US Airways 2004 Annual Report Download - page 43

Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Sensitive Instruments
(a) Commodity Price Risk
Aircraft jet fuel costs accounted for approximately 23% of the Company's total operating expenses during 2004. At current consumption levels, a one-cent
per gallon change in the price of jet fuel would affect the Company's annual operating results in 2005 by approximately $5.7 million which includes Mesa.
Accordingly, a substantial change in the price of jet fuel would have a significant impact on the Company's results of operations.
In 1996, AWA implemented a fuel hedging program to manage the risk from fluctuating jet fuel prices. The program's objectives are to provide some
protection against extreme, upward movements in the price of jet fuel and to protect AWA's ability to meet its annual fuel expense budget. Under the
program, AWA may enter into certain hedging transactions with approved counterparties for future periods generally not exceeding 12 months.
As of December 31, 2004, the Company had entered into costless collar transactions that establish an upper and lower limit on heating oil futures prices
and basis swap transactions that establish the spread between heating oil and jet fuel. These transactions are in place with respect to approximately 42% of
projected 2005 fuel requirements, including 67% related to the first quarter of 2005, 46% related to the second quarter, 36% related to the third quarter and
20% for the fourth quarter. See "Risk Factors Relating to the Company and Industry Related Risks - Fluctuations in jet fuel costs could adversely affect our
operating expenses and results."
The use of such hedging transactions in the Company's fuel hedging program could result in the Company not fully benefiting from certain declines in
heating oil futures prices. At December 31, 2004, the Company estimates that a 10% increase in heating oil futures prices would increase the fair value of the
costless collar transactions by approximately $7.5 million. The Company estimates that a 10% decrease in heating oil futures prices would decrease the fair
value of the costless collar transactions by approximately $9.6 million.
As of March 14, 2005, approximately 45% and 2% of AWA's remaining 2005 and 2006, respectively, projected fuel requirements are hedged.
(b) Interest Rate Risk
The Company's exposure to interest rate risk relates primarily to its variable rate long-term debt obligations. At December 31, 2004, the Company's
variable-rate long-term debt obligations of approximately $545.7 million represented approximately 69.4% of its total long-term debt. If interest rates
increased 10% in 2004, the impact on the Company's results of operations would not be material.
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — AMERICA WEST HOLDINGS
CORPORATION
Consolidated balance sheets of Holdings as of December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows and
stockholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2004, together with the related notes and
the reports of KPMG LLP, and PricewaterhouseCoopers LLP, independent registered public accounting firms, are set forth on the following pages.
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