The impact of IFRS 16 on airline companies: an exploratory study in the Middle East

Enas Alabood, Murad Abuaddous and Hanady Bataineh

International Journal of Economics and Business Research, 2019, vol. 18, issue 1, 112-128

Abstract: The announcement of the IFRS 16 came with a fundamental reformation of lease contracts. The scope of operating lease was narrowed by the IFRS 16 to a degree that could significantly influence a large number of firms worldwide. Accordingly, this study focuses on three airline companies which are operating in the Middle East to investigate the impact of the IFRS 16's adoption. The study explores the expected outcome from capitalising the operating lease in terms of its impact on financial position and key financial ratios. Each of the three studied companies adopted different operating lease strategies which showed high 77%, moderate 21% and low 0% reliance on operating lease. This generates three different scenarios that have been explored in this study. The compatibility between Imhoff et al. (1991)'s model and the IFRS 16's requirements for lease capitalisation allowed for an adoption of siht model for the current study. Finding suggests that the IFRS 16's adoption will bring many challenges for airline companies. The results can provide an insight about the expected market's reaction to some radical changes in numbers caused by the adoption of the IFRS 16, as well as, the management's reaction for such adoption.

Keywords: IFRS 16; airline companies; operating lease; finance lease; unrecognised leased liabilities; Middle East; statement of financial position; key financial ratios; constructive lease capitalisation; Imhoff model. (search for similar items in EconPapers)
Date: 2019
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