Research On The Impact Of New Leasing Standards On Aviation Company Finance

On 13 December 2018,the Ministry of Finance revised and issued Accounting Standards for Enterprises No.21-Leases(the new lease standard).This standard improves the lessee’s accounting treatment of operating leases by requiring both finance and operating leases to be accounted for in the statements and recognizing right-of-use assets and lease liabilities,which reduces the scope for manipulation of financial statements by managers.The aviation industry is the "barometer" of the international transport industry and its most important asset,the aircraft,is mainly introduced by means of leasing.The new lease standard will therefore have a significant impact on companies represented by the aviation industry and those that make significant use of operating leases.Southern Airlines,one of the three major airlines that implemented the new leasing standard on January 1st,2019,was selected as the object of this study for the case study.The study mainly adopts a comparative analysis research method and explores the impact on the airline’s finances after the implementation of the new leasing standard by calculating the airline’s financial data under the implementation of the old and new leasing standards respectively.First,the current development of the airline industry and the leasing of aircraft were compiled,and the overall situation of the airline industry after the application of the new leasing standard was analyzed,and it was concluded that airlines tend to introduce aircraft through operating leases for the purpose of beautifying their statements.Next,Southern Airlines was selected as a case study to discuss its operation status and leasing situation,and compared the changes in financial statements,financial reports and financial activities of Southern Airlines under the application of the old and new leasing standards respectively,so as to analyze the impact on the financial situation of Southern Airlines throughout the leasing period,and thus predict the impact on the investment activities,financing activities and taxation activities of Southern Airlines.Finally,based on the results of the case study and the measures already implemented by Southern Airlines,countermeasures are proposed for the airline,and lessons are provided for the airline to reduce the negative impact of the new leasing standard.The impact of the new leasing standard on airline finances is mainly reflected in three aspects: financial statements,financial index and financial management.The study found that: First,when operating leases are capitalized,the company’s assets and liabilities increase,the asset-liability ratio increases,and the front-loading of costs and expenses leads to a trend of "low profit before and high profit after";the reclassification of cash flows from leasing operations to cash flows paid from financing activities better reflects the economic substance of the business,and the company discloses relevant information more comprehensively and truthfully,which improves the quality of financial reporting disclosure and facilitates decision-making by information users;Second,decrease in key financial indicators such as profitability,solvency and operating capacity due to factors such as increase in total assets,decrease in net profit and increase in interest expenses,which may convey to the outside world the message of increased financial risk,weakened profitability and poor operating conditions of the company;Third,in the event of a deterioration in key financial indicators,the Company will be more rational and prudent in making investment strategies in relation to aircraft leasing based on cost effectiveness and operational requirements,and the Company’s financing difficulties may increase as a result and taxation behaviour may be delayed.In this regard,the company can adjust the leasing mode and taxation method according to the actual situation,prudently decide the key factors of the leasing contract,optimize the capital structure through reasonable ways,broaden the financing channels,strictly disclose the leasing information in accordance with the regulations and strengthen the information exchange,and improve the quality of employees in order to reduce the adverse impact brought by the new leasing standard.