Balancing the Books
IFRS 16 and Aviation Finance
The path to issuance of IFRS 16 has been long and winding, initially being added to the IASB’s agenda in July 2006. But what does IFRS 16 hold in store for the aviation finance industry? It is clear that the impact on airlines is far more pronounced than their financing partners. Substantial new assets and liabilities will appear on airline balance sheets, while reported profit and performance measures will be impacted. Perhaps most significantly, the impact on individual airlines will depend on their particular financing and leasing structures, and may be very different from the impact on their peers.
To provide perspective on the market sentiment, Deloitte and Euromoney Institutional Investor Thought Leadership have teamed up to prepare this report on the impact of IFRS 16 on the aviation finance industry.
The report contains perspectives gleaned from senior executives surveyed from the aviation finance industry as well as in-depth interviews conducted with senior industry executives and independent experts. It provides fascinating insight on the operational, financial and implementation challenges which the standard presents.
Analysing the responses from 381 aviation finance experts globally our report "Balancing the books: IFRS 16 and Aviation Finance" reveals:
- Lease contracts are expected to change in the wake of IFRS 16. Airlines and lessors alike say they will need to renegotiate existing leases as well as create new standard terms.
- IFRS 16’s impact on gearing ratios could be particularly problematic. While the new accounting will alter a host of key performance metrics, the aviation finance industry is most concerned by changes to leverage ratios.
- IFRS 16 will not necessarily hit leasing volumes. A significant number of respondents expect operating lease and sale-leaseback volumes to fall. But a small majority disagrees, some of them even predicting a rise.