Westjet 2001 Annual Report Download - page 32

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30
The offset to lower fuel and maintenance costs
on the new aircraft is the ownership cost. All
four 737-700s were acquired under operating
leases in 2001, while only four of our 23 737-
200s are on operating leases. Consequently,
most of our $8.5 million increase in aircraft
leasing cost in 2001 to $15.3 million relates to
the 737-700 additions. These are the first four
of a total of ten leased aircraft, with six to be
delivered in 2002, all of which are on fourteen-
year lease terms. WestJet’s total off balance
sheet asset and liabilities related to operating
leased aircraft amounts to $179 million at
December 31, 2001, as compared with $27
million at December 31, 2000. This is expected
to grow to about $423 million by December 31,
2002.
Our methodology for amortization of aircraft is
based on anticipated retirement dates, hours
flown, and residual values. With the
introduction of the 737-700 aircraft, WestJet
adjusted its accounting estimates for
amortization in 2000 on the fleet of 737-200s to
adjust for our revised retirement schedule. This
results in less time for the 737-200s in our fleet,
although not necessarily a shorter useful life for
the aircraft, prompting us to review and adjust
their residual values accordingly. Our
amortization expense more than doubled in
2000 to $18 million, and on a unit basis, was up
42.2% over the previous year.
In keeping with our annual review of residual
values of the aircraft in the fleet to ensure that
our accounting estimates continue to be
appropriate and conservative, we adjusted
residuals in 2001 and will likely conduct a
review again in 2002. There are many factors
that influence our estimates of retirement and
residual values such as the used aircraft
marketplace, current and future regulatory
directives, manufacturer bulletins, and
remaining utility time on airframes and engines.
WestJet utilizes an independent aircraft
appraisal firm as well as in-house technical
guidance and expertise to assess the accuracy
and reasonableness of the factors that
influence our accounting estimates.
The tragic events of September 11th have had
an impact on the market value of all aircraft,
OPERATING COST PER ASM
(Unit Costs in Cents)
There are many factors that influence
our estimates of retirement and
residual values such as the used
aircraft marketplace...
MANAGEMENT’S DISCUSSION AND ANALYSIS
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1996 1997 1998 1999 2000 2001
10.9
11.6
12.6
13.9
14.6 14.0