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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

(a) Basis of Presentation

The consolidated financial statements for the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 include the accounts of the Company and its wholly-owned subsidiaries. For the periods prior to December 9, 2013, the consolidated financial statements do not include the accounts of US Airways Group. All significant intercompany transactions have been eliminated.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, business combination measurements, the loyalty program, pensions and retiree medical and other postretirement benefits and the deferred tax asset valuation allowance.

Chapter 11 Matters

(b) Chapter 11 Matters

In accordance with GAAP, the Debtors (as defined in Note 2 above) applied ASC 852 “Reorganizations” (ASC 852) in preparing the consolidated financial statements for periods subsequent to the Chapter 11 Cases (as defined in Note 2 above). ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases for 2013 are presented in reorganization items, net on the accompanying consolidated statement of operations.

Restricted Cash and Short-term Investments

(c) Restricted Cash and Short-term Investments

The Company has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations.

Aircraft Fuel, Spare Parts, and Supplies, Net

(d) Aircraft Fuel, Spare Parts, and Supplies, Net

Aircraft fuel, spare parts, and supplies, net are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is provided for aircraft spare parts and supplies.

Operating Property and Equipment

(e) Operating Property and Equipment

Operating property and equipment are recorded at cost. Interest expense related to the acquisition of certain property and equipment, including aircraft purchase deposits, is capitalized as an additional cost of the asset. Interest capitalized for the years ended December 31, 2015, 2014 and 2013 was $52 million, $61 million and $47 million, respectively. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated over the estimated useful life of the asset or the modifications, whichever is less. The depreciable lives used for the principal depreciable asset classifications are:


Principal Depreciable Asset Classification		Depreciable Life
Jet aircraft and engines		16 - 30 years
Other regional aircraft and engines		25 years
Major rotable parts, avionics and assemblies		Fleet end date
Improvements to leased flight equipment		Lesser of asset/leasehold improvement or lease end date
Buildings and improvements		Lesser of 5 - 30 years or lease term
Furniture, fixtures and other equipment		3 - 10 years: ranges from computer hardware to furniture
Capitalized software		Lesser of 5 years or lease term

Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally 5% to 10%.

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 12 to 30 years for aircraft and three to 30 years for other leased equipment and property.

The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Income Taxes

(f) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Goodwill

(g) Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and liabilities assumed. Goodwill is not amortized but tested for impairment annually on October 1^st or more frequently if events or circumstances indicate that goodwill may be impaired. The Company has one consolidated reporting unit.

Goodwill is measured for impairment by initially performing a qualitative screen and, if necessary, then comparing the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment charge equal to the difference is recorded. Based upon the Company’s annual measurement, there was no goodwill impairment in 2015.

Other Intangibles, Net

(h) Other Intangibles, Net

Intangible assets consist primarily of airport slots, customer relationships, marketing agreements, international slots and route authorities, gate leasehold rights and tradenames. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The following table provides information relating to the Company’s amortizable intangible assets as of December 31, 2015 and 2014 (in millions):


	December 31,
	2015			2014
Domestic airport slots	$	365		$	365
Customer relationships		300			300
Marketing agreements		105			105
Tradenames		35			35
Airport gate leasehold rights		137			138
Accumulated amortization		(502	)		(447	)

Total	$	440		$	496

Domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years. The customer relationships, marketing agreements and tradenames were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years, 30 years and 15 months, respectively.

The Company recorded amortization expense related to these intangible assets of approximately $55 million, $81 million and $20 million for the years ended December 31, 2015, 2014 and 2013, respectively. The Company expects to record annual amortization expense for the aforementioned definite-life intangible assets as follows (in millions):


2016	$	50
2017		46
2018		42
2019		42
2020		42
2021 and thereafter		218

Total	$	440

The Company’s indefinite-lived assets include certain international slots and route authorities and domestic airport slots. Indefinite-lived assets are not amortized but instead are reviewed for impairment annually on October 1^st or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 2015 and 2014, the Company had $1.8 billion and $1.7 billion, respectively, of indefinite-lived intangible assets on its consolidated balance sheets.

The Company’s indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative screen to determine whether the Company believes it is more likely than not that an asset has been impaired. If the Company believes an impairment has occurred, the Company then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. Based upon the Company’s annual review, there was no indefinite-lived intangible asset impairment in 2015.

Loyalty Program

(i) Loyalty Program

The Company currently operates the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American and oneworld carriers, as well as certain other partner airlines that participate in the program. Mileage credits can also be earned through purchases from other non-airline partners that participate in the Company’s loyalty program. Mileage credits can be redeemed for travel on American or other participating partner airlines, in which case the Company pays a fee.

The Company uses the incremental cost method to account for the portion of its loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American or its regional affiliates. The Company has an obligation to provide future travel when these mileage credits are redeemed and therefore has recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, the Company estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines. These estimates are based on historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon the Company’s 12-month historical average of such costs.

As of December 31, 2015 and 2014, the liability for outstanding mileage credits for the AAdvantage program accounted for under the incremental cost method was $657 million and $674 million, respectively, and is included on the consolidated balance sheets within loyalty program liability.

In addition, the Company applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US Airways’ mileage credits at fair value, an amount significantly in excess of incremental cost. As of December 31, 2015 and 2014, the liability for these outstanding mileage credits expected to be redeemed for future travel awards was $296 million and $611 million, respectively, and is included on the consolidated balance sheets within loyalty program liability. This liability is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel. All new miles earned will be recorded as a liability based on the incremental cost method discussed above.

American also sells loyalty program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to non-airline business partners is comprised of two components, transportation and marketing. Historically, the Company has used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

In 2013, American and Citibank amended their AAdvantage co-branded credit card agreement, which resulted in a material modification of the terms of the arrangement. Also, in connection with the acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendments of these arrangements, the Company applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, the Company identified five revenue elements for the co-branded credit card agreements with Citibank and Barclays: the transportation component; use of the American brand including access to loyalty program member lists; advertising; lounge access; and baggage services (together excluding the transportation component, the marketing component).

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.

The marketing component represents services provided to the Company’s business partners and relates primarily to the use of the American brand including access to loyalty program member lists. The marketing services are provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, the Company reduced its travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, the Company now defers less revenue per mile sold.

As of December 31, 2015 and 2014, the Company had $1.5 billion in deferred revenue from the sale of mileage credits (recorded within loyalty program liability on the consolidated balance sheets). For the years ended December 31, 2015, 2014 and 2013, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.5 billion, $1.4 billion and $834 million, respectively.

Passenger Revenue

(j) Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. The Company’s air traffic liability was $3.7 billion and $4.3 billion as of December 31, 2015 and 2014, respectively.

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of the Company’s historical data. The Company and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of the Company’s estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations during the period in which the evaluations are completed.

The Company purchases capacity, or ASMs, generated by its wholly-owned regional air carriers and the capacity of third-party carriers including Air Wisconsin Airlines Corporation (Air Wisconsin), Republic Airline Inc. (Republic), Mesa Airlines, Inc. (Mesa), SkyWest Airlines, Inc. (SkyWest), ExpressJet Airlines, Inc. (ExpressJet), Compass Airlines, LLC (Compass) and Trans States Airlines, Inc. (Trans States) in certain markets. The Company’s wholly-owned regional air carriers and third-party carriers operate regional aircraft as part of American Eagle carriers. The Company classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by the Company for travel on these air carriers are also included in the Company’s air traffic liability and are subsequently recognized as revenue in the same manner as described above.

Various taxes and fees assessed on the sale of tickets to end customers are collected by the Company as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority.

Maintenance, Materials and Repairs

(k) Maintenance, Materials and Repairs

Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.

Selling Expenses

(l) Selling Expenses

Selling expenses include commissions, credit card fees, computerized reservations systems fees and advertising. Advertising expenses are expensed as incurred. Advertising expense was $110 million, $92 million and $166 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Share-based Compensation

(m) Share-based Compensation

The Company accounts for its share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. The fair value of stock options and stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units is based on the market price of the underlying shares of common stock on the date of grant. See Note 18 for further discussion of share-based compensation.

Deferred Gains and Credits, Net

(n) Deferred Gains and Credits, Net

Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale-leaseback of aircraft and certain vendor incentives. The Company periodically receives vendor incentives in connection with acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.

Foreign Currency Gains and Losses

(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other nonoperating expense, net in the consolidated statements of operations. Foreign currency losses for 2015, 2014 and 2013 were $751 million, $114 million and $56 million, respectively. The 2015 period included a $592 million special charge to write off all of the value of Venezuelan bolivars held by the Company due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

Other Operating Expenses

(p) Other Operating Expenses

Other operating expenses includes expenses associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses.

Regional Expenses

(q) Regional Expenses

Expenses associated with the Company’s wholly-owned regional airlines and third-party regional carriers operating under the brand name American Eagle are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):


	Year Ended December 31,
	2015		2014		2013
Aircraft fuel and related taxes	$	1,230	$	2,009	$	1,120
Salaries, wages and benefits		1,187		1,140		692
Capacity purchases from third-party regional carriers (1)		1,591		1,475		269
Maintenance, materials and repairs		305		367		284
Other rent and landing fees		476		419		236
Aircraft rent		7		35		4
Selling expenses		333		307		154
Depreciation and amortization		243		217		168
Special items, net		29		24		8
Other		582		523		391

Total regional expenses	$	5,983	$	6,516	$	3,326

(1)	For the years ended December 31, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased was approximately $492 million and $447 million, respectively.

Recent Accounting Pronouncements

(r) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company’s consolidated financial statements.

On February 18, 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” ASU 2015-02 amends both the variable interest entity and voting interest entity consolidation models. The standard is effective for public reporting entities in fiscal periods beginning after December 15, 2015, and early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application, represents a change in accounting principle and is effective for fiscal years beginning after December 15, 2015. The Company early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, the Company reclassified $184 million of debt issuance costs within other assets to reduce current maturities of long-term debt and capital leases by $31 million and to reduce long-term debt and capital leases by $153 million on the consolidated balance sheet as of December 31, 2014.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).” Under ASU 2015-07, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. ASU 2015-07 is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. ASU 2015-17 eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The Company early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, the Company reclassified $361 million of current deferred income tax assets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the consolidated balance sheet as of December 31, 2014.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017 and is not expected to have a material impact on the Company’s consolidated financial statements.

American Airlines, Inc. [Member]

Basis of Presentation

(a) Basis of Presentation

On December 30, 2015, US Airways merged with and into American, which is reflected in American’s consolidated financial statements as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group. Thus, the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 are comprised of the consolidated financial data of American and US Airways. For the periods prior to December 9, 2013, the financial data reflects the results of American only. For financial reporting purposes, the transaction constituted a transfer of assets between entities under common control and was accounted for in a manner similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity and no other assets or liabilities are recognized.

Chapter 11 Matters

(b) Chapter 11 Matters

Restricted Cash and Short-term Investments

(c) Restricted Cash and Short-term Investments

American has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations.

Aircraft Fuel, Spare Parts, and Supplies, Net

(d) Aircraft Fuel, Spare Parts, and Supplies, Net

Operating Property and Equipment

(e) Operating Property and Equipment


Principal Depreciable Asset Classification		Depreciable Life
Jet aircraft and engines		16 - 30 years
Other regional aircraft and engines		25 years
Major rotable parts, avionics and assemblies		Fleet end date
Improvements to leased flight equipment		Lesser of asset/leasehold improvement or lease end date
Buildings and improvements		Lesser of 5 - 30 years or lease term
Furniture, fixtures and other equipment		3 - 10 years: ranges from computer hardware to furniture
Capitalized software		Lesser of 5 years or lease term

Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally 5% to 10%.

American records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Income Taxes

(f) Income Taxes

Goodwill

(g) Goodwill

Goodwill is measured for impairment by initially performing a qualitative screen and, if necessary, then comparing the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment charge equal to the difference is recorded. Based upon American’s annual measurement, there was no goodwill impairment in 2015.

Other Intangibles, Net

(h) Other Intangibles, Net

The following table provides information relating to American’s amortizable intangible assets as of December 31, 2015 and 2014 (in millions):


	December 31,
	2015			2014
Domestic airport slots	$	365		$	365
Customer relationships		300			300
Marketing agreements		105			105
Tradenames		35			35
Airport gate leasehold rights		137			138
Accumulated amortization		(502	)		(447	)

Total	$	440		$	496

American recorded amortization expense related to these intangible assets of approximately $55 million, $81 million and $20 million for the years ended December 31, 2015, 2014 and 2013, respectively. American expects to record annual amortization expense for the aforementioned definite-life intangible assets as follows (in millions):


2016	$	50
2017		46
2018		42
2019		42
2020		42
2021 and thereafter		218

Total	$	440

American’s indefinite-lived assets include certain international slots and route authorities and domestic airport slots. Indefinite-lived assets are not amortized but instead are reviewed for impairment annually on October 1^st or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 2015 and 2014, American had $1.8 billion and $1.7 billion, respectively, of indefinite-lived intangible assets on its consolidated balance sheets.

American’s indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative screen to determine whether American believes it is more likely than not that an asset has been impaired. If American believes an impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. Based upon American’s annual review, there was no indefinite-lived intangible asset impairment in 2015.

Loyalty Program

(i)

Loyalty Program

American currently operates the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American and oneworld carriers, as well as certain other partner airlines that participate in the program. Mileage credits can also be earned through purchases from other non-airline partners that participate in American’s loyalty program. Mileage credits can be redeemed for travel on American or other participating partner airlines, in which case American pays a fee.

American uses the incremental cost method to account for the portion of its loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American or its regional affiliates. American has an obligation to provide future travel when these mileage credits are redeemed and therefore has recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, American estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines. These estimates are based on historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon American’s 12-month historical average of such costs.

In addition, American applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US Airways’ mileage credits at fair value, an amount significantly in excess of incremental cost. As of December 31, 2015 and 2014, the liability for these outstanding mileage credits expected to be redeemed for future travel awards was $296 million and $611 million, respectively, and is included on the consolidated balance sheets within loyalty program liability. This liability is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel. All new miles earned will be recorded as a liability based on the incremental cost method discussed above.

American also sells loyalty program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to non-airline business partners is comprised of two components, transportation and marketing. Historically, American has used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

In 2013, American and Citibank amended their AAdvantage co-branded credit card agreement which resulted in a material modification of the terms of the arrangement. Also, in connection with the acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendments of these arrangements, American applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, American identified five revenue elements for the co-branded credit card agreements with Citibank and Barclays: the transportation component; use of the American brand including access to loyalty program member lists; advertising; lounge access; and baggage services (together excluding the transportation component, the marketing component).

The marketing component represents services provided to American’s business partners and relates primarily to the use of the American brand including access to loyalty program member lists. The marketing services are provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, American reduced its travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, American now defers less revenue per mile sold.

As of December 31, 2015 and 2014, American had $1.5 billion in deferred revenue from the sale of mileage credits (recorded within loyalty program liability on the consolidated balance sheets). For the years ended December 31, 2015, 2014 and 2013, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.5 billion, $1.4 billion and $834 million, respectively.

Passenger Revenue

(j) Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. American’s air traffic liability was $3.7 billion and $4.3 billion as of December 31, 2015 and 2014, respectively.

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of American’s historical data. American and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American’s estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations during the period in which the evaluations are completed.

American purchases capacity, or ASMs, generated by AAG’s wholly-owned regional air carriers and the capacity of third-party carriers including Air Wisconsin Airlines Corporation (Air Wisconsin), Republic Airline Inc. (Republic), Mesa Airlines, Inc. (Mesa), SkyWest Airlines, Inc. (SkyWest), ExpressJet Airlines, Inc. (ExpressJet), Compass Airlines, LLC (Compass) and Trans States Airlines, Inc. (Trans States) in certain markets. AAG’s wholly-owned regional air carriers and third-party carriers operate regional aircraft as part of American Eagle carriers. American classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by American for travel on these air carriers are also included in American’s air traffic liability and are subsequently recognized as revenue in the same manner as described above.

Various taxes and fees assessed on the sale of tickets to end customers are collected by American as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority.

Maintenance, Materials and Repairs

(k) Maintenance, Materials and Repairs

Selling Expenses

(l) Selling Expenses

Share-based Compensation

(m) Share-based Compensation

American accounts for its share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. The fair value of stock options and stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units is based on the market price of the underlying shares of common stock on the date of grant. See Note 16 for further discussion of share-based compensation.

Deferred Gains and Credits, Net

(n) Deferred Gains and Credits, Net

Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale-leaseback of aircraft and certain vendor incentives. American periodically receives vendor incentives in connection with acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.

Foreign Currency Gains and Losses

(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other nonoperating expense, net in American’s consolidated statements of operations. Foreign currency losses for 2015, 2014 and 2013 were $751 million, $114 million and $56 million, respectively. The 2015 period included a $592 million special charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

Other Operating Expenses

(p) Other Operating Expenses

Regional Expenses

(q) Regional Expenses

Expenses associated with American’s third-party regional carriers operating under the brand name American Eagle are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):


	Year Ended December 31,
	2015		2014		2013
Aircraft fuel and related taxes	$	1,230	$	2,009	$	1,119
Salaries, wages and benefits		276		166		29
Capacity purchases from third-party regional carriers (1)		3,246		3,187		1,359
Maintenance, materials and repairs		1		6		—
Other rent and landing fees		436		386		217
Selling expenses		333		307		153
Depreciation and amortization		197		168		150
Special items, net		18		5		—
Other		361		330		266

Total regional expenses	$	6,098	$	6,564	$	3,293

(1)	For the years ended December 31, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased was approximately $492 million and $447 million, respectively.

Recent Accounting Pronouncements

(r) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. American is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on American’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application, represents a change in accounting principle and is effective for fiscal years beginning after December 15, 2015. American early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, American reclassified $174 million of debt issuance costs within other assets to reduce current maturities of long-term debt and capital leases by $29 million and to reduce long-term debt and capital leases by $145 million on the consolidated balance sheet as of December 31, 2014.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. ASU 2015-17 eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. American early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, American reclassified $314 million of current deferred income tax assets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the consolidated balance sheet as of December 31, 2014.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017 and is not expected to have a material impact on American’s consolidated financial statements.