Financial Instruments And Risk Management

3 Months Ended

Mar. 31, 2014

Derivative [Line Items]

Financial Instruments And Risk Management

Financial Instruments and Risk Management

Fuel Price Risk Management

As of March 31, 2014, the Company had fuel derivative contracts outstanding covering 15 million barrels of jet fuel that will be settled over the next fifteen 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 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 condensed 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) (OCI) 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., NY Harbor Ultra Low Sulfur Diesel) 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 three months ended March 31, 2014 and 2013, the Company recognized net gains/(losses) of approximately $(2) million, and $8 million, respectively, as a component of aircraft fuel expense on the accompanying condensed 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 March 31, 2014 and December 31, 2013, representing the amount the Company would receive upon termination of the agreements (net of settled contract assets), totaled $48 million and $107 million, respectively. As of March 31, 2014, the Company estimates that during the next twelve months it will reclassify from OCI into earnings approximately $3 million in net losses (based on prices as of March 31, 2014) related to its fuel derivative hedges.

The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s condensed consolidated statements of operations is depicted below (in millions):

	Location in condensed consolidated statements of operations	Three Months Ended March 31,
		2014			2013
Amount of gain (loss) reclassified from accumulated OCI into income (1)	Aircraft fuel and related taxes	$	(7	)	$	1
Amount of gain (loss) recognized in income on derivative (2)	Aircraft fuel and related taxes	5			7
Amount of gain (loss) recognized in condensed consolidated statements of operations (3)	Aircraft fuel and related taxes	$	(2	)	$	8

⁽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 condensed consolidated statements of comprehensive income (loss) is depicted below (in millions):

	Location	Three Months Ended March 31,
		2014			2013
Amount of (gain) loss reclassified from accumulated OCI into income (1)	Reclassification into earnings	$	7		$	(1	)
Amount of gain (loss) recognized in OCI on derivative (1)	Change in fair value	(57		)	(13		)
Amount of gain (loss) recognized in condensed consolidated statements of comprehensive income		$	(50	)	$	(14	)

⁽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 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):

	March 31, 2014		December 31, 2013
Gross asset (1)	$	50	$	109
Gross liability (2)	—		—
Net recognized asset (liability) in condensed consolidated balance sheet	50		109
Gross asset (liability) offset in condensed consolidated balance sheet:
Financial instruments	—		—
Cash collateral received (posted) (3)	—		—
Net amount	$	50	$	109

⁽¹⁾  Fuel derivative assets are included in prepaid expenses and other 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 March 31, 2014, the Company had no posted cash collateral.

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.

AA [Member]

Derivative [Line Items]

Financial Instruments And Risk Management

Financial Instruments and Risk Management

Fuel Price Risk Management

As of March 31, 2014, American had fuel derivative contracts outstanding covering 15 million barrels of jet fuel that will be settled over the next fifteen 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 its current policy is not to do so.

In accordance with 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 condensed 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) (OCI) 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., NY Harbor Ultra Low Sulfur Diesel) 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 three months ended March 31, 2014 and 2013, American recognized net gains/(losses) of approximately $(2) million and $8 million, respectively, as a component of aircraft fuel expense on the accompanying condensed 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 March 31, 2014 and December 31, 2013, representing the amount American would receive upon termination of the agreements (net of settled contract assets), totaled $48 million and $107 million, respectively. As of March 31, 2014, American estimates that during the next twelve months it will reclassify from OCI into earnings approximately $3 million in net losses (based on prices as of March 31, 2014) related to its fuel derivative hedges.

The impact of aircraft fuel derivative instruments (all cash flow hedges) on American's condensed consolidated statements of operations is depicted below (in millions):

	Location in condensed consolidated statements of operations	Three Months Ended March 31,
		2014			2013
Amount of gain (loss) reclassified from accumulated OCI into income (1)	Aircraft fuel and related taxes	$	(7	)	$	1
Amount of gain (loss) recognized in income on derivative (2)	Aircraft fuel and related taxes	5			7
Amount of gain (loss) recognized in condensed consolidated statements of operations (3)	Aircraft fuel and related taxes	$	(2	)	$	8

⁽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 condensed consolidated statements of comprehensive income is depicted below (in millions):

	Location	Three Months Ended March 31,
		2014			2013
Amount of (gain) loss reclassified from accumulated OCI into income (1)	Reclassification into earnings	$	7		$	(1	)
Amount of gain (loss) recognized in OCI on derivative (1)	Change in fair value	(57		)	(13		)
Amount of gain (loss) recognized in condensed consolidated statements of comprehensive income		$	(50	)	$	(14	)

⁽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 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 American's condensed consolidated balance sheets, and the impact of offsetting aircraft fuel derivative instruments, is depicted below (in millions):

	March 31, 2014		December 31, 2013
Gross asset (1)	$	50	$	109
Gross liability (2)	—		—
Net recognized asset (liability) in condensed consolidated balance sheet	50		109
Gross asset (liability) offset in condensed consolidated balance sheet:
Financial instruments	—		—
Cash collateral received (posted) (3)	—		—
Net amount	$	50	$	109

⁽¹⁾  Fuel derivative assets are included in prepaid expenses and other 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 March 31, 2014, American had no posted cash collateral.

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.