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JETBLUE AIRWAYS CORPORATION-2013Annual Report38
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
renewal periods when it is deemed to be reasonably assured at the
inception of the lease that we would incur an economic penalty for not
renewing. The amortization period for leasehold improvements is the term
used in calculating straight-line rent expense or their estimated economic
life, whichever is shorter.
Derivative instruments used for aircraft fuel
We utilize financial derivative instruments to manage the risk of changing
aircraft fuel prices. We do not purchase or hold any derivative instrument
for trading purposes. At December 31, 2013, we had a net $6 million asset
related to the net fair value of these derivative instruments; the majority of
which are not traded on a public exchange. Fair values are determined
using commodity prices provided to us by independent third parties.
When possible, we designate these instruments as cash flow hedges for
accounting purposes, as defined by the Derivatives and Hedging topic
of the Codification which permits the deferral of the effective portions of
gains or losses until contract settlement.
The Derivatives and Hedging topic is a complex accounting standard. It
requires we develop and maintain a significant amount of documentation
related to:
(1) our fuel hedging program and fuel management approach.
(2) statistical analysis supporting a highly correlated relationship between
the underlying commodity in the derivative financial instrument and the risk
being hedged (i.e. aircraft fuel) on both a historical and prospective basis.
(3) cash flow designation for each hedging transaction executed, to be
developed concurrently with the hedging transaction.
This documentation requires we estimate forward aircraft fuel prices
since there is no reliable forward market for aircraft fuel. These prices are
developed through the observation of similar commodity futures prices,
such as crude oil and/or heating oil, and adjusted based on variations
to those like commodities. Historically, our hedges have settled within
24months; therefore, the deferred gains and losses have been recognized
into earnings over a relatively short period of time.