American Airlines 2009 Annual Report Download - page 50

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47
Interest The Company’s earnings are also affected by changes in interest rates due to the impact those
changes have on its interest income from cash and short-term investments, and its interest expense from
variable-rate debt instruments. The Company’s largest exposure with respect to variable rate debt comes from
changes in the London Interbank Offered Rate (LIBOR). The Company had variable rate debt instruments
representing approximately 23 percent and 28 percent of its total long-term debt at December 31, 2009 and 2008,
respectively. If the Company’s interest rates average 10 percent more in 2010 than they did at December 31,
2009, the Company’s interest expense would increase by approximately $8 million and interest income from cash
and short-term investments would increase by approximately $1 million. In comparison, at December 31, 2008,
the Company estimated that if interest rates averaged 10 percent more in 2009 than they did at December 31,
2008, the Company’s interest expense would have increased by approximately $13 million and interest income
from cash and short-term investments would have increased by approximately $7 million. These amounts are
determined by considering the impact of the hypothetical interest rates on the Company’s variable rate long-term
debt and cash and short-term investment balances at December 31, 2009 and 2008.
Market risk for fixed rate long-term debt is estimated as the potential increase in fair value resulting from a
hypothetical 10 percent decrease in interest rates and amounts to approximately $316 million and $297 million as
of December 31, 2009 and 2008, respectively. The fair values of the Company’s long-term debt were estimated
using quoted market prices or discounted future cash flows based on the Company’s incremental borrowing rates
for similar types of borrowing arrangements.