Air New Zealand 2011 Annual Report Download - page 25

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10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
AIRCRAFT MARKET VALUES
The market values of aircraft tend to fluctuate from year to year. The directors have obtained independent valuations as at 30 June
2011 from The Aircraft Value Analysis Company and Ascend Worldwide Limited to ascertain indicative market values of each aircraft on
a stand alone basis. The valuations assume that the aircraft are in the equivalent of half life condition with respect to the airframe and
engines. For aircraft which have been recently purchased the maintenance status is assumed to be better than half life. The valuations
are determined by reference to relevant market conditions, the specification of each aircraft and the issues affecting specific aircraft
types. The average of the valuations obtained is shown below:
INDICATIVE
VALUATION
USD
$M
INDICATIVE
VALUATION
NZD
$M
BOOK
VALUE*
NZD
$M
DIFFERENCE
NZD
$M
@ 0.8240
As at 30 June 2011 1,272 1,544 1,981 (437)
@ 0.6915
As at 30 June 2010 1,023 1,479 1,534 (55)
* Book Value excludes simulators, spare engines and operating leased aircraft improvements.
Where the market value is lower than book value, New Zealand generally accepted accounting practice requires book values to be
written down to the higher of fair value less costs to sell or value in use. The indicative market valuations were less than the book value.
In the opinion of the directors, the recoverable value from continued use of the aircraft as part of a network and their ultimate sale
proceeds exceeded the book value of the aircraft, based on the directors’ current assessment of the Group’s future trading prospects.
The aircraft carrying values were tested for impairment based on a value in use discounted cash flow valuation. Cash flow projections
were prepared for 5 years using Board reviewed business plans. Key assumptions include exchange rates, jet fuel costs, passenger
load factors and route yields. These assumptions have been based on historical data and current market information. The cash flow
projections are particularly sensitive to fluctuations in fuel prices, exchange rates and economic demand and are extrapolated using
an average growth rate of approximately 2.0 percent (30 June 2010: 2.0 percent). The cash flow projections are discounted using rates
of 8.0 and 10.0 percent (30 June 2010: 8.0 and 10.0 percent). The valuation confirmed that there was no impairment to the aircraft
assets required.
AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2011