Depreciation at Delta

Airlines and Singapore

Airlines
{ Presented By Swaraj Mishra
DELTA AIR LINES
 One of the major airlines in the U.S. with
almost $12 billion in annual revenues.
 Served 161 cities in 44 states in U.S.
 Also, operated flights to 33 foreign
countries.
 In 1993, third largest airline in U.S.
 At end of 1993, revenues from international
flights represented 21% of total operating
revenues.
 The average of Delta’s aircraft was 8.8
years, which was relatively young by
industry standards.
SINGAPORE AIR LINES
 It was the largest private sector employer in
the Singapore’s booming economy.
 At the end of 1993, its route network covered
70 cities in 40 countries.
 In 1993, its total operating revenues, $3.1
billion would have made it the seventh
largest airline in the United States.
 The average age of its was 5.1 years, which
was the youngest of any major airline in the
world.
Calculate the annual depreciation expense that
Delta Airlines and Singapore Airlines would
record for each $100 gross value of aircraft.
Depreciation=(Asset value –Residual Value)/Asset Life
Delta Airlines
Before 1 July 1 July 1986 to 31 After 1 April
1986 March 1993 1993
Residual Value 10% 10% 5%
Asset Life 10 15 20
Depreciation $9 $6 $4.75

Singapore Airlines
Before 1 April 1989 After 1 April 1989
Residual Value 10% 20%
Asset Life 8 10
Depreciation $11.25 $8
Are the difference in the ways that two airlines
account for depreciation expense significant?
Both the airlines used the straight line methods.
Salvage value and life of the asset (aircraft) are different
in different time for both the cases.
Delta has higher average life period(8.8yrs) then
Singapore has(5.1yrs).
Where as residual value/Scrap value of Singapore is
higher then delta airline.
Why would companies depreciate aircraft using
different depreciable lives and salvage value?
Due to companies are different and they
have different authority.
Due to lesser usage and higher maintenance.
Due to technical advantages.
Due to need of the time.
Assuming av. value of flight equipment that
delta had in 1993, how much depreciation
assumption it adopted on April 1,1993 make ?
Depreciation value difference at $100 is (6-4.75)/100
=0.0125
Let’s assume the av. Value of flight equipment is $11250.
Then the change in value will be=11250*0.0125=$140.625
How much more or less its annual depreciation expense
be compared to what it would be were it using
Singapore’s depreciation assumption?
Depreciation value difference at $100 is (11.25-8)/100
=0.0325
Let’s assume the av. Value of flight equipment is $11250.
Then the change in value will be=11250*0.0325=$365.625
Singapore airlines maintain depreciation
assumptions that are very from delta’s. what does
it gain or lose doing so? How does it relate to
company’s overall strategy?
I. They focused on to show less profit by using higher
depreciation rate and save taxes.
II. They targeted to sell the aircraft for a fair market
value having 20% residual value after 10 years.
Overall strategy
Their overall strategy was to use new and
comfortable airlines for the customers. Hence they
sold the aircrafts to maintain their standards
which we can easily understand as they have the
youngest airline in the world.
Does the difference in the av. age of the Delta’s &
Singapore’s aircrafts’ fleets have any impact on
its amount of depreciation expenses?

Yes. More the asset life less is the depreciation and vice
versa.

What is the possible reason that the Delta airline’s

operates almost half of its aircraft on operating leases,
where as Singapore airlines operates no aircraft on
operating leases?
In the year of inflation the delta airline focused on cost
cutting by decreasing its staff and reducing flights
where as Singapore airline did not do the same.
Comparable study between the 2 airlines on
assets, long term debt and depreciation expenses
in the year 1993.

Delta Airline Singapore Airline

Total assets 11871 9417
(in $ millions)
Long term debt 3717 0
(in $ millions)
Depreciation expenses 679 708
(in $ millions)
Thank You