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Financial Instruments And Risk Management
 9 Months Ended
Sep. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments And Risk Management
Financial Instruments and Risk Management
As part of the Company’s risk management program, it uses a variety of financial instruments, primarily heating oil, jet fuel, and Brent crude 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), as cash flow hedges to mitigate commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes. As of September 30, 2013, the Company had fuel derivative contracts outstanding covering 19 million barrels of jet fuel that will be settled over the next 18 months. A deterioration of the Company’s liquidity position and its ongoing Chapter 11 Cases may negatively affect the Company’s ability to hedge fuel in the future.
The net fair value of the Company’s fuel hedging agreements at September 30, 2013 and December 31, 2012, representing the amount the Company would receive upon termination of the agreements (net of settled contract assets), totaled $51 million and $62 million, respectively. As of September 30, 2013, the Company estimates that during the next twelve months it will reclassify from Accumulated other comprehensive loss into earnings of approximately $9 million in net losses.
The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s Consolidated Statements of Operations is depicted below (in millions):
 
Location in Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (1)
Aircraft fuel
 
$
(11
)
 
$
(12
)
 
$
(23
)
 
$
13

Amount of Gain (Loss) Recognized in Income on Derivative (2)
Aircraft fuel
 
$
36

 
$
2

 
$
25

 
$
(3
)
Amount of Gain (Loss) Recognized in Consolidated Statements of Operations (3)
Aircraft fuel
 
$
25

 
$
(10
)
 
$
2

 
$
10


(1)    Includes the effective portion of hedge gain (loss)
(2)    Includes the ineffective portion of hedge gain (loss)
(3)    Includes the effective and ineffective portion of hedge gain (loss)
The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s Consolidated Statements of Comprehensive Income is depicted below (in millions):
 
Location
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income (1)
Reclassification into Earnings
 
$
11

 
$
12

 
$
23

 
$
(13
)
Amount of Gain (Loss) Recognized in OCI on Derivative (1)
Change in Fair Value
 
$
23

 
$
86

 
$
(47
)
 
$
29

Amount of Gain (Loss) Recognized in Consolidated Statements of Comprehensive Income
 
 
$
34

 
$
98

 
$
(24
)
 
$
16

(1)    Includes the effective portion of hedge gain (loss)
The Company is party to certain interest rate swap agreements that are accounted for as cash flow hedges. Ineffectiveness for these instruments is required to be measured at each reporting period. The ineffectiveness and fair value associated with all of the Company's interest rate cash flow hedges for all periods presented was not material.
While certain of the Company's fuel derivatives are subject to enforceable master netting agreements with its counterparties, the Company does not offset its fuel derivative assets and liabilities in its Condensed Consolidated Balance Sheets. Certain of these agreements would also allow for the offsetting of fuel derivatives with interest rate derivatives. The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company's Condensed Consolidated Balance Sheets, and the impact of offsetting aircraft fuel derivative instruments, is depicted below (in millions):
 
As of September 30, 2013
 
As of December 31, 2012
Gross Asset (1)
$
58

 
$
65

Gross Liability (2)
—

 
—

Net Recognized Asset (Liability) in Balance Sheet
$
58

 
$
65

 
 
 
 
Gross Asset (Liability) Offset in Balance Sheet:
 
 
 
Financial Instruments
—

 
$
—

Cash Collateral Received (Posted) (3)
—

 
—

Net Amount
$
58

 
$
65

(1)
Fuel derivative assets are included in Fuel derivative contracts on the accompanying Condensed Consolidated Balance Sheets.
(2)
Fuel derivative liabilities are included in Accrued liabilities on the accompanying Condensed Consolidated Balance Sheets.
(3)
As of September 30, 2013, the Company had posted cash collateral of an immaterial amount.
The Company is also exposed to credit losses in the event of non-performance by counterparties to these financial instruments, and although no assurances can be given, the Company does not expect any of the counterparties to fail to meet their obligations. The credit exposure related to these financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date, reduced by the effects of master netting agreements. To manage credit risks, the Company selects counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors the market position of the program and its relative market position with each counterparty. The Company also maintains industry-standard security agreements with a number of its counterparties which may require the Company or the counterparty to post collateral if the value of selected instruments exceeds specified mark-to-market thresholds or upon certain changes in credit ratings. The amount of collateral required to be posted from time to time may be substantial.