Singapore Airlines 2008 Annual Report Download - page 103

Singapore Airlines Annual Report 2007-08
101
3 Significant Accounting Estimates
Estimates and assumptions concerning the future are made in the preparation of the financial statements. They affect the
application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures
made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
(i) Impairment of property, plant and equipment – aircraft fleet
Impairment is recognised when events and circumstances indicate that the aircraft may be impaired and the carrying
amounts of the aircraft exceed the recoverable amounts. In determining the recoverable amounts of the aircraft, certain
estimates regarding the current fair market value of the aircraft are made. The current fair market value is determined
based on desktop valuations from an independent appraisal for fleet with similar operational lives.
(ii) Depreciation of property, plant and equipment – aircraft fleet
Aircraft are depreciated on a straight-line basis at rates which are calculated to write-down their cost to their estimated
residual values at the end of their operational lives. Certain estimates regarding the operational lives and residual
values of the fleet are made by the Company based on past experience and these are in line with the industry. The
operational lives and residual values are reviewed on an annual basis. The carrying amount of the Group’s and the
Company’s aircraft fleet at 31 March 2008 was $12,545.9 million (2007: $12,381.7 million) and $10,193.7 million
(2007: $9,735.9 million) respectively.
(iii) Passenger revenue recognition
Passenger sales are recognised as operating revenue when the transportation is provided. The value of unused tickets
is included as sales in advance of carriage on the balance sheet and recognised in revenue at the end of two years.
This is estimated based on historical trends and experiences of the Company whereby ticket uplift occurs mainly within
the first two years. The carrying amount of the Group’s and the Company’s sales in advance of carriage at 31 March
2008 was $1,680.3 million (2007: $1,392.9 million) and $1,647.0 million (2007: $1,365.1 million) respectively.
(iv) Frequent flyer programme
The Company operates a frequent flyer programme called “KrisFlyer” that provides travel awards to programme
members based on accumulated mileage. A portion of passenger revenue attributable to the award of frequent flyer
benefits is deferred until they are utilised. The deferment of the revenue is estimated based on historical trends of
breakage and redemption, which is then used to project the expected utilisation of these benefits. Any remaining
unutilised benefits are recognised as revenue upon expiry. The carrying amount of the Group’s and the Company’s
deferred revenue at 31 March 2008 was $435.7 million (2007: $388.3 million).
(v) Aircraft maintenance and overhaul expenditure under power-by-hour agreements
The Company has entered into several power-by-hour (“PBH”) engine maintenance agreements with engine original
equipment manufacturers. The monthly payments are based on the number of flying hours flown. A portion of the
cost is expensed at a fixed rate per hour during the term of the PBH agreement. The remaining payments made are
recorded as an advance payment, to the extent that it is to be utilised through future maintenance activities, if any,
or capitalised upon completion of an overhaul.
The proportion of the amount to be expensed off and capitalised is determined based on the best estimate as if the
engine maintenance and overhaul costs are accounted for under the time and material basis. The carrying amount
of the advance payment relating to PBH agreements for the Group and the Company at 31 March 2008 was $156.5
million (2007: $68.4 million) and $116.1 million (2007: $39.3 million) respectively. The maintenance and repair costs
covered by PBH agreements which are expensed off during the year amounted to $71.2 million (2006-07: $9.2 milion)
for the Group and $69.0 million (2006-07: $6.3 milion) for the Company.
NOTES TO THE FINANCIAL STATEMENTS
31 March 2008