American Airlines 2010 Annual Report Download - page 88

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85
11. Intangible Assets
The Company has recorded international slot and route authorities of $708 million and $736 million as of
December 31, 2010 and 2009, 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 2010, 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 routes in Latin America was less than the
carrying value. Thus, the Company incurred an impairment charge of $28 million to write down the values of these
and certain other slots and routes.
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, 2010.
The following tables provide information relating to the Company’s amortized intangible assets as of December 31
(in millions):
2010
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights
$ 515
$ 344
$ 171
Gate lease rights
182
129
53
Total
$ 697
$ 473
$ 224
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
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, 2010, 2009 and 2008, respectively. The Company expects
to record annual amortization expense averaging approximately $24 million in each of the next five years related
to these intangible assets.