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 have historically managed our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of jet fuel. Since 2014, however, jet fuel prices have consistently decreased and remain at low levels.

During the March 2015 quarter, we effectively deferred settlement of a portion of our hedge portfolio until 2016 by entering into fuel derivative transactions that, excluding market movements from the date of inception, would settle and provide approximately$300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016. By effectively deferring settlement of a portion of the original derivative transactions, the restructured hedge portfolio provided additional time for the fuel market to stabilize. We early terminated certain of these deferral transactions in the second half of 2015.

Due to the continued volatility in the fuel market, early in the March 2016 quarter, we entered into transactions to further defer settlement of a portion of our hedge portfolio until 2017. These deferral transactions, excluding market movements from the date of inception, will settle and provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017.

Subsequent to these deferral transactions, in order to better participate in the low fuel price environment, we reduced our hedging activity and entered into derivatives designed to offset and effectively terminate our existing airline segment hedge positions. As a result, we have both neutralized our hedge portfolio and locked in net settlements of approximately $725 million in 2016 and $300 million in 2017, which include the deferral transactions discussed above. During the three months ended March 31, 2016 and 2015, we recorded fuel hedge losses of $274 million and $411 million, respectively.

Cash flows associated with these deferral transactions are reported as cash flows from financing activities within our Condensed Consolidated Statements of Cash Flows in the settlement period. During the three months ended March 31, 2016, we reported $11 million in net cash receipts associated with these transactions as cash flows from financing activities within other, net.

Hedge Position as of March 31, 2016



(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)	367	U.S. dollars	August 2022	$	3	$	4	$	—		$	—		$	7
Foreign currency exchange contracts	70,789	Japanese yen	February 2019	5		8		(24		)	(22		)	(33		)
	555	Canadian dollars
Not designated as hedges
Fuel hedge contracts	244 ⁽¹⁾	gallons - crude oil, diesel and jet fuel	December 2017	2,171		16		(2,606		)	(245		)	(664		)
Total derivative contracts				$	2,179	$	28	$	(2,630	)	$	(267	)	$	(690	)


⁽¹⁾	As discussed above, we have entered into hedges designed to offset and effectively terminate our existing hedge positions for 2016 and 2017. This volume represents short-term hedge protection designed to mitigate the risk of fuel price and refining margin declines.

Hedge Position as of December 31, 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)	384	U.S. dollars	August 2022	$	4	$	—	$	—		$	(7	)	$	(3	)
Foreign currency exchange contracts	46,920	Japanese yen	July 2018	76		20		(1		)	(1		)	94
	395	Canadian dollars
Not designated as hedges
Fuel hedge contracts	887	gallons - crude oil, diesel and jet fuel	November 2017	1,907		4		(2,580		)	(3		)	(672		)
Total derivative contracts				$	1,987	$	24	$	(2,581	)	$	(11	)	$	(581	)

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
March 31, 2016
Net derivative contracts	$	6	$	6	$	(457	)	$	(245	)	$	(690	)
December 31, 2015
Net derivative contracts	$	143	$	21	$	(737	)	$	(8	)	$	(581	)

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)	2016		2015		2016			2015
Three Months Ended March 31,
Foreign currency exchange contracts	$	24	$	51	$	(82	)	$	(16	)

As of March 31, 2016, we have recorded $26 million of gains on cash flow hedge contracts in 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 $454 million and $119 million as of March 31, 2016 and December 31, 2015, respectively.