US Airways 2008 Annual Report Download - page 140

Table of Contents
US Airways, Inc.
Notes to Consolidated Financial Statements — (Continued)
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, 2008 and 2007, US Airways had
$240 million and $241 million, respectively, in deferred revenue from the sale of mileage credits included in other accrued expenses on
its consolidated balance sheets.
(l) Derivative Instruments
US Airways currently utilizes heating oil-based derivative instruments to hedge a portion of its exposure to jet fuel price increases.
These instruments consist of no premium collars. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires that all derivatives be marked to fair value and recorded on the balance sheet. Derivatives that do not qualify for hedge
accounting must be adjusted to fair value through the income statement. US Airways does not purchase or hold any derivative financial
instruments for trading purposes. As of December 31, 2008 and 2007, US Airways had open fuel hedging instruments in place, which do
not currently qualify for hedge accounting under SFAS 133. Accordingly, the derivative hedging instruments are recorded as an asset or
liability on the consolidated balance sheets at fair value and any changes in fair value are recorded as gains or losses on fuel hedging
instruments, net in operating expenses in the accompanying consolidated statements of operations in the period of change. See Note 5(a)
for additional information on US Airways' fuel hedging instruments.
(m) Deferred Gains and Credits, Net
In 2005, US Airways' affinity credit card provider, Barclays Bank Delaware, formerly Juniper Bank, paid AWA $150 million in
bonuses, consisting of a $20 million bonus pursuant to AWA's original credit card agreement with Juniper and a $130 million bonus
following the effectiveness of the merger, subject to certain conditions.
In the event Barclays, at its option, terminates the amended agreement prior to April 1, 2009 due to US Airways' breach of its
obligations under the amended credit card agreement, or upon the occurrence of certain other events, then US Airways must repay all of
the bonus payments. If Barclays terminates the amended agreement any time thereafter through March 31, 2013 for the same reasons, US
Airways must repay a reduced amount that declines monthly according to a formula. US Airways will have no obligation to repay any
portion of the bonus payments after March 31, 2013.
At the time of payment, the entire $150 million was recorded as deferred revenue. US Airways will begin recognizing revenue from
the bonus payments on April 1, 2009. The revenue from the bonus payments will be recognized on a straight-line basis through
March 31, 2017, the expiration date of the amended Barclays co-branded credit card agreement.
In connection with fresh-start reporting and purchase accounting for US Airways' in 2005 and fresh-start reporting for AWA upon
emergence from bankruptcy in 1994, aircraft operating leases were adjusted to fair value and deferred credits were established in the
accompanying consolidated balance sheets, which represented the net present value of the difference between the stated lease rates and
the fair market rates. These deferred credits will be amortized on a straight-line basis as a reduction in rent expense over the applicable
lease periods. At December 31, 2008 and 2007, the unamortized balance of the deferred credits was $93 million and $134 million,
respectively. US Airways expects to amortize $21 million in 2009, $13 million in 2010, $9 million in 2011, $8 million in 2012,
$7 million in 2013 and $35 million thereafter to aircraft rent expense related to these leasehold interests.
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