Airtran 2001 Annual Report Download - page 19

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,.
•
Spare
Parts,
Materials
and
Supplies
Spare parts, materials
and
supplies are staled at the lower
of
cost
or
market using the first-in, first-out
method
(FIFO).
These
items are charged
to
expense when used. Allowances for obsolescence are provided over the estimated useful life
of
the related aircraft
and
engines for spare parts
expected
to
be on hand at the date aircraft are retired from service.
Recently
Issued
Accounting
Standards
In
June
2001, the Financial Accounting Standards Board
(FASB)
issued Statement
of
Financial Accounting Standards No.
141
(SFAS
141),
"Business
Combinations"
and
Statement
of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." SFAS
141
requires
all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS 142 prohibits the amortization
of
good-
will
and
intangible assets with indefinite lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with finite
lives will continue
to
be amortized over their estimated useful lives. We will apply SFAS 142 beginning in the first quarter
of
2002 and discontinue the
amortization
of
our trade name, an indefinite-life intangible asset and goodwill. Application
of
the nonamortizalion provisions
of
SFAS 142 is expected
to
result in an increase in net income
in
2002
of
approximately $1.4 million (S.02 per share). We will be required
to
test the goodwill and trade name
for impairment annually in accordance with SFAS 142. We have pertormed the first
of
the required impairment tests for the trade name
and
goodwill
as
of
January
1,
2002
and
will
not
have any impairment
of
these assets
upon
adoption.
On
October
3,2001,
the FASB issued Statement
of
Financial Accounting Standards No. 144 (SFAS 144),
~Accounting
for the Impairment
or
Disposal
of
Long-Lived Assets," which is effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS
144
supersedes
SFAS
121,
and
applies
to
all long-lived assets
~ncluding
discontinued operations).
We
do
not expect this standard
to
have amaterial impact on our
future financial position
or
results
of
operations.
8717
Aircraft
Program
Update
Boeing recently evaluated the production and delivery schedules
of
its commercial airplane programs,
in
light
of
current market conditions. After a
thorough evaluation
of
the program and market, Boeing made abusiness decision
to
continue production of the
B717.
While Boeing stated the B717
is the leading 1oo-passenger airplane,
due
to reduced near-term demand following the September
11
Events, the program will
go
forward with alower
production rate
and
revised delivery projections.
Our
delivery schedule has not been affected by Boeing's decision
to
lower production rates.
In
2002,
we
anticipate taking delivery
of
20
new
8717s.
New
Service
We
recently announced the launch
of
new
service from Rochester, New York and WIChita, Kansas,
our
37th and
38th
destinations, respectively. Our
new service
to
these new cities is aresult
of
their local governments
and
business interests providing revenue guarantee programs
and
other market-
ing incentives
to
lessen the risks
of
our entry into
these
new
markets. Nonstop service from Rochester
to
Atlanta, Georgia
and
BallimorelWashington
International Airport (BWI) begins
in
March 2002. Nonstop service from Wichita
to
Atlanta, Georgia
and
Chicago, Illinois' Midway International Airport
begins in
May
2002.
During 2001,
we
inaugurated
new
service
to
BWI, and the Florida cities
of
Tallahassee and Pensacola. The
new
service
to
Tallahassee is the result
of
agreements with the City
of
Tallahassee offering revenue guarantees, reduced facility costs and marketing incentives, as well as an exclusive air service
contract with the State
of
Florida. The commencement
of
service to Pensacola coincided with simultaneous termination
of
service
to
Fort Walton
Beach, Florida. The Pensacola Airport, Chamber
of
Commerce and other Gulf Coast parties presented us with an incentive package that includes
reduced facilities
costs
and
marketing dollars, as well as covering moving expenses. More than
300
corporate, government
and
other entities
com-
mitted funds
to
an air travel
bank
in support
of
this new service.
Quantitative
and
Qualitative
Disclosures
About
Market
Risk
Market
Risk-Sensitive
Instruments
and
Positions
We
are subject
to
certain market risks, including interest rates and commodity prices
~.e.,
aircraft fuel). The adverse effects
of
changes in these
markets
pose
apotential loss as discussed below. The sensitivity analyses
do
not consider the effects that such adverse changes may have
on
overall
economic activity,
nor
do
they consider additional actions
we
may take
to
mitigate
our
exposure
to
such changes. Actual results may differ. See the
Notes
to
the consolidated financial statements for adescription
of
our financial policies and additional information.