That's incorrect.
I'll explain the principles and how it would apply to Nitehawk's example of the 333s.
Principles
You're assuming that the aircraft and everything in it is depreciated as one unit, but it's actually more complex. Different parts of an aircraft have different useful lives, and each asset needs to be depreciated over its own useful life. I won't copy and paste all the dense accounting language from
AC's financials, but to summarize, aircraft are broken down in to airframe, engines, interiors, and modifications.
- Aircraft and engines are depreciated over up to 25 years (a brand-new aircraft likely being 25 years, a used one, like the ex-SQ/TP 333s, being something less)
- Spare parts are depreciated over the remaining useful life the fleet they support
- Interiors and modifications are depreciated over eight years or the remaining useful life of the aircraft, whichever is less
Major maintenance (e.g. a D check) is capitalized and depreciated over the expected time between major maintenance events, so if a D check is expected to be every nine years, the expense of a D check would be capitalized and then expensed 1/9 every year.
For leased aircraft, all of the above are depreciated over the lesser of the above periods or the remaining term of the lease (i.e. if a lease has 6 years to run, you depreciate the interior over 6 years and not 8).
Application
In the case of the 333 Dreamcabin refurbishment,
AC announced it was spending $275MM on it in 2018, based on 12 aircraft (after they leased the first batch of additional aircraft, but before they took it up to 16). I'm going to assume the cost is pretty much the same per aircraft, so that's about $22.9MM per aircraft.
When each aircraft undergoes its refurbishment, AC capitalizes that $22.9MM expenditure, then depreciates it at about $2.86MM per year for eight years thereafter.
If one of the aircraft only had seven years left on its lease when the refurbishment was completed, you would have to shorten the amortization to seven years, and you would expense $3.27MM a year for those seven years.
If some of that $275MM relates to spare parts (extra seats, seat cushions, etc) for the interiors, they would be assigned to a spares pool with a slightly different useful life, and each individual aircraft's depreciation would be slightly lower.
The government has detailed rules for calculating capital cost allowance ("CCA"), which is how much depreciation they'll let you deduct for income tax purposes. These are different from the financial accounting rules that govern what depreciation AC reports on its financials.
I'm not a tax accountant, and I'm not sure which class aircraft interiors fall in to (CRA has different methods of calculating CCA for different types of asset). But most CCA pools are depreciated using the declining balance method, which is different from the straight line method that AC uses for financial accounting. In straight line, you estimate the useful life and salvage value, then depreciate the same amount every year. So an asset worth $10, with $1 salvage value (i.e. what you can sell it for) at the end of its 10-year useful life would depreciate a total of $10 - $1 = $9 over 10 years, $9 / 10 years = $0.9 / year. In the declining balance method, there's a
rate specified. If rate is 10%, you would depreciate by $10 x 10% = $1 in year 1. You subtract what you've depreciated ($1) from your pool ($10) and then recalculate depreciation the following year (10% of $9). So the next year, you would depreciate $9 x 10% = $0.9. The year after that, $0.81, and so on.
Depending on the specified rate, your CCA may lag way behind your accounting depreciation until you sell the asset, or it may initially benefit you.
Take those aircraft interiors. With eight years straight line, the depreciation was $2.86MM every year. With a 10% declining balance, you would only get $2.29MM in year 1 and it goes down from there, so your tax depreciation is well below accounting depreciation. If the rate were 30% though, you'd get $6.88MM in year 1 and you'd be ahead of your accounting number for the first three years.