Delta Airlines 2014 Annual Report Download - page 76

Interest Rate Risk
Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations. 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.
In an effort to manage our exposure to the risk associated with our variable rate long-term debt, we periodically enter into interest rate swaps. We
designate interest rate contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a fixed rate as cash
flow hedges, while those contracts converting our interest rate exposure from a fixed rate to a floating rate are designated as fair value hedges. During
2014, we terminated our remaining interest rate swap agreements designated as cash flow hedges in connection with the extinguishment of the
underlying debt.
We also have exposure to market risk from adverse changes in interest rates associated with our cash and cash equivalents and benefit plan
obligations. Market risk associated with our cash and cash equivalents relates to the potential decline in interest income from a decrease in interest
rates. Pension, postretirement, postemployment, and worker's compensation obligation risk relates to the potential increase in our future obligations
and expenses from a decrease in interest rates used to discount these obligations.
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies with our primary
exposures being the Japanese yen and Canadian dollar. To manage exchange rate risk, we 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 option and forward
contracts. These foreign currency exchange contracts are designated as cash flow hedges.
During the December 2014 quarter, we restructured certain foreign currency exchange contracts by re-hedging exposures at current market levels,
resulting in an unrealized gain of $150 million . The gain on these contracts will be recognized during 2015 in accordance with their original contract
settlement dates.
Hedge Position as of
December 31, 2014
69
(in millions) Notional Balance Final Maturity Date
Hedge
Derivatives
Asset
Other
Noncurrent
Assets
Hedge
Derivatives
Liability
Other
Noncurrent
Liabilities
Hedge
Derivatives,
net
Designated as hedges
Interest rate contracts (fair
value hedges)
$
416
U.S. dollars August 2022
5
—
—
(
12
)
(7
)
Foreign currency exchange
contracts
77,576
Japanese yen October 2017
25
49
(1
)
—
73
511
Canadian dollars
Not designated as hedges
Fuel hedge contracts
8,604
gallons - crude oil, diesel
and jet fuel December 2016
1,048
3
(2,771
)
(128
)
(1,848
)
Total derivative contracts
$
1,078
$
52
$
(2,772
)
$
(140
)
$
(1,782
)