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Essay / Research Paper Abstract
A 3 page paper addressing the questions posed in Harvard case 9-198-002. The case compares the airlines’ financial structure relative to their respective aircraft fleets in 1993. Nearly half of Delta’s fleet is leased and the company carries a high debt load, whereas Singapore Airlines owns all its aircraft and carries no long-term debt. Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: CC6_KSfinDepDelta.rtf
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Unformatted sample text from the term paper:
case in question states that Delta Air Lines and Singapore Airlines "used different assumptions regarding the depreciable life and salvage life of their aircraft in 1993" (Cott and Bruns, 1998;
p. 1). Specifically, Delta claims that nearly half its fleet is leased to Delta, whereas Singapore owns its nearly all its aircraft outright, and the $2.8b operating lease total
to which it was committed was balanced by an equal amount of cash on deposit and dedicated to the payment of those leases, with the result that it was not
required to report those leases. 1. What possible reasons might there be to explain why Delta operates almost half of its aircraft fleet under operating leases, while Singapore operates
no aircraft under operating leases? Operationally, there is no difference to Delta whether it owns or leases the aircraft it flies. The
planes still must be maintained in accordance with regulatory rules, and it is Deltas responsibility to ensure that each aircraft it flies is in total compliance with required maintenance records.
From a financial perspective, however, there is a great difference in owning and leasing. For the aircraft it owns, Delta must provide
annual depreciation information for tax purposes, and it must undertake responsibility for disposal of the aircraft at the end of its useful life. Purchasing an aircraft ties up capital
that then is unavailable to Delta for any other purpose. This is all in great contrast to the implications of leasing, however.
The lease payments that Delta makes are directly (i.e., dollar-for-dollar) tax deductible, which lowers Deltas overall tax bill. Delta has no long-term capital tied up in the aircraft, but
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