Financial statement effects of capitalizing operating leases. Selected data (in millions) for three U.S. airlines appear below.

American Delta United Long-term Debt on Balance Sheet, End of Year Shareholders' Equity (Deficit), End of Year . . .

Net Income (Loss), for Year Present Value of Operating Lease Commitments, End of Year

$7,878 $3,121 $ 3,617 3,380 1,827

(267)

228 408 77 8,164 7,307 10,645

a. Compute the ratio of (long-term debt)/(long-term debt plus shareholders' equity) for the three airlines using amounts reported on the balance sheet.

b. Repeat part a but include the present value of operating lease commitments in long-term debt.

c. Suggest reasons why these airlines prefer to treat these leases as operating leases.

d. Suggest how these airlines might have structured their leases to qualify as operating leases.

e. Suggest reasons why airlines tend to lease rather than purchase their aircraft.