Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market risk exposure related to fuel prices, interest rates, foreign currency exchange rates and changes in the market value of equity investments. Market risk is the potential negative impact of adverse changes in these prices or rates on our Consolidated Financial Statements. In an effort to manage our exposure to these risks, we may enter into derivative contracts and may adjust our derivative portfolio as market conditions change. See Note 3 of the Notes to the Consolidated Financial Statements for further information on our derivative contracts. We expect adjustments to the fair value of financial instruments to result in ongoing volatility in earnings and stockholders' equity.
The following sensitivity analyses do not consider the effects of a change in demand for air travel, the economy as a whole or actions we may take to seek to mitigate our exposure to a particular risk. For these and other reasons, the actual results of changes in these prices or rates may differ materially from the following hypothetical results.
Fuel Price Risk
Changes in fuel prices materially impact our results of operations. A one cent increase in the cost of jet fuel per gallon would result in approximately $40 million of additional annual fuel expense based on annual consumption of approximately four billion gallons of jet fuel. Substantially all of our derivative contracts to hedge the financial risk from changing fuel prices are related to Monroe’s inventory.
Interest Rate Risk
Our exposure to market risk from adverse changes in interest rates is primarily associated with our debt and lease obligations. Market risk associated with our fixed-rate debt relates to the potential reduction in fair value from an increase in interest rates. Market risk associated with our variable-rate debt and variable-rate leases relates to the potential negative impact to future earnings from an increase in interest rates.
At December 31, 2025, we had $12.6 billion of fixed-rate debt, $0.7 billion of variable-rate debt and $0.4 billion of variable-rate leases. The rates used in our variable-rate debt are based on SOFR, or another index rate, which in certain cases is subject to a floor. An increase of 100 basis points in average annual interest rates would have decreased the estimated fair value of our fixed-rate debt by $470 million at December 31, 2025 and would have increased the annual interest expense on our variable-rate debt and variable-rate leases by $11 million.
Foreign Currency Exchange Risk
We are subject to foreign currency exchange rate risk because we have revenue, expense and equity investments denominated in foreign currencies. 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.
At December 31, 2025 we had no open foreign currency options or forward contracts. As of December 31, 2025, our investments denominated in foreign currencies (Air France-KLM, China Eastern, Hanjin-KAL and LATAM) were recorded at a fair value of $2.9 billion. A 10% change in the value of those respective currencies against the U.S. dollar would have an approximately $290 million impact on our financial statements.
Equity Investment Risk
We own equity investments in a number of airlines and airline service companies, which are subject to equity price risk. We often hold our equity securities for long periods and short-term price volatility has occurred in the past and will occur in the future, impacting the volatility of our financial results. During 2025, we recorded a net gain of $1.2 billion related to the valuation of our fair value investments compared to a net loss of $319 million in 2024. As of December 31, 2025, we had long-term investments recorded at fair value of $3.6 billion and, therefore, a 10% change in the fair value of these investments would have an approximately $360 million impact on our financial results. See Note 3 and Note 4 of the Notes to the Consolidated Financial Statements for further information on our investments.
Delta Air Lines, Inc. | 2025 Form 10-K
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Financial Statements