A Case Study On China Southern Airlines Implementing New Lease Term

At present,leasing business is widely used in the global aviation industry.Acquiring aircraft through leasing can not only quickly expand the fleet for airlines,but also has significant financing meaning.Meantime,it can adapt to the needs of updating aircraft models as the market develops.In view of the above advantages,major airlines prefer to obtain aircraft through leasing.Statistics show that about 70% of the aircrafts in active service of China’s airlines are obtained by leasing.As the leasing business progresses,the call for improvement of leasing standards is becoming more and more urgent.According to the "ownership model",the original leasing standard divides the leasing business into financial leasing and operating leasing,which are recognized and measured by dual accounting mode.However,the fact that operating leasing is not disclosed in the statements make it possible for companies to conduct off-balance sheet financing,conceal the essence of the lease,and beautify their statements.After ten years of discussion and revision,IFRS16 was officially promulgated in 2016.Under the background of accounting standards and international convergence,China’s Ministry of Finance officially promulgated CAS21 in December 2018.In view of the leasing business owned by the lessee,the new leasing standard requires the unified use of the "right of use model" for measurement,which directly fills the loophole of off-balance sheet financing by using operating lease.However,the aviation industry is a typical industry with a large number of heavy asset leasing.The application of the new leasing standards will inevitably have a significant impact on the accounting recognition,measurement and presentation of airline companies.How to adjust business operation and take strategic decisions will be the problems to be faced.Therefore,this thesis selects China Southern Airlines as the analysis object to study the impact of the new leasing standards and the corresponding countermeasures.The main conclusions of this thesis are as follows:(1)Although there are irregularities in disclosure,the new leasing standards will allow for more complete disclosure of the company’s financial situation and actual operating results;But at the same time,it will also expose the hidden business risks of the typical high operating leasing industry represented by the aviation industry,which will cause adverse effects in a certain period of time.(2)Applying new leasing standards will have a significant impact on China Southern Airlines’ balance sheet on the first day.This impact is due to the fact that the right to use identified leased assets and liabilities will significantly increase the scale of total assets and liabilities and will increase the company’s asset-liability ratio.The impact on the income statement and cash flow statement is relatively limited.(3)According to the new standards,the solvency,profitability and operation capacity of China Southern Airlines will be significantly weakened,and the financial risks of the company will be expanded.However,companies can enhance their operation ability and balance the adverse effects by innovating financing channels,expanding ways of introducing aircrafts,and optimizing capacity input.