Essay On Delta Airlines
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Delta Air Lines is one of the biggest major American Airlines. The company has its headquarters and largest hub in the Hartsfield-Jackson Atlanta International Airport in Georgia. It is critical to recognize that indeed the present company is the result of several mergers with several airlines, and the largest and most recent was a merger with Northwest Airlines. The company is the sixth oldest operating airline in regards to foundation date, and it is the oldest airline that is currently operating in the United States. The company’s history has been traced back to the Huff Dusters and Daland and it was founded in the year 1924 in Georgia as a crop dusting operation.
It later moved to Louisiana and it was later renamed Delta Air services, in reference to the Mississippi Delta region, and it was able to commence passenger services on June 1929 (Davies, 2014). The company has been growing over the years, and in fact, it is critical to recognize that in the year 2013, the company was seen as the largest airline in terms of the scheduled passengers and it carried around 120.6 million persons. In terms of revenue, the company currently is the second in terms of both revenue as well as passenger-kilometers flown (Davies, 2014).
The company offers several services and products. The first product includes its airline which transports people around the world through air, the company also offers shipments that are known be speedy as well as reliable around the world. It is critical to understand that indeed Delta Airlines is one of the preferred airlines in the United States by passengers, as it is able to provide travel that is comfortable and valuable to all its passengers (Davies, 2014).
The company has been growing over the years and it has enabled profits to increase and shareholders are happy at how the company is doing. The management has over the years appreciated all its workers and this is despite the different challenges that they face.
The company has been seen as a center for excellence when it comes to the provision of air transportation and passengers and cargo around the world as well as through the United States with a route network which is founded on several different as diverse international gateway hubs and airports (Davis, 1980). The company has been on a positive growth pattern and this is intended to increase with the economy finally expanding and more people finding it more convenient and necessary to travel with air transport.
The table below presents the tables of Delta property, plant as well as equipment and the way they stood in the years 2012 and 2013 years.
It is critical to recognize that according to the horizontal analysis, Delta company has been able to over the years increase its property, plant as well as several equipment from the year 2012 to the year 2013 hence it increases the extended service offering. To calculate the asset turnover ratio, the formulae stand as sales/total assets. Therefore, in regards to Delta, the asset turnover stands at 37, 773000/ (52,252,000 + 44,550,000/2). This results into 0.78. Therefore, it can be argued that indeed Delta Airlines in the year 2012 and the year 2013 generated 0.78 from its assets.
This, therefore, makes the assets to be better off. In fact, it is critical to understand that indeed the total debt to the total assets ratio also stands at 0.78. The amount of company debt, therefore, compared to the total assets stands at 0.78, and this, therefore, shows that indeed the company has a higher degree of leverage, and this can be described as being very risky.
The returns on assets ratio of delta companies can be calculated by annual net income/average total assets= 10,540,000/48,401,000 X 100= 21.78%. It is of the essence to understand that the ratio measures the profitability of the company that has gained from its assets, and this boosts the efficiency of the company assets in order to generate income as compared to assets that stand at 21.78%. Delta uses the straight line method of depreciation that charges a uniform depreciation over the asset useful life.
It is critical to understand that the residual value is often subtracted from the cost to get the depreciation amount that is divided by the useful life. This is the method that is used to calculate depreciation by Delta. Further, it is critical to note that indeed Delta airlines have been using the method although there are several other methods that it can use.
There are several methods that can be used by Delta to look at the depreciation charges over the asset useful life. Depreciation accounting is important and businesses can take a deduction for depreciation. The depreciation can be seen as the reduction in asset’s value that is caused by the passage of time that is due to tearing, abuse or wear. Depreciation is, therefore, a method of cost allocation.
It is critical to recognize that indeed the cost allocation is often based on a number of factors, but they are always related to the estimated period as well as the product that can generate revenues for the company and it is known as the asset economic life. The depreciation expense can be described as the amount of cost allocation within a set accounting period. Therefore, it is important to understand that indeed only items that lose the useful value over time can be able to depreciate.
The declining balance method is the first method that Delta can use. It is important to note that according to this method, a higher rate is often charged during the earlier years of the asset useful life. It is of the essence to understand that this method is appropriate for those assets with more than three years useful life. In this method, the amount of depreciation often declines as the time goes by, that is higher depreciation in the beginning as well as less depreciation at the end of the period.
It is critical to understand that indeed the argument behind charging higher depreciation in the beginning is that the asset is often very productive and the productivity that declines over time. Therefore, it s important to understand that depreciation according to this method= depreciation rate x book value of an asset. It is important to understand that the depreciation rate= accelerator x straight line rate.
The second method that is commonly used is the units of activity depreciation. It is critical to understand that indeed the depreciation charge in this method varies in line with the in number of machine hours that are consumed each year. This method is important as it most accurately reflects the pattern of consumption of economic benefits. Further, it is important to understand that this method is suitable for fixed assets such as airplanes, and Delta might take it up. This is because fixed assets often depreciate in proportion to the different units of activity as compared to the passage of time.
Thirdly, there is the sum of year’s digit method. This can be described as an accelerated method where the depreciation of an asset whether fixed or not is often calculated using the expected useful life of the asset by adding the digits of each year together (Davies, 2014). According to this method, the sum of the years, digits often assumes that the asset is in most instances productive when it is at the beginning, and there is a consequent decrease of productivity with time.
There are, therefore, different methods and they all lead to different depreciation results. Therefore, there is a need for companies to use the depreciation method that they see befits their company and their system. In terms of Delta, the straight line method can be described as the most appropriate for the company. This is because the straight line method is easy to calculate, and it is useful in the airline industry where the pattern of economic benefits is difficult to determine with precision. Further, it is important to the company to use it because it is often suitable for depreciating assets that provide a similar level of economic benefits throughout their useful life such as airplanes.
Davies, R. E. G. (2014). Delta, an airline and its aircraft: The illustrated history of a major U.S. airline and the people who made it. Miami, FL: Paladwr Press.
Davis, S. F. (1988). Delta Air Lines: Debunking the myth. Atlanta: Peachtree.