Delta Airlines 2010 Annual Report Download - page 69

Table of Contents
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies, primarily the Japanese yen
and the Canadian dollar. To manage exchange rate risk, we attempt to execute both our international revenue and expense transactions in the same foreign
currency to the extent practicable. From time to time, we may also enter into foreign currency options and forward contracts.
In the Merger, we assumed Northwest's outstanding foreign currency derivative instruments. On the Closing Date, we designated certain of these
derivative instruments, comprised of Japanese yen forward and collar contracts, as cash flow hedges. All Northwest foreign currency derivative instruments
settled as of December 31, 2009.
As of December 31, 2010, we have hedged approximately 50%, 32% and 23% of anticipated Japanese yen-denominated, and 20%, 10% and 1% of
anticipated Canadian dollar-denominated, cash flows from sales in 2011, 2012 and 2013 respectively. These foreign currency derivative instruments had an
estimated fair value liability position of $96 million at December 31, 2010.
Credit Risk
To manage credit risk associated with our aircraft fuel price, interest rate and foreign currency hedging programs, we select counterparties based on their
credit ratings and limit our exposure to any one counterparty. We also monitor the market position of these programs and our relative market position with
each counterparty.
Due to the estimated fair value position of our fuel hedge contracts as of December 31, 2010, we received $119 million in net fuel hedge margin from
counterparties. Margin requirements are driven by changes in the underlying price of the commodity. If the price of crude oil increases significantly, our
counterparties may be required to post significant additional margin to us. Conversely, if the price of crude oil decreases significantly, we may be required to
post significant additional margin to counterparties.
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 that may be subject to certain holdbacks by the credit card processors.
We also have receivables from the sale of mileage credits under our SkyMiles Program to participating airlines and non-airline businesses such as credit
card companies, hotels and car rental agencies. The credit risk associated with these receivables is minimal and that the allowance for uncollectible accounts
that we have provided is appropriate.
Self-Insurance Risk
We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for
employees and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using independent actuarial
reviews based on standard industry practices and our historical experience. A portion of our projected workers' compensation liability is secured with
restricted cash collateral.
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