Leased Aircraft Maintenance Reserves: Comprehensive Framework to Unsolved Issues under IFRS 16 and Topic 842

  •  Francesco Bellandi    


Aircraft operating lease agreements typically require a lessee to perform certain activities to maintain the leased aircraft and return it to the original condition. Company practice of accounting for maintenance reserves is diverse, challenging and conflicting. The new lease standards often diverge, as FASB, 2019, Topic 842 (U.S. GAAP) rarely, if ever, capitalizes those costs as part of the right-of-use asset, while IASB, 2016, IFRS 16 generally does so.

This article builds a comprehensive framework that reconciles IFRS and U.S. GAAP and finally solves issues that the IATA has so far characterized as problematic, but unfortunately academics have failed to adequately address. It also finds out that U.S. GAAP and IFRS may lead to unlike accounting for lease maintenance arrangements of different form but equivalent substance, and that there is an asymmetry between the original asset and the object of capitalization of decommissioning costs. Finally, after a thorough review of financial statements of 53 sampled airlines on the accounting for decommissioning costs and maintenance reserves, for the first time in a public document this article fully reveals the detailed findings and codifies them within an unprecedented precise comparison of U.S. GAAP and IFRS on the subject. Certain inconsistencies in accounting differently for unlike form but like substance are also noted.

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