Fair Value Measurements

9 Months Ended

Sep. 30, 2013

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. The Company’s fuel derivative contracts, which consist primarily of collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), are valued using energy and commodity market data which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities. Heating oil, jet fuel and crude oil are the primary underlying commodities in the hedge portfolio. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2013.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):



	Fair Value Measurements as of September 30, 2013
Description	Total		Level 1		Level 2		Level 3
Short-term investments ⁽¹⁾⁽²⁾
Money market funds	$	545	$	545	$	—	$	—
Government agency investments	1,136		—		1,136		—
Repurchase investments	205		—		205		—
Corporate obligations	3,448		—		3,448		—
Bank notes / Certificates of deposit / Time deposits	712		—		712		—
	6,046		545		5,501		—
Restricted cash and short-term investments ⁽¹⁾	935		879		56		—
Fuel derivative contracts, net ⁽¹⁾	58		—		58		—
Total	$	7,039	$	1,424	$	5,615	$	—


(1)	Unrealized gains or losses on short-term investments, restricted cash and short-term investments and derivatives qualifying for hedge accounting are recorded in Accumulated other comprehensive income (loss) at each measurement date.


(2)	The Company’s short-term investments mature in one year or less except for $450 million of Bank notes, $635 million of U.S. Government obligations and $1.6 billion of Corporate obligations which have maturity dates exceeding one year.

A $56 million Level 1 restricted money market security was liquidated in August 2013. The cash proceeds were subsequently reinvested in a Level 2 U.S. Treasury Obligation. The Company’s policy regarding the recording of transfers between levels is to reflect any such transfers at the end of the reporting period.

As of September 30, 2013, the Company had no exposure to European sovereign debt.

The fair values of the Company’s long-term debt classified as Level 2 were estimated using quoted market prices or discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. All of the Company’s long-term debt not classified as subject to compromise is classified as Level 2.

The carrying value and estimated fair values of the Company’s long-term debt, including current maturities, not classified as subject to compromise, were (in millions):



	September 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured variable and fixed rate indebtedness	$	2,625	$	2,570	$	3,297	$	3,143
Enhanced equipment trust certificates	2,747		2,725		1,741		1,811
6.0%—8.5% special facility revenue bonds	1,288		1,368		1,313		1,308
7.50% senior secured notes	1,000		1,190		1,000		1,074
Senior secured credit facility due 2019 (rate of 4.75% at September 30, 2013)	1,886		1,872		—		—
AAdvantage Miles advance purchase	652		658		772		779
	$	10,198	$	10,383	$	8,123	$	8,115

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities, classified as subject to compromise, were (in millions):



	September 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured variable and fixed rate indebtedness	$	104	$	107	$	172	$	154
6.0%—8.5% special facility revenue bonds	186		176		186		186
6.25% senior convertible notes	460		485		460		400
9.0%—10.20% debentures	214		221		214		112
7.88%—10.55% notes	166		49		166		33
	$	1,130	$	1,038	$	1,198	$	885

All of the Company’s long-term debt classified as subject to compromise is classified as Level 2.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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