American Airlines 2007 Annual Report Download - page 79

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76
11. Intangible Assets
In April 2007, the United States and the European Union approved an “open skies” air services agreement that
provides airlines from the United States and EU member states open access to each other’s markets, with
freedom of pricing and unlimited rights to fly beyond the United States and any airport in the EU including
London’s Heathrow Airport. The provisions of the agreement will take effect on March 30, 2008. Under the
agreement, every U.S. and EU airline is authorized to operate between airports in the United States and
Heathrow. Notwithstanding the open skies agreement, Heathrow is a slot-controlled airport. Only three airlines
besides American were previously allowed to provide that Heathrow service. The Company has recorded route
acquisition costs (including international routes and slots) of $846 million and $829 million as of December 31,
2007 and 2006, respectively, including a significant amount related to operations at Heathrow. The Company
considers these assets indefinite life assets under Statement of Financial Accounting Standard No. 142 “Goodwill
and Other Intangibles” and as a result they are not amortized but instead are tested for impairment annually or
more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company
has completed an impairment analysis and has concluded that no impairment exists.
The following tables provide information relating to the Company’s amortized intangible assets as of December 31
(in millions):
2007
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights $ 517 $ 282 $ 235
Gate lease rights 182 107 75
Total $ 699 $ 389 $ 310
2006
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights $ 517 $ 261 $ 256
Gate lease rights 182 100 82
Total $ 699 $ 361 $ 338
Airport operating and gate lease rights are being amortized on a straight-line basis over 25 years to a zero
residual value. The Company recorded amortization expense related to these intangible assets of approximately
$28 million for each of the years ended December 31, 2007, 2006 and 2005, respectively. The Company expects
to record annual amortization expense of approximately $28 million in each of the next five years related to these
intangible assets.