Singapore Airline & Delta Airline

Introduction

Property, Plant, and Equipment (PP&E) is a significant asset category of most airline companies. PP&E usually contains more than 50% of the total assets of an airline. The depreciation of these assets is a major operating expense. The proper depreciation of PP&E in companies, such as airline with PP&E being a significant part of their assets, plays an important role in their accounting strategies. The large variation in the way of determining the depreciation expenses affects a company’s financial results and tax consequence largely. Applying reasonable yet favorable depreciation methods and assumptions is essential to a sound accounting practice. In the below comparison of the depreciation methods and assumptions used by Delta Airline and Singapore Airline, one can see the means of making different assumptions for the best interest of each business.

Annual depreciation expense (1)

The two airlines Delta and Singapore use significantly different methods when accounting for the depreciation of their aircraft. Delta Airlines now uses a 20 year straight line depreciation method down to a 5% salvage value. This will spread out the expense of plane ownership over a longer time, lessening pressures on the balance sheet. The 5% salvage value represents what the airline can reasonably expect to liquidate the planes for. Singapore Airlines, on the other hand, uses a 10 year straight line depreciating method to account for depreciation expenses. They depreciate planes down to a 20% residual value, a large difference between them and Delta. Table 1 shows the annual depreciation expense that Delta and Singapore airline record at recent years period (for each $100 gross value of aircraft).

Table 1

|Annual Depreciation Expense |