US Airways 2008 Annual Report Download - page 137

Table of Contents
US Airways, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
In connection with completing step two of US Airways' interim goodwill impairment analysis in the second quarter of 2008 as
further discussed in Note 1(i) below, US Airways also assessed the current fair values of its other significant assets including owned
aircraft, aircraft leases and aircraft spare parts. US Airways concluded that the only impairment indicated was associated with the decline
in fair value of certain spare parts associated with its Boeing 737 fleet. Due to record high fuel prices and the industry environment in
2008, demand for the Boeing 737 aircraft type declined given its lower fuel efficiency as compared to other aircraft types. The fair value
of these spare parts was determined using a market approach on the premise of continued use of the aircraft through US Airways' final
scheduled lease return.
In accordance with SFAS No. 144, US Airways determined that the carrying amount of the Boeing 737 spare parts classified as
long-lived assets was not recoverable as the carrying amount of the Boeing 737 assets was greater than the sum of the undiscounted cash
flows expected from the use and disposition of these assets. As a result of this impairment analysis, US Airways recorded a $13 million
impairment charge in 2008 related to Boeing 737 rotable parts included in flight equipment on its consolidated balance sheet. US
Airways recorded no impairment charges in the years ended December 31, 2007 and 2006.
(h) 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.
(i) Goodwill and Other Intangibles, Net
Goodwill
SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill be tested for impairment at the reporting unit level
on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying value. Goodwill represents the purchase price in excess of the net amount assigned to assets
acquired and liabilities assumed by America West Holdings on September 27, 2005. US Airways has two reporting units consisting of its
mainline and Express operations. All of US Airways' goodwill was allocated to the mainline reporting unit.
In accordance with SFAS No. 142, US Airways concluded that events had occurred and circumstances had changed during the
second quarter of 2008 which required US Airways to perform an interim period goodwill impairment test. Subsequent to the first quarter
of 2008, US Airways experienced a significant decline in market capitalization due to overall airline industry conditions driven by record
high fuel prices. The price of fuel became less volatile in the second quarter of 2008, and there was a sustained surge in fuel prices. On
May 21, 2008, the price per barrel of oil hit a then record high of $133 per barrel and from that date through June 30, 2008 stayed at an
average daily price of $133 per barrel. US Airways' average mainline fuel price during the second quarter of 2008 was $3.63 as compared
to $2.88 per gallon in the first quarter of 2008 and $2.20 for the full year 2007. This increase in the price per gallon of fuel represented an
increase of 26% and 65% as compared to the first quarter of 2008 and full year 2007, respectively. US Airways Group's average stock
price in the second quarter of 2008 was $6.13 as compared to an average of $12.15 in the first quarter of 2008, a decline of 50%. In
addition, US Airways announced in June 2008 that in response to the record high fuel prices, it planned to reduce fourth quarter 2008 and
full year 2009 domestic mainline capacity.
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