American Airlines has revealed that it has sold off all its remaining fuel hedge contracts. This is in line with AA Group partner US Airways’ aversion to fuel hedging, which it considers to be too costly for the protections they provide. American will record a $330 million non-cash charge from cancelling its hedge contracts.
In a statement, the airline said: “The company expects to record a special non-cash tax charge of approximately $330 million in the second quarter of 2014. This non-cash tax provision was recorded in Other Comprehensive Income (“OCI”), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with approximately $930 million of gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with Generally Accepted Accounting Principles, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. We have not entered into any fuel hedges since December 9, 2013. As of June 30, 2014, we do not have any fuel hedging contracts outstanding.”