JetBlue Airlines 2009 Annual Report Download - page 80

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As a result of the rapid decline in fuel prices experienced during the fourth quarter of 2008, we sold swap
contracts to the original fuel counterparties covering the same quantity and duration of all of our then
outstanding swap contracts scheduled to mature in 2009, effectively capping our losses related to further oil
price declines on those contracts. The forecasted fuel consumption, for which these transactions were
designated as cash flow hedges, occurred as originally expected; therefore, amounts deferred in other
comprehensive income related to these contracts remained deferred until the forecasted fuel consumption
occurred. At December 31, 2008, we had deferred $93 million, or $56 million net of taxes, of these losses in
other comprehensive income associated with these contracts. We recognized all of these losses into fuel
expense in 2009.
During the fourth quarter of 2008, we suspended our fuel hedge program due to the rapid decline in oil
prices and the related collateral posting requirements with our counterparties. During the second quarter of
2009, we began to rebuild our fuel hedge portfolio taking into account the extreme volatility of oil prices and
the related possible impact on liquidity. Our current approach is to enter into hedges solely on a discretionary
basis without a targeted hedge percentage of expected fuel needs in order to mitigate 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, 2009, related to our outstanding fuel hedging contracts that were designated as cash flow
hedges for accounting purposes.
Crude oil cap
agreements
Heating oil
collars
Jet fuel swap
agreements Total
First Quarter 2010 ........................ 14% 5% 41% 60%
Second Quarter 2010 ...................... 18 5 14 37%
Third Quarter 2010 ....................... 17 14 — 31%
Fourth Quarter 2010 ...................... 19 14 — 33%
First Quarter 2011 ........................ 7 — — 7%
Second Quarter 2011 ...................... 5 — — 5%
During 2009, we also entered into basis swaps and certain jet fuel swap agreements, which we have not
designated as cash flow hedges for accounting purposes and as a result we mark to market in earnings each
period based on their current fair value.
Interest rate swaps: The interest rate swap agreements we had outstanding as of December 31, 2009
effectively swap floating rate debt for fixed rate debt, taking advantage of lower borrowing rates in existence
since our original debt instruments were executed. As of December 31, 2009, we had $396 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.
In February 2008 and 2009, we separately entered into interest rate swaps, all of which qualify as cash
flow hedges in accordance with the derivative and hedging topic of the Codification, ASC 815. 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 2009 or 2008, and all related unrealized losses were deferred in
accumulated other comprehensive income. We recognized approximately $5 million and $1 million in
additional interest expense as the related interest payments were made during 2009 and 2008, 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 four counterparties will fail to meet
their obligations. The amount of such credit exposure is generally the 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.
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
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