JetBlue Airlines 2006 Annual Report Download - page 52

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in our market risk sensitive instruments and positions is the potential loss
arising from adverse changes to the price of fuel and interest rates as discussed below. The sensitivity
analyses presented do not consider the effects that such adverse changes may have on the overall
economic activity, nor do they consider additional actions we may take to mitigate our exposure to
such changes. Variable-rate leases are not considered market sensitive financial instruments and,
therefore, are not included in the interest rate sensitivity analysis below. Actual results may differ. See
Notes 1, 2 and 13 to our consolidated financial statements for accounting policies and additional
information.
Aircraft fuel. Our results of operations are affected by changes in the price and availability of
aircraft fuel. To manage the price risk, we use crude or heating oil option contracts or swap
agreements. Market risk is estimated as a hypothetical 10%increase in the December 31, 2006 cost
per gallon of fuel. Based on projected 2007 fuel consumption, such an increase would result in an
increase to aircraft fuel expense of approximately $84 million in 2007, compared to an estimated
$73 million for 2006 measured as of December 31, 2005. As of December 31, 2006, we had hedged
approximately 38%of our projected 2007 fuel requirements. All hedge contracts existing at
December 31, 2006 settle by the end of 2007.
Interest. Our earnings are affected by changes in interest rates due to the impact those changes
have on interest expense from variable-rate debt instruments and on interest income generated from
our cash and investment balances. The interest rate is fixed for $1.03 billion of our debt and capital
lease obligations, with the remaining $1.70 billion having floating interest rates. If interest rates
average 10%higher in 2007 than they did during 2006, our interest expense would increase by
approximately $10 million, compared to an estimated $7 million for 2006 measured as of
December 31, 2005. If interest rates average 10%lower in 2007 than they did during 2006, our interest
income from cash and investment balances would decrease by approximately $3 million, compared to
$2 million for 2006 measured as of December 31, 2005. These amounts are determined by considering
the impact of the hypothetical interest rates on our variable-rate debt, cash equivalents and
investment securities balances at December 31, 2006 and 2005.
Fixed Rate Debt. On December 31, 2006, our $425 million aggregate principal amount of
convertible debt had a total estimated fair value of $437 million, based on quoted market prices. If
interest rates were 10%higher than the stated rate, the fair value of this debt would have been
$434 million as of December 31, 2006.
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