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PwC has conducted a research for the impact of the new leases standard to 3,199 listed companies around the world which use IFRS as their financial reporting framework. Aviation industry is the second most impacted industry following the retail industry according to such research. The median of increment in on-balance sheet liabilities is estimated to be 47% and around 50% of the airlines will record a 25%+ increase in liabilities. Due to the corresponding change in the profit or loss structure (e.g. recognition of interest expenses and depreciation, instead of operating lease rental), the earnings before interest, tax, depreciation and amortisation (“EBITDA”) is estimated to have around 33% increment in median.
This article summarises the main aspects of the new standard, and highlights the key challenges arising from the new standard to the aviation industry and management’s preparation during the transition.