Financial Derivative Instruments and Risk Management

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Derivative Instruments and Risk Management

The Company may be exposed to interest rate risk through aircraft and spare engine lease contracts for the time period between agreement of terms and commencement of the lease, when portions of rental payments can be adjusted and become fixed based on the swap rate. As part of its risk management program, the Company enters into contracts in order to limit the exposure to fluctuations in interest rates. During the year ended December 31, 2023, the Company did not enter into any swaps and therefore, paid no upfront premiums for options. During the year ended December 31, 2022, the Company paid $19 million in upfront premiums for the option to enter into and exercise cash-settled swaps with a forward starting effective date for future deliveries of 14 aircraft and 4 engines. During the year ended December 31, 2021, the Company did not enter into any swaps and, therefore, paid no upfront premiums for options. As of December 31, 2023, the Company had no interest rate hedges outstanding.

Additionally, the Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments but does not expect that any of its counterparties will fail to meet their respective obligations. The amount of such credit exposure is generally the fair value of the Company’s outstanding contracts in a receivable position. To manage credit risks, the Company selects counterparties based on credit assessments and monitors the market position with each counterparty.

The assets associated with the Company’s derivative instruments are presented on a gross basis and include upfront premiums paid. These assets are recorded as a component of other current assets on the Company’s consolidated balance sheets. As of December 31, 2023 there were no assets outstanding. As of December 31, 2022 there were $24 million of assets outstanding.

The following table summarizes the effect of interest rate derivative instruments reflected in rent expense within the Company’s consolidated statements of operations (in millions):


	Year Ended December 31,
	2023		2022		2021
Derivatives designated as cash flow hedges
Amortization of cash flow hedges, net of tax	$	(1)	$	(1)	$	(1)

The following table presents the net of tax impact of the overall effectiveness of derivative instruments designated as cash flow hedging instruments within the Company’s consolidated statements of comprehensive income (loss) (in millions):


	Year Ended December 31,
	2023		2022		2021
Derivatives designated as cash flow hedges
Amortization of cash flow hedges, net of tax	$	1	$	1	$	1
Interest rate derivative contract gains (losses), net of tax	(2)		3		—
Total	$	(1)	$	4	$	1

As of December 31, 2023, $7 million is included in AOCI/L related to interest rate hedging instruments that is expected to be reclassified into aircraft rent within the Company’s consolidated statements of operations over the aircraft or engine lease term.