JetBlue Airlines 2014 Annual Report Download - page 65

JETBLUE AIRWAYS CORPORATION-2014Annual Report 59
PART II
ITEM 8Financial Statements and Supplementary Data
Except for our pilots, our Crewmembers do not have third-party
representation. In April 2014, JetBlue pilots elected to be solely represented
by ALPA. The NMB certified ALPA as the representative body for JetBlue
pilots and we plan to work with ALPA to reach our first collective bargaining
agreement. We enter into individual employment agreements with each of
our non-unionized FAA-licensed Crewmembers which include dispatchers,
technicians and inspectors as well as air traffic controllers. Each employment
agreement is for a term of 5 years and automatically renews for an additional
five-year term unless either the Crewmember or we elect not to renew
it by giving at least 90 days notice before the end of the relevant term.
Pursuant to these agreements, these Crewmembers can only be terminated
for cause. In the event of a downturn in our business that would require
a reduction in work hours, we are obligated to pay these Crewmembers
a guaranteed level of income and to continue their benefits if they do not
obtain other aviation employment.
NOTE 12 Contingencies
We self-insure a portion of our losses from claims related to workers’
compensation, environmental issues, property damage, medical insurance
for employees and general liability. Losses are accrued based on an
estimate of the ultimate aggregate liability for claims incurred, using
standard industry practices and our actual experience.
We are a party to many routine contracts under which we indemnify third
parties for various risks. These indemnities consist of the following:
All of our bank loans, including our aircraft and engine mortgages, contain
standard provisions present in loans of this type. These provisions obligate
us to reimburse the bank for any increased costs associated with continuing
to hold the loan on our books which arise as a result of broadly defined
regulatory changes, including changes in reserve requirements and bank
capital requirements. These indemnities would have the practical effect
of increasing the interest rate on our debt if they were to be triggered.
In all cases, we have the right to repay the loan and avoid the increased
costs. The term of these indemnities matches the length of the related
loan up to 15 years.
Under both aircraft leases with foreign lessors and aircraft and engine
mortgages with foreign lenders, we have agreed to customary indemnities
concerning withholding tax law changes. Under these contracts we
are responsible, should withholding taxes be imposed, for paying such
amount of additional rent or interest as is necessary to ensure that the
lessor or lender still receives, after taxes, the rent stipulated in the lease
or the interest stipulated under the loan. The term of these indemnities
matches the length of the related lease up to 20 years.
We have various leases with respect to real property as well as various
agreements among airlines relating to fuel consortia or fuel farms at airports.
Under these contracts we have agreed to standard language indemnifying
the lessor against environmental liabilities associated with the real property
or operations described under the agreement, even if we are not the party
responsible for the initial event that caused the environmental damage.
In the case of fuel consortia at airports, these indemnities are generally
joint and several among the participating airlines. We have purchased a
standalone environmental liability insurance policy to help mitigate this
exposure. Our existing aviation hull and liability policy includes some
limited environmental coverage when a cleanup is part of an associated
single identifiable covered loss.
Under certain contracts, we indemnify specified parties against legal liability
arising out of actions by other parties. The terms of these contracts range
up to 25 years. Generally, we have liability insurance protecting ourselves
for the obligations we have undertaken relative to these indemnities.
Upon the sale of LiveTV to Thales in June 2014, refer to Note 8 for more
information, we transferred certain contingencies to Thales. These included
product warranties and LiveTV indemnities against any claims which
may of been brought against its customers. These indemnities related to
allegations of patent, trademark, copyright or license infringement as a
result of the use of the LiveTV system.
Under a certain number of our operating lease agreements we are required
to restore certain property or equipment to its original form upon expiration
of the related agreement. We have recorded the estimated fair value of
these retirement obligations of approximately $6 million as of December 31,
2014. This liability may increase over time.
We are unable to estimate the potential amount of future payments under
the foregoing indemnities and agreements.
Environmental Liability
Many aspects of airlines’ operations are subject to increasingly stringent
federal, state, local, and foreign laws protecting the environment. Since
the domestic airline industry is increasingly price sensitive we may not
be able to recover the cost of compliance with new or more stringent
environmental laws and regulations from our passengers which could
adversely affect our business. Although it is not expected that the costs
of complying with current environmental regulations will have a material
adverse effect on our financial position, results of operations or cash flows,
no assurance can be made that the costs of complying with environmental
regulations in the future will not have such an effect. The impact to us
and our industry from such actions is likely to be adverse and could be
significant, particularly if regulators were to conclude that emissions from
commercial aircraft cause significant harm to the upper atmosphere or
have a greater impact on climate change than other industries.
In 2012, during performance of environmental testing, the presence of light
non-aqueous phase petroleum liquid was discovered in certain subsurface
monitoring wells on the property at JFK. Our lease with the PANYNJ
provides that under certain circumstances we may be responsible for
investigating, delineating, and remediating such subsurface contamination,
even if we are not necessarily the party that caused its release. We engaged
environmental consultants to assess the extent of the contamination
and assist us in determining steps to remediate it. An estimate indicated
costs of remediation could range from approximately $1 million up to
$3 million. As of December 31, 2014, we had accrued $2 million for current
estimates of remediation costs, which is included in current liabilities on
our consolidated balance sheets. However, as with any environmental
contamination, there is the possibility this contamination could be more
extensive than estimated at this stage. We have a pollution insurance policy
that protects us against these types of environmental liabilities, which we
expect will mitigate most of our exposure in this matter.
Based upon information currently known to us we do not expect these
environmental proceedings to have a material adverse effect on our
consolidated financial position, results of operations, or cash flows.
However, it is not possible to predict with certainty the impact on us of
future environmental compliance requirements or the costs of resolving
the matter, in part because the scope of the remediation that may be
required is not certain and environmental laws and regulations are subject
to modification and changes in interpretation.
Legal Matters
Occasionally we are involved in various claims, lawsuits, regulatory
examinations, investigations and other legal matters arising, for the most
part, in the ordinary course of business. The outcome of litigation and
other legal matters is always uncertain. The Company believes it has valid
defenses to the legal matters currently pending against it, is defending
itself vigorously and has recorded accruals determined in accordance
with U.S. GAAP, where appropriate. In making a determination regarding