JetBlue Airlines 2008 Annual Report Download - page 73

participating airlines. We have purchased a stand alone environmental liability insurance policy to help
mitigate this exposure. Our existing aviation hull and liability policy includes some limited environmental
coverage when a clean up is part of an associated single identifiable covered loss.
Under certain contracts, we indemnify specified parties against legal liability arising out of actions by
other parties. The terms of these contracts range up to 30 years. Generally, we have liability insurance
protecting ourselves for the obligations we have undertaken relative to these indemnities.
On October 10, 2008, the DOT issued its final Congestion Management Rule for JFK and Newark
International Airport. The rule continues caps on the number of scheduled operations that may be conducted
during specific hours and prohibits airlines from conducting operations during those hours without obtaining a
slot (authority to conduct a scheduled arrival or departure). In addition, the rule provides for the confiscation
of 10% of the slots over a five year period currently held by carriers and reallocates them through an auction
process over a five year period. On December 8, 2008, the United States Court of Appeals for the District of
Columbia issued an order temporarily enjoining the auctions from taking place until such time as the court
could rule on the merits of the case challenging the proposed auctions. We are participating in the litigation
challenging the rule, which if ultimately unsuccessful and the auctions are permitted to proceed, would likely
result in our losing a portion of our operating capacity at JFK, which would negatively impact our ability to
fully utilize our new Terminal 5 and may result in increased competition.
LiveTV provides product warranties to third party airlines to which it sells its products and services. We
do not accrue a liability for product warranties upon sale of the hardware since revenue is recognized over the
term of the related service agreements of up to 12 years. Expenses for warranty repairs are recognized as they
occur. In addition, LiveTV has provided indemnities against any claims which may be brought against its
customers related to allegations of patent, trademark, copyright or license infringement as a result of the use
of the LiveTV system. LiveTV customers include other airlines, which may be susceptible to the inherent risks
of operating in the airline industry and/or economic downturns, which may in turn have a negative impact on
our business.
We are unable to estimate the potential amount of future payments under the foregoing indemnities and
agreements.
Note 13—Fair Value, Financial Instruments and Risk Management
SFAS 157 requires disclosure about how fair value is determined for assets and liabilities and establishes
a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as
follows:
Level 1 quoted prices in active markets for identical assets or liabilities;
Level 2 quoted prices in active markets for similar assets and liabilities and inputs that are
observable for the asset or liability; or
Level 3 unobservable inputs for the asset or liability, such as discounted cash flow models
or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level
of input that is significant to the fair value measurement.
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