Airtran 2005 Annual Report Download - page 35

:: GENERAL INDEMNIFICATIONS : :
We are party to many routine contracts under which we indemnify third parties for various risks. We have not accrued any liability for any of these indemnities, as the amount is not determinable or estimable. These
indemnities consist of the following:
Certain of our debt agreements related to certain aircraft-secured notes payable through 2017 contain language, whereby, we have agreed to indemnify certain holders of certificates evidencing the debt associated
with such notes, as necessary, to compensate them for any costs incurred by or any reduction in receivables due to such certificate holders resulting from broadly defined regulatory changes that impose or modify
any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of or any deposits with or other liabilities of such certificate holders. Additionally, if it becomes unlawful for
such certificate holders to make or maintain the investment or credit evidenced by the certificates, we have agreed to pay such certificate holders an amount necessary to cause the interest rate with respect to the
certificates to be a rate per annum equal to 4.88 percent over the rate specified by such certificate holders as the cost to them of obtaining funds in dollars in the United States in an amount equal to the pool
balance of the certificates. The maximum potential payment under these indemnities cannot be determined.
Our aircraft lease transaction documents contain customary indemnities concerning withholding taxes in which we are responsible in some circumstances should withholding taxes be imposed for paying such
amounts of additional rent, as is necessary to ensure that the lessor still receives, after taxes, the rent stipulated in the lease agreements. These provisions apply on leases expiring through 2022. The maximum
potential payment under these indemnities cannot be determined.
In our aircraft financing agreements, we typically indemnify the financing parties, the trustee acting on their behalf and, other related parties against liabilities that arise from the manufacture, design, ownership,
financing, use, operation and maintenance of the aircraft for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties except for their gross negligence or will-
ful misconduct. We believe that we are covered by insurance (subject to deductibles) for most tort liabilities and related indemnities, as described above with respect to the aircraft we operate. Additionally, if there
is a change in the law which results in the imposition of any reserve, capital adequacy, special deposit or similar requirement which will increase the cost to the lender, we will pay the lender the additional amount
necessary to compensate the lender for the actual cost increase.
We have various leases with respect to real property and various agreements among airlines relating to fuel consortia or fuel farms at airports in which we have agreed to standard language indemnifying the
lessor against environmental liabilities associated with the real property covered under the agreement, even if we are not the party responsible for the environmental damage. In the case of fuel consortia at the
airports, these indemnities are generally joint and several among the airlines. We cannot quantify the maximum potential exposure under these indemnities and we do not currently have liability insurance that
protects us against environmental damages.
Under certain contracts with third parties, we indemnify the third party against legal liability arising out of an action by a third party. The terms of these contracts vary and the potential exposure under these
indemnities cannot be determined. Generally, we have liability insurance protecting us from obligations undertaken under these indemnities.
: : 4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT : :
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and accounts receivable. We maintain cash and
cash equivalents and short-term investments with various high credit-quality financial institutions or in short-duration, high-quality debt securities. Investments are stated at fair value, which approximates cost.
We periodically evaluate the relative credit standing of those financial institutions that are considered in our investment strategy. There were no material realized or unrealized gains or losses on our available-for-
sale securities for the years ended December 31, 2005, 2004 or 2003. We use specific identification of securities for determining gains and losses. Contractual maturities of our available-for-sale securities at
December 31, 2005 exceed 10 years while the auction re-set periods are 28 to 35 days. The balance of these available-for-sale securities at December 31, 2005 and 2004 was approximately $0.1 million and
$27 million, respectively.
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