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0 Introduction
Depreciation is a non-cash expense that reduces the value of an asset over time . Depreciation is
taken on business assets to recognize the change in value of these assets as they age. In the
airlines industry the equipment expenses undertake more than half from the total assets and
involving depreciation which have the significant value in operating expenses. The amount of
depreciation estimated by an airline company is based on the cost of assets, estimates by assets
lives, and assumptions about residual values at the end of asset lives.
Delta Air lines requires to adjust a structure under the Bankruptcy (Chapter11 of the U.S.
Bankruptcy code) in September, 2005 and emerged as a new Company in April 30, 2007. Then
Delta Airlines adopted fresh start accounting which is requires resetting the historic net book
value of assets and liabilities to fair value and becoming a new entity for financial reporting
purpose. Delta Air lines started in 2008 with more destination that more than another air lines in
the world, 321 Destinations in 58 Countries. In 2008 Delta merged with Northwest Airlines to
become the largest airline in the world.
The assumptions of economic life of aircraft has been changed by Delta Air Lines four times
since 1986, each time expected life by five years.
deregulation during this period invite the consideration of regular extension of aircraft lives. Its
motivated by desired to reduce the annual depreciation amounts in order to report higher net
income or reduce losses.
higher earnings. Delta Air Lines also changes the assumptions of economic life of aircraft four
times since 1986 because of the airline industry that have intensive competition and competitive
pricing and introduction of hub and spoke route systems, the deregulation during this periods,
the reducing of annual depreciation to report higher income or reduce losses, and the physical
life of a modern jet-powered aircraft against powered by piston engines.
out that they would have to re think how they recognized their depreciation to remain
competitive so Delta Airlines announced that they would be adjusting the way they recognize
their depreciation.