Ryanair denies accounting errors

Link: Link: Businessmen bypass agents to net a bargain

Ryanair last week defied industry gloom with a 59% increase in profits to €239m (£169m), which is significantly more than those reported by British Airways, KLM and Air France.

Nevertheless, the airline’s shares were down last week, as the City was rife with criticism about the way it books costs. Airplane maintenance is the biggest cost after fuel, as planes need a complete $12m (£7.3m) overhaul every eight years to comply with stringent aviation safety regulations.

City analysts believe Ryanair postpones maintenance costs by capitalising and depreciating them over eight years, while competitors book the costs in the year they occur. Analysts have argued that this is against industry accounting standards.

‘That is a false allegation,’ said Howard Millar, chief financial officer of Ryanair. He said that Ryanair complied with both Irish and UK accounting standards, with its accounts are signed off by KPMG.

He explained Ryanair capitalised maintenance because it owns the planes, rather than leasing them like other airlines. Those companies that lease also spread the costs because they accrue for maintenance. The total is the same in either method.

‘The only difference is that the charge of maintenance in our accounts appears in the depreciation line, while accruals appear in the maintenance line of accounts,’ Millar said. ‘But unfortunately analysts don’t dig too deep.’

Competitor Easyjet, which has a mixed fleet, backed Millar’s explanation as it deals with owned planes in the same way.

Related reading