SkyWest Airlines 2014 Annual Report Download - page 48

Airlines, a third-party vendor provides our long-term engine services covering the scheduled and
unscheduled repairs for engines on our CRJ700s operated under our Fixed-Rate Engine Contracts.
Under the terms of the vendor agreement, we pay a set dollar amount per engine hour flown on a
monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional
cost to us, subject to certain specified exclusions. Thus, under the third-party vendor agreement, we
expense the engine maintenance costs as flight hours are incurred on the engines and using the
contractual rate set forth in the agreement.
Aircraft Leases
The majority of SkyWest Airlines’ aircraft are leased from third parties, while the majority of
ExpressJet’s aircraft flying for Delta and American are primarily debt-financed on a long-term basis,
and all of ExpressJet’s ERJ145 aircraft flying for United are leased from United for a nominal amount.
In order to determine the proper classification of our leased aircraft as either operating leases or
capital leases, we must make certain estimates at the inception of the lease relating to the economic
useful life and the fair value of an asset as well as select an appropriate discount rate to be used in
discounting future lease payments. These estimates are utilized by management in making computations
as required by existing accounting standards that determine whether the lease is classified as an
operating lease or a capital lease. All of our aircraft leases have been classified as operating leases,
which results in rental payments being charged to expense over the terms of the related leases.
Additionally, operating leases are not reflected in our consolidated balance sheet and accordingly,
neither a lease asset nor an obligation for future lease payments is reflected in our consolidated
balance sheets.
Impairment of Long-Lived Assets
As of December 31, 2014, we had approximately $3.0 billion of property and equipment and
related assets. Additionally, as of December 31, 2014, we had approximately $12.7 million in intangible
assets. In accounting for these long-lived and intangible assets, we make estimates about the expected
useful lives of the assets, the expected residual values of certain of these assets, and the potential for
impairment based on the fair value of the assets and the cash flows they generate. We recorded an
intangible of approximately $33.7 million relating to the acquisition of Atlantic Southeast in September
2005. The intangible is being amortized over fifteen years under the straight-line method. As of
December 31, 2014, we had recorded $21.0 million in accumulated amortization expense. 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.
When considering whether or not impairment of long-lived assets exists, we group similar assets
together at the lowest level for which identifiable cash flows are largely independent of the cash flows
of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net
carrying amount of the assets supporting the asset group. Asset groupings are done at the fleet type or
contract level.
In November 2014, we made the decision to remove all EMB120 aircraft from service by the end
of the second quarter of 2015. This decision resulted in an impairment review of our long-lived assets
specific to the EMB120 aircraft, which included owned aircraft, capitalized engine overhaul assets,
spare engines and other EMB120 specific long-lived assets. The impairment analysis required us to use
judgment to estimate the fair value of our EMB120 long-lived assets. As the largest operator of the
EMB120 aircraft in the United States, our decision to remove all our EMB120 aircraft from service by
the end of the second quarter of 2015 may consequently have a negative impact on the fair value of
our long-lived assets. The amounts we ultimately realize from the disposal of our EMB120 long-lived
assets may vary from our December 31, 2014 fair value assessments.
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