US Airways 2008 Annual Report Download - page 88

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
(f) Materials and Supplies, Net
Inventories of materials and supplies are valued at the lower of cost or fair value. Costs are determined using average costing
methods. An allowance for obsolescence is provided for flight equipment expendable and repairable parts. These items are generally
charged to expense when issued for use. During 2008, the Company recorded a $5 million write down related to its Boeing 737 spare
parts inventory to reflect lower of cost or fair value. See Note 1(g) below for further discussion of the decline in value of Boeing 737
parts.
(g) Property and Equipment
Property and equipment are recorded at cost. Interest expense related to the acquisition of certain property and equipment is
capitalized as an additional cost of the asset or as a leasehold improvement if the asset is leased. Interest capitalized for the years ended
December 31, 2008, 2007 and 2006 was $6 million, $4 million and $2 million, respectively. Property and equipment is depreciated and
amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. Costs of
major improvements that enhance the usefulness of the asset are capitalized and depreciated over the estimated useful life of the asset or
the modifications, whichever is less.
The estimated useful lives of owned aircraft, jet engines, flight equipment and rotable parts range from five to 30 years. 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, on a straight-line basis. The estimated useful lives for other owned property and equipment range from three
to 12 years and range from 18 to 30 years for training equipment and buildings.
The Company 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.
In connection with completing step two of the Company's interim goodwill impairment analysis in the second quarter of 2008 as
further discussed in Note 1(i) below, the Company also assessed the current fair values of its other significant assets including owned
aircraft, aircraft leases and aircraft spare parts. The Company 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 the
Company's final scheduled lease return.
In accordance with SFAS No. 144, the Company 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, the Company recorded a $13 million
impairment charge in 2008 related to Boeing 737 rotable parts included in flight equipment on its consolidated balance sheet. The
Company 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
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