Financial costs are likely to climb further for airlines in the near term, with new accounting standards on leases set to create “significant volatility” in their profit and loss accounts. Indian Accounting Standard 116 or Ind AS-116 has come into effect from April 1 and pertains to principles for recognition, presentation and disclosure of leases.
The standard, notified by the corporate affairs ministry, would have a significant impact on various industries such as airlines, where aircraft operated are mostly on lease. It also comes at a time when the domestic airline industry is grappling with tough times due to rise in fuel prices, intense competition, financial issues and infrastructure woes.
Sandip Khetan, National Leader and Partner (Financial Accounting Advisory Services) at EY India, said that many aircraft leases are denominated in USD, which is likely to be a currency different from the functional currency of most domestic airline companies.
