The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airline companies, decided to lengthen the useful lives of its aircraft from 22 to 27 years. Following Southwest's lead, other airlines made the same move shortly after.

(a) What advantage, if any, did the airlines gain by making this change in an estimate?

(b) Would it have changed earnings or cash flows, and if it did, would it have been favorable or negative?

(c) Some people argue that airplanes' useful lives and depreciation are irrelevant.

They claim that because of the extensive maintenance and testing that airline companies are required by law to perform, the planes theoretically can be in service for an indefinite future period. So what is wrong with this argument?