 to 20 * 0 - 20%Q antas M ajor aircraft inspections Inspection life * *R yanair B oeing 737 - 200 20 * 5 00,000R yanair B oeing 737 - 800 23 * 15%

R yanair Em bedded m aintenance Period tonext check(8-12 B 737-800) * nil

SA S G roup A ircraft 20 * 10%Singapore A irlines N ew passenger aircraft 15 * 10%Singapore A irlines N ew freighter aircraft 15 * 20%Singapore A irlines Training aircraft 5 * 20%Singapore A irlines U sed freighter aircraft 15 less age

of aircraft * 20%Singapore A irlines U sed passenger aircraft 15 years less

age of aircraft * 10%South A frican Passenger aircraft * 4% *Southw est A irlines A ircraft and engines 23 to 25 * 15%U nited A irlines A ircraft 25 to 30 * *Virgin B lue A irfram e, engines and landing gear * 10-25% *Sw iss A irlines A ircraft 10 to 15 * 5% - 20%

H eavy m aintenance 3 to 5 * *Im provem ents to leased aircraft Term of lease

up to 10 years * *U .S. A irw ays Passenger aircraft 5 to 25 * *

Engines Lufthansa Spare engines 5 to 20 * *SA S G roup R eserve engines 20 * 10%SA S G roup Engine com ponents 8 * *Singapore A irlines Spare engines 15 * 10%Sw iss A irlines Spare engines 10 to 15 * *


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Asset

category


(years)

Annual

depreciationrate

Residual

value

Rotables,repairablesand spareparts

A ir France K LM S pare parts 3 to 20 * *A m erican A irline s M ajor rotable parts, avionics and life of *

assem blies equipm ent * 5-10%to w hichap plicable

U .S. A irw ays R otables and repairables 5 to 25 *C ontinental R otable spare parts 25 to 30 * *easyJet A ircraft spares 10 * 10%Iberia A irlines Spare parts - repairable 8 to 10 * nilIberia A irlines Spare parts - rotating 18 * 10Japan A irlines Spare parts 8 to 27 3 * 10-20%Q antas A ircraft spare parts 15 to 20 * 0-20%Singapore A irlines Spare parts 15 * nilSouthw est A irlines A ircraft parts Fleet life * 4%Virgin B lue R otables and m aintenance parts (used) N /D * 4%

Flight A litalia Flight sim ulators and electronic equipm ent 5 20% *simulators A ir France - KLM Flight sim ulators 10 to 20 20% *

Iberia A irlines Flight sim ulators 12 to 14 * *Singapore A irlines Flight sim ulators 10 * *Sw iss A irlines Sim ulators 10 * *U .S. A irw ays Property and equipm ent - ground 3 to 12 * *

Flight and C ontinental A irlines Flight and ground equipm ent Term orground useful lifeequipment (6 years) * nil

C ontinental A irlines Food service equipm ent 6 to 10 *C ontinental A irlines Surface transportation/ground equipm ent 6 * nilD elta A irlines G round property and equipm ent 3 to 10 * *Japan A irlines G round property and equipm ent 2 to 65 * *Japan A irlines Flight equipm ent 8 to 27 * *Jetblue A irw ays In-flight entertainm ent system s 12 * nil

Jetblue A irw ays Property and equipm ent - ground 3 to 10 * nilJetblue A irw ays Flight equipm ent leasehold im provem ent Lease term * nilN orthw est A irlines Flight equipm ent 4 to 25 * *SA S G roup W orkshop and aircraft servicing

equipm ent 5 * *


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1 E ffective annual de preciation rate.2 Straigh t-line m ethod used for all catego ries except B oe ing 747 an d D C 10's, w he re declining -balance m ethod is use d.3 D eclining balance m ethod is used.* N ot disclosed.

Asset

category


(years)

Annual

depreciationrate

Residual

value

Fixtures,fittings andotherequipment A ir France - KLM Fixtures and fittings 8 to 15 * *

A m erican A irlines Fixtures, fittings and other equipm ent 3 to 10 * *B ritish A irw ays Equipm ent 3 to 25 * *C athay Pacific O ther equipm ent 3 to 7 * nileasyJet Furniture, fittings and equipm ent 3 * *Iberia A irlines Furniture and fittings 10 * *

Iberia A irlines Land transport item s 7 to 10 * *Iberia A irlines M achinery, fixtures and tools 10 to 15 * *Lufthansa O ffice and factory equipm ent 3 to 10 * *N orthw est A irlines O ther property and equipm ent 3 to 32 * *SA S G roup O ther equipm ent and vehicles 3 to 5 * *S ingapore A irlines O ther 1 to 12 * nilS outh A frican C ontainers * 5% *Virgin B lue Leasehold im provem ents * 20-40% *A ir France - KLM Equipm ent and tooling 5 to 15 * *

Computer A m erican A irlines C apitalized softw are 3 to 10 * *equipment C athay Softw are developm ent < 4 years * *

C ontinental A irlines C om puter softw are 3 to 10 * *easyJet H ardw are and softw are 3 * *Iberia A irlines D ata processing equipm ent 4 to 7 * *Japan A irlines Softw are 5 to 7 * *Virgin B lue C om puter equipm ent * 33.30% *A litalia Plant, m achinery, equipm ent and fittings 10 10% *

Plant and C ontinental A irlines M aintenance and engineering equipm e nt 8 * *equipment Lufthansa Plant and m achinery 10 * *

U nited A irlines Property, plant and equipm ent 3 to 15 * *Virgin B lue Plant and equipm ent * 20% *


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K PM G s G lobal A irline practice contacts

Martin SheppardAustraliaH ead o f Aviation+61 2 9335 8221m sheppard@ kpm g.com .au

Dr Ashley SteelUnited KingdomG lobal C hair Transport+ 44 20 7311 6633ashley.stee l@ kpm g.co.uk

ArgentinaN orbeto C ors+ 54 11 4316 5806ncors@ kpm g.com

BrazilM anuel Fernandes+ 55 21 3231 9412m fernandes@ kpm g.com

CanadaSteve B eatty + 1 416 777 3569sbeatty@ kpm g.ca

EgyptH ossam Fahm y + 20 2 536 1581hfahm y@ kpm g.com

FinlandSolveig Tornroos-H uhtam aki+358 9 6939 3733solveig.tornroos-huhtam aki@ kpm g.fi

FrancePhilippe A rnaud+33 1 5377 3809parnaud@ kpm g.com

GermanyU lrich M aas+49 30 2068 4888um aas@ kpm g.com

Hong KongAndrew W eir +852 2826 7243andrew .w eir@ kpm g.com .hk

HungaryA ndrea Sartori+ 36 1 887 7215andreasartori@ kpm g.com

IrelandSean O Keefe+ 353 1 410 1241sean.okeefe@ kpm g.ie

ItalyM arco G iordano+ 39 06 80 96 13 47m giordano@ kpm g.it

J apanToshio Ikeda

+ 81 3 3266 1142toshio.iked a@ jp.kpm g.com

KoreaPe ter C Kim+ 82 2 2112 0880pckim @ kpm g.com

MexicoH ector A R am irez + 52 55 5246 8545hram irez@ kpm g.com

Netherlands

H erm an van M eel+ 31 20 656 7222vanm eel.herm an@ kpm g.nl

New ZealandPaul H errod+ 64 9 3675 323pherrod@ kpm g.com

NorwayA age Seldal+ 47 5157 8219aage .seldal@ kpm g.no

PeruJessica O blitas+ 51 1 9792 2440job litas@ kpm g.comRussiaR ichard G lasspool+ 7 095 937 4470richardg lasspoo l@ kpm g.com

SingaporeW ah Yeow Tan+ 65 6213 2503w ahyeow tan@ kpm g.com .sg

South AfricaTshidi M okgabud i+ 27 11 647 6735tshidi.m okgab udi@ kpm g.com .za

SpainM iguel A ngel Ibanez + 34 91 5550 132m aibanez@ kpm g.es

SwedenRoland N ilsson

+46 8 723 9309roland .nilsson@ kpm g.se

SwitzerlandRoger N eininger +41 1 249 21 25rne ininger@ kpm g.com

TaiwanBeryl Lin+ 886 2 2715 9760be ryllin@ kpm g.com .tw

Thailand

John Sim+66 2 677 2288Jsim 3@ kpm g.com

United StatesC hris Xystros+1 757 616 7009cm xystros@ kpm g.com


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