Starting an airline and operating it needs deep pockets. Initial investments are very high, and aircrafts are normally acquired by long-term lease arrangements. The revenue does not come with the same velocity due to differential pricing adopted by airlines to manage competition.
4.1.2 IFRS Standards that Could Impact the Industry
126.96.36.199 IAS 16 Property, Plant and Equipment
IAS 16 Property, Plant and Equipment seems to have a liking for airline entities. It illustrates airline entity examples in four different instances:
- Aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe.
- A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced.
- A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity's operations. “Aircraft” is one in a list of eight examples of separate classes.
- It may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease.
Aircraft Acquisition Costs
Aircraft are initially recorded at cost. Aircraft acquisition costs normally include purchase costs, duties and taxes, foreign exchange gains and losses and borrowing costs. The costs associated with ...