American Airlines 2009 Annual Report Download - page 82

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11. Intangible Assets
The Company has recorded international slot and route authorities of $736 million and $828 million as of
December 31, 2009 and 2008, respectively. The Company considers these assets indefinite life assets 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. Such triggering events may include
significant changes to the Company’s network or capacity, or the implementation of open skies agreements in
countries where the Company operates flights.
In the fourth quarter of 2009, the Company performed its annual impairment testing on international slots and
routes, at which time the net carrying value was reassessed for recoverability. It was determined through this
annual impairment testing that the fair value of certain international slots and routes was less than the carrying
value. Thus, the Company adjusted the value of these respective international slots and routes. The majority of
these assets were route authorities in Latin American countries. The Company incurred an impairment charge of
$96 million to write down the values of these and certain other routes and slots to a fair value of $28 million.
In 2009, the Company implemented fair value accounting guidance on non-financial assets and liabilities as it
relates to its routes, which considers whether there is a market for such assets. As there is minimal market
activity for the valuation of routes and international slots and landing rights, the Company measures fair value with
inputs using the income approach. The income approach uses valuation techniques, such as future cash flows,
to convert future amounts to a single present discounted amount. The inputs utilized for these valuations are
unobservable and reflect the Company’s assumptions about market participants and what they would use to value
the routes and accordingly are considered Level 3 in the fair value hierarchy. The Company’s unobservable
inputs are developed based on the best information available as of December 31, 2009.
The following tables provide information relating to the Company’s amortized intangible assets as of December 31
(in millions):
2009
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights
$ 515
$ 323
$ 192
Gate lease rights
182
122
60
Total
$ 697
$ 445
$ 252
2008
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights
$ 515
$ 302
$ 213
Gate lease rights
182
114
68
Total
$ 697
$ 416
$ 281
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, 2009, 2008 and 2007, respectively. The Company expects
to record annual amortization expense averaging approximately $26 million in each of the next five years related
to these intangible assets.