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Derivatives and Risk Management
 3 Months Ended
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Risk Management DERIVATIVES AND RISK MANAGEMENT

Changes in 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.

Fuel Price Risk

Changes in fuel prices materially impact our results of operations. We have recently managed our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of fuel as fuel prices are subject to potential volatility. In addition, we enter into derivatives with third parties to hedge financial risk related to Monroe’s refining margins.

During the three months ended March 31, 2018 and 2017 we recorded fuel hedge gains of $2 million and $57 million, respectively.

Foreign Currency Exchange Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies with our primary exposures being the Japanese yen, Canadian dollar and Euro. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable. From time to time, we may also enter into foreign currency option and forward contracts. Our Japanese yen and Canadian dollar foreign currency exchange contracts are designated as cash flow hedges.

In January 2018, we entered into a three-year U.S. dollar-Euro cross currency swap with a notional value of 375 million Euro. This swap is intended to mitigate foreign currency volatility resulting from our Euro-denominated investment in Air France-KLM. During the three months ended March 31, 2018, we recorded losses of $16 million, which are reflected in unrealized gain/loss on investments in the income statement.

Hedge Position as of March 31, 2018
(in millions)
Volume
 
Final Maturity Date
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
18,701

Japanese yen
November 2019
$
1

$
1

$
(14
)
$
(4
)
$
(16
)
166

Canadian dollars
May 2020
Not designated as hedges
 
 
 
 
 
 
 
 
Foreign currency exchange contract
375

Euros
December 2020
7

—

—

(23
)
(16
)
Fuel hedge contracts
267

gallons - crude oil and refined products
December 2019
1,001

53

(1,006
)
(51
)
(3
)
Total derivative contracts
 
 
$
1,009

$
54

$
(1,020
)
$
(78
)
$
(35
)

Hedge Position as of December 31, 2017
(in millions)
Volume
 
Final Maturity Date
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
23,512

Japanese yen
November 2019
$
1

$
1

$
(13
)
$
(6
)
$
(17
)
490

Canadian dollars
May 2020
Not designated as hedges
 
 
 
 
 
 
 
 
Fuel hedge contracts
249

gallons - crude oil and refined products
May 2019
638

8

(694
)
(18
)
(66
)
Total derivative contracts
 
 
$
639

$
9

$
(707
)
$
(24
)
$
(83
)
Offsetting Assets and Liabilities

We have master netting arrangements with our counterparties giving us the right to offset hedge assets and liabilities. However, 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 by counterparty had we elected to offset.
(in millions)
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
March 31, 2018
 
 
 
 
 
Net derivative contracts
$
21

$
1

$
(31
)
$
(26
)
$
(35
)
December 31, 2017
 
 
 
 
 
Net derivative contracts
$
—

$
1

$
(68
)
$
(16
)
$
(83
)


Designated Hedge Gains (Losses)

Gains (losses) related to our foreign currency exchange contracts are as follows:
 
Effective Portion Reclassified from AOCI to Earnings
 
Effective Portion Recognized in Other Comprehensive Income
(in millions)
2018
2017
 
2018
2017
Three Months Ended March 31,
 
 
 
 
 
Foreign currency exchange contracts
$
(4
)
$
7

 
$
1

$
(25
)


Credit Risk

To manage credit risk associated with our 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.