Fair Value Measurements (Notes)

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Measeurements

FAIR VALUE MEASUREMENTS

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

• Level 1. Observable inputs such as quoted prices in active markets;

• Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. The valuation techniques are as follows:

(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

(b) Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost); and

(c) Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).

Assets (Liabilities) Measured at Fair Value on a Recurring Basis

(in millions)	December 31, 2011			Level 1		Level 2			Level 3		Valuation Technique
Cash equivalents	$	2,357		$	2,357	$	—		$	—	(a)
Short-term investments	958			958		—			—		(a)
Restricted cash equivalents and short-term investments	341			341		—			—		(a)
Long-term investments	188			55		24			109		(a)(c)
Hedge derivatives, net
Fuel hedge contracts	70			—		70			—		(a)(c)
Interest rate contracts	(91		)	—		(91		)	—		(a)(c)
Foreign currency exchange contracts	(89		)	—		(89		)	—		(a)

(in millions)	December 31, 2010			Level 1		Level 2			Level 3		Valuation Technique
Cash equivalents	$	2,696		$	2,696	$	—		$	—	(a)
Short-term investments	718			718		—			—		(a)
Restricted cash equivalents and short-term investments	440			440		—			—		(a)
Long-term investments	144			—		25			119		(a)(c)
Hedge derivatives, net
Fuel hedge contracts	351			—		351			—		(a)(c)
Interest rate contracts	(74		)	—		(74		)	—		(a)(c)
Foreign currency exchange contracts	(96		)	—		(96		)	—		(a)

Cash Equivalents, Short-term Investments and Restricted Cash Equivalents and Short-term Investments. Cash equivalents and short-term investments generally consist of money market funds and treasury bills. Restricted cash equivalents and short-term investments are primarily held to meet certain projected self-insurance obligations and generally consist of money market funds and time deposits. A portion of our restricted cash equivalents and short-term investments are recorded in other noncurrent assets. Cash equivalents, short-term investments and restricted cash equivalents and short-term investmentsare recorded at cost, which approximates fair value. Fair value is based on the market approach using prices and other relevant information generated by market transactions involving identical or comparable assets.

Long-term Investments. Investments with maturities of greater than one year when purchased are recorded at fair value in other noncurrent assets. Our long-term investments are comprised primarily of student loan backed auction rate securities classified as available-for-sale and insured auction rate securities classified as trading securities. Any change in the fair value of these securities is recorded in accumulated other comprehensive loss or earnings, as appropriate. At December 31, 2011 and 2010, the fair value of our auction rate securities was $109 million and $119 million, respectively. The cost of these investments was $133 million and $143 million, respectively. These investments are classified in other noncurrent assets due to the protracted failure in the auction process and long-term nature of these contractual maturities.

Because auction rate securities are not actively traded, fair values were estimated by discounting the cash flows expected to be received over the remaining maturities of the underlying securities. We based the valuations on our assessment of observable yields on instruments bearing comparable risks and considered the creditworthiness of the underlying debt issuer. Changes in market conditions could result in further adjustments to the fair value of these securities.

Hedge Derivatives. Our derivative contracts are generally privately negotiated with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk).

• Fuel Derivatives. Our fuel hedge portfolio generally consists of call options; put options, combinations of two or more call options and put options; swap contracts; and futures contracts. The products underlying the hedge contracts are derivatives of jet fuel, such as heating oil, crude oil and low sulfur diesel. Option contracts are valued under the income approach using option pricing models based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Volatilities used in these valuations ranged from 16% to 47% depending on the maturity dates, underlying commodities and strike prices of the option contracts. Swap contracts are valued under the income approach using a discounted cash flow model based on data either readily observable or derived from public markets. Discount rates used in these valuations ranged from 0.295% to 0.676% based on interest rates applicable to the maturity dates of the respective contracts. Futures contracts are traded on a public exchange and are valued based on quoted market prices.

• Interest Rate Derivatives. Our interest rate derivatives consist of swap contracts and are valued primarily based on data readily observable in public markets.

• Foreign Currency Derivatives. Our foreign currency derivatives consist of Japanese yen and Canadian dollar forward contracts and are valued based on data readily observable in public markets.

• Changes in Level 3. During 2011 and 2010, we did not have any hedge derivatives classified in Level 3. The following table shows the changes in our hedge derivatives, net classified in Level 3 during 2009:

(in millions)	Hedge Derivatives, Net
Balance at January 1, 2009	$	(1,091	)
Change in fair value included in other comprehensive income	1,230
Change in fair value included in earnings:
Aircraft fuel and related taxes	(1,263		)
Miscellaneous, net	31
Purchases and settlements, net	1,199
Transfers from Level 3(1)	(106		)
Balance at December 31, 2009	$	—

⁽¹⁾  During 2009, we implemented systems that better provide for the evaluation of certain inputs against market data. As a result, we reclassified our option contracts to Level 2.

For additional information regarding the composition and classification of our derivative contracts, see Note 3.

Benefit Plan Assets. Benefit plan assets relate to our defined benefit pension plans and certain of our postemployment benefit plans that are funded through trusts. The following table shows our benefit plan assets by asset class. These investments are presented net of the related benefit obligation in pension, postretirement, and related benefits. For additional information regarding benefit plan assets, see Note 10.

	December 31, 2011											December 31, 2010
(in millions)	Total			Level 1		Level 2			Level 3		Valuation Technique	Total			Level 1		Level 2			Level 3		Valuation Technique
Common stock
U.S.	$	796		$	796	$	—		$	—	(a)	$	1,427		$	1,402	$	25		$	—	(a)
Non-U.S.	910			875		—			35		(a)	1,090			1,058		—			32		(a)
Mutual funds
U.S.	18			—		18			—		(a)	1			1		—			—		(a)
Non-U.S.	246			21		225			—		(a)	—			—		—			—		(a)
Non-U.S. emerging markets	2			—		2			—		(a)	314			—		314			—		(a)
Diversified fixed income	426			—		426			—		(a)	222			—		222			—		(a)
High yield	58			—		58			—		(a)(c)	209			—		209			—		(a)(c)
Commingled funds
U.S.	917			—		917			—		(a)	1,776			—		1,776			—		(a)
Non-U.S.	783			—		783			—		(a)	514			—		514			—		(a)
Non-U.S. emerging markets	—			—		—			—		(a)	135			—		135			—		(a)
Diversified fixed income	776			—		776			—		(a)	458			—		458			—		(a)
High yield	92			—		92			—		(a)	93			—		93			—		(a)
Alternative investments
Private equity	1,620			—		—			1,620		(a)(c)	1,559			—		—			1,559		(a)(c)
Real estate and natural resources	424			—		—			424		(a)(c)	396			—		—			396		(a)(c)
Hedge Funds	432			—		—			432		(a)(c)	—			—		—			—
Fixed income	764			—		753			11		(a)(c)	551			—		511			40		(a)(c)
Foreign currency derivatives
Assets	738			—		738			—		(a)	879			—		879			—		(a)
Liabilities	(735		)	—		(735		)	—		(a)	(874		)	—		(874		)	—		(a)
Cash equivalents and other	447			46		401			—		(a)	609			52		557			—		(a)
Total benefit plan assets	$	8,714		$	1,738	$	4,454		$	2,522		$	9,359		$	2,513	$	4,819		$	2,027

Common Stock. Common stock is valued at the closing price reported on the active market on which the individual securities are traded.

Mutual and Commingled Funds. These funds are valued using the net asset value divided by the number of shares outstanding, which is based on quoted market prices of the underlying assets owned by the fund.

Alternative Investments. The valuation of alternative investments requires significant judgment due to the absence of quoted market prices as well as the inherent lack of liquidity and the long-term nature of these assets. Accordingly, these assets are generally classified in Level 3. Alternative investments include private equity, real estate, energy and timberland. Investments are valued based on valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. We also assess the potential for adjustment to the fair value of these investments due to the lag in the availability of data. In these cases, we solicit preliminary valuation updates at year-end from the investment managers and use that information and corroborating data from public markets to determine any needed adjustments to fair value.

Fixed Income. Investments include corporate bonds, government bonds, collateralized mortgage obligations and other asset backed securities. These investments are generally valued at the bid price or the average of the bid and ask price. Prices are based on pricing models, quoted prices of securities with similar characteristics, or broker quotes.

Hedge Funds. Our hedge fund investments are primarily made through shares of limited partnerships or similar limited liability structures for which a liquid secondary market does not exist. Hedge funds are considered Level 3 assets. Hedge funds are valued monthly by a third-party administrator that has been appointed by the fund's general partner.

Foreign Currency Derivatives. Our foreign currency derivatives consist of various forward contracts and are valued based on data readily observable in public markets.

Cash Equivalents and Other. These investments primarily consist of short term investment funds which are valued using the net asset value. Cash is not included in the table above.

Changes in Level 3. The following table shows the changes in our benefit plan assets classified in Level 3:

(in millions)	Private Equity			Real Estate		Hedge Funds			Common Stock			Fixed Income			Total
Balance at January 1, 2010	$	1,216		$	336	$	—		$	35		$	46		$	1,633
Actual return on plan assets:
Related to assets still held at the reporting date	160			34		—			(1		)	1			194
Related to assets sold during the period	64			4		—			—			4			72
Purchases and settlements, net	53			22		—			(2		)	(11		)	62
Transfers to Level 3	66			—		—			—			—			66
Balance at December 31, 2010	1,559			396		—			32			40			2,027
Actual return on plan assets:
Related to assets still held at the reporting date	36			20		(8		)	3			(10		)	41
Related to assets sold during the period	42			5		—			(6		)	12			53
Purchases and settlements, net	(17		)	3		440			6			(31		)	401
Balance at December 31, 2011	$	1,620		$	424	$	432		$	35		$	11		$	2,522

Assets Measured at Fair Value on a Nonrecurring Basis

	Significant Unobservable Inputs (Level 3)
(in millions)	December 31, 2011		December 31, 2010		Valuation Technique
Goodwill(1)	$	9,794	$	9,794	(a)(b)(c)
Indefinite-lived intangible assets(1) (see Note 5)	4,375		4,303		(a)(c)

⁽¹⁾  See Note 1, “Goodwill and Other Intangible Assets”, for a description of how these assets are tested for impairment.

In the September 2010 quarter, we recorded a $146 million impairment charge primarily related to our decision to substantially reduce Comair's fleet over the two years ending December 31, 2012 by retiring older, less-efficient CRJ-100/200 50-seat aircraft. In evaluating these aircraft for impairment, we estimated their fair value by utilizing a market approach considering (1) published market data generally accepted in the airline industry, (2) recent market transactions, where available, (3) the current and projected supply of and demand for these aircraft and (4) the condition and age of the aircraft. Based on our fair value assessments, these aircraft had an estimated fair value of $97 million and are classified in Level 3 of the three-tier fair value hierarchy.