Alaska Airlines and Horizon Air 2014 Annual Report Download - page 154

Receivables
Receivables are due on demand and consist primarily of airline traffic (including credit card) receivables,
Mileage Plan™ partners, amounts due from other airlines related to interline agreements, government
tax authorities, and other miscellaneous amounts due to the Company, and are net of an allowance for
doubtful accounts. Management determines the allowance for doubtful accounts based on known
troubled accounts and historical experience applied to an aging of accounts.
Inventories and Supplies—net
Expendable aircraft parts, materials and supplies are stated at average cost and are included in
inventories and supplies–net. An obsolescence allowance for expendable parts is accrued based on
estimated lives of the corresponding fleet type and salvage values. The allowance for all non-surplus
expendable inventories was $34 million and $30 million at December 31, 2014 and 2013, respectively.
Inventory and supplies–net also includes fuel inventory of $21 million and $23 million at December 31,
2014 and 2013, respectively. Repairable and rotable aircraft parts inventories are included in flight
equipment.
Property, Equipment and Depreciation
Property and equipment are recorded at cost and depreciated using the straight-line method over their
estimated useful lives less an estimated salvage value, which are as follows:
Aircraft and related flight equipment:
Boeing 737 aircraft 20 years
Bombardier Q400 15 years
Buildings 25-30 years
Minor building and land improvements 10 years
Capitalized leases and leasehold improvements Shorter of lease term or
estimated useful life
Computer hardware and software 3-5 years
Other furniture and equipment 5-10 years
Salvage values used for aircraft are 10% of the fair value, but as aircraft near the end of their useful
lives, we update the salvage value estimates based on current market conditions and expected use of
the aircraft. “Related flight equipment” includes rotable and repairable spare inventories, which are
depreciated over the associated fleet life unless otherwise noted.
Capitalized interest is based on the Company’s weighted-average borrowing rate, is added to the cost of
the related asset, and is depreciated over the estimated useful life of the asset.
Maintenance and repairs, other than engine maintenance on some B737-700 and -900 engines, are
expensed when incurred. Major modifications that extend the life or improve the usefulness of aircraft
are capitalized and depreciated over their estimated period of use. Maintenance on some B737-700
and -900 engines is covered under power-by-the-hour agreements with third parties, whereby the
Company pays a determinable amount, and transfers risk, to a third party. The Company expenses the
contract amounts based on engine usage.
The Company evaluates long-lived assets to be held and used for impairment whenever events or
changes in circumstances indicate that the total carrying amount of an asset or asset group may not be
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