JetBlue Airlines 2011 Annual Report Download - page 86

We are a party to many routine contracts under which we indemnify third parties for various risks. These
indemnities consist of the following:
All of our bank loans, including our aircraft and engine mortgages, contain standard provisions present in
loans of this type which obligate us to reimburse the bank for any increased costs associated with continuing to
hold the loan on our books which arise as a result of broadly defined regulatory changes, including changes in
reserve requirements and bank capital requirements. These indemnities would have the practical effect of
increasing the interest rate on our debt if they were to be triggered. In all cases, we have the right to repay the
loan and avoid the increased costs. The term of these indemnities matches the length of the related loan up to
12 years.
Under both aircraft leases with foreign lessors and aircraft and engine mortgages with foreign lenders, we
have agreed to customary indemnities concerning withholding tax law changes under which we are responsible,
should withholding taxes be imposed, for paying such amount of additional rent or interest as is necessary to
ensure that the lessor or lender still receives, after taxes, the rent stipulated in the lease or the interest stipulated
under the loan. The term of these indemnities matches the length of the related lease up to 18 years.
We have various leases with respect to real property, and various agreements among airlines relating to fuel
consortia or fuel farms at airports, under which we have agreed to standard language indemnifying the lessor
against environmental liabilities associated with the real property or operations described under the agreement,
even if we are not the party responsible for the initial event that caused the environmental damage. In the case of
fuel consortia at airports, these indemnities are generally joint and several among the 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.
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.
Under certain of our LiveTV third party agreements, as well as our aircraft operating lease agreements, we
are required to restore certain property or equipment to its original form upon expiration of the related agreement.
We have recorded the estimated fair value of these retirement obligations, which was not significant as of
December 31, 2011, but may increase over time.
We are unable to estimate the potential amount of future payments under the foregoing indemnities and
agreements.
Many aspects of airlines’ operations are subject to increasingly stringent federal, state, local, and foreign
laws protecting the environment. There is growing consensus that some form of regulation will be forthcoming at
the federal level with respect to greenhouse gas emissions (including carbon dioxide (CO2)) and such regulation
could result in the creation of substantial additional costs in the form of taxes or emission allowances. Since the
domestic airline industry is increasingly price sensitive, we may not be able to recover the cost of compliance
with new or more stringent environmental laws and regulations from our passengers, which could adversely
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