Airtran 2010 Annual Report Download - page 62

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We have variable interests in our aircraft leases. The lessors are trusts established specifically to purchase, finance, and
lease aircraft to us. The trusts are considered variable interest entities (VIEs) and in accordance with the guidance
provided under Financial Accounting Standards Board Accounting Standards Codification 810 “Consolidation”
(Consolidation Topic), we are required to assess if we are the primary beneficiary of these VIE’s. The assessment
considers both quantitative and qualitative factors, including whether we have the power to direct the activities of the VIE,
including but not limited to, determine or limiting the scope or purpose of the VIE, selling or transferring property owned
or controlled by the VIE or arranging financing for the VIE. We also considered whether we had the obligation to absorb
the losses of, or the right to receive benefits from, the VIE.
Our leases generally contain lease terms which are consistent with market terms at the inception of the lease and do not
include a residual value guarantee, a fixed-price purchase option, or similar feature that obligates us to absorb decreases in
value or entitles us to participate in increases in the value of the aircraft. However, we have two aircraft leases that contain
fixed-price purchase options that allow us to purchase the aircraft at predetermined prices on specified dates during the
lease term. Even taking into consideration these purchase options, we are not the primary beneficiary based on our cash
flow analysis, and we do not have the risk of gain or loss or the power to direct the activities of the trust.
We have concluded that we are not the primary beneficiary of any of the trusts and, therefore, we have not consolidated
any of the trusts.
Critical Accounting Policies and Estimates
General. The discussion and analysis of our financial condition and results of operations is based upon our Consolidated
Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities
at the date of our financial statements.
Our actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies
are defined as those that are reflective of significant judgments and uncertainties and are sufficiently sensitive to result in
materially different results under different assumptions and conditions. The following is a description of what we believe
to be our most critical accounting policies and estimates. See Notes to the Consolidated Financial Statements for a
description of our financial accounting policies.
Revenue Recognition. Passenger revenue is recognized when transportation is provided. Ticket sales for transportation
which has not yet been provided are recorded as air traffic liability. Air traffic liability represents tickets sold for future
travel dates. The balance of the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare
sale activity. Passenger revenue accounting is inherently complex and the measurement of the air traffic liability is subject
to some uncertainty.
A nonrefundable ticket expires at the date of scheduled travel unless the customer exchanges the ticket in advance of such
date for a credit to be used by the customer as a form of payment for another ticket. We recognize as revenue the value of
a non-refundable ticket at the date of scheduled travel unless the customer exchanges his or her ticket for credit. A percent
of credits expire unused. We recognize as revenue over time, in proportion to the credits that are used, the value of credits
that we expect to go unused based on historical experience. Estimating the amount of credits that will go unused involves
some level of subjectivity and judgment. Changes in our estimate of the amount of unused credits could have an effect on
our revenues.
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