Jetrader - Winter 2016 - 40

scrap value is appropriate. If an aircraft,
airframe and engine components have no
resale value at the end of its useful life,
a scrap value may be more appropriate.

Average On-Ground Time
The average on-ground time is the average amount of time after the current lease
ends before the next lease begins. If the
company has experienced a successful
remarketing program, there may be no onground time between leases. If the aircraft
is currently not on lease and demand is

limited, the company may want to consider a longer on-ground time. This can
be estimated using historical data or other
future assumptions related to the average
on-ground time based on aircraft type,
age, maintenance requirements if any, etc.

Additional Income
Any additional income can be considered if generated by the asset group under
study. An example would be at the end of
the lease when reserve payments received
exceed costs incurred by the current lessee

in performing scheduled maintenance and
the difference is not required to be reimbursed by contract. The difference would be
income, and this income can be considered
on a case-by-case scenario, or an average
could be estimated by aircraft type, etc. to
be included in the cash flow test.

Expenses
In the recoverability test, the estimates
shall include cash flows associated with
future expenditures necessary to maintain
the existing service potential of the aircraft. These expenses, if material, should
include any administrative costs and servicing fees; and in between leases, additional expenses such as inspection costs,
transport/shuttle fees, storage and insurance should be considered as well.

Adjusted Carrying Amount
Becomes New Depreciable Basis
If an impairment loss is recognized, the
adjusted carrying amount or fair value of
the aircraft asset shall be its new depreciable basis. The fair value could be estimated
using either the market or income approach
or both with the objective of making the
most reliable estimate of fair value.
The new depreciable basis shall be depreciated (amortized) over the remaining useful life of that aircraft. Restoration of a
previously recognized impairment loss is
not allowed.

Summary
This article highlights considerations for
impairment testing under ASC 360 two-step
process, as well as a basis for continuing
reviews of the critical asset group driving
a lessor's business. More importantly, ASC
360 is more than a comparison of the book
value to fair market value. The step 1 test
gives relevance to the potential realistic
earnings of the aircraft and involves a
thorough review and probability weighting of remaining economic life, future lease
period, future lease rates, residual/scrap
value, average on-ground time, additional
income and expenses.

Sources:
1.
2.
3.
4.
5.
6.

40 The official publication of the International Society of Transport Aircraft Trading
05/08/16

823629_Novus.indd 1

3:05 AM

FASB ASC 360-10-20
FASB ASC 360-10-35-17
FASB ASC 360-10-35-21
FASB ASC 360-10-35-29
FASB ASC 360-10-35-29
FASB ASC 360-10-35-30

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Jetrader - Winter 2016

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