Today, the Aviation and Airport Services industry is facing complex challenges. The increase in globalisation and international trade has created higher demand for air transportation. To counter this, however, deregulation and the high number of service providers in the industry create an environment that is more competitive than ever.
The recent atrocity in the United States ("US") has had a devastating effect. Airlines are suffering from higher costs of insurance and fuel, compounded by decreasing traffic volume. Confidence in air transportation has been badly hit, in particular in the routes flying to the US, which is a major origin and destination for Hong Kong and China's imports and exports. Therefore, our local economy is significantly affected.
Aviation companies are struggling to survive these challenges, with several carriers already experiencing severe financial difficulties. Pressure has increased to effect mergers and industry consolidation in order to reduce costs and thus enhance profitability. Airlines, airports and ground services providers are facing difficulties in obtaining sufficient insurance cover. Aircraft orders are down and manufacturers are cutting back on existing operations.
With respect to the Greater China market, opportunities on various facets can be envisioned following China's accession to the WTO. Increased foreign investment in China will drive higher demand for better quality air transportation. Aviation companies in China will face more vigorous competition and increased pressure on margins.
Leading advisors to the aviation sector
PricewaterhouseCoopers realizes the uniqueness of the Aviation and Airport Services industry and the special issues that the sector is facing. We have established an aviation team comprising professionals possessing in-depth knowledge and experience in the industry, which watches closely the local market and communicates regularly with our overseas counterparts on global developments and current issues.
As the leading professional services provider in the world, we offer a broad range of innovative and cost-effective services that respond to both global and local business issues in the Aviation and Airport Services industry.
We are committed to serve the Aviation industry by working with the leading carriers through their most challenging years. In addition to a number of local and China airlines, we also serve a number of aviation related services suppliers and air freight forwarders. We have an in-depth experience and knowledge in the sector, in Hong Kong, China, and globally.
Industry specific accounting issues
There are a number of accounting issues specific to the airline industry. Airlines typically incur significant aircraft and engine overhaul costs and under both International and Hong Kong Accounting Standards, there are a number of alternative treatments:
Provision approach - to provide periodically for the overhaul cost based on the utilisation of the aircraft / engine
Component depreciation approach - to capitalise the overhaul cost as a component of the aircraft / engine
Expense approach - to expense the overhaul cost as incurred
Another area for particular focus given the current economic downturn will be asset impairment. Fleet values will come under close scrutiny, as will property and other related assets.
Merger, acquisitions and restructuring
Merger, acquisitions and restructuring are expected among local small to medium sized airport services providers. Following the accession to WTO, China airlines under the direction of the State Council will be consolidated into large conglomerates in order to increase competitiveness in the global market. Proper corporate structure, taking into account potential tax and management implications, is vital in these exercises. Our Deals team has significant experience in advising clients on successful acquisition strategies and ongoing deal support.
Risk management issues
Airlines or airport service providers have suffered because of inability to respond to unexpected incidents or disasters and lack of contingency plans. Our risk management specialists help identify potential threats ranging from the mundane to the dramatic and develop actions and procedures to recover critical business functions.
Security breaches committed by internal staff or external hackers have been a problem to airport service providers. We help build an enterprise-wide solution to develop information security systems, which protect critical systems, data and processes from attack and disruption while allow free flow of appropriate information.