Fleet Planning Management - Essay Example

Fleet Planning Management Event Issue: A successful aircraft purchase decision includes market timing, purchase price, financing, operational performance and economics. The proper mixture is however, key. Most airlines today are now relying on leasing or third party financing to acquire aircraft. New planes are more economical to maintain than old planes. Leasing allows for flexibility of purchasing and financing. ANZ aims for 45% of its fleet to be leased.Issue: How should companies account for the leased aircrafts: making the distinction between operating and finance leasesThis can be done in a measurement and recognition criteriaRecognize Asset/Liability/LeasesRecognize Expense/IncomeFinance lease should be recorded as assets and liability of lower of the fair value of the asset and present value of the minimum lease payment.

Finance lease payments should be apportioned between the lease finance charge and the reduction of the outstanding liability. ASK should apportion the $200,000 accordingly.Depreciation for leased aircrafts under finance leases should be consistent with owned aircrafts in the case of ANZ, CICA, 2040.ZFor a sole and leaseback transaction that result in a finance lease, any excess of proceeds over the carrying amount differed and amortized over the lease term.Aircrafts which are bought on cash (not financing a leasing or recorded as assets of their purchase price, and depreciated over their useful life.

For operating leases, lease payments recognized as expenses in the income statement. This is done on a straight line basis.Incentives like the price right being offered by being to ANZ should be recognized by ANZ as a reduction of the incentives nature or form of timing of payments.Savings realized from fuel expenses on acquisition of new aircrafts is recognized as an income.If the leasing transactions are carried at fair value then profit and loss is recognized immediately.For transactions carried at fair value profit and loss recognized immediately.

Depreciation on the aircrafts is expensed. Conclusion: In any lease transaction a distinction should be made as to whether a lese is finance or operating lease. Such classification will lead to a proper accounting procedure of the items. For finance leases, assets are recognized in the balance sheet and rose for operatingLeases are simply expensed. Such a distinction dictates how the risks and benefits are substantially transferred to the leases. Such benefits and risks are substantially transferred to the lessee in finance leases but not operating leases.

ORFleet Planning ManagementIssue: How should companies account for finance or operating leasesThis can be analyzed in disclosure/presentation criteriaDisclosures - Finance LeasesOperating LeasesCarrying amount of asset. This is the market value of such an asset.Reconciliation between total minimum lease payments and their present value.Contingent rent recognized as an expense.Amounts of minimum lease payments of balance sheet and the present value thereof for the subsequent years.Total future minimum sublease income under non cancellation subleases.

General description of significant leasing arrangements including contingent rent provisions renewal or purchase options and restrictions imposed on dividends borrowings, or further leasing.Amounts of minimum lease payments of balance sheet date under non cancellation operating leases for subsequent years of the lease.Lease and sublease payments recognized in income for the period.Contingent rent recognized as an expense.General description of significant leasing arrangements including contingent rent provisions, renewal, purchase options and restrictions imposed on dividends borrowings or further leasing.

Total future minimum sublease income under non cancellation subleases.Conclusion: In the disclosure requirements a distinction is to be made as to finance or operating lease. For a finance lease the carrying amount of the asset is disclosed if the company owns it. The company owns the aircrafts substantially. Such aircrafts are their tights subject to certain provisions. For operating leases, the lease payments are recognized as expenses for the period and no asset is recognized.ReferenceData/Airline Economics Channel, http://www.atwonline.com/channels/dataAirlineEconomics/article.

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