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JETBLUE AIRWAYS CORPORATION-2012 10K 39
PART II
ITEM 7AQuantitative and Qualitative Disclosures About Market Risk
ITEM 7A. Quantitative and Qualitative Disclosures
A bout 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 fi nancial 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 fi nancial 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 jet fuel swap agreements. Market risk is
estimated as a hypothetical 10% increase in the December31, 2012 cost
per gallon of fuel. Based on projected 2013 fuel consumption, such an
increase would result in an increase to aircraft fuel expense of approximately
$190 million in 2013, compared to an estimated $175 million for 2012
measured as of December31, 2011. As of December31, 2012, we had
hedged approximately 5% of our projected 2013 fuel requirements. All hedge
contracts existing at December31, 2012 settle by September31, 2013.
The financial derivative instrument agreements we have with our
counterparties may require us to fund all, or a portion of, outstanding
loss positions related to these contracts prior to their scheduled maturities.
The amount of collateral posted, if any, is periodically adjusted based on
the fair value of the hedge contracts.
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 fi xed for $1.72 billion of our debt
and capital lease obligations, with the remaining $1.13 billion having fl oating
interest rates. If interest rates were, on average, 100 basis points higher in
2013 than they were during 2012, our interest expense would increase by
approximately $15 million. This is determined by considering the impact
of the hypothetical change in interest rates on our variable rate debt.
If interest rates average 10% lower in 2013 than they did during 2012, our
interest income from cash and investment balances would remain relatively
constant, similar to the relative constant level of interest income for 2012
measured as of December31, 2011. These amounts are determined
by considering the impact of the hypothetical interest rates on our cash
equivalents and investment securities balances at December31, 2012
and 2011.
Fixed Rate Debt. On December31, 2012, our $285 million aggregate
principal amount of convertible debt had a total estimated fair value of
$398million, based on quoted market prices. If there were a 10% increase
in stock prices, the fair value of this debt would have been $428million
as of December31, 2012.