US Airways 2006 Annual Report Download - page 180

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
reflect changes in the current fair market value of the stock options and warrants to other, net on its statements of operations. See
Note 4(a) for more information on these options and warrants.
(l) Deferred Gains and Credits, Net
In connection with fresh-start reporting and purchase accounting, 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
stated lease rates and the fair market rates. These deferred credits are amortized on a straight-line basis as a decrease to aircraft rent
expense over the applicable remaining lease periods, generally one to 17 years. At December 31, 2006 and 2005, the unamortized balance
of the deferred credit was $141 million and $178 million, respectively.
The gain related to certain Sabre options exercised in 1999 has been deferred and amortized over the contract period as a reduction
to other operating expenses. At December 31, 2006 and 2005, the unamortized balance of the deferred credit was $31 million and
$37 million, respectively. See Note 4(a) for more information related to the Sabre options.
(m) Revenue Recognition
Passenger Revenue
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 on US Airways 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 based on the analysis of historical data. US Airways has applied this accounting
method to estimate and recognize 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 US Airways'
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.
In connection with the application of purchase accounting, effective September 27, 2005, US Airways recorded a $124 million
reduction to its air traffic liability to conform its accounting policies for recognizing revenue from forfeited tickets to those of America
West Holdings.
US Airways purchases capacity (available seat miles) generated by US Airways Group's wholly owned regional air carriers and the
capacity of Air Wisconsin Airlines Corp. ("Air Wisconsin"), Republic Airways Holdings ("Republic"), Mesa Airlines, Inc. ("Mesa") and
Chautauqua Airlines, Inc. ("Chautauqua") in certain markets. Air Wisconsin, Mesa, Chautauqua, and Republic operate regional jet
aircraft in these markets as part of US Airways Express. US Airways classifies revenues related to capacity purchase arrangements as
Express passenger revenues. Liabilities related to tickets sold for travel on these air carriers are also included in US Airways' air traffic
liability and are subsequently relieved in the same manner as described above.
See note 1(j) above for information on the revenue recognition for the sale of Dividend Miles.
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