Delta Airlines 2006 Annual Report Download - page 87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Losses (gains) recorded on our Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 related to our fuel hedge
contracts are as follows:
For the Years Ended December 31,
2006 2005 2004
(in millions)
Aircraft fuel
expense
Other expense
(income)
Aircraft fuel
expense
Other expense
(income)
Aircraft fuel
expense
Other expense
(income)
Open fuel hedge contracts $ — $ 5 $ — $ — $ — $ —
Settled fuel hedge contracts 108 32 — — (105) 28
Total $ 108 $ 37 $ — $ — $ (105) $ 28
Our open fuel hedge contracts at December 31, 2006 had an estimated fair value loss of $27 million, which we recorded in accounts payable on our
Consolidated Balance Sheet. We did not have any fuel hedge contracts at December 31, 2005.
Interest Rate Risk
Our exposure to market risk from volatility in interest rates is associated with our long-term debt obligations, cash portfolio, workers’ compensation
obligations and pension, postemployment and postretirement benefits.
Market risk associated with our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future
earnings, respectively, from an increase in interest rates. At December 31, 2006 and 2005, $5.6 billion and $6.0 billion, respectively, of our debt (including
debt classified as liabilities subject to compromise) had a variable interest rate.
Market risk associated with our cash portfolio relates to the potential change in interest income from a decrease in interest rates. Workers’ compensation
obligation risk relates to the potential changes in our future obligations and expenses from a change in interest rates used to discount these obligations.
Pension, postemployment and postretirement benefits risk relates to the potential changes in our benefit obligations, funding and expenses from a change in
interest rates (see Note 10).
Credit Risk
To manage credit risk associated with our aircraft fuel price hedging program, we select counterparties based on their credit ratings and limit our
exposure to any one counterparty. We also monitor the market position of this program and our relative market position with each counterparty. The credit
exposure related to this program was not significant at December 31, 2006 and 2005.
Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services. The majority of these sales are
processed through major credit card companies, resulting in accounts receivable, which are subject to certain holdbacks by the credit card processors. We also
have receivables from the sale of mileage credits under our SkyMiles frequent flyer program to participating companies such as credit card companies, hotels
and car rental agencies. We believe that the credit risk associated with these receivables is minimal and that the allowance for uncollectible accounts that we
have provided is appropriate.
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