JetBlue Airlines 2011 Annual Report Download - page 88

recorded in other comprehensive income is recognized in aircraft fuel expense. All cash flows related to our fuel
hedging derivatives are classified as operating cash flows.
Our current approach to fuel hedging is to enter into hedges on a discretionary basis without a specific target
of hedge percentage needs in order to mitigate potential liquidity issues and cap fuel prices, when possible.
The following table illustrates the approximate hedged percentages of our projected fuel usage by quarter as
of December 31, 2011, related to our outstanding fuel hedging contracts that were designated as cash flow hedges
for accounting purposes.
Heating oil
collars
Jet fuel
collars
Jet fuel swap
agreements Total
First Quarter 2012 .............................. 7% 2% 26% 35%
Second Quarter 2012 ............................ 7% 6% 7% 20%
Third Quarter 2012 ............................. 6% 3% 6% 15%
Fourth Quarter 2012 ............................ 7% 1% 7% 15%
During 2011, we also entered into basis swaps and certain 3-way crude collar agreements, which we did not
designate as cash flow hedges for accounting purposes and as a result we marked to market in earnings each
period outstanding based on their current fair value.
As of December 31, 2011, we determined that the correlation between crude oil and jet fuel had
significantly deteriorated and the requirements for continuing hedge accounting treatment were no longer
satisfied. As such, we prospectively discontinued hedge accounting treatment on all of our crude oil cap
agreements and crude oil collars outstanding as of December 31, 2011, which represent approximately 6% of our
total 2012 forecasted fuel consumption. The forecasted fuel consumption, for which these transactions were
designated as cash flow hedges, is still expected to occur; therefore, the $3 million in losses deferred in
accumulated other comprehensive income related to these contracts will remain deferred until the forecasted fuel
consumption occurs. Any incremental increase or decrease in the value of these contracts will be recognized in
other income (expense) in each period during 2012 until the contracts settle.
Interest rate swaps: The interest rate swap agreements we had outstanding as of December 31, 2011
effectively swap floating rate debt for fixed rate debt, taking advantage of lower borrowing rates in existence at
the time of the hedge transaction as compared to the date our original debt instruments were executed. As of
December 31, 2011, we had $363 million in notional debt outstanding related to these swaps, which cover certain
interest payments through August 2016. The notional amount decreases over time to match scheduled
repayments of the related debt. Refer to Note 2 for information on the debt outstanding related to these swap
agreements.
All of our outstanding interest rate swap contracts qualify as cash flow hedges in accordance with the
Derivatives and Hedging topic of the Codification. Since all of the critical terms of our swap agreements match
the debt to which they pertain, there was no ineffectiveness relating to these interest rate swaps in 2011, 2010 or
2009, and all related unrealized losses were deferred in accumulated other comprehensive income. We
recognized approximately $10 million, $8 million and $5 million in additional interest expense as the related
interest payments were made during 2011, 2010 and 2009, respectively.
Any outstanding derivative instruments expose us to credit loss in the event of nonperformance by the
counterparties to the agreements, but we do not expect that any of our seven counterparties will fail to meet their
obligations. The amount of such credit exposure is generally the positive fair value of our outstanding contracts.
To manage credit risks, we select counterparties based on credit assessments, limit our overall exposure to any
single counterparty and monitor the market position of each counterparty. Some of our agreements require cash
deposits if market risk exposure exceeds a specified threshold amount.
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