Lithuania-based lessor AviaAM Leasing has warned that airlines may have to list operating leases on their balance sheet, once new financial reporting standards come into effect in 2019.

Under existing rules, only finance leases are shown on the balance sheet. However, AviaAM Leasing said the International Accounting Standards Board (IASB) adopted new IFRS 16 accounting standards in 2016, which mean IFRS-compliant companies will have to bring their liabilities, including operating leases, onto their balance sheets.

With almost 40% of the world fleet on lease, the new rules could burden airline balance sheets by $500 billion or more, compared with an industry-wide profit of just $30 billion.

“We will see that about 50 publicly listed airlines alone will have to put an extra of $150 billion of liabilities on the balance [sheet], according to IASB. Industry-wide, if all airlines were to follow IFRS 16 from Jan. 1, 2019, this number can be as high as half a trillion US dollars,” AviaAM Leasing chairman and CEO Tadas Goberis said.

The lessor said the change may bring more transparency to airline cost structures, adding that it is a bookkeeping exercise that “shouldn’t bring any devastating damage in the long run.”

“The airline may find new borrowing options, or even decrease the cost of borrowing with existing partners. Of course, an opposite outcome is also possible, but new requirements will affect the entire aircraft financing industry. This means that both airlines and their partners will eventually work out new game rules,” Goberis said.

Victoria Moores