JetBlue Airlines 2005 Annual Report Download - page 70

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We are exposed to the effect of changes in the price and availability of aircraft fuel. To manage
this risk, we periodically purchase crude or heating oil option contracts or swap agreements. Prices for
these commodities are normally highly correlated to jet fuel, making derivatives of them effective at
offsetting jet fuel prices to provide some short-term protection against a sharp increase in average fuel
prices. We have agreements whereby cash deposits are required if market risk exposure exceeds a
specified threshold amount. The following is a summary of our derivative contracts (in millions, except
as otherwise indicated):
2005 2004
At December 31:
Fair value of derivative instruments at year end ......................... $ 1 $ 21
Longest remaining term (months) ..................................... 12 12
Hedged volume (barrels) ............................................. 3,225 1,620
2005 2004 2003
Year ended December 31:
Hedge effectiveness gains recognized in aircraft fuel expense .... $ 43 $ 37 $ 4
Hedge ineffectiveness net gains recognized in other income
(expense) ............................................... — — 2
Percentage of actual consumption hedged..................... 22%42%72%
As of December 31, 2005, we did not have any derivative contracts designated as cash flow
hedges as defined in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
Should we designate these or other contracts in the future as cash flow hedges, they would continue to
be recorded at fair value on the balance sheet, but the effective portion of the change in their fair
value from the designation date would be reflected in other comprehensive income until their
settlement month or until they lost their hedge designation.
Any outstanding financial derivative instruments expose us to credit loss in the event of
nonperformance by the counterparties to the agreements, but we do not expect any of our four
counterparties to fail to meet their obligations. The amount of such credit exposure is generally the
unrealized gains, if any, in such contracts. To manage credit risks, we select counterparties based on
credit assessments, limit overall exposure to any single counterparty and monitor the market position
with each counterparty. We do not use derivative instruments for trading purposes.
Note 14—Government Compensation
In April 2003, the President signed into law the Emergency War Time Supplemental
Appropriations Act of 2003, which provided for compensation to domestic air carriers based on their
proportional share of passenger security and air carrier infrastructure security fees paid by those
carriers through the date of enactment of the legislation. In May 2003, we received $23 million in
compensation pursuant to this legislation, which is recorded in other income (expense).
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