US Airways 2005 Annual Report Download - page 116

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
(l) Deferred gains and credits, net
In connection with fresh-start reporting and purchase accounting, US Airways' aircraft operating leases were adjusted to fair value and deferred credits of
$190 million were established in the accompanying balance sheet representing the net present value of the difference between the stated lease rates and the
fair market rates. These deferred credits will be decreased on a straight-line basis as a reduction in rent expense over the applicable lease periods. Gains on
aircraft sale and leaseback transactions are deferred and amortized over the terms of the leases as a reduction of the related aircraft rent expense.
Rents for operating leases were adjusted to fair market value when AWA emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a deferred credit in the accompanying consolidated balance sheets. The deferred
credit will be decreased on a straight-line basis as a reduction in rent expense over the applicable lease periods. At December 31, 2005 and 2004, the
unamortized balance of the deferred credit was $37 million and $38 million, respectively.
In January 2002, AWA closed a $429 million loan supported by a $380 million government loan guarantee from the ATSB. This loan triggered aircraft
rent concessions negotiated with approximately 20 aircraft lessors. Approximately $18 million of aircraft rent, which was accrued as of December 31, 2001,
was waived by the aircraft lessors. This amount has been recorded as a deferred credit in the accompanying consolidated balance sheet and is being amortized
over the remaining lives of the applicable leases as a reduction in rent expense. At December 31, 2005 and 2004, the unamortized balance of the deferred
credit was approximately $3 million and $4 million, respectively.
US Airways has deferred the gain related to the exercise of Sabre options. The gain will be amortized over the contract period as a reduction to other
operating expenses. See Note 8 for more information related to the Sabre options.
(m) Passenger revenues
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially recorded as air
traffic liability on the balance sheet. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets
sold for past travel dates. The majority of tickets sold are nonrefundable. Tickets that are sold but not flown on the travel date may be reused for another
flight, up to a year from the date of sale, or refunded, if the ticket is refundable, after taking into account any cancellation penalties or change fees. A small
percentage of tickets, or partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with
other airlines, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be
recognized. These estimates are generally based on the analysis of our historical data. US Airways Group and members of the airline industry have
consistently applied this accounting method to estimate revenue from forfeited tickets at the date travel was to be provided. Estimated future refunds and
exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of the Company's estimates. Any
adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations during the period in which the
evaluations are completed.
Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions and related fees not
yet recognized are included as a prepaid expense.
US Airways Group purchases capacity, or ASMs, generated by US Airways Group's wholly owned regional air carriers and the capacity of Air Wisconsin
Airlines Corp. ("Air Wisconsin"), Republic Airline 110