Operating lessor ILFC has changed the estimated useful life of 55 aircraft in its fleet, including 32 units that were impaired during the third quarter.
ILFC says in a regulatory filing, issued yesterday, it will start depreciating these 55 units using the “straight-line method over the estimated remaining revised useful lives”.
While this change will accelerate the overall depreciation expense on these aircraft, the move will be "partially offset by the reduction in the carrying values of the 32 aircraft for which impairment charges were recorded during the third quarter", according to ILFC.
The lessor estimates that its depreciation expense for these aircraft will increase by approximately $7 million in the fourth quarter 2013 compared with the third quarter. A further increase in depreciation expense of approximately $23 million is expected in 2014.
However, beginning in 2015, the depreciation expense is expected to decrease as these aircraft begin to reach the “end of their respective holding periods”.
ILFC did not provide details of the aircraft types impacted by the move.
During the three and nine months ended 30 September, ILFC recorded impairment charges of $1.1 billion relating to 36 aircraft and $1.1 billion relating to 40 aircraft, respectively, as part of its annual fleet review.
ILFC concluded that the net book values of certain four-engine widebody aircraft were “no longer supportable” based upon the latest cash flow estimates as the “estimated holding periods are not likely to be as long as previously anticipated”.
Approximately $1 billion of the $1.1 billion in impairment charges recorded in the three months, resulted from "four-engine aircraft and in particular the Airbus A340-600s".
According to ILFC, the increasing number of aircraft operators looking to "completely or partially replace" their Airbus A340s and Boeing 747s is expected to increase the available supply of these aircraft types and diminish future lease placement opportunities.
During the three and nine months ended 30 September, 2012, ILFC recorded impairment charges of $61.2 million relating to six aircraft (including one aircraft that had previously been impaired) and $102.7 million relating to ten aircraft (including one aircraft that had previously been impaired), respectively. These impairment charges were a result of the lessor’s annual review in the third quarter 2012.