Quantitative and Qualitative Disclosures About Market Risk
−Removed: The Company has interest rate risk in its floating-rate debt obligations and interest rate swaps, commodity price risk in jet fuel required to operate its aircraft fleet, and market risk in the derivatives used to manage its fuel hedging program and in the form of fixed-rate debt instruments.
+Added: The Company has interest rate risk in its interest rate swaps, commodity price risk in jet fuel required to operate its aircraft fleet, and market risk in the derivatives used to manage its fuel hedging program and in the form of fixed-rate debt instruments.
As of December 31, 2022, the Company operated a total of 94 aircraft under operating and finance leases.
However, except for a small number of aircraft that have lease payments that fluctuate based in part on changes in market interest rates, the remainder of the leases are not considered market sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below.
−Removed: The Company also has 14 aircraft under operating leases that have been subleased to another carrier.
−Removed: Further information about these leases is disclosed in Note 8 to the Consolidated Financial Statements.
The Company does not purchase or hold any derivative financial instruments for trading purposes.
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At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements.
−Removed: As of December 31, 2021, the Company had nine counterparties for which the derivatives held were an asset.
+Added: As of December 31, 2022, the Company had eight counterparties for which the derivatives held were an asset.
To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty.
However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
−Removed: At December 31, 2021, the Company had
−Removed: agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty’s credit rating.
+Added: At December 31, 2022, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the
+Added: counterparty’s credit rating.
The C ompany also had agreements with counterparties in which cash deposits and/or letters of credit are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.
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The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection.
−Removed: The Company has found that financial derivative instruments in commodities, such as WTI crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.
+Added: The Company has found that financial derivative instruments in commodities, such as West Texas Intermediate ("WTI") crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.
In addition, to add further protection, the Company may periodically enter into jet fuel derivatives for short-term timeframes.
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While the Company uses financial leverage, it strives to maintain a strong balance sheet and has a "BBB+" rating with Fitch, a "BBB" rating with Standard & Poor’s, and a "Baa1" credit rating with Moody’s as of December 31, 2022, all of which are considered "investment grade." See Note 7 to the Consolidated Financial Statements for more information on the material terms of the Company’s short-term and long-term debt.
−Removed: The following table presents the Company's fixed-rate senior unsecured notes outstanding as of December 31, 2021:
−Removed: (in millions) December 31, 2021
−Removed: 2.75% Notes due 2022
−Removed: 4.75% Notes due 2023
−Removed: 5.25% Notes due 2025
−Removed: 3.00% Notes due 2026
−Removed: 3.45% Notes due 2027
−Removed: 5.125% Notes due 2027
−Removed: 7.375% Debentures due 2027
−Removed: 2.625% Notes due 2030
+Added: The Company's senior unsecured notes outstanding as of December 31, 2022 are all fixed-rate obligations.
+Added: See Note 7 to the Consolidated Financial Statements for further information.
The $100 million 7.375% debentures due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed-to-floating interest rate swap agreements related to it.
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A change in market interest rates could, however, have a corresponding effect on earnings and cash flows associated with the Company’s invested cash (excluding cash collateral deposits held, if applicable) and short-term investments because of the floating-rate nature of these items.
−Removed: Assuming floating market rates in effect as of December 31, 2021 were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have an immaterial impact on the Company’s net earnings and cash flows.
+Added: Assuming floating market rates in effect as of December 31, 2022 were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have resulted in an approximate $47 million impact on the Company’s net earnings and cash flows.
Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held from or provided to counterparties, if applicable) and short-term investments outstanding at December 31, 2022, an increase in rates would have a net positive effect on the Company’s earnings and cash flows, while a decrease in rates would have a net negative effect on the Company’s earnings and cash flows.
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Certain covenants include the maintenance of minimum credit ratings and/or triggers that are based on changes in these ratings.
−Removed: The Company’s Amended A&R Credit Agreement contains a financial covenant to maintain total liquidity,
−Removed: as defined therein, of $1.5 billion at all times.
+Added: The Company’s Amended A&R Credit Agreement contains a financial covenant to maintain total liquidity, as defined therein, of $1.5 billion at all times.
As of December 31, 2022, the Company was in compliance with this covenant and there were no amounts outstanding under the Amended A&R Credit Agreement.
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Additionally, cash reserves are required to be established if the Company’s credit rating falls to specified levels below investment grade.
−Removed: Cash reserve requirements are based on the Company’s public debt rating and a corresponding percentage of the Company’s Air traffic liability.
+Added: Cash reserve requirements are based on the Company’s public debt rating and a
+Added: corresponding percentage of the Company’s Air traffic liability.
As of December 31, 2022, no holdbacks were in place.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.