Depreciation at Delta Air Lines: The “Fresh Start”
Respond to the Case Questions/Prompts listed below. These are also found in the Depreciation at Delta Airlines and Singapore Airlines (A) PDF on p. 4.
- Calculate the annual depreciation expense that Delta and Singapore would record for each $100 gross value of aircraft.
- For Delta, what was its annual depreciation expense (per $100 of gross aircraft value) prior to July 1, 1986; from July 1, 1986 through March 31, 1993; and from April 1, 1993 on?
- For Singapore, what was its annual depreciation expense (per $100 of gross aircraft value) prior to April 1, 1989; and from April 1, 1989 on?
- Are the differences in the ways that the two airlines account for depreciation expense significant? Why would companies depreciate aircraft using different depreciable lives and salvage values? What reasons could be given to support these differences? Is different treatment proper?
- Assuming the average value of flight equipment that Delta had in 1993, how much of a difference do the depreciation assumptions it adopted on April 1, 1993 make? How much more or less will its annual depreciation expense be compared to what it would be were it using Singapore’s depreciation assumptions?
- Singapore Airlines maintains depreciation assumptions that are very different from Delta’s. What does it gain or lose by doing so? How does this relate to the company’s overall strategy?
- Does the difference in the average age of Delta’s and Singapore’s aircraft fleets have any impact on the amount of depreciation expense that they record? If so, how much?