The Financial Impact Of The New Leasing Standard On Airlines After The Formal Implementation Of The New Leasing Standard

Under the current international and domestic leasing standards,leases are classified as financing leases and operating leases.Lessors and lessees use different accounting treatments based on different lease types.Among them,the lessee does not need to confirm the assets and liabilities formed by operating leases,it only needs to confirm the assets and liabilities formed by financing leases,thus causing “off-balance sheet financing”.Therefore,the original lease accounting model has been questioned.IFRS 16 was revised in 2016 and promulgated as a new lease standard,which will take effect on January 1,2019.The new leasing standards will have a greater impact on the service industry.Related industries include retail and wholesale,aviation,professional services,healthcare,transportation and infrastructure,entertainment and telecommunications.Given that domestic accounting standards are in line with international standards,the Ministry of Finance learned from International Financial Reporting Standards No.16 Leasing(IFRS16)and combined with the actual situation in China,firstly drafted "Enterprise Accounting Standards No.21-Lease(Revision)(Consultation Draft)" in January 2018,and then in December 2018,the Ministry of Finance made further amendments and improvements to the leasing standards,issued the revised " Accounting Standards for Business Enterprises No.21-Leases ".And cooperated with New International Leasing Standard,the guidelines come into force at the same time.Aircraft is the most important fixed asset of airlines.In order to occupy a certain market share and achieve the established capacity scale,airlines need to continue to introduce aircraft.However,the value of the aircraft is high and the investment payback period is very long.So the leverage ratio is high which put much financial pressure on the aviation industry.Although the leverage ratio of Chinese airlines has declined slightly in recent years,it still maintains a high level of more than 60% on average.In order to maintain the leverage ratio at a reasonable level,operating leased aircraft that have not been included in the table in the past have often become the only choice for airlines to purchase aircraft.Moreover,operating leasing is relatively flexible in terms of the introduction and withdrawal of aircraft,so it has become a vital way for airlines to introduce aircraft.According to PWC research,the aviation industry is the industry that has been most affected in terms of assets and liabilities beyond retail.The implementation of the new leasing standards will inevitably have a greater impact on airlines.Therefore,this article selects China Southern Airlines listed in the two places for research and analyzes the financial impact on China Southern Airlines after the implementation of the new standard.This article focuses on the "Accounting Standards for Business Enterprises No.21-Leasing" revised by the Ministry of Finance in December 2018,using literature research,comparative analysis,and case analysis to explore the impact of the new lease standard.Due to the large number of aircraft leasing businesses in the aviation industry,changes in leasing standards will inevitably have a significant impact on aviation companies.As one of the three major airlines,China Southern Airlines’ market share is relatively large,and it also has the highest operating lease ratio among the three major airlines.As a domestic and overseas listed company,China Southern Airlines has been applying new leasing standards since January 1,2019.So this article selects China Southern Airlines as the case study object,and its existing 2019 interim report provides powerful data for the case study.It analyzes how the new leasing standards under the "two leases and one" model will affect the south Aviation.The case analysis part of this article firstly analyzes and discusses the impact of the new leasing standards on China Southern Airlines ’balance sheet,income statement and cash flow statement,and draws the conclusion that asset and liability both expand,previous period profit decline and total net cash flow remain unchanged;Secondly,the author studied the changes in the financial performance of China Southern Airlines after implementing the new leasing standards,and found that profitability and solvency have declined;the next part of the case analysis is from the four aspects of financing decision,investment decision,foreign exchange risk management and tax behavior.Our analysis of the financial impact of the new standard on China Southern Airlines will ultimately rest on its stakeholders,specifically creditors,so the final part of the case analysis discusses the impact of the application of the new standard on creditors.On the one hand,the financial statements under the new standard reflect its financial situation more realistically and objectively.At the same time,the deterioration of financial indicators caused by the application of the new standard may directly cause creditors to raise borrowing rates or no longer continue to provide financial support;on the other hand,creditors are fully understanding On the basis of studying the new lease standard,it is important to realize that the smooth transition of the new lease standard is important,and the new lease standard requires creditors to pay more attention to the true business of China Southern Airlines.Changes in accounting standards have caused data previously hidden outside the table to appear in the table,which in turn affects its financial indicators.As China Southern Airlines continues to apply the new leasing standards in future years,creditors can directly select the data for the period in which the new standards are applicable for comparison,in order to arrive at more objective and reasonable decisions.Finally,the article proposes countermeasures from the perspective of the lessee and users of related statements.The lessee makes full use of equity financing,transforms and converts leases to services,adopts risk hedging tools to control foreign exchange risks,and uses short-term leases to respond to new leases challenges brought by the standards;Users of relevant statements should also fully understand and learn the new lease standards and make objective and rational decisions.It is hoped that the research in this article can provide a certain reference for airlines and help them achieve a smooth transition of the new lease accounting standards.