DERIVATIVES

Changes in aircraft fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we enter into derivative contracts and adjust our derivative portfolio as market conditions change.

Aircraft Fuel Price Risk

Changes in aircraft fuel prices materially impact our results of operations. We actively manage our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of jet fuel. We utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets. We rebalance the hedge portfolio from time to time according to market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates. During the three months ended June 30, 2015 and 2014, we recorded fuel hedge gains of $98 million and $97 million, respectively. During the six months ended June 30, 2015 and 2014, we recorded fuel hedge losses of $313 million and fuel hedge gains of $175 million, respectively.

During the March 2015 quarter, we restructured our fuel hedge portfolio by early settling certain 2015 hedges and deferring the settlement of a portion of the remaining positions. We paid $302 million to early settle contracts that were in a loss position and originally scheduled to expire in the second half of 2015. Additionally, we effectively deferred settlement of a portion of our hedge portfolio until 2016 by entering into fuel derivative transactions that will provide approximately $300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016 (excluding market movements from the date of the transactions). By effectively deferring settlement of a portion of the original derivative transactions, the restructured hedge portfolio provides additional time for the fuel market to stabilize while adding some hedge protection in 2016. Cash flows associated with these deferral transactions will be reported as cash flows from financing activities within our Condensed Consolidated Statement of Cash Flows in the settlement period.

Hedge Position as of June 30, 2015



(in millions)	Volume		Final Maturity Date	Hedge Derivatives Asset		Other Noncurrent Assets		Hedge Derivatives Liability			Other Noncurrent Liabilities			Hedge Derivatives, net
Designated as hedges
Interest rate contract (fair value hedge)	400	U.S. dollars	August 2022	$	5	$	—	$	—		$	(13	)	$	(8	)
Foreign currency exchange contracts	61,573	Japanese yen	April 2018	55		34		—			—			89
	500	Canadian dollars
Not designated as hedges
Fuel hedge contracts	1,176	gallons - crude oil, diesel and jet fuel	December 2016	906		115		(1,440		)	(339		)	(758		)
Total derivative contracts				$	966	$	149	$	(1,440	)	$	(352	)	$	(677	)

Hedge Position as of December 31, 2014



(in millions)	Volume		Final Maturity Date	Hedge Derivatives Asset		Other Noncurrent Assets		Hedge Derivatives Liability			Other Noncurrent Liabilities			Hedge Derivatives, net
Designated as hedges
Interest rate contract (fair value hedge)	416	U.S. dollars	August 2022	$	5	$	—	$	—		$	(12	)	$	(7	)
Foreign currency exchange contracts	77,576	Japanese yen	October 2017	25		49		(1		)	—			73
	511	Canadian dollars
Not designated as hedges
Fuel hedge contracts	3,286	gallons - crude oil, diesel and jet fuel	December 2016	1,048		3		(2,771		)	(128		)	(1,848		)
Total derivative contracts				$	1,078	$	52	$	(2,772	)	$	(140	)	$	(1,782	)

Offsetting Assets and Liabilities

We have master netting arrangements with our counterparties giving us the right of setoff. We have elected not to offset the fair value positions recorded on our Consolidated Balance Sheets. The following table shows the net fair value positions had we elected to offset.



(in millions)	Hedge Derivatives Asset		Other Noncurrent Assets		Hedge Derivatives Liability			Other Noncurrent Liabilities			Hedge Derivatives, net
June 30, 2015
Net derivative contracts	$	129	$	64	$	(603	)	$	(267	)	$	(677	)
December 31, 2014
Net derivative contracts	$	29	$	49	$	(1,723	)	$	(137	)	$	(1,782	)

Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts are as follows:



	Effective Portion Reclassified from AOCI to Earnings					Effective Portion Recognized in Other Comprehensive Income
(in millions)	2015		2014			2015			2014
Three Months Ended June 30,
Interest rate contract	$	—	$	(19	)	$	—		$	21
Foreign currency exchange contracts	41		28			(36		)	(60		)
Total designated	$	41	$	9		$	(36	)	$	(39	)
Six Months Ended June 30,
Interest rate contract	$	—	$	(19	)	$	—		$	23
Foreign currency exchange contracts	92		71			(52		)	(111		)
Total designated	$	92	$	52		$	(52	)	$	(88	)

As of June 30, 2015, we have recorded $137 million of gains on cash flow hedge contracts in accumulated other comprehensive income (loss) ("AOCI"), which are scheduled to settle and be reclassified into earnings within the next 12 months.

Credit Risk

To manage credit risk associated with our aircraft fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria including their credit ratings and limit our exposure to any one counterparty.

Our hedge contracts contain margin funding requirements. The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change. Due to the fair value position of our hedge contracts, we posted margin of $134 million and $925 million as of June 30, 2015 and December 31, 2014, respectively.