Originally Posted by
rmadisonwi
If it’s actually revenue, then the answer would be none. UA doesn’t get to recognize the revenue until they have delivered the service. Otherwise, it’s a cash asset offset by an ETC liability, but no revenue actually occurs.
Originally Posted by
IAH-OIL-TRASH
Are you sure about that? If you’re saying it’s an asset, doesn’t that mean it’s sitting in a bank somewhere? A plane secured by a loan is an asset. I’m sitting at a window seat at the LAX UC and I can see a UA asset in the form of a 739. Where is the money secured by ETCs? I think it’s sitting in the pockets of vendors, Boeing, employees, etc.
I’m not saying you’re wrong (I’m not an accountant), but it’s interesting to me UA is holding a bunch of money to offset ETCs.
Originally Posted by
Sykes
They're not holding cash to offset ETCs (that I know of), they just carry a liability on the books that offsets the revenue so the net contribution to the bottom line for future bookings is close to $0. Anyone holding an ETC or an open ticket is an unsecured creditor to United. That liability goes away once the service is delivered (or the ETC expires), at which point they recognize that as revenue. (GAAP may allow them to recognize SOME of that revenue up front based on breakage, but it's likely minimal.)
(And just for the avoidance of doubt, none of this is saying that future bookings aren't important--they're critically important--but they're not significantly contributing to that $200M in the way you suggest.)
I am a CPA and would be happy to explain the debits and credits. Quick summary, the ETCs along with the prepaid fares for flights yet to be taken sit as a liability on the balance sheet as Unearned Revenue (as a Liability they are not an Asset).
Now I am not an expert on US GAAP for the airline industry, but the usual rule we accountants adopt is that for book (financial reporting purposes) we do not recognize revenue until the good or service has been provided and there is no right for refunds of those amounts. We accountants are very wary of recognizing revenue too early.
With that said if the ETCs expire I think this would go into an Other Revenue category as the revenue did not arise from the main activity of the business (revenue from flying people/cargo).
US GAAP has some bizarre rules for different industries (give me IFRS any day of the week over US GAAP) but if there are no special rules for the airline industry then the above is how it works.
So all those unused ETCs, and revenue for future flights are sitting as a liability on the balance sheet and is not on the income statement/P&L.