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WestJet 2009 Annual Report 75
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2009 and 2008
(Stated in thousands of Canadian dollars, except share and per share data)
Statement presentation 2009 2008
Receivable from counterparties for settled fuel contracts Prepaid expenses, deposits and other $ 96 $ —
Fair value of fuel derivatives – current portion Accounts payable and accrued liabilities (7,521) (37,811)
Fair value of fuel derivatives – long-term portion Other liabilities — (14,487)
Payable to counterparties for settled fuel contracts Accounts payable and accrued liabilities (1,242) —
Unrealized loss from fuel derivatives AOCL – before tax impact 6,713 44,711
Statement presentation 2009 2008
Realized loss on designated fuel derivatives – effective portion Aircraft fuel $ (28,411) $ —
Gain (loss) on designated fuel derivatives – ineffective portion Gain (loss) on derivatives 5,617 (7,587)
Fair market loss on fuel derivatives not designated Gain (loss) on derivatives — (10,606)
13. Financial instruments and risk management (continued)
(b) Risk management (continued)
Fuel risk (continued)
Ineffectiveness is inherent in hedging jet fuel with derivative instruments in other commodities, such as crude oil, particularly given the signifi cant
volatility observed in the market on crude oil and related products. Due to this volatility, the Corporation is unable to predict the amount of
ineffectiveness for each period. This may result in increased volatility in the Corporation’s results.
If the hedging relationship ceases to qualify for cash fl ow hedge accounting, any change in fair value of the instrument from the point it ceases
to qualify is recorded in non-operating income (expense). Amounts previously recorded in AOCL will remain in AOCL until the anticipated jet fuel
purchase occurs, at which time, the amount is recorded in net earnings under aircraft fuel expense. If the transaction is no longer expected to
occur, amounts previously recorded in AOCL will be reclassifi ed to non operating income (expense). For the years ended December 31, 2009 and
2008, there were no amounts reclassifi ed as the result of transactions no longer expected to occur.
The periodic changes in fair value and realized settlements on fuel derivatives that do not qualify or that are not designated under cash fl ow hedge
accounting are recorded in non-operating income (expense).
The following table presents the fi nancial impact and statement presentation of the Corporation’s fuel derivatives on the consolidated balance
sheet as at December 31, 2009 and 2008:
The following table presents the fi nancial impact and statement presentation of the Corporation’s fuel derivatives on the consolidated statement
of earnings for the years ended December 31, 2009 and 2008:
During the year ended December 31, 2009, the Corporation cash settled fuel derivatives in favour of the counterparties of $29,574
(2008 – $10,606).
The estimated amount reported in AOCL that is expected to be reclassifi ed to net earnings as a component of aircraft fuel expense when the
underlying jet fuel is consumed during the next 12 months is a loss before tax of $6,713.
A 10% increase in the forward curve for WTI, the underlying commodity of the Corporation’s fuel derivatives, as at December 31, 2009, would have
decreased AOCL by approximately $3,583, net of taxes (2008 – $11,546). A 10% decrease in the forward curve for WTI, as at December 31, 2009,
would have increased AOCL by approximately $3,814, net of taxes (2008 – $11,574). This is assuming that all other variables remain constant,
particularly foreign exchange and interest rates. It also assumes that 100% of the change in price is considered effective under cash fl ow hedge
accounting. These assumptions may not be representative of actual movements.