Delta Airlines leases most of its commercial aircraft and is currently committed to pay almost $15 billion in future lease obligations. However, notes to the company’s financial statements reported only $297 million of these commitments as long-term capital lease obligations in the liability section of its balance sheet. The remaining commitments are structured as operating leases. Obligations to pay future operating lease obligations are not reported in the balance sheet as liabilities. Instead, cash outlays for operating leases appear only in the income statement as expenses as the obligations come due. Delta’s recent balance sheet reports assets totaling $53,292 million. The company’s long-term debt, including its capital lease obligations, total approximately $6,592 million.

 

Instructions 

a. If Delta had structured its aircraft commitments as capital leases instead of operating leases, how would the appearance and potential interpretation of its balance sheet have changed? 

b. Is it ethical for Delta to structure such a small percentage of its aircraft commitments as capital eases and the remaining as off-balance sheet financing? Defend your answer. 

c. With regard to Delta’s lease obligations, why is it important for investors and creditors to read and understand the footnotes accompanying the airline’s financial statements?