Successfully reported this slideshow.
Upcoming SlideShare
×

# A HBR case study on Depreciation at delta airlines and singapore airlines

10,698 views

Published on

It is presentation of a HBR case study on depreciarionn at delta airlines and singapore airlines. It includes 5 questions with their answer.

Published in: Education
• Full Name
Comment goes here.

Are you sure you want to Yes No

Are you sure you want to  Yes  No
• Thank you for share

Are you sure you want to  Yes  No

### A HBR case study on Depreciation at delta airlines and singapore airlines

1. 1. { Depreciation at Delta Airlines and Singapore Airlines Presented By Swaraj Mishra
2. 2.  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. DELTA AIR LINES
3. 3. 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.
4. 4. Calculate the annual depreciation expense that Delta Airlines and Singapore Airlines would record for each \$100 gross value of aircraft. Delta Airlines Depreciation=(Asset value –Residual Value)/Asset Life Before 1 July 1986 1 July 1986 to 31 March 1993 After 1 April 1993 Residual Value 10% 10% 5% Asset Life 10 15 20 Depreciation \$9 \$6 \$4.75 Before 1 April 1989 After 1 April 1989 Residual Value 10% 20% Asset Life 8 10 Depreciation \$11.25 \$8 Singapore Airlines
5. 5. 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.
6. 6. 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.
7. 7. 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
8. 8. 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.
9. 9. 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.
10. 10. Comparable study between the 2 airlines on assets, long term debt and depreciation expenses in the year 1993. Delta Airline Singapore Airline Total assets (in \$ millions) 11871 9417 Long term debt (in \$ millions) 3717 0 Depreciation expenses (in \$ millions) 679 708
11. 11. Thank You