Financial reporting and management trends in the global aviation industry -
The 4th disclosure handbook takes a detailed look into upcoming changes in accounting guidance that will materially impact airlines profits and balance sheets. It also looks to where airlines are in terms of industry co-operation and consolidation and seeks to provide a forward looking view on the never ending task of cost reduction.
Looking to the key developments in International Financial Reporting Standards (IFRS) and US GAAP (where the projects are joint with IFRS), this edition examines:
- The upcoming positive news on hedging for airlines (under IFRS) – including the use of options as economic and accounting hedges, hedging of aviation fuel purchases and reduced compliance costs in terms of hedge accounting testing requirements. However, as always with accounting rules on derivatives, there appears to be a sting in the tail in terms of accounting issues associated with the swapping of foreign currency debt. Our understanding as a result of the January 2013 IASB Board meeting is that this should be resolved by the issuing of the new hedging standard;
- Where is the joint IASB and US Financial Accounting Standards Board (FASB) project on lease accounting up to? Our analysis has highlighted six key issues that airlines may consider critical for the IASB and FASB to address prior to finalising this standard; and
- Maintenance accounting for leased aircraft – sometimes described as a dark art, we discuss the accounting considerations and include example disclosures.
The handbook then moves into the complexity involved in airline co-operation, co-investment and mergers. The regulatory environment for airlines is relatively unique in terms of foreign ownership rules, the system of route access and other restrictions that inhibit consolidation activity (outside of open sky environments). We look at what is currently happening in this space and offer some insights from other industries which have similarities in their regulatory environments.
Finally, we continue our benchmarking of full service/legacy airline cost bases to their low cost counterparts. This analysis looks at how the "low hanging fruit" has been plucked and where airlines are now in the cost reduction journey.
In compiling this guide, KPMG's Global Aviation practice professionals have reviewed the financial and other reports of the world's top 25 airlines by revenue and a select six of the largest lower cost airlines. We have also reviewed other publicly available information within these airlines' websites and analyst presentations. Details of the principle sources of information used are set out in Appendix 1.
KPMG's Global Aviation practice has taken direct extracts from various airline financial statements and other published information. These have been extracted from the relevant publicly available regulatory reports noted above.
No comment is made by KPMG's Global Aviation practice in regard to the adequacy or otherwise of these policies, rather the examples used are to demonstrate current disclosure practice and to facilitate discussion on key airline issues as identified by airlines.
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