Delta Airlines 2014 Annual Report Download - page 18

In addition, the strategic agreements utilize market prices for the products being exchanged. If Monroe's cost of producing the non-jet fuel products
that it is required to deliver under these agreements exceeds the value it receives for those products, the financial benefits we expect to achieve through
the ownership of the refinery and our consolidated results of operations could be materially adversely affected.
Our fuel hedging activities are intended to manage the financial impact of the volatility in the price of jet fuel. The effects of rebalancing our
hedge portfolio or mark-to-market adjustments may have a negative effect on our financial results.
We actively manage our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of jet fuel. We
utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets. We
rebalance the hedge portfolio from time to time according to market conditions, which may result in locking in gains or losses on hedge contracts prior
to their settlement dates. In addition, we record mark-to-market adjustments (“MTM adjustments”)
on our fuel hedges. MTM adjustments are based on
market prices at the end of the reporting period for contracts settling in future periods. Losses from rebalancing or MTM adjustments (or both) may
have a negative impact on our financial results.
Our fuel hedge contracts contain margin funding requirements. The margin funding requirements may require us to post margin to counterparties or
may cause counterparties to post margin to us as market prices in the underlying hedged items change. If fuel prices decrease significantly from the
levels existing at the time we enter into fuel hedge contracts, we may be required to post a significant amount of margin, which could have a material
impact on the level of our unrestricted cash and cash equivalents and short-term investments.
We are at risk of losses and adverse publicity stemming from a serious accident involving our aircraft.
An aircraft crash or other accident could expose us to significant liability. Although we believe that our insurance coverage is appropriate, we may
be forced to bear substantial losses from an accident in the event that the coverage was not sufficient. In addition, any accident involving an aircraft
that we operate or an aircraft that is operated by an airline that is one of our regional carriers or codeshare partners could create a negative public
perception, which could harm our reputation, resulting in air travelers being reluctant to fly on our aircraft and therefore harm our business.
Agreements governing our debt, including credit agreements, include financial and other covenants that impose restrictions on our financial
and business operations.
Our credit facilities have various financial and other covenants that require us to maintain, depending on the particular agreement, minimum fixed
charge coverage ratios, minimum liquidity and/or minimum collateral coverage ratios. The value of the collateral that has been pledged in each facility
may change over time due to required appraisals of collateral required by our credit agreements and indentures. These changes could result from
factors that are not under our control. Although we are in compliance with covenant and collateral requirements, a decline in the value of collateral
could result in a situation where we may not be able to maintain the collateral coverage ratio. In addition, the credit facilities contain other negative
covenants customary for such financings. If we fail to comply with these covenants and are unable to remedy or obtain a waiver or amendment, an
event of default would result. These covenants are subject to important exceptions and qualifications.
The credit facilities also contain other events of default customary for such financings. If an event of default were to occur, the lenders could,
among other things, declare outstanding amounts due and payable, and our cash may become restricted. We cannot provide assurance that we would
have sufficient liquidity to repay or refinance the borrowings or notes under any of the credit facilities if such amounts were accelerated upon an event
of default. In addition, an event of default or declaration of acceleration under any of the credit facilities could also result in an event of default under
other of our financing agreements.
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