In April 2024, the International Accounting Standards Board (IASB) introduced IFRS 18, which will replace IAS 1 for annual reporting periods starting on or after 1 January 2027, with early adoption allowed. While IFRS 18 doesn't alter how items are recognised or measured, it could transform how financial performance is communicated to users of financial statements.
For Malta's aviation sector, including aircraft leasing, airline operations, Maintenance Repair Overhaul services, and aviation registration, the implications may be significant. This short read explores the key changes and their expected impact on aviation entities reporting under IFRS in Malta.
The three pillars of IFRS 18
How could different aviation sector participants be impacted?
Impact on aircraft lessors
For Malta-based aircraft leasing entities, the classification of lease income and related expenses will require careful consideration of the respective entity’s main business activities as defined under IFRS 18, which may include investing in assets and/or providing financing to customers. Aircraft lessors will need to assess such main business activities to determine whether income and expenses from leasing activities should be classified in the operating or investing category P&L — a determination that could significantly affect the new 'operating profit' subtotal.
Depreciation of aircraft, impairment charges, and gains or losses on aircraft disposals will also require careful categorisation in line with the entity's assessed main business activity.
One point worth mentioning is that in the case of intermediate lessors of aircrafts, lease liabilities are an example of liabilities arising from transactions that do not involve only the raising of finance. Therefore, interest expense should be classified in the financing category and there is no exception in IFRS 18 which permits intermediate lessors to classify interest expense on lease liabilities in the operating category, regardless of the entity’s main business activity.
Impact on airlines and charter operators
For operators, the new structure will bring greater transparency to:
Impact on maintenance, Repair, and Operations (MRO)
and service providers
For MRO entities, the changes may be presentational than substantive, but disaggregation requirements may demand finer breakdowns of revenue streams (line maintenance, base maintenance, component services) and of cost categories such as labour, parts, and subcontracted work.
Practical considerations for Malta-based entities
Early impact assessment
Entities should assess the implications of IFRS 18 on their financial reporting sooner rather than later – the effective date of January 2027 is around the corner. Comparative information for FY 2026 will also be required.
Systems and chart of accounts
Depending on the extent of identified changes, existing ERP and reporting systems may require reconfiguration to capture the new categories and support the disaggregation principles in a way that is operationally sustainable.
MPM governance
Entities using non-GAAP measures in investor presentations, board reports, or other public communications should establish a robust framework for identifying, calculating, and reconciling MPMs.
Loan covenants and contractual metrics
Financing agreements often reference subtotals such as 'operating profit.' Entities should review whether IFRS 18's prescribed definitions align with covenant definitions and engage lenders early where mismatches arise.
Group reporting
Maltese subsidiaries of international aviation groups should coordinate with parent-entity finance functions to ensure consistent transition planning.
How can we help?
At PwC Malta, we are actively assisting clients with assessing IFRS 18 readiness. If you want to understand how these changes impact your business, reach out to our dedicated team for guidance.
Conclusion
IFRS 18 won't change the economics of Malta's aviation industry, but it will reshape the narrative that financial statements convey. For an industry built on long-lived assets, complex financing structures, and global benchmarking, the new presentation framework offers an opportunity to enhance comparability and transparency, provided entities prepare early.
We recommend that aviation entities operating in Malta initiate a structured IFRS 18 readiness assessment in the coming months, with particular attention to the classification of operating versus investing activities, the identification of MPMs, and the implications for stakeholder communication.
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