Alaska Airlines and Horizon Air 2010 Annual Report Download - page 185

Outstanding fuel hedge positions as of December 31, 2010 are as follows:
Approximate
%of
Expected
Fuel
Requirements
Gallons
Hedged
(in millions)
Approximate
Crude Oil
Price per
Barrel
Approximate
Premium
Price per
Barrel
First Quarter 2011 ..................................... 50% 47.0 $87 $11
Second Quarter 2011 .................................. 50% 49.4 $86 $10
Third Quarter 2011 .................................... 50% 51.9 $86 $11
Fourth Quarter 2011 ................................... 50% 48.6 $86 $11
Full Year 2011 ...................................... 50% 196.9 $86 $11
First Quarter 2012 ..................................... 41% 40.1 $86 $12
Second Quarter 2012 .................................. 34% 34.8 $88 $13
Third Quarter 2012 .................................... 30% 32.0 $90 $13
Fourth Quarter 2012 ................................... 26% 26.2 $88 $13
Full Year 2012 ...................................... 33% 133.1 $88 $13
First Quarter 2013 ..................................... 21% 21.0 $88 $13
Second Quarter 2013 .................................. 16% 16.6 $86 $14
Third Quarter 2013 .................................... 11% 11.7 $89 $15
Fourth Quarter 2013 ................................... 5% 5.4 $92 $14
Full Year 2013 ...................................... 13% 54.7 $88 $14
As of December 31, 2010 and 2009, the net fair
values of the Company’s fuel hedge positions
were as follows (in millions):
December 31,
2010
December 31,
2009
Crude oil call options or
“caps” ............... $129.3 $115.9
Refining margin swap
contracts .............. 2.0 1.1
Total ................. $131.3 $117.0
The balance sheet amounts include capitalized
premiums paid to enter into the contracts of
$108.6 million and $88.9 million at
December 31, 2010 and 2009, respectively.
Interest Rate Swap Agreements
The Company has interest rate swap agreements
with a third party designed to hedge the volatility
of the underlying variable interest rate in the
Company’s aircraft lease agreements for six
B737-800 aircraft. The agreements stipulate that
the Company pay a fixed interest rate over the
term of the contract and receive a floating
interest rate. All significant terms of the swap
agreement match the terms of the lease
agreements, including interest-rate index, rate
reset dates, termination dates and underlying
notional values. The agreements expire from
September 2020 through March 2021 to
coincide with the lease termination dates.
The Company has formally designated these
swap agreements as hedging instruments and
records the effective portion of the hedge as an
adjustment to aircraft rent in the consolidated
statement of operations in the period of contract
settlement. The effective portion of the changes
in fair value for instruments that settle in the
future is recorded in AOCL in the condensed
consolidated balance sheets.
At December 31, 2010 and 2009, the Company
had a liability of $8.8 million and an asset of
$2.4 million, respectively, associated with these
contracts, with the corresponding unrealized loss
or gain in accumulated other comprehensive
loss. The Company expects that $6 million will
be reclassified into earnings within the next
twelve months. The fair value of these contracts
is determined based on the difference between
the fixed interest rate in the agreements and the
observable LIBOR-based interest forward rates at
period end, multiplied by the total notional value.
As such, the Company places these contracts in
Level 2 of the fair value hierarchy.
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ŠForm 10-K