US Airways 2006 Annual Report Download - page 141

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 consists of the following as of December 31, 2006 and 2005:
2006 2005
Deposits $ 42 $ 64
Debt issuance costs 1 7
Long term investments 8 12
Deferred rent 19 24
Total other assets, net $ 70 $ 107
(i) Frequent Traveler Program
At the time of the merger, US Airways Group's principal operating subsidiaries, AWA and US Airways, maintained separate
frequent travel award programs known as "Flight Fund" and "Dividend Miles," respectively. Following the merger, the two frequent flyer
programs were modified to allow customers of each airline to earn and use miles on the other airline, and in May 2006, the two programs
were merged into the new Dividend Miles program, which is substantially the same as the former US Airways program. As part of the
merger of the plans, the accounts of members participating in both programs were merged into single accounts of the new program.
Members of the new Dividend Miles program can redeem miles on AWA, US Airways, or other members of the Star Alliance. During
the second quarter of 2006, AWA recorded $12 million of expense in special items, net — merger related transition expenses to increase
its estimated cost of providing free travel based on the terms of the new Dividend Miles program, principally as a result of members of
the former FlightFund program gaining access to international routes operated by US Airways and Star Alliance members.
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 and requisite mileage award levels are
achieved. For travel awards on partner airlines, the liability is based on the average contractual amount to be paid to the other airline per
redemption. Costs associated with the Dividend Miles program are allocated between AWA and US Airways based on mainline RPMs.
As of December 31, 2006, Dividend Miles members had accumulated mileage credits for approximately 3.8 million awards. The portion
of US Airways Group's liability for the future travel awards accrued on AWA's balance sheets within other accrued liabilities was
$35 million and $10 million as of December 31, 2006 and 2005, respectively.
AWA sells mileage credits to participating airline and non-airline business partners. Revenue earned from selling mileage credits to
other companies is recognized in two components. A portion of the revenue from these sales is deferred, representing the estimated fair
value of the transportation component of the sold mileage credits. The deferred revenue for the transportation component is amortized on
a straight-line basis over the period in which the credits are expected to be redeemed for travel as passenger revenue, which is currently
estimated to be 28 months. The marketing component, which is earned at the time the miles are sold, is recognized in other revenues at
the time of the sale. As of December 31, 2006 and 2005, AWA had $11 million and $10 million, respectively, in deferred revenue from
the sale of mileage credits included in other accrued liabilities on its balance sheets.
(j) Derivative Instruments
AWA utilizes financial derivative instruments primarily to manage its risk associated with changing jet fuel prices. All US Airways
Group's fuel hedges are placed by AWA and therefore recorded on AWA's financial statements. AWA utilizes heating oil-based
derivative instruments to hedge a portion of its exposure to jet fuel price
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