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DERIVATIVE INSTRUMENTS
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
NOTE 3. DERIVATIVE INSTRUMENTS

Fuel Hedge Contracts

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into call options for crude oil.

As of December 31, 2015, the Company had fuel hedge contracts outstanding covering 273 million gallons of crude oil that will be settled from January 2016 to June 2017. Refer to the contractual obligations and commitments section of Item 7 for further information.

Interest Rate Swap Agreements

The Company has interest rate swap agreements with a third party designed to hedge the volatility of the underlying variable interest rate in the Company's aircraft lease agreements for six Boeing 737-800 aircraft. The agreements stipulate that the Company pay a fixed interest rate over the term of the contract and receive a floating interest rate. All significant terms of the swap agreement match the terms of the lease agreements, including interest-rate index, rate reset dates, termination dates and underlying notional values. The agreements expire from February 2020 through March 2021 to coincide with the lease termination dates.

Fair Values of Derivative Instruments

Fair values of derivative instruments on the consolidated balance sheet (in millions):
 
2015
 
2014
Derivative Instruments Not Designated as Hedges
 
 
 
Fuel hedge contracts
 
 
 
Prepaid expenses and other current assets
$
2

 
$
3

Other assets
2

 
4

 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
Interest rate swaps
 
 
 
Other accrued liabilities
(5
)
 
(6
)
Other liabilities
(13
)
 
(13
)
Losses in accumulated other comprehensive loss (AOCL)
(18
)
 
(19
)


The net cash received (paid) for new fuel hedge positions and settlements was $(17) million, $(9) million, and $5 million during 2015, 2014, and 2013, respectively.

Pretax effect of derivative instruments on earnings and AOCL (in millions):
 
2015
 
2014
 
2013
Derivative Instruments Not Designated as Hedges
 
 
 
 
 
Fuel hedge contracts
 
 
 
 
 
Gains (losses) recognized in aircraft fuel expense
$
(19
)
 
$
(18
)
 
$
(44
)
 
 
 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
 
 
Interest rate swaps
 
 
 
 
 
Gains (losses) recognized in aircraft rent
(6
)
 
(6
)
 
(6
)
Gains (losses) recognized in other comprehensive income (OCI)
(5
)
 
(8
)
 
10


The amounts shown as recognized in aircraft rent for cash flow hedges (interest rate swaps) represent the realized losses transferred out of AOCL to aircraft rent. The amounts shown as recognized in OCI are prior to the losses recognized in aircraft rent during the period. The Company expects $5 million to be reclassified from OCI to aircraft rent within the next twelve months.

Credit Risk and Collateral

The Company is exposed to credit losses in the event of non-performance by counterparties to these derivative instruments. To mitigate exposure, the Company periodically reviews the risk of counterparty nonperformance by monitoring the absolute exposure levels and credit ratings. The Company maintains security agreements with a number of its counterparties which may require the Company to post collateral if the fair value of the selected derivative instruments fall below specified thresholds. The posted collateral does not offset the fair value of the derivative instruments and is included in "Prepaid expenses and other current assets" on the consolidated balance sheet.

The amount posted as collateral for these contracts is not material to the consolidated balance sheets as of December 31, 2015, and 2014.