US Airways 2005 Annual Report Download - page 178

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
Leasehold improvements relating to flight equipment and other property on operating leases are amortized over the life of the lease or the life of the asset,
whichever is shorter.
AWA records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired as
defined by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
(h) Other assets, net
Other assets, net consist primarily of deposits held by vendors, unamortized debt issuance costs and long-term investments.
(i) Frequent Traveler Program
AWA maintains a frequent travel award program known as "FlightFund" that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(j) Derivative Instruments
AWA utilizes financial derivative instruments primarily to manage its risk associated with changing jet fuel prices. AWA utilizes heating oil-based
derivative instruments to hedge a portion of its exposure to jet fuel price increases. These instruments primarily consist of costless collars which hedge
approximately 20% of US Airways Group's or 68 percent of AWA's 2006 total anticipated jet fuel requirements at average crude oil equivalent prices of no
higher than $67 per barrel as of December 31, 2005. AWA does not purchase or hold any derivative financial instruments for trading purposes.
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities, as amended," ("SFAS 133") requires that all derivatives be marked to market
(fair value) and recorded on the balance sheet. Derivatives that are not hedges must be adjusted to fair value through income.
AWA's fuel hedging contracts do not currently qualify for hedge accounting under SFAS 133. Accordingly, the derivative hedging instruments are
recorded as an asset or liability on the balance sheet at fair value and any changes in fair value are recorded as gains in fuel hedging instruments, net in
operating expenses in the accompanying consolidated statements of operations in the period of change.
During 2005, 2004 and 2003, AWA recognized gains of $75 million, $24 million and $11 million, respectively, related to hedging activities. The fair
value of AWA's financial derivative instruments at December 31, 2005 and 2004 was a net asset of approximately $4 million and $0.2 million, respectively.
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