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HK1247
WINNIE S. C. LEUNG
TSUN-KAN WAN
CATHAY PACIFIC: FINANCIAL IMPACT AND
CHALLENGES IN ADOPTING THE NEW LEASE
ACCOUNTING STANDARD
One of my great ambitions before I die is to fly in an aircraft that is on an
airline’s balance sheet.
- Sir David Tweedie,Former Chairman of the
International Accounting Standards Board1
Sir David Tweedie’s ambition came true in 2016 when the International Financial Reporting
Standard 16 Leases (IFRS 16) was issued.2 This new lease accounting standard had made
significant changes to the way in which leasing transactions were reported in the financial
statements of lessees, compared with its predecessor International Accounting Standard 17
(IAS 17).3 In the past, operating lease commitments by lessees were “off the balance sheet.”
With the new standard effective on 1 January 2019, essentially all lease transactions were
recognized as right-of-use assets and lease liabilities by lessees on their statement of financial
position.
As the world’s eighth-largest carrier serving customers globally for more than seven decades,4
Cathay Pacific Airways Limited (Cathay Pacific or the Group, stock code: 293.HK) would be
affected by the far-reaching financial implications of the new lease standard. Specifically, the
implementation of HKFRS 16 had a significant impact on the Group’s assets and liabilities and,
hence, its indebtedness. On 1 January 2019, Cathay Pacific reclassified all prior operating leases
1
F. G. Burton and E. K. Jermakowicz, International Financial Reporting Standards: A Framework-Based Perspective
(Routledge, 2015), PDF e-book, p. 447, https://books.google.com.hk/books?id=fl_ABgAAQBAJ&printsec=frontcover&hl=zhTW&source=gbs_ge_summary_r&cad=0#v=snippet&q=One%20of%20my%20great%20ambitions%20before%20I%20die%2
0is%20to%20fly%20in%20an%20aircraft%20that%20is%20on%20an%20airline's%20balance%20sheet.&f=false, accessed
June 2020.
2
HKFRS 16 is the Hong Kong Interpretation of IFRS 16. The two standards are used interchangeably throughout the whole text.
3
HKAS 17 is the Hong Kong Interpretation of IAS 17. The two standards are used interchangeably throughout the whole text.
4 Cathay Pacific, 2019 Annual Report, p. 2, https://www.cathaypacific.com/content/dam/cx/about-us/investor-relations/interimannual-reports/en/annual_report_2019_eng.pdf, accessed June 2020.
Tsun-kan Wan prepared this case under the supervision of Dr. Winnie S. C. Leung for class discussion. This case is not intended
to show effective or ineffective handling of decision or business processes. The authors might have disguised certain information
to protect confidentiality. Cases are written in the past tense, this is not meant to imply that all practices, organizations, people,
places or fact mentioned in the case no longer occur, exist or apply.
© 2020 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be digitized, photocopied
or otherwise reproduced, posted or transmitted in any form or by any means without the permission of The University of Hong
Kong.
Ref. 20/666C
Last edited: 27 August 2020
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
and newly recognized HKD17.4bn5 right-of-use assets and HKD18.6bn6 lease liabilities. This
led to the subsequent higher leveraged position for the Group. Its gearing ratio as of 31
December 2019 surged by 36.5%, in comparison with a hypothetical scenario in which the old
standard HKAS 17 continued to be applied [see Exhibit 1].
The new standard had fundamentally changed Cathay Pacific’s accounting for leases. How
would such change affect the Group’s financial metrics, apart from an increase in gearing?
What could Cathay Pacific do to minimize the adverse impact of the new standard? Was leasing
still a favorable option for the Group to get access to aircraft? How would the new standard
change the landscape of the leasing industry?
Cathay Pacific
Cathay Pacific was founded in Hong Kong in 1946. During the 1960s, its business grew
significantly. By 1973, Cathay Pacific was carrying 1 million passengers per year. Throughout
the 2000s, Cathay Pacific continued to expand its network and increased its flight frequency to
major destinations.7
By 2020, Cathay Pacific was the largest among the four airline companies listed on the Hong
Kong Stock Exchange in terms of market capitalization [see Exhibit 2]. With its prominent
airline subsidiaries, Hong Kong Dragon Airlines Limited (Cathay Dragon), Hong Kong
Express Airways Limited (HK Express), and AHK Air Hong Kong Limited (Air Hong Kong),
Cathay Pacific operated 236 aircraft as of 31 December 2019, connecting Hong Kong to 119
destinations in 35 countries across the globe. 8 The Group employed more than 34,200 people
worldwide, of whom approximately 28,200 were employed in Hong Kong. Its fleet was one of
the world’s newest, with an average aircraft age of 9.9 years.9
In the financial year 2016, Cathay Pacific recorded a net loss of HKD274mn, in stark contrast
to a net profit of HKD6.3bn in 2015.10 The intense competition from rivals worldwide such as
China, the Middle East, and Japan and huge derivative trading losses prompted it to perform a
strategic review with the objective of cutting costs, boosting productivity, and at the same time,
improving customer service. Cathay Pacific hired management consultant McKinsey &
Company (McKinsey) for a three-year transformation plan. McKinsey proposed 740 initiatives
to achieve cost savings of HKD4bn for the Group. The Group implemented the plan in 2017,
which included a job cut of 600 employees, the biggest in almost two decades.11,12
The redundancy packages and numerous other factors resulted in a HKD888mn net loss in 2017.
There was a turnaround in its financial performance the following year, when Cathay Pacific
recorded a net profit of HKD2.8bn. But a variety of unfavorable macro-factors in 2019
impacted its operations, including the social unrest in Hong Kong and mounting US-China trade
5
Cathay Pacific, 2019 Annual Report, p. 78.
Cathay Pacific, 2019 Annual Report, p. 126.
7 S. Gao, “A History of Cathay Pacific Airways In 1 Minute,” Culture Trip, 6 September 2016,
https://theculturetrip.com/asia/china/hong-kong/articles/a-history-of-cathay-pacific-airways-in-1-minute/, accessed June 2020.
8
Cathay Pacific, 2019 Annual Report, p. 2.
9
Cathay Pacific, 2019 Annual Report, p. 19.
10
Cathay Pacific, 2019 Annual Report, p. 139.
11
J. Freed, “As Cathay Pacific wields jobs axe, 'Swire prince' culture survives,” Thomson Reuters, 6 December 2017,
https://uk.reuters.com/article/uk-cathay-pacific-strategy-analysis/as-cathay-pacific-wields-jobs-axe-swire-prince-culturesurvives-idUKKBN1DZ391?fbclid=IwAR2eukGNJxq4jueiU7lHa6dcKIyg6FKQ9N6n6JojuApFTmrEajZPJqalRLc, accessed
June 2020.
12
J. Freed, “Loss-making Cathay Pacific makes biggest job cuts in 20 years,” Thomson Reuters, 22 May 2017,
https://www.reuters.com/article/us-cathay-pacific-redundancies/loss-making-cathay-pacific-makes-biggest-job-cuts-in-20years-idUSKBN18I015, accessed June 2020.
6
2
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
tensions. Net profit in 2019 was HKD1.7bn, a plunge of 39% compared to the prior year. 13
Although it was not the leading factor in the significant drop in profits in 2019, the
implementation of HKFRS 16 aggravated the Group’s declining profit position by around
HKD26mn in absolute terms.14
Standard Setting
IFRS 16 was a joint project of the International Accounting Standards Board (IASB) and the
US Financial Accounting Standards Board (FASB), collectively the Boards.15 Like every new
accounting standard, IFRS 16 had been heavily debated before it was finalized and
implemented [see Exhibit 3].
Criticisms of IAS 17
Lease classification under IAS 17 was based on a “risks and rewards” model. If all risks and
rewards incidental to ownership of a leased asset substantially lie with the lessee, it was
classified as a finance lease. As such, the lessee would account for the leased asset “as if” it
was purchased, and a lease liability would be incurred in relation to its commitments (e.g., lease
payments) to the lessor during the entire lease term. The counterpart of such classification was
an operating lease. Unlike the finance lease, the lessee would not recognize any lease asset or
lease liability. Instead, the lessee would only incur a periodic rental expense upon the use of the
operating-leased asset, and certain disclosures were required in the notes to financial statements.
One criticism of the risks-and-rewards model was that the classification of leases into either
finance lease or operating lease made comparability across different time periods or different
firms harder. The dual classification was also prone to the manipulative structuring of lease
arrangements. The sharp bright-line distinction between finance lease and operating lease
created opportunities for manipulation. Leases could be purposely structured in order to attain
certain accounting outcomes. Particularly when leases were structured and classified as
operating leases, lessee companies could avoid recognizing their lease obligations on the
statement of financial position. As a result, IAS 17 did not provide sufficient and relevant
information to users of financial statements for their decision making.
Arguments in Favor of IFRS 16
In 2006, the proposal to reform lease accounting was first added to the Boards’ agenda, and a
joint lease accounting working group (working group) was set up, which included users,
preparers, and auditors of both lessees’ and lessors’ financial statements. The working group
provided comments to the Boards on the early proposals for lease accounting. Three years later,
the Boards published a joint discussion paper that set out their preliminary views on lessee
accounting.16
Feedback on the discussion paper generally supported the right-of-use model for lessees, as
proposed by the Boards. Most financial statement users thought that leases created assets and
debt-like liabilities. In substance, the assets would incur depreciation and the liabilities would
incur interest. Therefore, separating interest on lease liabilities from the depreciation of rightof-use assets would be beneficial in assessing the operating performance of an entity. Such
separation would also provide coherency between the lessee’s financial statement, i.e., interest
13
Cathay Pacific, 2019 Annual Report, pp. 138–139.
Cathay Pacific, 2019 Annual Report, p. 127.
15
The FASB established the Generally Accepted Accounting Principles in the United States (US GAAP), while the IASB laid
down the International Financial Reporting Standards (IFRS) outside the US.
16
The IASB, “Discussion Paper – Leases,” http://archive.ifrs.org/Current-Projects/IASBProjects/Leases/DPMar09/Documents/DPLeasesPreliminaryViews.pdf, accessed 3 June 2020.
14
3
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
expense, and depreciation expense in the profit or loss statement would match the lease
liabilities and right-of-use assets in the statement of financial position, respectively. This
coherency was important for certain analyses, such as the computation of return on capital
employed and some leverage ratios.17
After considering the responses to the discussion paper, the Boards jointly developed a draft
standard on leases, and an exposure draft was published in 2010 for further comments. In
particular, the exposure draft acknowledged that leasing was “an important source of finance”
and proposed that lease accounting should provide financial statement users with “a complete
and understandable picture of an entity’s leasing activities” to ensure faithful representation of
leasing transactions.18
The new standard IFRS 16 was finally issued in May 2016 with effective date of 1 January
2019. In contrast to IAS 17, IFRS 16 imposed a uniform “on-balance-sheet” treatment to lessee
accounting. For almost all leases, lessees were required to recognize right-of-use assets and
lease liabilities in their statement of financial position. The only exceptions were short-term
leases with a lease term of less than 12 months or low-value leases with a leased asset value
lower than USD5,000. The right-of-use model only applied to lessees. Lessors had to continue
to apply the risks-and-rewards model and classify their leases into operating and financing.
With the implementation of the new standard, lessee accounting encompassed relevant
information about the rights and obligations that met the definitions of assets and liabilities in
the Boards’ conceptual framework. 19 There was also a satisfactory degree of comparability
among financial statements across time and entities. And lease classification was free of undue
complexity, so opportunism was lessened, if not ruled out.20
Airlines Industry at Glance
Every entity that utilized leasing as a means to obtain access to assets, irrespective of the type
and volume of assets that it leased and the terms and conditions of its lease agreements, had to
account for leases under the new lease standard IFRS 16. A range of industries was significantly
impacted, including retailers, airlines, professional services, health care, wholesale, transport
and logistics, entertainment, and telecommunications.21
In a report published by PricewaterhouseCoopers (PwC) in January 2016, the median increase
in debt and EBITDA was used as a proxy for the degree of financial impact on industries.
According to this report, airlines were the second most impacted among the eight industries
studied by PwC, with a 47% estimated increase in debt and 33% estimated increase in EBITDA
[see Exhibit 4].22
17
3.HKICPA. Hong Kong Financial Reporting Standard 16 – Leases,
http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/hkfrs16.pdf, accessed June 2020.
18 The IASB, “Exposure Draft – Leases,” http://archive.ifrs.org/Current-Projects/IASBProjects/Leases/ed10/Documents/EDLeasesStandard0810.pdf, accessed 3 June 2020.
19
The IASB concluded that a lessee’s right to use an underlying asset met the definition of an asset with legitimate reasons.
Principally, the lessee controlled the right to use the underlying asset throughout the lease term, and this control right (arising
from a past event) allowed the lessee to determine how to use the underlying asset to generate future economic benefits. The
IASB also concluded that the lessee’s obligation to make lease payments met the definition of a liability. In essence, the lessee
had a present obligation (arising from a past event) to make lease payments and that obligation resulted in a future outflow of
economic benefits from the lessee.
20
The IASB, “Exposure Draft – Leases.”
21
PwC, “IFRS 16: The Leases Standard is Changing – Are You Ready?,” https://www.pwc.co.za/en/assets/pdf/ifrs-16-newleases-standard-global-brochure.pdf, accessed 3 June 2020.
22
Ibid.
4
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
Operating Model of the Airline Industry
Leasing, whether a finance lease or an operating lease as classified under IAS 17, was
essentially a financing arrangement. The airline industry had for decades utilized off-balancesheet operating leases to finance some of its leased assets. As a well-established practice,
airlines often leased aircraft, aircraft equipment, airport facilities—at times combined with
maintenance and insurance services—all of which were indispensable to their operations.23
With introduction of the new standard, it was anticipated that all lease contracts would
substantially become “on balance sheet” in the lessee’s financial statements. Trillions of
additional lease obligations might be added to the statements of financial position of airlines
globally, together with the corresponding currency translation fluctuations.24
According to a KPMG report about aviation industry leaders, airlines leased almost 50% of the
global aviation fleet in 2019.25 A larger proportion was observed in the listed airlines in Hong
Kong, in which the respective percentages of owned, finance-leased, operating-leased aircrafts
were 38%, 30%, and 32% on average, respectively, as of 31 December 2019 [see Exhibit 5].
IFRS 16’s Impact on Airlines
In a survey conducted by Deloitte in 2017, the vast majority of the respondents believed IFRS
16 would moderately to significantly impact their businesses [see Exhibit 6].26
The respondents were concerned about the increasing leverage ratios due to IFRS 16. Most of
the respondents thought that lease contracts would change, either by means of renegotiation or
by letting the existing contracts mature and then negotiating new ones, in order to minimize the
negative impact of the new standard. Aspects that were expected to change included lease term,
lease rate, early termination option, currency denomination, and purchase option. According to
Deloitte, firms might also appeal to include a variable element in the lease payments (e.g.,
payment based on flying hours). This was because flexible lease rental arrangements that were
considered variable payments under IFRS 16 could be excluded from the computation of lease
liabilities and thus would not appear in the statement of financial position.27,28
Financial Impact on Cathay Pacific
Effects on Financial Statements
The change from the risks-and-rewards model to the right-of-use model had considerable
impact on lessees’ financial statements. Table 1 shows the estimated effects extracted from the
published 2019 annual report of Cathay Pacific.
PwC, “An Industry Focus on the Impact of IFRS 16 – Airlines,” https://www.pwc.de/de/newsletter/kapitalmarkt/in-thespotlight-airlines.pdf, accessed 3 June 2020.
24
Ibid.
25
R. Beresnevicius, “How Does Aircraft Leasing Work – Aircraft Leasing Explained,” Thomson Reuters, 22 May 2019,
https://www.aerotime.aero/rytis.beresnevicius/23164-aircraft-leasing-explained?page=3, accessed June 2020.
26
Deloitte, “Balancing the books – IFRS 16 and Aviation Finance,”
https://www2.deloitte.com/content/dam/Deloitte/ie/Documents/FinancialServices/ie-Balancing-the-Books-IFRS-16-andAviation-Finance-Report_Dec2017-5.pdf, accessed 3 June 2020.
27
Ibid.
28
According to IFRS 16, variable lease payments that depended on an index or rate, such as the consumer price index and a
benchmark interest rate, would be included in lease liabilities. However, variable lease payments that did not depend on an
index or rate would not be included in lease liabilities, and they were expensed in the profit or loss account when incurred.
23
5
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
Table 1: Estimated effects of HKFRS 16 adoption on the financial statements of Cathay Pacific as
of 31 December 2019 29
Estimated increase on selected items in consolidated statement
of financial position:
Property, plant, and equipment
Long-term liabilities
 Current portion of lease liability*
 Non-current portion of lease liability**
HKDmn
19,937
(4,073)
(15,894)
* Repayable within 12 months.
** Repayable after 12 months.
Estimated (increase)/decrease in selected items on consolidated
statement of profit or loss and other comprehensive income:
Operating lease rentals*
Depreciation of property, plant, and equipment
Finance charges
HKDmn
4,507
(3,849)
(744)
* No operating lease rentals recognized in 2019.
Estimated increase in selected items on consolidated statement
of cash flows:
Cash generated from operations (under operating activities)
Interest paid (under operating activities)
Loan and lease repayments (under financing activities)
HKDmn
4,445
(744)
(3,701)
After adoption of HKFRS 16 in 2019, Cathay Pacific became more asset-rich, but also heavily
indebted. For the statement of financial position as of 31 December 2019, its property, plant,
and equipment and long-term liabilities both increased by approximately HKD20bn. Profit or
loss worsened in its initial year of adoption with the increase in depreciation expense and
finance charges outweighing the savings in operating lease rentals by HKD86mn.
Although Cathay Pacific’s net cash flow position remained the same, the reclassification of
lease payments in the statement of cash flows resulted in a larger operating cash flow of
HKD3.7bn for the year 2019.
Residual Value Risk
The new standard does not reflect the commercial reality of how companies
manage residual value risk.30
- Martin Murray, CFO of Cathay Pacific
Residual value risk was a financial impact confronting every company that reclassified
operating leases under IAS 17 into right-of-use assets and lease liabilities under IFRS 16. In
29
30
Cathay Pacific, 2019 Annual Report, pp. 126–127.
G. W. Russell, “A New Life on Leases” (PDF file), downloaded from HKICPA website,
http://app1.hkicpa.org.hk/APLUS/2016/02/pdf/26_Lease.pdf, accessed June 2020.
6
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
general, the residual value risk underlying a leased asset was the possibility that “the actual
residual value realized upon maturity of current lease term” fell below “the original estimated
residual value at lease inception.” In the era of IAS 17, a lessee only incurred regular rentals
for the use of an operating-leased asset over the lease term, and thus residual value risk of the
operating lease was borne by the lessor.31
Amid the operating challenges identified by the Group’s chairman, as of 31 December 2019,
an incremental HKD20bn worth of right-of-use assets was newly subject to risks brought about
by residual value fluctuations. After adoption of HKFRS 16, the prior operating leases were
capitalized as right-of-use assets. They were non-current assets subject to impairment tests.
Volatile residual values might accelerate the write-down of these right-of-use assets to their
scrap values. The Group would incur impairment loss when there were internal or external
factors that potentially lowered the assets’ future economic benefits. Such impairment loss
would be another expense on top of the Group’s periodic depreciation.
In fact, the HKD20bn carrying value was the additional “residual exposure” that put Cathay
Pacific’s earnings in peril. This might prompt the Group to actively manage such residual
exposure and guard against any potential impairment of those reclassified right-of-use assets.
Looking Forward
With the implementation of the right-of-use model in IFRS 16, leasing an asset was now treated
as “purchasing an asset with debt financing.” Given the negative impacts on the financial
metrics, such as gearing, what courses of action could lessee companies like Cathay Pacific
take in response?
While providing the financial statement users with more truthfully and fairly presented
information, IFRS 16 brought extra residual value risks that made lessees’ profits more volatile.
Was leasing still the right commercial decision for lessees to pursue? As leasing lost its
attractiveness as a flexible form of finance, would IFRS 16 put the leasing industry under threat?
31
For most operating leases, residual value risk was borne by the lessor, but the lessee provided a residual value guarantee.
However, such an exception was not common because when the lessee provided a residual value guarantee, it most probably
fell into a finance lease classification.
7
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
EXHIBIT 1: ESTIMATED EFFECTS OF HKFRS 16 ADOPTION ON CATHAY PACIFIC’S
FINANCIAL METRICS FOR THE FINANCIAL YEAR 2019
According to the source information provided in Cathay Pacific’s Annual Report 2019, the
following table displayed the estimated effects of several key financial metrics of the Group
upon the actual implementation of HKFRS 16, as compared with the hypothetical adoption of
HKAS 17.32
Actual
Implementation of
HKFRS 16
Hypothetical
Adoption of
HKAS 17
Amount
Increase/
(decrease)
Percent
Increase/
(decrease)
1.31
0.96
0.35
36.5%
HKD19.3b
HKD43.0¢
HKD14.7b
HKD43.7¢
HKD4.6b
(HKD0.7¢)
As of 31 December 2019
Gearing
For the year ended 31
December 2019
EBITDA33
EPS
31.1%
(1.6%)
EXHIBIT 2: MARKET CAPITALIZATIONS OF AIRLINES LISTED IN HONG KONG
Cathay Pacific was the largest Hong Kong–listed airline company in terms of market
capitalization (as a proxy to measure its size and significance). As of 16 June 2020, the market
capitalizations of the four airlines listed on the Hong Kong Stock Exchange were as follows:
Group Name
Cathay Pacific Airways Limited
China Eastern Airlines Corporation
Limited
Air China Limited
China Southern Airlines Company
Limited
Total
293
Market
Capitalization
(HKDbn)34
31.9
% of Total
Market
Capitalization
37.1
670
15.4
18.0
753
15.7
18.3
1055
22.9
26.6
85.9
100.0
Stock Code
32
Cathay Pacific, 2019 Annual Report, pp. 126–127.
It is the summation of profit before taxation, net financing charges, depreciation, and amortization.
34
Hong Kong Exchanges and Clearing Limited, “Equities,” https://www.hkex.com.hk/Market-Data/SecuritiesPrices/Equities?sc_lang=en, accessed June 2020.
33
8
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
EXHIBIT 3: HISTORICAL DEVELOPMENT OF IFRS 16 35
A summary of the important milestones of the promulgation of IFRS 16:
Date
July 2006
19 March 2009
17 August 2010
21 July 2011
16 May 2013
13 January 2016
1 January 2019
Development of IFRS 16
Added to the IASB's agenda
Discussion Paper DP/2009/1 Leases: Preliminary Views published
Exposure Draft ED/2010/9 Leases published
IASB announced intention to re-expose proposals
Exposure Draft ED/2013/6 Leases published
Issued IFRS 16
Applicable to reporting periods beginning on this day onward
EXHIBIT 4: ESTIMATED QUANTIFIED EFFECT OF IFRS 16 ADOPTION BY INDUSTRY 36
In gauging the extent of IFRS 16’s impact to various industries, PwC published a report in 2016
that summarized results of a global lease capitalization study with a sample of more than 3,000
listed entities across a range of industries and countries reporting under IFRS.
The table shows the median increase in debt and EBITDA (used by PwC as a proxy in
measuring the magnitude of financial impact of IFRS 16) across different industries, as ranked
in descending order of the median increase in debt:
Industry
Retailers
Airlines
Professional services
Health care
Wholesale
Transport and logistics
Entertainment
Telecommunication
35
36
Median Increase
in Debt
98%
47%
42%
36%
28%
24%
23%
21%
Median Increase
in EBITDA
41%
33%
15%
24%
17%
20%
15%
8%
Deloitte. “IFRS 16 – Leases,” https://www.iasplus.com/en/standards/ifrs/ifrs-16, accessed June 2020.
PwC, “IFRS 16: The Leases Standard is Changing – Are You Ready?”
9
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Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
EXHIBIT 5: FLEET PROFILE OF AIRLINES LISTED IN HONG KONG
The fleet profile of the four airlines listed on the Hong Kong Stock Exchange as of 31 December
2019:37,38,39,40
Group Name
Cathay Pacific Airways
Limited
China Eastern Airlines
Corporation Limited
Air China Limited
China Southern Airlines
Company Limited
Average
Stock
Code
293
670
753
1055
Owned
Aircraft
116
(49%)
261
(36%)
286
(41%)
285
(33%)
38%
Financeleased
Aircrafts
42
(18%)
262
(36%)
207
(30%)
257
(30%)
30%
Operatingleased
Aircrafts
78
(33%)
200
(28%)
206
(29%)
320
(37%)
32%
Total
236
723
699
862
630
37
Cathay Pacific, 2019 Annual Report, p. 19.
China Eastern Airlines Corporation Limited, 2019 Annual Report, p. 13,
https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0424/2020042402328.pdf, accessed June 2020.
39
China Southern Airlines Company Limited, 2019 Annual Report, p. 24,
https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0424/2020042401271.pdf, accessed June 2020.
40
Air China Limited, 2019 Annual Report, p. 14,
https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0427/2020042702500.pdf, accessed June 2020.
38
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This document is authorized for use only by Suryapal Singh Rathore in UNH FINC 6602-04 taught by PATRICK TORRE, University of New Haven from Jan 2024 to May 2024.
For the exclusive use of S. Rathore, 2024.
20/666C
Cathay Pacific: Financial Impact and Challenges in Adopting the New Lease Accounting Standard
EXHIBIT 6: INDUSTRY SURVEY OF AIRLINE STAKEHOLDERS41
Acknowledging that the impact of IFRS 16 could extend beyond accounting and into
commercial decisions of companies surrounding the aviation sector, Deloitte and Euromoney
Institutional Investor Thought Leadership collaborated in examining the changes and
implications to stakeholders by means of a worldwide survey.
The survey received responses from 381 senior executives of various industries.
 Seniority of respondents: 41% C-level positions, 30% vice presidents and senior directors,
29% senior managers in a variety of roles including regulatory, finance, legal, and
compliance.
 Employment of respondents: 54% airlines and lessors, 20% investors and financial
services firms, 26% legal community.
The table illustrates the respondents’ assessment of the level of IFRS 16’s impact on their
businesses:
41
Respondents
Moderately
Impacted
Significantly
Impacted
Airlines
Lessors
All 381 respondents
39%
58%
56%
59%
38%
35%
Not Moderately
or Significantly
Impacted
2%
4%
9%
Total
100%
100%
100%
Deloitte, “Balancing the books – IFRS 16 and Aviation Finance”.
11
This document is authorized for use only by Suryapal Singh Rathore in UNH FINC 6602-04 taught by PATRICK TORRE, University of New Haven from Jan 2024 to May 2024.