American Airlines 2005 Annual Report Download - page 56

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53
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
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)
5 - 30 years or term of lease, including
estimated renewal options when
renewal is economically compelled at
key airports
Furniture, fixtures and other equipment 3 - 10 years
Capitalized software 3 - 10 years
Effective January 1, 2005, in order to more accurately reflect the expected useful life of its aircraft, the Company
changed its estimate of the depreciable lives of its Boeing 737-800, Boeing 757-200 and McDonnell Douglas MD-
80 aircraft from 25 to 30 years. As a result of this change, Depreciation and amortization expense was reduced
by approximately $108 million for the year ended December 31, 2005. Additionally, the per share net loss for the
year was $0.65 less than it otherwise would have been.
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.
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 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 recorded at the time of departure.