Financial Instruments And Risk Management

12 Months Ended

Dec. 31, 2013

Derivative [Line Items]

Financial Instruments And Risk Management

Financial Instruments and Risk Management

Fuel Price Risk Management

As of December 31, 2013, American had fuel derivative contracts outstanding covering 22 million barrels of jet fuel that will be settled over the next eighteen months. The Company does not hold or issue derivative financial instruments for trading purposes. The Company has not entered into any fuel hedges since the Effective Date and its current policy is not to do so.

In accordance with U.S. GAAP, the Company assesses, both at the inception of each hedge and on an ongoing basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Derivatives that meet the requirements are granted special hedge accounting treatment, and the Company’s hedges generally meet these requirements. Accordingly, the Company’s fuel derivative contracts are accounted for as cash flow hedges, and the fair value of the Company’s hedging contracts is recorded in Current Assets or Current Liabilities in the accompanying Consolidated Balance Sheets until the underlying jet fuel is purchased. The Company determines the ineffective portion of its fuel hedge contracts by comparing the cumulative change in the total value of the fuel hedge contract, or group of fuel hedge contracts, to the cumulative change in a hypothetical jet fuel hedge. If the total cumulative change in value of the fuel hedge contract more than offsets the total cumulative change in a hypothetical jet fuel hedge, the difference is considered ineffective and is immediately recognized as a component of Aircraft fuel expense. Effective gains or losses on fuel hedging contracts are deferred in Accumulated other comprehensive income (loss) and are recognized in earnings as a component of Aircraft fuel expense when the underlying jet fuel being hedged is used.

Ineffectiveness is inherent in hedging jet fuel with derivative positions based in crude oil or other crude oil related commodities. The Company assesses, both at the inception of each hedge and on an ongoing basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. In doing so, the Company uses a regression model to determine the correlation of the change in prices of the commodities used to hedge jet fuel (e.g., NYMEX Heating oil) to the change in the price of jet fuel. The Company also monitors the actual dollar offset of the hedges’ market values as compared to hypothetical jet fuel hedges. The fuel hedge contracts are generally deemed to be "highly effective" if the R-squared is greater than 80% and the dollar offset correlation is within 80% to 125%. The Company discontinues hedge accounting prospectively if it determines that a derivative is no longer expected to be highly effective as a hedge or if it decides to discontinue the hedging relationship. Subsequently, any changes in the fair value of these derivatives are marked to market through earnings in the period of change.

For the years ended December 31, 2013, 2012 and 2011, American recognized net gains/(losses) of approximately $(12) million, $4 million and $341 million, respectively, as a component of Aircraft fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges. The net fair value of the Company’s fuel hedging agreements at December 31, 2013 and 2012, representing the amount American would receive upon termination of the agreements (net of settled contract assets), totaled $107 million and $62 million, respectively. As of December 31, 2013, American estimates that during the next twelve months it will reclassify from Accumulated other comprehensive income (loss) into earnings approximately $45 million in net gains (based on prices as of December 31, 2013) related to its fuel derivative hedges.

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	Year Ended December 31,
		2013			2012		2011
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income 1	Aircraft fuel	$	(34	)	$	3	$	313
Amount of Gain (Loss) Recognized in Income on Derivative 2	Aircraft fuel	22			1		28
Amount of Gain (Loss) Recognized in Consolidated Statements of Operations 3	Aircraft fuel	$	(12	)	$	4	$	341

(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	Year Ended December 31,
		2013			2012			2011
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income 1	Reclassification into Earnings	$	34		$	(3	)	$	(313	)
Amount of Gain (Loss) Recognized in OCI on Derivative 1	Change in Fair Value	(2		)	(12		)	190
Amount of Gain (Loss) Recognized in Consolidated Statements of Comprehensive Income		$	32		$	(15	)	$	(123	)

(1)    Includes the effective portion of hedge gain (loss)

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 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 Consolidated Balance Sheets, and the impact of offsetting aircraft fuel derivative instruments, is depicted below (in millions):

	As of December 31,
	2013		2012
Gross Asset 1	$	109	$	65
Gross Liability 2	—		—
Net Recognized Asset (Liability) in Balance Sheet	109		65
Gross Asset (Liability) Offset in Balance Sheet:
Financial Instruments	—		—
Cash Collateral Received (Posted) 3	—		—
Net Amount	$	109	$	65

(1) Fuel derivative assets are included in Fuel derivative contracts on the accompanying Consolidated Balance Sheets.

(2) Fuel derivative liabilities are included in Accrued liabilities on the accompanying Consolidated Balance Sheets.

(3) As of December 31, 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.

Fair Values of Financial Instruments

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.

In connection with the Merger, US Airways debt was recorded at fair value using the acquisition method of accounting in accordance with ASC 805, "Business Combinations". See Note 4 to AAG's Consolidated Financial Statements for additional information.

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):

	December 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured variable and fixed rate debt	$	2,111	$	2,116	$	3,297	$	3,143
Enhanced equipment trust certificates	3,516		3,617		1,741		1,811
6.0%-8.5% special facility revenue bonds	1,282		1,358		1,313		1,308
7.5% senior secured notes	1,000		1,034		1,000		1,074
Senior secured credit facility due 2019 (rate of 4.75% at December 31, 2013)	1,882		1,896		—		—
AAdvantage Miles advance purchase	611		617		772		779
Other secured obligations, fixed interest rates ranging from 5.20% to 12.20%, maturing from 2014 - 2035	380		380		412		412
US Airways long-term debt, net	6,017		6,017		—		—
	$	16,799	$	17,035	$	8,535	$	8,527

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):

	December 31, 2012
	Carrying Value		Fair Value
Secured variable and fixed rate debt	$	172	$	154
6.0%-8.5% special facility revenue bonds	186		186
Convertible notes	460		400
Debentures	214		112
Notes	166		33
	$	1,198	$	885

All of the Company’s long term debt classified as subject to compromise as of December 31, 2012 is classified as Level 2.

The Company is also 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.

AA [Member]

Derivative [Line Items]

Financial Instruments And Risk Management

Financial Instruments and Risk Management

Fuel Price Risk Management

As of December 31, 2013, American had fuel derivative contracts outstanding covering 22 million barrels of jet fuel that will be settled over the next eighteen months. American does not hold or issue derivative financial instruments for trading purposes. American has not entered into any fuel hedges since the Effective Date and our current policy is not to do so.

In accordance with U.S. GAAP, American assesses, both at the inception of each hedge and on an ongoing basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Derivatives that meet the requirements are granted special hedge accounting treatment, and American’s hedges generally meet these requirements. Accordingly, American’s fuel derivative contracts are accounted for as cash flow hedges, and the fair value of American’s hedging contracts is recorded in Current Assets or Current Liabilities in the accompanying Consolidated Balance Sheets until the underlying jet fuel is purchased. American determines the ineffective portion of its fuel hedge contracts by comparing the cumulative change in the total value of the fuel hedge contract, or group of fuel hedge contracts, to the cumulative change in a hypothetical jet fuel hedge. If the total cumulative change in value of the fuel hedge contract more than offsets the total cumulative change in a hypothetical jet fuel hedge, the difference is considered ineffective and is immediately recognized as a component of Aircraft fuel expense. Effective gains or losses on fuel hedging contracts are deferred in Accumulated other comprehensive income (loss) and are recognized in earnings as a component of Aircraft fuel expense when the underlying jet fuel being hedged is used.

Ineffectiveness is inherent in hedging jet fuel with derivative positions based in crude oil or other crude oil related commodities. American assesses, both at the inception of each hedge and on an ongoing basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. In doing so, American uses a regression model to determine the correlation of the change in prices of the commodities used to hedge jet fuel (e.g., NYMEX Heating oil) to the change in the price of jet fuel. American also monitors the actual dollar offset of the hedges’ market values as compared to hypothetical jet fuel hedges. The fuel hedge contracts are generally deemed to be "highly effective" if the R-squared is greater than 80% and the dollar offset correlation is within 80% to 125%. American discontinues hedge accounting prospectively if it determines that a derivative is no longer expected to be highly effective as a hedge or if it decides to discontinue the hedging relationship. Subsequently, any changes in the fair value of these derivatives are marked to market through earnings in the period of change.

For the years ended December 31, 2013, 2012 and 2011, American recognized net gains/(losses) of approximately $(12) million, $4 million and $301 million, respectively, as a component of Aircraft fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges. The net fair value of American’s fuel hedging agreements at December 31, 2013 and 2012, representing the amount American would receive upon termination of the agreements (net of settled contract assets), totaled $107 million and $62 million, respectively. As of December 31, 2013, American estimates that during the next twelve months it will reclassify from Accumulated other comprehensive income (loss) into earnings approximately $45 million in net gains (based on prices as of December 31, 2013) related to its fuel derivative hedges.

The impact of aircraft fuel derivative instruments (all cash flow hedges) on American's Consolidated Statements of Operations is depicted below (in millions):

	Location in Consolidated Statements of Operations	Year Ended December 31,
		2013			2012		2011
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income 1	Aircraft fuel	$	(34	)	$	3	$	277
Amount of Gain (Loss) Recognized in Income on Derivative 2	Aircraft fuel	22			1		24
Amount of Gain (Loss) Recognized in Consolidated Statements of Operations 3	Aircraft fuel	$	(12	)	$	4	$	301

(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 American's Consolidated Statements of Comprehensive Income is depicted below (in millions):

	Location	Year Ended December 31,
		2013			2012			2011
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income 1	Reclassification into Earnings	$	34		$	(3	)	$	(277	)
Amount of Gain (Loss) Recognized in OCI on Derivative 1	Change in Fair Value	(2		)	(12		)	190
Amount of Gain (Loss) Recognized in Consolidated Statements of Comprehensive Income		$	32		$	(15	)	$	(87	)

(1)    Includes the effective portion of hedge gain (loss)

While certain of American's fuel derivatives are subject to enforceable master netting agreements with its counterparties, American does not offset its fuel derivative assets and liabilities in its 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 American's Consolidated Balance Sheets, and the impact of offsetting aircraft fuel derivative instruments, is depicted below (in millions):

	As of December 31,
	2013		2012
Gross Asset 1	$	109	$	65
Gross Liability 2	—		—
Net Recognized Asset (Liability) in Balance Sheet	109		65
Gross Asset (Liability) Offset in Balance Sheet:
Financial Instruments	—		—
Cash Collateral Received (Posted) 3	—		—
Net Amount	$	109	$	65

(1) Fuel derivative assets are included in Fuel derivative contracts on American's Consolidated Balance Sheets.

(2) Fuel derivative liabilities are included in Accrued liabilities on American's Consolidated Balance Sheets.

(3) As of December 31, 2013, American had posted cash collateral of an immaterial amount.

American 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, American 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, American 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. American also maintains industry-standard security agreements with a number of its counterparties which may require American 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.

Fair Values of Financial Instruments

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

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

	December 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured variable and fixed rate debt	$	2,111	$	2,116	$	3,297	$	3,143
Enhanced equipment trust certificates	3,516		3,617		1,741		1,811
6.0%-8.5% special facility revenue bonds	1,282		1,358		1,313		1,308
7.5% senior secured notes	1,000		1,034		1,000		1,074
Senior secured credit facility due 2019 (rate of 4.75% at December 31, 2013)	1,882		1,896		—		—
AAdvantage Miles advance purchase	611		617		772		779
Other secured obligations, fixed interest rates ranging from 5.20% to 12.20%, maturing from 2014 - 2035	380		380		412		412
Other	27		27		27		27
	$	10,809	$	11,045	$	8,562	$	8,554

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

	December 31, 2012
	Carrying Value		Fair Value
Secured variable and fixed rate debt	$	172	$	154
6.0%-8.5% Special facility revenue bonds	186		186
	$	358	$	340

All of American's long term debt classified as subject to compromise as of December 31, 2012 is classified as Level 2.

American is also 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 American's interest rate cash flow hedges for all periods presented was not material.