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, made a decision to lengthen the useful lives of its aircraft from 22 to 27 years. Shortly thereafter, following Southwest’s leadership, other airlines made the same move.18 What advantage, if any, can the airlines gain by making this change in estimate? Will it change earnings or cash flows and, if it does, will the change be favorable or negative?

Some people argue that the useful lives and depreciation of airplanes are irrelevant. They claim that because of the extensive maintenance and testing airline companies are required by law to perform, the planes theoretically can be in service for an indefinite future period. What is wrong with this argument?