THE IMPACT OF THE CAPITALIZATION OF LEASES ON AIRLINE FINANCIAL ANALYSIS: AN ISSUE REVISITED

Abstract

Lease financing has increased substantially in the airline industry over the past several decades, and the types of lease agreements employed by the carriers has changed significantly. Leasing, however, is debt finance, and its recognition as such can dramatically increase a carrier's debt burden. While accounting regulations now require tha certain types of leases be capitalized and included on the balance sheet as long term debt, not all lease types are adequately reflected. Some leases are structured to strategically avoid balance sheet recognition. This article examines the issue and quantifies the effects of these leases on carrier debt/equity ratios.

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