Fri, Feb 01, 2008 - Page 11 News List

Ministry to demand aviation rights listed as assets

UNDERVALUED Without assessing the intangibles, the assets of Taiwanese airlines have been underestimated, raising concerns investors could buy them below value


The Ministry of Transportation and Communications is expected to demand within a few days that aviation rights be listed among the assets of Taiwanese airlines in a bid to correct current practices which tend to underestimate the value of companies' net assets, sources said yesterday.

The demand will be made in line with a 2006 revision to the financial accounting standards by Taiwan's Accounting Research and Development Foundation (ARDF), which stipulated that intangibles be listed as business assets.

Although the rule became effective on Jan. 1 last year, most Taiwan businesses still did not include intangibles in their financial statements for the first half of last year, mainly because most Taiwan accountants have refused to attest to the assessed value of intangibles such as aviation rights in light of the great risks involved.


The situation has resulted in the net value of the assets of Taiwanese airlines being underestimated, raising concerns in Cabinet that the companies could be bought out by foreign investors attracted to their artificially low prices.

In an internal report released recently, the Cabinet pointed to a plan by Singapore Airlines and Singapore's Temasek Sovereign Fund to jointly spend HK$7.2 billion (US$923.12 million) buying stock in China Eastern Airlines (中國東方航空).

As the state-owned Chinese airlines did not include the value of its aviation rights in its net asset value, the incident was described by critics as tantamount to selling the country's property at a discount, the report said.


In Taiwan, the international carriers China Airlines Ltd (CAL, 中華航空) and EVA Airways Corp (長榮航空) are estimated to be worth only NT$60 billion (US$1.86 billion) each, excluding the values of their aviation rights, while the domestic carrier Far Eastern Air Transport (FAT, 遠東航空) is worth NT$5 billion, meaning any foreign buyer would need to spend barely half the cost of an Airbus A380 to acquire all 16 aircraft and aviation rights currently owned by FAT, according to the report.

According to the revision adopted by the ARDF, the criteria for the recognition of an intangible asset are: it is probable that expected future economic benefits are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably.

An unidentified accountant said that if the aviation rights obtained by Taiwanese airlines meet the criteria set forth in the rule, they should be counted as part of the companies' assets as long as they were acquired on, or after, Jan. 1 last year.

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