Air New Zealand 2010 Annual Report Download - page 24

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11. 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 2010 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
@ 0.6915
As at 30 June 2010 1,023 1,479 1,534 (55)
@ 0.6500
As at 30 June 2009 1,066 1,641 1,548 93
* 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. As at 30 June 2010 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 as at 30 June 2010 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. The cash
flow projections are discounted using rates of 8.0 and 10.0 percent. The valuation confirmed that there was no impairment to the aircraft assets required for
the year ended 30 June 2010.
AIR NEW ZEALAND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2010
22