SkyWest Airlines 2009 Annual Report Download - page 70

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2009
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
outstanding capital stock of ASA. The Company recorded an intangible asset of approximately
$33.7 million relating to the acquisition of ASA. The intangible asset is being amortized over fifteen
years under the straight-line method. As of December 31, 2009 and 2008, the Company had
$9.7 million and $7.5 million in accumulated amortization expense, respectively. Factors indicating
potential impairment include, but are not limited to, significant decreases in the market value of the
long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow
losses associated with the use of the long-lived assets. On a periodic basis, the Company evaluates
whether the book value of its aircraft is impaired. Based on the results of the evaluations, the
Company’s management concluded no impairment was necessary as of December 31, 2009.
Capitalized Interest
Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is
depreciated over the estimated useful life of the asset. During the years ended December 31, 2009,
2008 and 2007, the Company capitalized interest costs of approximately $843,000, $1.4 million, and $0,
respectively.
Maintenance
The Company operates under an FAA-approved continuous inspection and maintenance program.
The Company uses the direct expense method of accounting for its regional jet engine overhauls
wherein the expense is recorded when the overhaul event occurs. The Company has an engine services
agreement with a third party vendor to provide long-term engine services covering the scheduled and
unscheduled repairs for certain of its CRJ700 regional jet aircraft. Under the terms of the agreement,
the Company pays a set dollar amount per engine hour flown on a monthly basis and the third party
vendor will assume the responsibility to repair the engines at no additional cost to the Company,
subject to certain specified exclusions. Maintenance costs under these contracts are recognized when
the engine hour is flown pursuant to the terms of the contract. The Company uses the ‘‘deferral
method’’ of accounting for its Brasilia Turboprop engine overhauls wherein the overhaul costs are
capitalized and depreciated over the estimated useful life of the engine. The costs of maintenance for
airframe and avionics components, landing gear and normal recurring maintenance are expensed as
incurred. For leased aircraft, the Company is subject to lease return provisions that require a minimum
portion of the ‘‘life’’ of an overhaul be remaining on the engine at the lease return date. For Brasilia
Turboprop engine overhauls related to leased aircraft to be returned, the Company adjusts the
estimated useful lives of the final engine overhauls based on the respective lease return dates.
Passenger and Ground Handling Revenues
The Company recognizes passenger and ground handling revenues when the service is provided.
Under the Company’s contract and pro-rate flying agreements with Delta, United and AirTran, revenue
is considered earned when the flight is completed. Revenue is recognized under the Company’s
pro-rate flying agreements based upon the portion of the pro-rate passenger fare the Company
anticipates that it will receive.
The Delta Connection Agreements executed by SkyWest Airlines and ASA provide for fifteen-year
terms, subject to early termination by Delta, SkyWest Airlines or ASA, as applicable, upon the
66