FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2020

Fair Value of Financial Instruments on a Recurring Basis

As of December 31, 2020, the total cost basis for marketable securities was $1.9 billion. There were no significant differences between the cost basis and fair value of any individual class of marketable securities.

Fair values of financial instruments on the consolidated balance sheet (in millions):


	December 31, 2020						December 31, 2019
	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets
Marketable securities
U.S. government and agency securities	$	407	$	—	$	407	$	330	$	—	$	330
Equity mutual funds	7		—		7		6		—		6
Foreign government bonds	—		20		20		—		31		31
Asset-backed securities	—		224		224		—		211		211
Mortgage-backed securities	—		290		290		—		176		176
Corporate notes and bonds	—		978		978		—		523		523
Municipal securities	—		50		50		—		23		23
Total Marketable securities	414		1,562		1,976		336		964		1,300
Derivative instruments
Fuel hedge contracts - call options	—		15		15		—		11		11
Interest rate swap agreements	—		—		—		—		3		3
Total Assets	$	414	$	1,577	$	1,991	$	336	$	978	$	1,314

Liabilities
Derivative instruments
Interest rate swap agreements	—		(25)		(25)		—		(10)		(10)
Total Liabilities	$	—	$	(25)	$	(25)	$	—	$	(10)	$	(10)

The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. The remaining marketable securities instruments are Level 2 as the fair value is based on standard valuation models that calculate values from observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market and income approaches to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model that uses inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts is determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end, multiplied by the total notional value.

Activity and Maturities for Marketable Securities

Unrealized losses from marketable securities are primarily attributable to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on the Company's evaluation of available evidence as of December 31, 2020.

Proceeds from sales of marketable securities were $2.3 billion, $1.7 billion and $1.1 billion in 2020, 2019, and 2018.

Maturities for marketable securities (in millions):


December 31, 2020	Cost Basis		Fair Value
Due in one year or less	$	775	$	777
Due after one year through five years	1,146		1,175
Due after five years through 10 years	23		24
Total	$	1,944	$	1,976

Fair Value of Other Financial Instruments

The Company used the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value on the consolidated balance sheets.

Cash and Cash Equivalents: These assets are carried at amortized costs which approximate fair value.

Debt: Debt assumed in the acquisition of Virgin America was subject to a non-recurring fair valuation adjustment as part of purchase price accounting. The adjustment was amortized over the life of the associated debt. Following the prepayment of the debt in 2020, this fair valuation adjustment was eliminated. All other fixed-rate debt is carried at cost. To estimate the fair value of all fixed-rate debt as of December 31, 2020, the Company uses the income approach by discounting cash flows utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt, or using quoted market prices. The estimated fair value of the fixed-rate EETC debt is Level 2, as it is estimated using quoted market prices, while the estimated fair value of $488 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt on the consolidated balance sheet and the estimated fair value of long-term fixed-rate debt (in millions):


	December 31, 2020		December 31, 2019


Total fixed rate debt	$	1,662	$	475

Estimated fair value	$	1,778	$	483

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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