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Notes to the Financial Statements (continued)
As at 30 June 2016
16
AIR NEW ZEAL AND ANNUAL FINANCIAL RESULTS 2016
11. Property, Plant and Equipment (continued)
AIRFRAMES,
ENGINES AND
SIMULATORS
$M
SPARES
$M
PLANT AND
EQUIPMENT
$M
LAND AND
BUILDINGS
$M
CAPITAL WORK
IN PROGRESS
$M
TOTAL
$M
2015
Cost
Accumulated depreciation
Provision for impairment
4,481
(1,698)
(5)
236
(135)
-
382
(270)
-
371
(159)
-
76
-
-
5,546
(2,262)
(5)
Carrying value as at 1 July 2014
Additions
Disposals
Disposal of subsidiaries
Depreciation
Impairment
Transfers
Transfer to assets held for resale
Foreign exchange differences (refer note 24)
2,778
867
(30)
(8)
(309)
-
91
(9)
176
101
24
(4)
-
(15)
-
-
(7)
-
112
6
-
(11)
(26)
-
26
-
-
212
-
-
(3)
(27)
(17)
30
(3)
-
76
179
-
(1)
-
-
(147)
-
-
3,279
1,076
(34)
(23)
(377)
(17)
-
(19)
176
Carrying value as at 30 June 2015
Represented by:
Cost
Accumulated depreciation
Provision for impairment
3,556
5,268
(1,712)
-
99
219
(120)
-
107
367
(260)
-
192
370
(161)
(17)
107
107
-
-
4,061
6,331
(2,253)
(17)
Carrying value as at 30 June 2015 3,556 99 107 192 107 4,061
2016
$M
2015
$M
Airframes, engines and simulators comprise:
Finance leased airframes and engines
Owned airframes, engines and simulators
Progress payments
1,797
1,770
420
1,982
1,049
525
3,987 3,556
Land and buildings comprise:
Leasehold properties
Freehold properties
193
18
175
17
211 192
Certain aircraft and aircraft related assets with a carrying value of $2,906 million as at 30 June 2016 (30 June 2015: $2,600 million) are
pledged as security over secured borrowings and finance lease obligations.
Impairment
During the year ended 30 June 2016 the land and building assets of the Air New Zealand Gas Turbines (ANZGT) business were
assessed for impairment based on a value in use discounted cash flow valuation. ANZGT provides overhaul services to aero derivative
engines that are applied to energy production and marine industries. Over recent years a down turn in the market has resulted in
a decline in activity and profitability of the business. Cash flow projections were sourced from the 2017 financial year plan and
extrapolated into the future using a 2% growth rate. Key assumptions include exchange rates, customer demand, market supply and
terminal values. These assumptions have been based on historical data and current market information. The cash flow projections
are particularly sensitive to fluctuations in exchange rates and economic demand. The cash flow projections are discounted using a
9% discount rate. The result of this impairment test was an impairment loss of $1 million (30 June 2015: $17 million) which has been
recognised within ‘Other expenses’ in the Statement of Financial Performance.
Residual Values
Estimates and judgements are applied by management to determine the expected useful life of aircraft related assets. The useful
lives are determined based on the expected service potential of the asset and lease term. The residual value, at the expected date
of disposal, is estimated by reference to external projected values and is influenced by external changes to economic conditions,
demand, competition and new technology. Residual values are denominated in United States dollars and are therefore sensitive to
exchange fluctuations as well as movements in projected values. Residual values and useful lives are reviewed each year to ensure
they remain appropriate. During the year ended 30 June 2016 the residual values of the aircraft were reassessed and depreciation
expense was reduced by $11 million (30 June 2015: reduced by $10 million).