Airtran 2006 Annual Report Download - page 43

The above table includes two B737 aircraft scheduled for delivery in the second quarter 2007 which we have agreed to sell to an airline which operates outside of
the United States. We anticipate recognizing a gain if and when each sale occurs.
AIRCRAFT FINANCING ARRANGEMENTS :
Of the 60 B737 aircraft on order, we have secured debt financing for 10 B737 aircraft scheduled for delivery in 2007 and for five of the aircraft scheduled to be
delivered in 2008 through arrangements with financial institutions. While our intention is to finance the remainder of the aircraft on order via a combination of
debt and lease financing we have not yet arranged for such financing.
Additionally, we have sale/leaseback commitments from an aircraft leasing company with respect to six spare engines to be delivered through 2010. During 2006,
we entered into a sale/leaseback agreement related to one of these spare engines.
CREDIT CARD ARRANGEMENTS :
We have agreements with organizations that process credit card transactions arising from purchases of air travel by customers of AirTran Airways. Our agreement
with the MasterCard/Visa processor expires March 31, 2008. Our other credit card processing agreements generally have no fixed term but are terminable without
cause after 30 days. Each of our agreements with the organizations that process American Express, Discover and MasterCard/Visa transactions allows, under
specified conditions, the credit card processor to retain cash that such processor otherwise would deliver to the Company (i.e., a “holdback”). A holdback consisting
of cash escrowed by the processor is classified as restricted cash whereas a holdback consisting of a delay of cash remittance to us is classified as accounts
receivable. We were in compliance with its credit card arrangements and we had holdbacks with only one processor. The holdback with this processor was in
amounts that were not material to our cash balances. A majority of our revenues relate to credit card transactions processed by the MasterCard/Visa processor. Our
agreement with the MasterCard/Visa credit card processor contains covenants which permit the processor to holdback cash remittances to us if: we do not maintain
aggregate prescribed levels of unrestricted cash and short-term investments; the processor determines that there has been a material adverse occurrence; or
certain other events occur. The amount which the processor may be entitled to withhold varies over time and is equal to the estimated liability for future air travel
purchased with Visa and MasterCard cards. As of December 31, 2006 we were in compliance with the agreement, no remittances had been withheld and the
processor was not entitled to withhold future remittances. As of December 31, 2006, had the processor been entitled to withhold future remittances the amount of
such withholding entitlement would have been up to $95 million. We have the right to reduce the amount withheld to the extent that we provide the processor with
a letter of credit and/or a cash deposit.
GENERAL INDEMNIFICATIONS :
We are party to many routine contracts under which we indemnify third parties for various risks. We have not accrued any liability for any of these indemnities, as
the amount is not determinable or estimable. These indemnities consist of the following:
Certain of our debt agreements related to aircraft-secured notes payable through 2017 contain language, whereby, we have agreed to indemnify certain holders of
certificates evidencing the debt associated with such notes, as necessary, to compensate them for any costs incurred by or any reduction in receivables due to such
certificate holders resulting from broadly defined regulatory changes that impose or modify any reserve, special deposit or similar requirements relating to any
extensions of credit or other assets of or any deposits with or other liabilities of such certificate holders. Additionally, if it becomes unlawful for such certificate
holders to make or maintain the investment or credit evidenced by the certificates, we have agreed to pay such certificate holders an amount necessary to cause
the interest rate with respect to the certificates to be a rate per annum equal to 4.88 percent over the rate specified by such certificate holders as the cost to them
of obtaining funds in dollars in the United States in an amount equal to the pool balance of the certificates. The maximum potential payment under these
indemnities cannot be determined.
Our aircraft lease transaction documents contain customary indemnities concerning withholding taxes in which we are responsible in some circumstances should
withholding taxes be imposed for paying such amounts of additional rent, as is necessary to ensure that the lessor still receives, after taxes, the rent stipulated in
the lease agreements. These provisions apply on leases expiring through 2022. The maximum potential payment under these indemnities cannot be determined.
In our aircraft financing agreements, we typically indemnify the financing parties, the trustee acting on their behalf and, other related parties against liabilities
that arise from the manufacture, design, ownership, financing, use, operation and maintenance of the aircraft for tort liability, whether or not these liabilities arise
out of or relate to the negligence of these indemnified parties except for their gross negligence or willful misconduct. We believe that we are covered by insurance
(subject to deductibles) for most tort liabilities and related indemnities, as described above with respect to the aircraft we operate. Additionally, if there is a change
in the law which results in the imposition of any reserve, capital adequacy, special deposit or similar requirement which will increase the cost to the lender, we will
pay the lender the additional amount necessary to compensate the lender for the actual cost increase.
We have various leases with respect to real property and various agreements among airlines relating to fuel consortia or fuel farms at airports in which we have
agreed to standard language indemnifying the lessor against environmental liabilities associated with the real property covered under the agreement, even if we
are not the party responsible for the environmental damage. In the case of fuel consortia at the airports, these indemnities are generally joint and several among
the airlines. We cannot quantify the maximum potential exposure under these indemnities and we do not currently have liability insurance that protects us against
environmental damages.
Under certain contracts with third parties, we indemnify the third party against legal liability arising out of an action by a third party. The terms of these contracts
vary and the potential exposure under these indemnities cannot be determined. Generally, we have liability insurance protecting us from obligations undertaken
under these indemnities.
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