Delta Airlines 2010 Annual Report Download - page 59

Table of Contents
We record impairment losses on flight equipment and other long-lived assets used in operations when events and circumstances indicate the assets may be
impaired and the estimated future cash flows generated by those assets are less than their carrying amounts. Factors which could cause impairment include,
but are not limited to, (1) deciding to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated
useful life, (3) operational downsizing, (4) significant changes in projected cash flows, (5) permanent and significant declines in fleet fair values and
(6) changes to the regulatory environment. For long-lived assets held for sale, we record impairment losses when the carrying amount is greater than the fair
value less the cost to sell. We discontinue depreciation of long-lived assets when these assets are classified as held for sale.
To determine whether impairments exist for aircraft used in operations, we group assets at the fleet-type level (the lowest level for which there are
identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant
factors. If an impairment occurs, the impairment loss recognized is the amount by which the aircraft's carrying amount exceeds its estimated fair value. We
estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available.
Goodwill and Other Intangible Assets
We apply a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain
events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The annual impairment test date for goodwill and
indefinite-lived intangible assets is October 1.
We value goodwill and identified intangible assets primarily using the income approach valuation technique. These measurements include the following
significant unobservable inputs: (1) our projected revenues, expenses and cash flows, (2) an estimated weighted average cost of capital, (3) assumed discount
rates depending on the asset and (4) a tax rate. These assumptions are consistent with those hypothetical market participants would use. Since we are required
to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, the actual amounts may differ materially
from these estimates.
Changes in assumptions or circumstances could result in impairment. Factors which could cause impairment include, but are not limited to, (1) negative
trends in our market capitalization, (2) an increase in fuel prices, (3) declining passenger mile yields, (4) lower passenger demand as a result of the weakened
U.S. and global economy, (5) interruption to our operations due to an employee strike, terrorist attack, or other reasons, (6) changes to the regulatory
environment and (7) consolidation of competitors in the airline industry.
Goodwill
Goodwill reflects (1) the excess of the reorganization value of Delta over the fair values of tangible and identifiable intangible assets, net of liabilities, from
the adoption of fresh start reporting upon emergence from bankruptcy, adjusted for impairment and (2) the excess of purchase price over the fair values of
tangible and identifiable intangible assets acquired and liabilities assumed from Northwest in the Merger.
In evaluating goodwill for impairment, we first compare our one reporting unit's fair value to its carrying value. We estimate the fair value of our reporting
unit by considering (1) market capitalization, (2) controlling interest premiums, (3) recent market transactions, (4) projected discounted future cash flows and
(5) other factors. If the reporting unit's fair value exceeds its carrying value, no further testing is required. If, however, the reporting unit's carrying value
exceeds its fair value, we then determine the amount of the impairment charge, if any. We recognize an impairment charge if the carrying value of the
reporting unit's goodwill exceeds its estimated fair value.
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