"The Fresh Start"
Statement of Problem
When Delta Air Lines filed for Chapter 11 bankruptcy, the company sought new accounting measures to control losses. In a strategic move to restructure the company according to regulatory requirements and financial control, Delta created a new, wholly owned subsidiary, an accounting unit to manage financial control is a strategic response to major losses (Bruns, 2010).
Rationale to Delta Airlines decision to use accounting as the key mechanism for continuous change within the organization is responsive to three strategies: 1) economic life of aircraft; 2) intense competition and deregulation; in coordination with 3) annual reporting of depreciation (Bruns 2010). The motivation to reduce annual depreciation in reporting of higher net income or reduced losses informs calculation of “extended life” of plant, property, equipment (PPE) in an industry undergoing rapid change.
In 2007, Delta Air Lines adopted what they called a “fresh start” in accounting. By creating a new entity for financial reporting, the company was better able to make adjustments in its Consolidated Financial State (Bruns, 2010). To this end, the company management was not obliged to combine operating results for eight months ending in December 2007.
Legal rules to Successor obligation to reporting for the four months ended April 2007 (Bruns, 2010). This rule also provided that the reporting was also not required of the Predecessor for the years ending December 2006 and 2005 (Bruns, 2010). Delta Air Lines Form 10-K filing with the U. S. Securities and Exchange Commission (SEC) reflects the decision to make “fresh start” reporting adjustments impacting comparability (Bruns, 2010).
Summary Situation Analysis
Situation analysis addresses whether Delta Air Lines reporting of combined results of operation for the year ending December 2007 provided adequate information about performance to management and investors (Bruns, 2010). The SWOT (Strengths, Weaknesses, Opportunities, Threats) assessment examines environmental forces resulting from the strategic accounting decision, as well as the future performance of Delta’s company prospectus.
Strategic Alternatives and Recommendations
Delta Air Lines restructuring plan based on economic lifecycle of jet planes in its fleet and compliance rules to regulatory audit posed significant threat to a company already recording losses in response to stiff competition. Chapter 11 bankruptcy offered the well-recognized commercial carrier an opportunity for a “fresh start”.
The company’s decision to create a separate accounting subsidiary under a different IRS number promoted long-term depreciation, delaying losses to reported profit. Delta choose to stay in business, the legacy of its accounting strategy is one responsive to the confidence of investors and employee stakeholders, in good faith.
References
Bruns, W.J. (2010). Depreciation at Delta Air Lines: The "Fresh Start". Harvard Business Publishing 23 Nov 2010. Retrieved from: http://news.swufe.edu.cn/attaches/98/2010-12/27/2010122713534512934292250.pdf
