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JETBLUE AIRWAYS CORPORATION-2015Annual Report38
PART II
ITEM 7AQuantitative and Qualitative Disclosures About Market Risk
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 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. Market risk is estimated as a hypothetical 10% increase in
the December31, 2015 cost per gallon of fuel. Based on projected 2016
fuel consumption, such an increase would result in an increase to aircraft
fuel expense of approximately $120 million in 2016. This is compared
to an estimated $175 million for 2015 measured as of December31,
2014. As of December31, 2015 we had hedged approximately 5% of
our projected 2016 fuel requirements. All hedge contracts existing as of
December31, 2015 settle by December 31, 2016.
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 fixed for $1.4 billion of our debt and capital lease
obligations, with the remaining $0.4 billion having floating interest rates. If
interest rates were on average 100 basis points higher in 2016 than they
were during 2015, our interest expense would increase by approximately
$4 million. This is determined by considering the impact of the hypothetical
change in interest rates on our variable rate debt.
If interest rates were an average 10% lower in 2016 than they were
during 2015, our interest income from cash and investment balances
would remain relatively constant. These amounts are determined by
considering the impact of the hypothetical interest rates on our cash and
cash equivalents and short term investment securities balances as of
December31, 2015 and 2014.
Convertible Debt
On December31, 2015, our $86 million aggregate principal amount of
convertible debt had a total estimated fair value of $405 million, based on
quoted market prices. If there was a 10% increase in our stock price, the fair
value of this debt would have been $446 million as of December31, 2015.