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Delta Air Lines Inc. (DAL)
Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
The following table summarizes Delta’s property and equipment:
| Estimated Useful Life | |
| Flight equipment | 20-34 years |
| Ground property and equipment | 3-40 years |
| Flight and ground equipment under finance leases | Shorter of lease term or estimated useful life |
Delta records property and equipment at cost and depreciates or amortizes these assets on a straight-line basis to their estimated residual values over their estimated useful lives. The estimated useful life for leasehold improvements is the shorter of lease term or estimated useful life. Depreciation and amortization expense related to Delta’s property and equipment was $2.3 billion, $2.2 billion and $1.9 billion for each of the years ended December 31, 2018, 2017 and 2016, respectively. Residual values for owned aircraft, engines, spare parts and simulators are generally 5% to 10% of cost.
Delta capitalizes certain internal and external costs incurred to develop and implement software and amortizes those costs over an estimated useful life of three to 10 years. Included in the depreciation and amortization expense discussed above, Delta recorded $205 million, $187million and $158 million for amortization of capitalized software for the years ended December 31, 2018, 2017 and 2016, respectively. The net book value of these assets, which are included in ground property and equipment above, totaled $819 million and $659 million at December 31, 2018 and 2017, respectively.
Delta reviews flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired. Factors which could be indicators of impairment include, but are not limited to, (1) a decision to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment. For long-lived assets held for sale, Delta discontinues depreciation and records impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell.
To determine whether impairments exist for aircraft used in operations, Delta groups assets at the fleet-type level or at the contract level for aircraft operated by regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimates future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. If an asset group is impaired, the impairment loss recognized is the amount by which the asset group’s carrying amount exceeds its estimated fair value. Delta estimates aircraft fair values using published sources, appraisals and bids received from third parties, as available.
Source: 10-K (filing date: 2019-02-15).
Property, Plant and Equipment Disclosure
Delta Air Lines Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
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| Property and equipment, gross | |
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| Accumulated depreciation and amortization | |
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| Property and equipment, net | |
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Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
| Item | Description | The company |
|---|---|---|
| Property and equipment, gross | Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | Delta Air Lines Inc.’s property and equipment, gross increased from 2016 to 2017 and from 2017 to 2018. |
| Property and equipment, net | Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | Delta Air Lines Inc.’s property and equipment, net increased from 2016 to 2017 and from 2017 to 2018. |
Property, Plant and Equipment Ratios (Summary)
Delta Air Lines Inc., Property, Plant and Equipment Ratios
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
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Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. | Delta Air Lines Inc.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 and from 2017 to 2018. |
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. | Delta Air Lines Inc.’s estimated total useful life of depreciable property, plant and equipment declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
| Estimated time elapsed since purchase | The approximate age in years of a company’s fixed assets. Useful for comparison purposes. | Delta Air Lines Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
| Estimated remaining life | Delta Air Lines Inc.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |
Average Age
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
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| Selected Financial Data (USD $ in millions) | ||||||
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| Average age1 | |
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Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
2018 Calculations
1 Average age = 100 × Accumulated depreciation and amortization ÷ Property and equipment, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. | Delta Air Lines Inc.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 and from 2017 to 2018. |
Estimated Total Useful Life
Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
2018 Calculations
1 Estimated total useful life (years) = Property and equipment, gross ÷ Depreciation and amortization expense related to property and equipment
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. | Delta Air Lines Inc.’s estimated total useful life of depreciable property, plant and equipment declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
Estimated Age, Time Elapsed since Purchase
Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
2018 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation and amortization ÷ Depreciation and amortization expense related to property and equipment
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated time elapsed since purchase | The approximate age in years of a company’s fixed assets. Useful for comparison purposes. | Delta Air Lines Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Estimated Remaining Life
Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-11).
2018 Calculations
1 Estimated remaining life (years) = Property and equipment, net ÷ Depreciation and amortization expense related to property and equipment
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | Delta Air Lines Inc.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |