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Depreciation at Delta
Singapore Airlines.
Airline
Submission Date
16-Sep-2009
Class
EPGP 09-10
Subject
and
Submitted by
Abhishek Pangaria
Mandeepak Singh
Rajendra Inani
Saravanan Logu
Tarandeep Singh
Vivek Edlabadkar
Table of contents
Objectives............................................................................................................................2
Depreciation in airline industry...........................................................................................2
Case Background.................................................................................................................2
Test Case Question 1............................................................................................................3
Test Case Question 2............................................................................................................4
Test Case Question 3............................................................................................................6
Test Case Question 4............................................................................................................7
Test Case Question 5............................................................................................................7
Objectives
To understand the different depreciation methods used by Delta Airlines and Singapore
Airlines during the period of 1989-1993.
Case Background
Delta Airline is one of the major passenger airlines in US, with almost $12 billion in
annual revenues. It changed its depreciation method in financial statement twice between
1989 and 1993. In both times it increased the useful life of aircraft and once decreased
the residual value.
Singapore Airlines a major passenger airline in Asia. It changed its depreciation
calculation method in 1989. It increases its aircrafts usage life and increased the residual
value. In this case study we are going to analyze there financial statements and figure out
the rational behind these changes.
Page 2 of 7
$100
Delta Airlines
Prior to
July 1,1986
Residual Value
Asset Life
Depreciation
10%
10
$9
Between
July 1,1986 and
March31, 1993
10%
15
$6
Singapore Airlines
Residual Value
Asset Life
Depreciation
Prior to
April 1, 1989
10%
8
$11.25
After
April 1, 1989
20%
10
$8
Page 3 of 7
April 1, 1993
Onward
5%
20
$4.75
Why would the companies depreciate aircraft using different depreciable lives and
salvage values? What reasons could be given to support their differences?
1. Various airlines have different depreciation methods based on type of fleet and
business objectives
2. Type of fleet There has been several technological advancements in airline
industry. Airbus and Boeing introduced aircrafts that they claimed to have higher
periods of operation compared to previous ones. The newer aircrafts added to fleet
of any airline can give them an option to depreciate the fleet over longer period of
time.
3. Usage and Maintenance - Based on the lesser usage and higher maintenance of an
aircraft, the company may decide to increase its average usage period and so
lower depreciation rate.
4. Another important reason prima facie is to show more profits due to less
depreciation. It needs to be noted that there has been more depreciation
assumption changes by airlines during rough or loss making times of airline
industry. (e.g. 1992-1993)
Page 4 of 7
Page 5 of 7
1993
9043
173
9216
0.0125
115.2
How much more or less will its annual depreciation expense be compared to what it
would be were it using Singapores depreciation assumption?
Year
1993
9043
Page 6 of 7
173
9216
0.0325
299.52
Page 7 of 7