American Airlines 2003 Annual Report Download - page 51

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1. Summary of Accounting Policies (Continued)
Equipment and Property The provision for depreciation of operating equipment and property is computed on
the straight-line method applied to each unit of property, except that major rotable parts, avionics and assemblies
are depreciated on a group basis. The depreciable lives used for the principal depreciable asset classifications
are:
Depreciable Life
American jet aircraft and engines 20 – 30 years
ATR 42 aircraft 2004 1
Saab 340 aircraft 2005 1
Other regional aircraft and engines 16 - 20 years
Major rotable parts, avionics and assemblies Life of equipment to which
applicable
Improvements to leased flight equipment Term of lease
Buildings and improvements (principally on
leased land)
10-30 years or term of lease
Furniture, fixtures and other equipment 3-10 years
Capitalized software 3-10 years
1Approximate final aircraft retirement date.
Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally five to ten
percent, except when guaranteed by a third party for a different amount.
Equipment and property under capital leases are amortized over the term of the leases or, in the case of certain
aircraft, over their expected useful lives. Lease terms vary but are generally ten to 25 years for aircraft and seven
to 40 years for other leased equipment and property.
Measurement of Asset Impairments In accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company records impairment
charges on long-lived assets used in operations when events and circumstances indicate that the assets may be
impaired, the undiscounted cash flows estimated to be generated by those assets are less than the carrying
amount of those assets and the net book value of the assets exceeds their estimated fair value. In making these
determinations, the Company uses certain assumptions, including, but not limited to: (i) estimated fair value of the
assets, and (ii) estimated future cash flows expected to be generated by these assets, which are based on
additional assumptions such as asset utilization, length of service the asset will be used in the Company’s
operations and estimated salvage values.
Regional Affiliates Revenue from ticket sales is generally recognized when service is provided. Regional
Affiliates revenues for flights connecting to American flights are allocated based on industry standard mileage
proration agreements.
Passenger Revenue Passenger ticket sales are initially recorded as a component of Air traffic liability.
Revenue derived from ticket sales is recognized at the time service is provided. However, due to various factors,
including the complex pricing structure and interline agreements throughout the industry, certain amounts are
recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of
revenue to be recognized, including breakage. These estimates are generally based upon the evaluation of
historical trends, including the use of regression analysis and other methods to model the outcome of future
events based on the Company’s historical experience, and are generally recorded at the time of sale.