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EX-12 - EX-12 - INTERNATIONAL LEASE FINANCE CORP | v54287exv12.htm |
EX-32.1 - EX-32.1 - INTERNATIONAL LEASE FINANCE CORP | v54287exv32w1.htm |
EX-31.2 - EX-31.2 - INTERNATIONAL LEASE FINANCE CORP | v54287exv31w2.htm |
EX-31.1 - EX-31.1 - INTERNATIONAL LEASE FINANCE CORP | v54287exv31w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-31616
INTERNATIONAL LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
California | 22-3059110 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
10250 Constellation Blvd., Suite 3400 Los Angeles, California |
90067 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (310) 788-1999
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of November 6, 2009, there were 45,267,723 shares of Common Stock, no par value,
outstanding.
Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q
and is therefore filing this form with the reduced disclosure format.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
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-2-
TABLE OF DEFINITIONS
AIG
|
American International Group, Inc. | |
AIG Funding
|
AIG Funding, Inc. | |
AIGFP
|
AIG Financial Products Corp. | |
Airbus
|
Airbus S.A.S. | |
AOCI
|
Accumulated other comprehensive income | |
ASC
|
FASB Accounting Standards Codification | |
Boeing
|
The Boeing Company | |
The Company, ILFC, we, our, us
|
International Lease Finance Corporation | |
CPFF
|
FRBNY Commercial Paper Funding Facility | |
CVA
|
Credit Value Adjustment | |
ECA
|
Export Credit Agency | |
FASB
|
Financial Accounting Standards Board | |
Fitch
|
Fitch Ratings, Inc. | |
FRBNY
|
Federal Reserve Bank of New York | |
FRBNY Credit Agreement
|
The credit agreement, dated as of September 22, 2008, as amended, between AIG and the FRBNY | |
GAAP
|
Generally Accepted Accounting Principles in the United States of America | |
KrasAir
|
Krasnoyarsk Airlines | |
Moodys
|
Moodys Investor Service, Inc. | |
MVA
|
Market Value Adjustment | |
OCI
|
Other comprehensive income | |
QSPE
|
Qualifying special-purpose entity | |
SEC
|
U.S. Securities and Exchange Commission | |
S&P
|
Standard and Poors, a division of The McGraw-Hill Companies, Inc. | |
VaR
|
Value at Risk | |
VIEs
|
Variable Interest Entities | |
Volare
|
Estate of Volare Airlines | |
WKSI
|
Well Known Seasoned Issuer |
-3-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS | ||||||||
Cash and cash equivalents, including interest bearing accounts of
$431,810 (2009) and $2,382,068 (2008) |
$ | 446,457 | $ | 2,385,948 | ||||
Restricted cash, including interest bearing accounts of $228,729 (2009) |
290,484 | | ||||||
Notes receivable, net of allowance, and net investment in finance and
sales-type leases |
350,566 | 383,086 | ||||||
Flight equipment under operating leases |
57,697,727 | 55,372,328 | ||||||
Less accumulated depreciation |
13,461,503 | 12,152,189 | ||||||
44,236,224 | 43,220,139 | |||||||
Deposits on flight equipment purchases |
205,150 | 568,549 | ||||||
Lease receivables and other assets |
496,171 | 478,944 | ||||||
Derivative assets, net |
279,293 | 88,203 | ||||||
Variable interest entities assets |
82,299 | 98,746 | ||||||
Deferred debt issue costs, less accumulated amortization of
$140,215 (2009) and $131,527 (2008)
|
108,327 | 91,899 | ||||||
$ | 46,494,971 | $ | 47,315,514 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Accrued interest and other payables |
$ | 465,419 | $ | 441,656 | ||||
Current income taxes |
22,781 | 32,083 | ||||||
Tax benefit sharing payable to AIG |
85,000 | 85,000 | ||||||
Loans from AIG Funding |
1,700,000 | | ||||||
Debt financing, net of deferred debt discount of $10,769 (2009) and
$18,919 (2008) |
27,804,409 | 31,476,668 | ||||||
Subordinated debt |
1,000,000 | 1,000,000 | ||||||
Foreign currency adjustment related to foreign currency denominated debt |
486,120 | 338,100 | ||||||
Security deposits on aircraft, overhauls and other |
1,463,028 | 1,527,884 | ||||||
Rentals received in advance |
305,472 | 299,961 | ||||||
Deferred income taxes |
4,845,458 | 4,478,250 | ||||||
Variable interest entities liabilities |
7,031 | 10,699 | ||||||
Commitments and Contingencies Note H |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Market Auction Preferred Stock, $100,000 per share liquidation
value; Series A and B, each having 500 shares issued
and outstanding |
100,000 | 100,000 | ||||||
Common stock no par value; 100,000,000 authorized shares,
45,267,723 issued and outstanding |
1,053,582 | 1,053,582 | ||||||
Paid-in capital |
602,530 | 600,237 | ||||||
Accumulated other comprehensive income (loss) |
(167,751 | ) | (168,065 | ) | ||||
Retained earnings |
6,721,892 | 6,039,459 | ||||||
Total shareholders equity |
8,310,253 | 7,625,213 | ||||||
$ | 46,494,971 | $ | 47,315,514 | |||||
See notes to condensed consolidated financial statements.
-4-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
REVENUES |
||||||||
Rental of flight equipment |
$ | 1,354,797 | $ | 1,267,459 | ||||
Flight equipment marketing |
(18,938 | ) | 5,841 | |||||
Interest and other |
11,320 | 25,653 | ||||||
1,347,179 | 1,298,953 | |||||||
EXPENSES |
||||||||
Interest |
332,750 | 394,353 | ||||||
Effect from derivatives, net of change in hedged items due to changes in
foreign exchange rates |
(8,880 | ) | (82 | ) | ||||
Effect from credit and market valuation adjustments on derivatives |
| (51,238 | ) | |||||
Depreciation of flight equipment |
499,721 | 475,110 | ||||||
Provision for overhauls |
90,864 | 75,343 | ||||||
Flight equipment rent |
4,500 | 4,500 | ||||||
Selling, general and administrative |
47,337 | 51,701 | ||||||
966,292 | 949,687 | |||||||
INCOME BEFORE INCOME TAXES |
380,887 | 349,266 | ||||||
Provision for income taxes |
135,074 | 124,660 | ||||||
NET INCOME |
$ | 245,813 | $ | 224,606 | ||||
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
REVENUES |
||||||||
Rental of flight equipment |
$ | 3,915,054 | $ | 3,712,849 | ||||
Flight equipment marketing |
(8,291 | ) | 44,988 | |||||
Interest and other |
48,650 | 69,444 | ||||||
3,955,413 | 3,827,281 | |||||||
EXPENSES |
||||||||
Interest |
1,041,357 | 1,140,886 | ||||||
Effect from derivatives, net of change
in hedged items due to changes in
foreign
exchange rates |
(13,207 | ) | 7,449 | |||||
Depreciation of flight equipment |
1,460,621 | 1,389,348 | ||||||
Provision for overhauls |
234,250 | 226,068 | ||||||
Flight equipment rent |
13,500 | 13,500 | ||||||
Selling, general and administrative |
158,706 | 136,569 | ||||||
2,895,227 | 2,913,820 | |||||||
INCOME BEFORE INCOME TAXES |
1,060,186 | 913,461 | ||||||
Provision for income taxes |
374,491 | 325,290 | ||||||
NET INCOME |
$ | 685,695 | $ | 588,171 | ||||
See notes to condensed consolidated financial statements.
-5-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
NET INCOME |
$ | 245,813 | $ | 224,606 | ||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
||||||||
Net changes in fair value of cash flow
hedges, net of taxes of $(5,469) (2009) and
$40,398 (2008) |
10,156 | (75,025 | ) | |||||
Change in unrealized appreciation on
securities available for sale, net of taxes
of $(137) (2009) and $91 (2008) |
255 | (169 | ) | |||||
10,411 | (75,194 | ) | ||||||
COMPREHENSIVE INCOME |
$ | 256,224 | $ | 149,412 | ||||
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
NET INCOME |
$ | 685,695 | $ | 588,171 | ||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
||||||||
Net changes in fair value of cash flow
hedges, net of taxes of $(21) (2009) and
$43,558 (2008) |
38 | (80,894 | ) | |||||
Change in unrealized appreciation on
securities available for sale, net of taxes
of $(149) (2009) and $248 (2008) |
276 | (460 | ) | |||||
314 | (81,354 | ) | ||||||
COMPREHENSIVE INCOME |
$ | 686,009 | $ | 506,817 | ||||
See notes to condensed consolidated financial statements.
-6-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 685,695 | $ | 588,171 | ||||
Adjustments to reconcile net income to net cash provided by
operating
activities: |
||||||||
Depreciation of flight equipment |
1,460,621 | 1,389,348 | ||||||
Deferred income taxes |
367,038 | 330,473 | ||||||
Change in fair value of derivative instruments |
(191,031 | ) | 215,231 | |||||
Foreign currency adjustment of non-US$ denominated debt |
148,020 | (253,140 | ) | |||||
Amortization of deferred debt issue costs |
31,617 | 22,580 | ||||||
Amortization of prepaid lease costs |
38,576 | 44,572 | ||||||
Other, including foreign exchange adjustments on foreign
currency denominated cash |
7,019 | (12,892 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Increase in lease receivables and other assets |
(47,327 | ) | (11,010 | ) | ||||
Increase in accrued interest and other payables |
24,063 | 73,715 | ||||||
Change in current income taxes |
(9,302 | ) | (8,458 | ) | ||||
Increase in rentals received in advance |
5,511 | 1,587 | ||||||
Change in unamortized debt discount |
8,150 | 12,493 | ||||||
Net cash provided by operating activities |
2,528,650 | 2,392,670 | ||||||
INVESTING ACTIVITIES |
||||||||
Acquisition of flight equipment for operating leases |
(2,313,557 | ) | (2,951,729 | ) | ||||
Payments for deposits and progress payments |
(52,234 | ) | (248,397 | ) | ||||
Proceeds from disposal of flight equipment net of loss or gain |
164,164 | 390,868 | ||||||
Advance on notes receivable |
| (43,854 | ) | |||||
Restricted cash |
(290,484 | ) | | |||||
Collections on notes receivable and finance and sales-type
leases net of income amortized |
95,733 | 23,380 | ||||||
Other |
(10 | ) | | |||||
Net cash used in investing activities |
(2,396,388 | ) | (2,829,732 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net change in commercial paper |
(1,752,000 | ) | (2,932,870 | ) | ||||
Loans from AIG Funding |
1,700,000 | 1,671,268 | ||||||
Proceeds from debt financing |
1,394,868 | 9,311,223 | ||||||
Payments in reduction of debt financing |
(3,323,277 | ) | (2,790,991 | ) | ||||
Debt issue costs |
(48,045 | ) | (20,085 | ) | ||||
Payment of common and preferred dividends |
(3,262 | ) | (41,869 | ) | ||||
(Decrease) increase in customer and other deposits |
(41,475 | ) | 166,192 | |||||
Net cash (used in) provided by financing activities |
(2,073,191 | ) | 5,362,868 | |||||
Net (decrease) increase in cash |
(1,940,929 | ) | 4,925,806 | |||||
Effect of exchange rate changes on cash |
1,438 | (2,389 | ) | |||||
Cash at beginning of period |
2,385,948 | 182,772 | ||||||
Cash at end of period |
$ | 446,457 | $ | 5,106,189 | ||||
(Table continued on following page)
-7-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Dollars in thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Cash paid during the period for: |
||||||||
Interest, excluding interest
capitalized of $8,798 (2009)
and $20,681 (2008) |
$ | 1,067,499 | $ | 1,023,533 | ||||
Income taxes, net |
16,754 | 3,275 |
Non-Cash Investing and Financing Activities
2009:
$396,633 of Deposits on flight equipment purchases was applied to Acquisition of flight
equipment under operating leases.
Three aircraft with a cumulative net book value of $58,965 were reclassified as sales-type
leases.
An aircrafts net book value of $20,921 and released overhaul reserves in the amount of $6,891
were reclassified to Lease receivables and other assets of $33,223 to reflect pending proceeds
from the loss of an aircraft. The receivable of $33,223 was paid in full in the third quarter
and is included in Proceeds from disposal of flight equipment.
An aircrafts net book value of $10,521 was reclassified to Lease receivables and other assets
in the amount of $2,400 with a $7,507 charge to income when reclassified to an asset held for
sale. See Note D of Notes to Condensed Consolidated Financial Statements.
$1,500 was reclassified from Security deposits on aircraft, overhauls and other to Deposits on
flight equipment purchases for concessions received from manufacturers.
A reduction in certain credits from aircraft and engine manufacturers in the amount of $742
increased the basis of Flight equipment under operating leases and decreased Lease receivables
and other assets.
2008:
$431,142 of Deposits on flight equipment purchases was applied to Acquisition of flight
equipment under operating leases.
$53,788 was reclassified from Security deposits on aircraft, overhauls and other to Deposits on
flight equipment purchases for concessions received from manufacturers.
Certain credits from aircraft and engine manufacturers in the amount of $9,301 reduced the
basis of Flight equipment under operating leases and increased Lease receivables and other
assets.
See notes to condensed consolidated financial statements.
-8-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited)
A. Basis of Preparation
ILFC is an indirect wholly-owned subsidiary of AIG. AIG is a holding company, which,
through its subsidiaries, is primarily engaged in a broad range of insurance and
insurance-related activities in the United States and abroad. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with GAAP for
interim financial information and in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements.
The accompanying unaudited condensed consolidated financial statements include our
accounts, accounts of all other entities in which we have a controlling financial interest, as
well as accounts of VIEs in which we are the primary beneficiary. The primary beneficiary of a
VIE is the party with variable interest in the entity that absorbs the majority of the expected
losses of the VIE, receives the majority of the expected residual returns of the VIE, or both.
See Note J Variable Interest Entities. All material intercompany accounts have been
eliminated in consolidation. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair statement of the results for the
interim periods presented have been included. Certain reclassifications have been made to the
2008 unaudited condensed consolidated financial statements to conform to the 2009 presentation.
Operating results for the nine months ended September 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2009. These statements
should be read in conjunction with the consolidated financial statements and footnotes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Consideration of ILFCs Ability to Continue as a Going Concern
As discussed in greater detail in our Annual Report on Form 10-K for the year ended
December 31, 2008, our management assessed our current financial position, liquidity needs and
ability to meet our obligations as they come due, and made significant judgments and estimates
with respect to the potential financial and liquidity effects of our risks and uncertainties.
Based on AIGs intention to continue to support us as expressed in AIGs Quarterly Report on
Form 10-Q for the period ended September 30, 2009, its recent funding of $2.0 billion to us to
repay our maturing credit facility in October 2009 and managements plans, as described in our
Annual Report on Form 10-K for the year ended December 31, 2008, and after consideration of the
risks and uncertainties of such plans, management believes that we will have adequate liquidity
to finance and operate our business and repay our obligations for at least the next twelve
months.
As a result of this determination, our condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. These condensed consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets, nor relating to the amounts and classification of
liabilities that may be necessary should we be unable to continue as a going concern.
It is possible that the actual outcome of one or more of managements plans could be
materially different or that one or more of managements significant judgments or estimates
about the potential effects of the risks and uncertainties could prove to be materially
incorrect.
Effect of 2008 Out-of-Period Adjustment Related to Derivative Credit Value Adjustment and
Market Value Adjustment
We recorded a credit in the amount of $26.2 million and a charge of $34.2 million to OCI
for changes in the fair value of our cash flow hedges related to CVA and MVA for the three- and
nine-month periods ended
September 30, 2009, respectively. In the third quarter of 2008, we concluded that $51.2 million
related to CVA and MVA and recorded as a charge to income during the six months ended June 30,
2008, should have been recorded in OCI. We concluded the effect of the out-of-period adjustments
aggregating $51.2 million was not material to any
-9-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
period affected, and, as a result, income was
increased by $51.2 million during the three
months ended September 30, 2008, with a corresponding charge to OCI. The adjustment is
presented separately on the Condensed Consolidated Statement of Income for the three months
ended September 30, 2008. For the nine months ended September 30, 2008, we recorded a charge of
$142.0 million to OCI.
B. Recent Accounting Pronouncements
We adopted the following accounting standards during the first nine months of 2009:
Business Combinations
In December 2007, the FASB issued an accounting standard that changed the accounting for
business combinations in a number of ways, including broadening the transactions or events that
are considered business combinations; requiring an acquirer to recognize 100 percent of the
fair value of certain assets acquired, liabilities assumed, and non-controlling (i.e.,
minority) interests; and recognizing contingent consideration arrangements at their
acquisition-date fair values with subsequent changes in fair value generally reflected in
income, among other changes. We adopted the new standard for business combinations for which
the acquisition date is on or after January 1, 2009. Our adoption of this guidance did not have
any effect on our consolidated financial position, results of operations or cash flows at and
for the three and nine months ended September 30, 2009, but may have an effect on the
accounting for future business combinations, if any.
Non-controlling Interests in Consolidated Financial Statements
In December 2007, the FASB issued an accounting standard that requires non-controlling
(i.e., minority) interests in partially owned consolidated subsidiaries to be classified in the
consolidated balance sheet as a separate component of equity, or in the mezzanine section of
the balance sheet (between liabilities and equity) if such interests do not qualify for
permanent equity classification. The new standard also specifies the accounting for
subsequent acquisitions and sales of non-controlling interests and how non-controlling
interests should be presented in the consolidated statement of income. The non-controlling
interests share of subsidiary income (loss) should be reported as a part of consolidated net
income (loss) with disclosure of the attribution of consolidated net income to the controlling
and non-controlling interests on the face of the consolidated statement of income. This new
standard became effective for us beginning with financial statements issued for the first
quarter of 2009. This standard had to be adopted prospectively, except that non-controlling
interests should be reclassified from liabilities to a separate component of shareholders
equity and consolidated net income should be recast to include net income attributable to both
the controlling and non-controlling interests retrospectively. We had no recorded minority
interest in our consolidated VIEs and therefore the adoption of this accounting standard did
not have any effect on our consolidated financial position, results of operations or cash
flows.
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued an accounting standard that requires enhanced disclosures
about (i) how and why a company uses derivative instruments; (ii) how derivative instruments
and related hedged items are accounted for; and (iii) how derivative instruments and related
hedged items affect a companys consolidated financial condition, results of operations, and
cash flows. We adopted the new standard for the period ended March 31, 2009. Because this new
accounting standard only requires additional disclosures about derivatives, it did not have any
effect on our consolidated financial position, results of operations, or cash flows. See Note E
Derivative Activities.
Interim Disclosures about Fair Value of Financial Instruments
In April 2009, the FASB issued an accounting standard that requires a company to disclose
information about the fair value of financial instruments (including methods and significant
assumptions used) in interim financial statements. The standard also requires the disclosures
in summarized financial information for interim reporting periods. We adopted the new standard
for the period ended June 30, 2009. As the
-10-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
standard only requires additional disclosures, our
adoption of the standard did not have any effect on our consolidated
financial position, results of operations or cash flows. See Note F Fair Value
Disclosures of Financial Instruments, for related disclosures.
Recognition and Presentation of Other-Than-Temporary Impairments
In April 2009, the FASB issued an accounting standard that requires a company to recognize
the credit component of an other-than-temporary impairment of a fixed maturity security in
income and the non-credit component in AOCI when the company does not intend to sell the
security, or it is more likely than not that the company will not be required to sell the
security prior to recovery. The standard also changed the threshold for determining when an
other-than-temporary impairment has occurred on a fixed maturity security with respect to
intent and ability to hold until recovery and requires additional disclosures in interim and
annual reporting periods for fixed maturity and equity securities. The standard does not change
the recognition of other-than-temporary impairment for equity securities. We adopted the new
standard for the period ended June 30, 2009. The adoption did not have any effect on our
consolidated financial position, results of operations or cash flows.
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly
In April 2009, the FASB issued an accounting standard that provides guidance for
estimating the fair value of assets and liabilities when the volume and level of activity for
an asset or liability have significantly decreased and for identifying circumstances that
indicate a transaction is not orderly. The new standard also requires extensive additional fair
value disclosures. We adopted the new standard for the period ended June 30, 2009. The adoption
did not have any effect on our consolidated financial position, results of operations or cash
flows.
Subsequent Events
In May 2009, the FASB issued an accounting standard that requires disclosure of the date
through which a company evaluated the need to disclose events that occurred subsequent to the
balance sheet date and whether that date represents the date the financial statements were
issued or were available to be issued. We adopted the new standard for the period ended June
30, 2009. The adoption of the new standard did not affect our consolidated financial position,
results of operations or cash flows. We considered subsequent events through November 6, 2009
for disclosures in this Form 10-Q, which is the date the financial statements were available to
be issued.
FASB Accounting Standards Codification
In June 2009, the FASB issued an accounting standard that established the FASB ASC, which
became the source of authoritative U.S. GAAP for non-governmental entities effective for the
period ended September 30, 2009. Rules and interpretive releases of the SEC, under authority of
federal securities laws, are also sources of authoritative GAAP for SEC registrants. On the
effective date of this standard, the ASC superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature not included in
the ASC became non-authoritative. We adopted the new standard for the period ended
September 30, 2009, its effective date. The adoption did not have any effect on our
consolidated financial position, results of operations or cash flows.
Future Application of Accounting Standards:
Employers Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued an accounting standard that requires more detailed
disclosures about an employers plan assets, including the employers investment strategies,
major categories of plan assets, concentrations of risk within plan assets, and valuation
techniques used to measure the fair values of plan assets. The new standard is effective for
fiscal years ending after December 15, 2009. Because this standard only requires additional
disclosures, the adoption of the new standard will have no effect on our consolidated financial
position, results of operations or cash flows.
-11-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued an accounting standard addressing transfers of financial
assets that removes the concept of a QSPE from the FASB ASC and removes the exception from
applying the consolidation rules to QSPEs. The new standard is effective for interim and annual
periods beginning on January 1, 2010 for us. Earlier application is prohibited. The adoption of
the new standard will have no effect on our consolidated financial position, results of
operations, or cash flows, as we do not have any involvement with QSPEs.
Consolidation of Variable Interest Entities
In June 2009, the FASB issued an accounting standard that amends the rules addressing
consolidation of VIEs with an approach focused on identifying which enterprise has the power to
direct the activities of a VIE that most significantly affect the entitys economic performance
and has (i) the obligation to absorb losses of the entity or (ii) the right to receive benefits
from the entity. The new standard also requires enhanced financial reporting by enterprises
involved with VIEs. The new standard is effective for interim and annual periods beginning on
January 1, 2010 for us. Earlier application is prohibited. We are currently evaluating the
effect this new accounting standard will have on our consolidated financial position, results
of operations or cash flows.
Measuring Liabilities at Fair Value
In August 2009, the FASB issued an accounting standards update to clarify how the fair
value measurement principles should be applied when measuring liabilities carried at fair
value. The update explains how to prioritize market inputs in measuring liabilities at fair
value and what adjustments to market inputs are appropriate for debt obligations that are
restricted from being transferred to another obligor. The update is effective for interim and
annual periods ending after December 15, 2009. The adoption of the update will not have any
effect on our consolidated financial position, results of operations or cash flows, but will
affect the way we value our debt when disclosing its fair value.
C. Restricted Cash
Because of our current long-term debt ratings, we are required under our 1999 and 2004 ECA
facilities to segregate security deposits and maintenance reserves for aircraft funded under
these facilities into separate accounts. Since July 31, 2009, when Moodys most recently
downgraded our long-term debt rating, we have also been required to segregate rental payments
received under leases for aircraft funded under the 2004 ECA facility. At September 30, 2009,
we had segregated security deposits, maintenance reserves and rental
payments aggregating approximately $229 million and $61 million related to aircraft funded
under the 2004 and 1999 ECA facilities, respectively. The security trustee of the 2004 ECA
facility took control of the accounts relating to that facility following Moodys July 31, 2009
downgrade of our long-term debt rating. The segregated accounts related to the 1999 ECA
facility all remained under our control at September 30, 2009. The segregated amounts fluctuate
with changes in security deposits, maintenance reserves, rental payments and debt maturities
related to the aircraft funded under the ECA facilities.
D. Fair Value Measurements
The ASC defines fair value as the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between market participants at the
measurement date. The degree of judgment used in measuring the fair value of financial
instruments generally correlates with the level of pricing observability. The ASC has
established a three-level hierarchy for fair value measurements based upon the transparency of
inputs to the valuation of an asset or liability as of the measurement date. Level 1 refers to
fair values determined based on quoted prices in active markets for identical assets; Level 2
refers to fair values estimated using significant other observable inputs; and Level 3 refers
to fair values estimated using significant non-observable inputs.
-12-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities that are measured at fair value on
a recurring basis as of September 30, 2009 and December 31, 2008, and are categorized using the
fair value hierarchy described above.
Counterparty | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting (a) | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
September 30, 2009: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 353,084 | (b) | $ | | $ | (73,791 | ) | $ | 279,293 | ||||||||
Derivative liabilities |
| (73,791 | ) | | 73,791 | | ||||||||||||||
Total derivative assets, net |
$ | | $ | 279,293 | $ | | $ | | $ | 279,293 | ||||||||||
December 31, 2008: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 192,568 | (b) | $ | | $ | (104,365 | ) | $ | 88,203 | ||||||||
Derivative liabilities |
| (104,365 | ) | | 104,365 | | ||||||||||||||
Total derivative assets, net |
$ | | $ | 88,203 | $ | | $ | | $ | 88,203 | ||||||||||
(a) | As permitted under GAAP, we have elected to offset derivative assets and derivative liabilities under our master netting agreement. | |
(b) | The balance includes CVA and MVA of $54.3 million and $19.8 million at September 30, 2009 and December 31, 2008, respectively. |
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
ILFC also measures the fair value of certain assets on a non-recurring basis, generally
quarterly, annually, or when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. In the first quarter of 2009, we recorded a $7.5
million charge to write down an aircraft classified as held for sale in accordance with the
accounting guidance related to impairment of long-lived assets. The aircraft was sold in the
third quarter of 2009. The fair value of an aircraft is classified as a Level 3 valuation. The
unobservable inputs utilized in the calculation are described in our policy in Note L of Notes
to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended
December 31, 2008.
E. Derivative Activities
We use derivatives to manage exposures to interest rate and foreign currency risks. At
September 30, 2009, we had interest rate and foreign currency swap agreements with a related
counterparty and interest rate cap agreements with an unrelated counterparty.
We record the changes in fair value of derivatives in income or OCI depending on the
designation of the hedge as either fair value hedges or cash flow hedges, respectively. Where
hedge accounting is not achieved, the change in fair value of the derivative is recorded in
income. In the case of a re-designation of a derivative contract, we amortize the balance
accumulated in AOCI at the time of the re-designation over the remaining life of the underlying
derivative. Our foreign currency swap agreements mature through 2011, our interest rate swap
agreements mature through 2015, and our interest rate cap agreements mature in 2018.
During the second quarter of 2009, we entered into two interest rate cap agreements with
an unrelated counterparty in connection with a secured financing transaction. We have not
designated the interest rate caps as hedges, and all changes in fair value are recorded in
income.
All of our interest rate and foreign currency swap agreements are subject to a master
netting agreement, which would allow the netting of derivative assets and liabilities in the
case of default under any one contract. Our derivative portfolio is recorded at fair value on
our balance
-13-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
sheet on a net basis in Derivative assets, net
(see Note D Fair Value Measurements). We account for all of our interest rate swap and
foreign currency swap agreements as cash flow hedges. We do not have any credit risk related
contingent features and are not required to post collateral under any of our existing
derivative contracts.
Derivatives have notional amounts, which generally represent amounts used to calculate
contractual cash flows to be exchanged under the contract. The following table presents
notional and fair values of derivatives outstanding at the following dates:
Asset Derivatives | Liability Derivatives | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
USD | USD | |||||||||||||||
(In thousands) | ||||||||||||||||
September 30, 2009: |
||||||||||||||||
Derivatives designated as hedging
instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 1,100,370 | $ | (71,674 | ) | |||||||
Foreign exchange swap agreements |
| 1,600,000 | 293,656 | 34,445 | (2,117 | ) | ||||||||||
Foreign exchange swap agreements |
£ | 300,000 | 55,963 | | | |||||||||||
Total derivatives designated as
hedging instruments |
$ | 349,619 | $ | (73,791 | ) | |||||||||||
Derivatives not designated as
hedging instruments: |
||||||||||||||||
Interest rate cap agreements |
$ | 103,365 | $ | 3,465 | $ | | $ | | ||||||||
Total derivatives |
$ | 353,084 | $ | (73,791 | ) | |||||||||||
December 31, 2008: |
||||||||||||||||
Derivatives designated as hedging
instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 1,215,309 | $ | (103,622 | ) | |||||||
Foreign exchange swap agreements |
| 1,600,000 | 187,589 | 72,100 | (743 | ) | ||||||||||
£ | 300,000 | 4,979 | | | ||||||||||||
Total derivatives designated as
hedging instruments |
$ | 192,568 | $ | (104,365 | ) | |||||||||||
(a) | Converts floating interest rate debt into fixed rate debt. |
-14-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
During the three and nine months ended September 30, 2009 and 2008, we recorded the
following in OCI related to derivative instruments:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Gain (Loss) |
||||||||||||||||
Effective portion of change in fair market value of derivatives (a) |
$ | 96,196 | $ | (654,134 | ) | $ | 148,443 | $ | (376,972 | ) | ||||||
Amortization of balances of de-designated hedges and other
adjustments |
(121 | ) | (194 | ) | (364 | ) | (620 | ) | ||||||||
Foreign exchange component of cross currency swaps (credited) charged
to income |
(80,450 | ) | 538,905 | (148,020 | ) | 253,140 | ||||||||||
Income tax effect |
(5,469 | ) | 40,398 | (21 | ) | 43,558 | ||||||||||
Net changes in cash flow hedges, net of taxes |
$ | 10,156 | $ | (75,025 | ) | $ | 38 | $ | (80,894 | ) | ||||||
(a) | 2009 includes $26,214 and $(34,193) of combined CVA and MVA for the three- and nine-month periods ended September 30, respectively. 2008 includes $(141,952) of combined CVA and MVA for the three- and nine-month periods ended September 30. Changes in the combined CVA and MVA were recorded in income prior to the three-month period ended September 30, 2008. See Note A Basis of Preparation. |
The following table presents the effective portion of the unrealized gain (loss) on
derivative positions recorded in OCI:
Amount of Unrealized Gain or (Loss) | ||||||||||||||||
Recorded in OCI on Derivatives | ||||||||||||||||
(Effective Portion) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Derivatives Designated as Cash Flow Hedges |
||||||||||||||||
Interest rate swap agreements |
$ | (12,256 | ) | $ | (11,768 | ) | $ | 7,747 | $ | (18,014 | ) | |||||
Foreign exchange swap agreements (a) |
82,290 | (642,081 | ) | 81,747 | (336,760 | ) | ||||||||||
Total |
$ | 70,034 | $ | (653,849 | ) | $ | 89,494 | $ | (354,774 | ) | ||||||
(a) | 2009 includes $26,214 and $(34,193) of combined CVA and MVA for the three- and-nine month periods ended September 30, 2009, respectively. 2008 includes $(141,952) of combined CVA and MVA for the three- and nine-month periods ended September 30. Changes in the combined CVA and MVA were recorded in income prior to the three-month period ended September 30, 2008. See Note A Basis of Preparation. |
The following table presents amounts reclassified from AOCI into income when cash payments
were made or received on our qualifying cash flow hedges:
Amount of Gain or (Loss) Reclassified from | ||||||||||||||||
AOCI Into Income | ||||||||||||||||
(Effective Portion) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Location of Gain or (Loss) Reclassified from AOCI into
Income (Effective Portion) |
||||||||||||||||
Interest rate swap agreements interest expense |
$ | (10,034 | ) | $ | (5,678 | ) | $ | (26,015 | ) | $ | (10,393 | ) | ||||
Foreign exchange swap agreements interest expense |
(15,386 | ) | 8,296 | (33,672 | ) | 40,341 | ||||||||||
Foreign exchange swap agreements lease revenue |
(742 | ) | (2,333 | ) | 738 | (7,750 | ) | |||||||||
Total |
$ | (26,162 | ) | $ | 285 | $ | (58,949 | ) | $ | 22,198 | ||||||
-15-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
We estimate that within the next twelve months, we will amortize into earnings
approximately $30.6 million of the pre-tax balance in AOCI under cash flow hedge accounting in
connection with our program to convert debt from floating to fixed interest rates.
The following table presents the effect of derivatives recorded in the Condensed
Consolidated Statements of Income for the three and nine months ended September 30, 2009 and
2008:
Amount of Gain or (Loss) Recognized | ||||||||||||||||
in Income on Derivatives | ||||||||||||||||
(Ineffective Portion) (a) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Derivatives Designated as Cash Flow Hedges: |
||||||||||||||||
Interest rate swap agreements |
$ | (232 | ) | $ | (251 | ) | $ | (622 | ) | $ | (748 | ) | ||||
Foreign exchange swap agreements |
9,559 | 139 | 14,733 | (7,282 | ) | |||||||||||
Total |
9,327 | (112 | ) | 14,111 | (8,030 | ) | ||||||||||
Derivatives Not Designated as a Hedge: |
||||||||||||||||
Interest rate cap agreements (b) |
(568 | ) | | (1,268 | ) | | ||||||||||
Reconciliation to Condensed Consolidated Statements of Income: |
||||||||||||||||
Reclassification of amounts de-designated as hedges
recorded in AOCI |
121 | 194 | 364 | 581 | ||||||||||||
Effect from derivatives, net of change in hedged items
due to changes in foreign exchange rates |
$ | 8,880 | $ | 82 | $ | 13,207 | $ | (7,449 | ) | |||||||
(a) | All components of each derivatives gain or loss were included in the assessment of effectiveness. | |
(b) | An additional $0.8 million of amortization of premium paid to the derivative counterparty was recognized in Interest expense during the nine months ended September 30, 2009. No premium was amortized during the three months ended September 30, 2009. |
F. Fair Value Disclosures of Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for
financial instruments:
Cash, Including Restricted Cash: The carrying value reported on the balance sheet for
cash and cash equivalents approximates its fair value.
Notes Receivable: The fair values for notes receivable are estimated using discounted
cash flow analyses, using market derived discount rates.
Debt Financing: The following assumptions were made when estimating the fair value of
our debt financings:
Commercial paper: The carrying value approximates its fair value
due to its short maturities and floating interest rates.
Long-term fixed rate debt: Cash flows are discounted using relevant
swap zero curves and Credit Default Swap (CDS) spreads were used to
incorporate cost of protection.
-16-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Floating rate non-ECA debt: Cash flows are estimated using current
forward rates. The cash flows are discounted using current swap zero curves and
CDS spreads were used to incorporate cost of protection.
ECA debt: Cash flows are estimated using current forward rates.
The cash flows are discounted using current swap zero curves and exclude
adjustments for cost of protection to reflect guarantees by the European Export
Credit Agencies, implying a AAA rated government guarantee on the debt.
Junior subordinated debt: Quoted market prices were used to value
the junior subordinated debt.
Derivatives: Fair values were based on the use of AIG valuation models that utilize
among other things, current interest, foreign exchange and volatility rates, as
applicable.
Guarantees: For guarantees entered into after December 31, 2002 we record the fee
paid to us as the initial carrying value of the guarantees which are included in Accrued
interest and other payables on our consolidated balance sheets. The fee received is
recognized ratably over the guarantee period. Included in the fair value balance below
are two loan guarantees entered into prior to December 31, 2002, which are not included in
the balance on our Condensed Consolidated Balance Sheets. Fair value for these guarantees
is approximately equal to total unamortized fees.
The carrying amounts and fair values of the Companys financial instruments at September
30, 2009 and December 31, 2008 are as follows:
September 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount of | Fair Value | Amount of | Fair Value | |||||||||||||
Asset | of Asset | Asset | of Asset | |||||||||||||
(Liability) | (Liability) | (Liability) | (Liability) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash, including restricted cash |
$ | 736,941 | $ | 736,941 | $ | 2,385,948 | $ | 2,385,948 | ||||||||
Notes receivable |
86,767 | 81,577 | 81,327 | 71,012 | ||||||||||||
Debt financing (including loans
from AIG Funding, subordinated
debt and foreign currency
adjustment, excluding debt
discount) |
(31,001,298 | ) | (27,761,373 | ) | (32,833,687 | ) | (28,818,662 | ) | ||||||||
Derivative assets, net |
279,293 | 279,293 | 88,203 | 88,203 | ||||||||||||
Guarantees |
(11,340 | ) | (13,465 | ) | (12,778 | ) | (15,209 | ) |
G. Related Party Transactions
We are party to cost sharing agreements, including tax, with AIG. Generally, these
agreements provide for the allocation of corporate costs based upon a proportional allocation
of costs to all subsidiaries. We also pay other subsidiaries of AIG a fee related to management services provided for certain of our
foreign subsidiaries. We earned management fees from two trusts consolidated by AIG for the
management of aircraft we sold to the trusts in prior years.
We borrowed $1.7 billion from AIG Funding, an affiliate of our parent, in March 2009 to
assist in funding our liquidity needs. See Note I Debt Financings. On October 13, 2009, we
entered into a new $2.0 billion credit agreement with AIG Funding. We also amended and restated
the existing borrowings of $1.7 billion. See Note K Subsequent Event.
All of our interest rate swap and foreign currency swap agreements are with AIGFP, a
related party. See Note D
Fair Value
-17-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Measurements and Note E Derivative Activities. In
addition, we purchase insurance
through a broker who may place part of our policies with AIG. Total insurance premiums were
$4.9 million and $4.3 million for the nine-month periods ended September 30, 2009 and 2008,
respectively.
Our financial statements include the following amounts involving related parties:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2009 |
September 30, 2008 |
September 30, 2009 |
September 30, 2008 |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income Statement |
||||||||||||||||
Expense (income): |
||||||||||||||||
Allocation of corporate costs from AIG |
$ | 1,882 | $ | 3,715 | $ | 7,368 | $ | 10,328 | ||||||||
Management fees paid to subsidiaries of AIG |
247 | 215 | 683 | 638 | ||||||||||||
Management fees received |
(2,453 | ) | (2,430 | ) | (7,113 | ) | (7,332 | ) | ||||||||
Interest expense on loans from AIG Funding |
28,342 | 2,896 | 59,936 | 2,896 | ||||||||||||
September 30, | December 31, | |||||||||||||||
2009 | 2008 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance Sheet |
||||||||||||||||
Asset (liability): |
||||||||||||||||
Derivative assets, net |
$ | 275,828 | $ | 88,203 | ||||||||||||
Taxes benefit sharing payable to AIG |
(85,000 | ) | (85,000 | ) | ||||||||||||
Accrued corporate costs payable to AIG |
(3,863 | ) | (6,092 | ) | ||||||||||||
Loans payable to AIG Funding |
(1,700,000 | ) | | |||||||||||||
Income taxes payable to AIG |
(22,781 | ) | (32,083 | ) | ||||||||||||
Net payable for management fees and other |
(9 | ) | (3 | ) |
H. Commitments and Contingencies
Guarantees
| Asset Value Guarantees: We have guaranteed a portion of the residual value of 22 aircraft to financial institutions and other unrelated third parties for a fee. These guarantees expire at various dates through 2023 and generally obligate us to pay the shortfall between the fair market value and the guaranteed value of the aircraft and provide us with an option to purchase the aircraft for the guaranteed value. At September 30, 2009, the maximum commitment that we would be obligated to pay under such guarantees, without any offset for the projected value of the aircraft, was approximately $530 million. | ||
| Aircraft Loan Guarantees: We have guaranteed two loans collateralized by aircraft to financial institutions for a fee. The guarantees expire in 2014, when the loans mature and obligate us to pay an amount up to the guaranteed value upon the default of the borrower, which may be offset by a portion of the underlying value of the aircraft collateral. At September 30, 2009, the guaranteed value, without any offset for the projected value of the aircraft, was approximately $28 million. |
Management regularly reviews the underlying values of the aircraft collateralized to
determine our exposure under these guarantees. We currently do not anticipate that we will be
required to perform under such guarantees based upon the underlying values of the aircraft
collateralized.
In addition, in October 2009, we entered into guarantee agreements to guarantee the
repayment of AIGs obligations under the FRBNY Credit Agreement up to an amount equal to the
aggregate outstanding balance of our borrowings from AIG Funding. See Note K Subsequent
Event.
-18-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Legal Contingencies
| Flash Airlines: We are named in lawsuits in connection with the January 3, 2004 crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an Egyptian carrier. These lawsuits were filed by the families of victims on the flight and seek unspecified damages for wrongful death, costs and fees. The initial lawsuit was filed in May 2004 in California, and subsequent lawsuits were filed in California and Arkansas. All cases filed in the U.S. were dismissed on the grounds of forum non conveniens and transferred to the French Tribunal de Grande Instance civil court in either Bobigny or Paris. The Bobigny plaintiffs challenged French jurisdiction, whereupon the French civil court decided to retain jurisdiction, on appeal the Paris Court of Appeal reversed, and on appeal the French Cour de Cassation elected to defer its decision pending a trial on the merits. We believe we are adequately covered in these cases by the liability insurance policies carried by Flash Airlines and we have substantial defenses to these actions. We do not believe that the outcome of these lawsuits will have a material effect on our consolidated financial condition, results of operations or cash flows. | ||
| Krasnoyarsk Airlines: We leased a 757-200ER aircraft to a Russian airline, KrasAir, which is now the subject of a Russian bankruptcy-like proceeding. The aircraft lease was assigned to another Russian carrier, Air Company Atlant-Soyuz Incorporated, which defaulted under the lease. In the first quarter of 2009, we were informed that the Russian customs authority had seized the aircraft during a time frame we believe to be late 2008. The aircraft was seized on the basis of certain alleged violations by KrasAir with respect to the import of the aircraft, including the import type and customs fees owed. The Russian customs authority filed a case in April 2009 in the general jurisdiction court in Krasnoyarsk, Russia seeking an order permitting it to confiscate the aircraft due to these alleged violations. Shortly after the lawsuit was filed, we intervened in the lawsuit in order to protect our ownership rights and informed the insurance underwriters under KrasAirs, Atlant-Soyuzs, and our insurance policies of this matter. In the second quarter of 2009, the court decided that the seizure of the aircraft by the Russian customs authority was improper and denied the Russian customs authoritys request to confiscate the aircraft. Also in the second quarter of 2009, another Russian airline signed a lease for the aircraft. The aircraft was returned to us by the Russian customs authority and is currently undergoing maintenance in Moscow, Russia and we are currently negotiating a resolution of all customs-related issues with the Russian customs authority. We cannot predict what the outcome of this matter will be, but we do not believe that it will be material to our consolidated financial position, results of operations or cash flows. | ||
| Estate of Volare Airlines: In November 2004, Volare, an Italian airline, filed for bankruptcy in Italy. Prior to Volares bankruptcy, we leased to Volare through wholly-owned subsidiaries two A320-200 aircraft and four A330-200 aircraft. In addition, we managed the lease to Volare by an entity that is a related party to us of one A330-200 aircraft. In October 2009, the Volare bankruptcy receiver filed a claim in an Italian court in the amount of 29,592,209.92 against us and our related party for the return to the Volare estate of all payments made by it to us and our related party in the year prior to Volares bankruptcy filing. We have engaged Italian counsel to represent us and intend to defend this matter vigorously. We cannot predict the outcome of this matter, but we do not believe that it will be material to our consolidated financial position, results of operations or cash flows. |
We are also a party to various claims and litigation matters arising in the ordinary
course of our business. We do not believe the outcome of any of these matters will be material
to our consolidated financial position, results of operations or cash flows.
-19-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
I. Debt Financings
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Public bonds and medium-term notes |
$ | 17,440,799 | $ | 19,748,541 | ||||
Bank debt |
7,092,000 | 7,558,750 | ||||||
ECA financings |
3,125,150 | 2,436,296 | ||||||
Other secured financings (a) |
157,229 | | ||||||
Loans from AIG Funding |
1,700,000 | | ||||||
Subordinated debt |
1,000,000 | 1,000,000 | ||||||
Total public, bank, intercompany, and subordinated debt |
30,515,178 | 30,743,587 | ||||||
Commercial paper and other short-term debt |
| 1,752,000 | ||||||
Less: Deferred debt discount |
(10,769 | ) | (18,919 | ) | ||||
Total debt financing and subordinated debt |
$ | 30,504,409 | $ | 32,476,668 | ||||
(a) | $133.5 million of these secured financings is non-recourse to ILFC. These secured financings were incurred by either a consolidated VIE or by a wholly owned subsidiary of ILFC, each without recourse to ILFC. |
We have had the following changes in our financing arrangements since December 31,
2008:
Extension of 2004 Export Credit Agency Facility Agreement
In May 2004, we entered into the 2004 ECA facility agreement, as amended, to borrow up to
$3.6 billion for the purchase of Airbus aircraft delivered through May 2009. In May 2009, the
total amount available under the 2004 ECA facility was increased by $1.0 billion to a total of
approximately $4.6 billion and the availability period was extended through June 2010. Funds
become available under this facility when the various European Export Credit Agencies provide
guarantees for aircraft based on a forward-looking calendar. The financing is for a ten-year
fully amortizing loan per aircraft at an interest rate determined through a bid process. We
have collateralized the debt by a pledge of the shares of a wholly-owned subsidiary that holds
title to the aircraft financed under this facility. As of September 30, 2009, we had financed
66 aircraft using approximately $4 billion under this facility and approximately $2.9 billion
was outstanding. The amount outstanding under the facility is included in Debt financing, net
of deferred debt discount on our Condensed Consolidated Balance Sheets.
As of November 6, 2009, we had approximately $682 million available under this facility to
finance our Airbus aircraft purchases through June 2010. Our current long-term debt ratings
impose the following restrictions under the 2004 ECA facility: (i) we must receive written
consent from the security trustee before we can fund Airbus aircraft deliveries under the
facility; (ii) we must segregate total balances of security deposits, maintenance reserves and
all rental payments received after July 31, 2009 into separate accounts controlled by the
security trustee (segregated rental payments will be used to pay principal and interest on the
outstanding debt); and (iii) we must file individual mortgages on the aircraft funded under the
facility in the local jurisdictions in which the respective lessees operate.
Other Secured Financing Arrangements
In May 2009, ILFC provided $39.0 million of subordinated financing to an entity, which we
have determined is a VIE in which we are the primary beneficiary. Accordingly, we consolidate
the entity into our condensed consolidated financial statements. See Note J Variable
Interest Entities. The entity used these
funds and an additional $106.0 million borrowed from third parties to purchase an
aircraft, which the entity leases to an airline. ILFC acts as servicer of the lease for the
entity. The $106.0 million loan has two tranches. The first tranche is $82.0 million, fully
amortizes over the lease term, and is non-recourse to ILFC. The second tranche is $24.0
million, partially amortizes over the lease term, and is guaranteed by ILFC. Both tranches of
the loan are secured by the aircraft and the lease receivables. Both tranches mature
-20-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
in May
2018 with interest
rates based on LIBOR. At September 30, 2009, the interest rates on the $82.0 million and
$24.0 million tranches were 3.411% and 5.111%, respectively. The entity entered into two
interest rate cap agreements to economically hedge the related LIBOR interest rate risk in
excess of 4.00%. At September 30, 2009, $103.4 million was outstanding and the net book value
of the aircraft was $143.3 million.
In June 2009, we borrowed $55.4 million through a wholly-owned subsidiary that owns one
aircraft leased to an airline. Half of the loan amortizes over the next five years and the
remaining $27.7 million is due in 2014. The loan is non-recourse to ILFC and is secured by the
aircraft and the lease receivables. The interest rate on the loan is fixed at 6.58%. At
September 30, 2009, $53.9 million was outstanding and the net book value of the aircraft was
$95.5 million.
Loans from AIG Funding
In March 2009, we entered into two demand note agreements with AIG Funding aggregating
$1.7 billion in order to fund our liquidity needs. At September 30, 2009, the interest rate on
the notes was based on LIBOR with a floor of 3.5%. For September 2009, the interest rate on
each note was 6.525%. The notes were payable upon demand, but otherwise in full upon maturity,
which was the earlier of our sale by AIG or December 31, 2009. We could voluntarily prepay the
notes in whole or in part at any time without penalty or premium.
On October 13, 2009, we amended and restated the two demand notes with AIG Funding,
including extending the maturity date, and entered into a new $2.0 billion credit agreement
with AIG Funding. These term loans are secured by a portfolio of our aircraft. See Note K
Subsequent Event.
Commercial Paper
We have a $6.0 billion Commercial Paper Program and we had access to the FRBNY CPFF until
January 2009. We are unable to issue new commercial paper with our current short-term debt
ratings and we cannot determine when the commercial paper markets may be available to us again.
During the first quarter of 2009, we repaid all $1.7 billion we had borrowed under the CPFF. At
September 30, 2009, we had no commercial paper outstanding.
Other Short Term Financing
In April 2009, we entered into a $100.0 million 90-day promissory note agreement with a
supplier in connection with the purchase of an aircraft. The interest rate was fixed at the
annual rate of 5.00%. The note was paid in full on July 22, 2009, when it matured.
J. Variable Interest Entities
The accounting standard related to the consolidation of VIEs provides guidance for
determining when to consolidate certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient equity that is at
risk to allow the entity to finance its activities without additional subordinated financial
support. This standard recognizes that consolidation based on majority voting interest should
not apply to these VIEs. A VIE is consolidated by its primary beneficiary, which is the party
or group of related parties that absorbs a majority of the expected losses of the VIE, receives
the majority of the expected residual returns of the VIE, or both.
We, to a limited extent, are involved with VIEs. We have, in the past, participated to
varying degrees in the design of VIEs. Our involvement in VIEs varies from being a passive
investor to managing and structuring the activities of VIEs. We utilize VIEs in connection with
leasing and marketing aircraft and managing jurisdictional issues, as well as to obtain
financing. We have no involvement with QSPEs.
-21-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
Entities where we are the Primary Beneficiary
We have determined that we are the primary beneficiary of ten entities to which we
previously sold aircraft, provided financings, obtained preferential equity interests and in
some cases provided guarantees to banks that provided secured senior financing to the entities.
Each VIE owns one aircraft. The individual financing agreements are cross-collateralized by the
aircraft. We do not have legal control over and we do not own the assets of, nor are we
directly obligated for the liabilities of these entities. The assets and liabilities of these
entities are presented separately on our Condensed Consolidated Balance Sheets. Assets in the
amount of $82.3 million and $98.7 million and liabilities in the amount of $7.0 million and
$10.7 million are included in our Condensed Consolidated Balance Sheets at September 30, 2009
and December 31, 2008, respectively. Net expenses in the amounts of $5.7 million and $1.7
million are included in our Condensed Consolidated Statements of Income for the three months
ended September 30, 2009 and 2008, respectively, and net expenses in the amounts of $6.3
million and $3.2 million are included in our Condensed Consolidated Statements of Income for
the nine months ended September 30, 2009 and 2008, respectively.
We have determined that we are the primary beneficiary of an entity established to obtain
secured financing, to which we provided $39.0 million of subordinated financing. The VIE owns
one aircraft with a net book value of $143.3 million at September 30, 2009, which secures third
party borrowings of $103.4 million, $79.6 million of which is non-recourse to us. The aircraft
is included in Flight equipment under operating leases and the borrowings are included in Debt
Financings on our Condensed Consolidated Balance Sheets.
K. Subsequent Event
Loans from AIG Funding
On October 13, 2009, we entered into two term loan agreements with AIG Funding a new
$2.0 billion credit agreement and a $1.7 billion amended and restated credit agreement. We used
the proceeds from the $2.0 billion loan to repay in full our obligations under our $2.0 billion
revolving credit facility that matured on October 15, 2009. The second credit agreement amended
and restated the two demand note agreements aggregating $1.7 billion that we entered into in
March 2009 with AIG Funding, including extending the maturity dates. Both of these loans mature
on September 13, 2013 and currently bear interest at 3-month LIBOR plus 3.025%. The loans are
due in full at maturity with no scheduled amortization. Funding of the loans was provided to
AIG Funding by the FRBNY pursuant to the FRBNY Credit Agreement. As a condition of the FRBNY
approving these loans, we entered into guarantee agreements to guarantee the repayment of AIGs
obligations under the FRBNY Credit Agreement up to an amount equal to the aggregate outstanding
balance of the loans.
These loans (and the related guarantees) are secured by (i) a portfolio of aircraft and
all related equipment and leases, with an aggregate average appraised value as of September 30,
2009 of approximately $7.4 billion plus additional temporary collateral with an aggregate
average appraised value as of September 30, 2009 of approximately $10 billion that will be
released upon the perfection of certain security interests, as described below, (ii) any and
all collection accounts into which rent, maintenance reserves, security deposits and other
amounts owing are paid under the leases of the pledged aircraft, and (iii) the shares or other
equity interests of certain subsidiaries of ours that may own or lease the pledged aircraft in
the future. In the event the appraised value of the collateral held falls below certain
levels, we must either prepay a portion of the term loans without penalty or premium or grant
additional collateral.
We are also required to prepay the loans, without penalty or premium, upon (i) the sale of
an aircraft (other than upon the sale or transfer to a co-borrower under the loans) in an
amount equal to 75% of the net sale proceeds, (ii) the receipt of any hull insurance,
condemnation or other proceeds in respect of any event of loss suffered by a pledged aircraft
in an amount equal to 75% of the net proceeds received on account thereof, and (iii) the
removal of an aircraft from the collateral pool (other than in connection with the substitution
of a non-pool aircraft for such removed aircraft in accordance with the terms of the loans) in
an amount equal to 75% of the most recent appraised value of such aircraft. We
-22-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2009
(Unaudited)
are also
required to repay the loans in full upon the occurrence of a change in control, which is defined in the loan agreements to include AIG
ceasing to beneficially own 100% of our equity interests. We may voluntarily prepay the loans
in part or in full at any time without penalty or premium.
The loans contain customary affirmative and negative covenants, including restrictions on
asset transfers and capital expenditures. The loans also contain customary events of default,
including an event of default under the loans if an event of default occurs under the FRBNY
Credit Agreement. In addition, we would be in default under the loans if the security interests
of the security trustee under the loans, for the benefit of AIG Funding and the FRBNY, in
certain aircraft pledged as collateral have not been fully perfected by December 1, 2009. The
interest rate under the loans will increase to three-month LIBOR plus 6.025% if security
interests in a specific pool of 96 aircraft have not been perfected by December 1, 2009. We
expect to release the approximately $10 billion of temporary collateral upon perfection of the
security interests of the security trustee in such 96 aircraft.
-23-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Information
This quarterly report on Form 10-Q and other publicly available documents may contain or
incorporate statements that constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this
Form 10-Q and include statements regarding, among other matters, the potential sale of us by our
parent, AIG, the state of the airline industry, our access to the capital markets, our ability to
restructure leases and repossess aircraft, the structure of our leases, regulatory matters
pertaining to compliance with governmental regulations and other factors affecting our financial
condition or results of operations. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates, and should and variations of these words and similar
expressions, are used in many cases to identify these forward-looking statements. Any such
forward-looking statements are not guarantees of future performance and involve risks,
uncertainties and other factors that may cause our actual results, performance or achievements or
industry results to vary materially from our future results, performance or achievements, or those
of our industry, expressed or implied in such forward-looking statements. Such factors include,
among others, general industry economic and business conditions, which will, among other things,
affect demand for aircraft, availability and creditworthiness of current and prospective lessees,
lease rates, availability and cost of financing and operating expenses, governmental actions and
initiatives, and environmental and safety requirements, as well as the factors discussed under
Part II Item 1A. Risk Factors, in this Form 10-Q, our Form 10-Q for the three months ended
March 31, 2009 and our Form 10-Q for the six months ended June 30, 2009, and in the section titled
Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31,
2008. We do not intend and undertake no obligation to update any forward-looking information to
reflect actual results or future events or circumstances.
Overview
ILFCs primary business operation has historically been to acquire new commercial jet aircraft
from Boeing and Airbus and lease those aircraft to airlines throughout the world. Given the current
market conditions and that we currently do not have access to unsecured debt markets, new aircraft
purchases may be limited for the foreseeable future. We will continue to lease our existing
portfolio and provide management services to investors and/or owners of aircraft portfolios for a
management fee. In addition to our leasing activity, we sell aircraft from our leased aircraft
fleet to other leasing companies, financial services companies and airlines. We have also provided
asset value guarantees and a limited number of loan guarantees to buyers of aircraft or to
financial institutions for a fee. Additionally, we remarket and sell aircraft owned or managed by
others for a fee.
Starting in the third quarter of 2008, worldwide economic conditions began to deteriorate
significantly. The decline in economic conditions resulted in highly volatile markets, a steep
decline in equity markets, less liquidity, the widening of credit spreads, and several prominent
financial institutions seeking governmental aid. Despite these difficult conditions, we reported
net income of approximately $246 million for the three months ended September 30, 2009. Our net
income increased approximately $21 million compared to the same period last year, despite an
out-of-period adjustment we recorded in the third quarter of 2008 that decreased quarterly expenses
by $51 million ($33 million adjusted for income taxes) (see Note A of Notes to Condensed
Consolidated Financial Statements). The increase was primarily due to an increase in our leased
fleet and lower short-term interest rates. However, recent events have significantly and adversely
affected our ability to access unsecured debt markets. See Liquidity below. Additionally, the
current market conditions are creating downward pressures that are slowing the growth of our
operating margins.
Our Fleet
During the third quarter of 2009, we took delivery of three new aircraft from Boeing and
Airbus, sold one aircraft and reclassed three aircraft into sales-type leases. As of September 30,
2009, we owned 991 aircraft in our leased fleet, had 11 additional aircraft in the fleet classified
as finance and sales-type leases, and provided fleet management services for 99 aircraft. We have
contracted with Airbus and Boeing to buy 125 new aircraft for
delivery through 2019 with an estimated purchase price of $14.0 billion, five of which are
scheduled to deliver during
the remainder of 2009. We anticipate the purchases to be financed in
part by operating cash flows and in part by incurring additional debt. We have not entered into any
new purchase agreements with the manufacturers during 2009.
-24-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Of the 125 aircraft on order, 74 are 787s from Boeing with the first aircraft currently scheduled
to deliver in July 2012. The contracted delivery dates were originally scheduled from January 2010
through 2017, but Boeing has experienced delays in the production of the 787s. Recently, there have
been additional delays, but Boeing has not provided us with a revised 787 delivery schedule
reflecting such delays. We have signed contracts for 31 of the 74 787s on order. Both the leases we
have signed with our customers and our purchase agreements with Boeing are subject to cancellation
clauses related to delays in delivery dates, though as of November 6, 2009, there have been no
cancellations by any party. We are in discussions with Boeing related to revisions to the delivery
schedule and potential delay compensation and penalties for which we may be eligible. Under the
terms of our 787 leases, particular lessees may be entitled to share in any compensation that we
receive from Boeing for late delivery of the aircraft.
Debt Financing
We have generally financed our aircraft purchases through available cash balances, internally
generated funds and debt financings. Due to a combination of the challenges facing AIG, the
downgrades in our credit ratings by the rating agencies, and the turmoil in the credit markets, we
have been unable to issue commercial paper and unsecured debt during the nine months ended
September 30, 2009. To fulfill our liquidity needs, we borrowed $1.7 billion from AIG Funding, an
affiliate of our parent, in March 2009. On October 13, 2009, we entered into a new $2.0 billion
credit agreement with AIG Funding, the proceeds of which we used to repay in full our obligations
under our $2.0 billion revolving credit agreement that matured on October 15, 2009. We also amended
and restated our existing loans of $1.7 billion from AIG Funding. In order to meet our future
liquidity needs, we are pursuing additional secured and other financings. See Liquidity and Debt
Financings Loans from AIG Funding below.
In May 2009, we extended our 2004 ECA facility to finance Airbus aircraft purchases through
June 2010 and increased the total amount available under the facility to approximately $4.6
billion. At November 6, 2009, we had approximately $682 million available for the financing of
future new Airbus aircraft deliveries under this facility, provided we receive consent from the
security trustee, as required with our current long-term debt ratings. We financed all 25 Airbus
aircraft that we purchased during the nine months ended September 30, 2009 under the 2004 ECA
facility. We have an additional ten Airbus aircraft on order through June 2010. During the second
quarter of 2009, we also used two Boeing aircraft to obtain secured financings.
Industry Condition and Sources of Revenue
Our revenues are principally derived from scheduled and charter airlines and companies
associated with the airline industry. We derive more than 90% of our revenues from airlines outside
of the United States. The airline industry is cyclical, economically sensitive, and highly
competitive. Airlines and related companies are affected by fuel prices and shortages, political or
economic instability, terrorist activities, changes in national policy, competitive pressures,
labor actions, pilot shortages, insurance costs, recessions, health concerns, and other political
or economic events adversely affecting world or regional trading markets. Our customers ability to
react to and cope with the volatile competitive environment in which they operate, as well as our
own competitive environment, will affect our revenues and income.
We are currently seeing financial stress to varying degrees across the airline industry
largely precipitated by recent volatility in fuel costs, lower demand for air travel, tightening of
the credit markets, and generally weak economic conditions. We have seen airlines declare
bankruptcy, cease operations, cancel routes, eliminate jobs, and retire aircraft in an attempt to
reduce capacity. This financial stress has caused a slow-down in the airline industry. We believe
that these conditions will continue beyond 2009 and will have a negative impact on our future
operating
results through lower lease rates and increased costs associated with repossessing and
redeploying aircraft. In addition, lower lease rates could possibly result in future aircraft
impairment charges.
We have not recognized any impairment charges related to our leased fleet, as we have been
able to re-lease aircraft without diminution in lease rates to an extent that would warrant an
impairment write-down. We typically contract to re-lease aircraft before the end of the existing
lease term. For aircraft returned before the end of the lease term, we have generally been able to
re-lease aircraft within two to six months of their return. In monitoring the aircraft in our fleet
for impairment charges, we identify those aircraft that are most susceptible to failing the
recoverability assessment and monitor those aircraft more closely, which may result in more
frequent recoverability
-25-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
assessments. The recoverability of these aircraft is more sensitive to changes in contractual
cash flows, future cash flow estimates, and residual values. These aircraft are typically older
planes that are less in demand and have lower lease rates. As of September 30, 2009, we had
identified 17 aircraft as being susceptible to failing the recoverability test. These aircraft had
a net book value of $443.8 million at September 30, 2009. Management believes that the carrying
value of these aircraft is supported by the estimated future undiscounted cash flows expected to be
generated by each aircraft.
As a result of the above conditions, two of our customers, FlyLAL Lithuanian Airlines and
Myair.com S.p.A, ceased operations during the nine months ended September 30, 2009. Each of these
airlines operated one of our aircraft. One of the aircraft is currently leased to another airline
and one is available for lease. We had one other aircraft in our fleet that was not subject to a
signed lease agreement or a signed letter of intent at September 30, 2009.
There are lags between changes in market conditions and their impact on our results, as
contracts signed during times of higher lease rates currently remain in effect. Therefore, the
current market conditions and their potential effect may not yet be fully reflected in our results
and we continue to see lease rates contracting across all aircraft types as we sign new lease
agreements. Additionally, management monitors all lessees that are behind in lease payments and
discusses relevant operational and financial issues facing the lessees with our marketing
executives in order to determine the amount of rental income to recognize for the past due amounts.
Lease payments are due in advance and we generally recognize rental income only to the extent we
have received payments or hold security deposits. At September 30, 2009, 18 customers operating 69
aircraft were two or more months past due on $46.3 million of lease payments relating to some of
those aircraft. Of this amount, we recognized $46.0 million in rental income through September 30,
2009. In comparison, at September 30, 2008, 11 customers operating 28 aircraft were two or more
months past due on $22.5 million of lease payments relating to some of those aircraft, $22.4
million of which we recognized in rental income through September 30, 2008.
Management also reviews all outstanding notes that are in arrears to determine whether we
should reserve for or write off any portion of the notes receivable. In this process, management
evaluates the collectability of each note and the value of the underlying collateral, if any, by
discussing relevant operational and financial issues facing the lessees with our marketing
executives. As of September 30, 2009, $0.9 million of the carrying value of notes receivable were
two months or more behind in payment.
Despite industry cyclicality and current stress, we remain optimistic about the long-term
future of air transportation and, more specifically, the growing role that the leasing industry,
and ILFC specifically, provides in facilitating the fleet transactions necessary for the growth of
commercial air transport. At September 30, 2009, we had signed leases for all of our new aircraft
deliveries through the end of 2010. Furthermore, our contractual purchase commitments for future
new aircraft deliveries from 2010 to 2019 are at historic lows. For these reasons,
we believe we are well positioned for the current industry downturn, and to reap any benefits
a down market may present.
Consideration of ILFCs Ability to Continue as a Going Concern
As discussed in greater detail in our Annual Report on Form 10-K for the year ended December
31, 2008, management assessed our current financial position, liquidity needs and ability to meet
our obligations as they come due and made significant judgments and estimates with respect to the
potential financial and liquidity effects of our risks and uncertainties. Based on AIGs intention
to continue to support us, as expressed in AIGs Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2009, and managements plans, as described in our Annual Report on Form
10-K for the year ended December 31, 2008, and after consideration of the risks and uncertainties
of such plans, management believes that we will have adequate liquidity to finance and operate our
business and repay our obligations for at least the next twelve months.
It is possible that the actual outcome of one or more of managements plans could be
materially different or that one or more of managements significant judgments or estimates about
the potential effects of the risks and uncertainties could prove to be materially incorrect.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As a result of this determination, our condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. These condensed consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets, nor relating to the amounts and classification of liabilities
that may be necessary should we be unable to continue as a going concern.
Liquidity
As of the date of this report, we are unable to access the commercial paper and unsecured debt
markets and the maximum amount available under our revolving credit facilities is outstanding.
Therefore, we have recently funded our purchase commitments of aircraft and maturing debt
obligations through other methods, including secured financings and support from AIG.
In May 2009, our 2004 ECA facility was amended to allow us to borrow up to approximately $4.6
billion for Airbus aircraft purchases through June 30, 2010. At November 6, 2009, we had
approximately $682 million available for the financing of new Airbus aircraft under our 2004 ECA
facility. As a result of our current long-term debt ratings, we are required, under the 2004 ECA
agreement, to receive written consent from the security trustee before we can fund Airbus aircraft
deliveries under the facility. We obtained consent for all 19 Airbus aircraft that we purchased
since the restriction was imposed in March 2009 and financed all 19 aircraft under the facility.
Our current long-term debt ratings also restrict the use of certain funds collected under the lease
agreements related to the aircraft funded under the 1999 and 2004 ECA facilities. As of September
30, 2009, we had restricted cash of approximately $290 million. To the extent the security trustee
of the 2004 ECA facility does not allow us to fund future purchases of Airbus aircraft under that
facility, we would have to locate other sources of financing to fund these purchases, as described
in greater detail below, which would put additional strain on our liquidity. If we are unable to
meet our aircraft purchase commitments as they become due, it could expose us to breach of contract
claims by our lessees and the manufacturers, as discussed under Part II Item 1A. Risk Factors
Liquidity Risk.
In March 2009, we borrowed $1.7 billion from AIG Funding to assist in funding our liquidity
needs. On October 13, 2009, we amended and restated these existing loans of $1.7 billion and
entered into a new $2.0 billion credit agreement with AIG Funding to repay our obligations under
our $2.0 billion revolving credit agreement that matured on October 15, 2009. These term loans are
secured by a portfolio of aircraft and other assets related to the pledged aircraft. See Debt
Financings Loans from AIG Funding below. We also entered into secured financings with respect
to two aircraft during the second quarter of 2009. Under our existing debt agreements, we and our
subsidiaries are permitted to incur secured indebtedness totaling up to 12.5% of consolidated net
tangible assets, as defined in the debt agreements, which is currently approximately $5 billion.
Therefore, we can currently incur additional secured financings totaling approximately $1.3 billion
under our existing debt agreements. Furthermore, it may be possible, subject to receipt of any
required consents under the FRBNY Credit Agreement and our bank facilities and term loans, for us
to obtain secured financing without regard to the 12.5% consolidated net tangible asset limit
referred to above (but subject to certain other limitations) by doing so through subsidiaries that
qualify as non-restricted under our public debt indentures.
Because of the poor condition of current credit markets and AIGs plans to continue to
consider strategic alternatives for us, we may not be able to obtain additional secured financing
from third parties on favorable terms, if at all. If the commercial paper and unsecured debt
markets do not become available to us again, and we are unable to obtain sufficient secured
financing from third parties, we will have to pursue alternative strategies, such as selling
aircraft, and due to the current market conditions we may have to sell aircraft at a loss. We may
also need to seek additional support from AIG, which is subject to the FRBNYs consent. We cannot
predict whether AIG can obtain the FRBNYs consent to allow AIG to provide additional support to
us.
Our Relationship with AIG
AIG has experienced severe strain on its liquidity since the third quarter of 2008, and has
been dependent on transactions with the FRBNY as its primary source of liquidity, as more fully
described in AIGs Quarterly Report on Form 10-Q for the period ended September 30, 2009. We have
also become dependent on AIG as a financing source during the last year. See Debt Financings
Loans from AIG Funding below.
-27-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AIG Loan from the FRBNY
AIG has a revolving credit facility and a guarantee and pledge agreement with the FRBNY. AIGs
obligations under the FRBNY Credit Agreement are guaranteed by certain AIG subsidiaries and secured
by a pledge of certain assets of AIG and its subsidiaries. At September 30, 2009, we were not a
guarantor of the FRBNY Credit Agreement obligations and our assets were not pledged to secure those
obligations. On October 13, 2009, however, we entered into guarantee agreements under which we
agreed to guarantee AIGs repayment of the FRBNY Credit Agreement up to the aggregate outstanding
loan obligations we owe to AIG Funding, which is currently $3.7 billion. See Debt
FinancingsLoans from AIG Funding below. As a subsidiary of AIG, we are also subject to
covenants under the FRBNY Credit Agreement, including covenants that may, among other things, limit
our ability to incur debt, encumber our assets, enter into sale-leaseback transactions, make equity
or debt investments in other parties and pay distributions and dividends. AIG is required to repay
the FRBNY Credit Agreement primarily from proceeds of sales of assets, including businesses. AIG is
exploring divestiture opportunities for its non-core businesses and continues to consider strategic
alternatives for ILFC.
AIG Going Concern Consideration
In connection with the preparation of its quarterly report on Form 10-Q for the quarter ended
September 30, 2009, AIG management assessed whether AIG has the ability to continue as a going
concern. Based on the U.S. governments continuing commitment, the recently completed transactions
and the other expected transactions with the FRBNY, AIG managements plans to stabilize its
businesses and dispose of its non-core assets and other factors discussed in AIGs Form 10-Q, and
after consideration of the risks and uncertainties to such plans, AIG management indicated in the
AIG quarterly report on Form 10-Q for the period ended September 30, 2009, that it believes that it
will have adequate liquidity to finance and operate its businesses, execute its asset disposition
plan, and continue as a going concern for at least the next twelve months. It is possible that the
actual outcome of one or more of AIG managements plans could be materially different, or that one
or more of AIG managements significant judgments or estimates about the potential effects of these
risks and uncertainties could prove to be materially incorrect, or that one of the proposed
transactions with the FRBNY discussed in AIGs Form 10-Q will not be consummated or will fail to
achieve its desired objectives. If one or more of these possible outcomes is realized, AIG may need
additional U.S. government support to meet its obligations as they come due. If AIG is not able to
continue as a going concern it will have a significant impact on our operations, including limiting
our ability to issue new debt and to receive additional support from AIG.
Our Potential Sale by AIG
AIG continues to consider strategic alternatives for ILFC. If AIG sells 51% or more of our
common stock without certain lenders consent, it would be an event of default under our bank term
loans and revolving credit agreements and would allow our lenders to declare our debt immediately
due and payable. Accordingly, any such sale of us by AIG would require consideration of these
credit arrangements. In addition, an event of default or declaration of acceleration under our bank
term loans and revolving credit agreements could also result in an event of default under our other
debt agreements, including the indentures governing our public debt. If AIG sells any portion of
its equity interest in us, we would be required to prepay all amounts outstanding under the loans
we entered into with AIG Funding on October 13, 2009, which are described below under Debt
Financings Loans from AIG Funding.
Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations are
based upon our condensed consolidated financial statements, which have been prepared in accordance
with GAAP for interim financial information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. Periodically, we
evaluate the estimates and judgments, including those related to revenue, depreciation, overhaul
reserves, and contingencies. The estimates are based on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. The results form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions and
conditions.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We believe that the following critical accounting policies can have a significant impact on
our results of operations, financial position and financial statement disclosures, and may require
subjective and complex estimates and judgments.
| Lease Revenue | ||
| Flight Equipment Marketing | ||
| Provision for Overhauls | ||
| Flight Equipment | ||
| Derivative Financial Instruments | ||
| Fair Value Measurements | ||
| Income Taxes |
For a detailed discussion on the application of the accounting policy for flight equipment,
see Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. For a detailed discussion
on the application of the remaining accounting policies, see Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on
Form 10-K for the year ended December 31, 2008.
Debt Financings
We generally fund our operations, including aircraft purchases, through available cash
balances, internally generated funds, and debt financings. We borrow funds to purchase new and used
flight equipment, make progress payments during aircraft construction and pay off maturing debt
obligations. These funds have in the past been borrowed principally on an unsecured basis from
various sources, and include both public debt and bank facilities. At September 30, 2009, we were
in compliance in all material respects with the covenants in our debt agreements, including our
financial covenants to maintain a maximum ratio of consolidated indebtedness to consolidated
tangible net worth, a minimum fixed charge coverage ratio and a minimum consolidated tangible net
worth.
During the nine months ended September 30, 2009, we borrowed approximately $3.1 billion and
$2.6 billion was provided by operating activities. The $3.1 billion borrowed included $1.1 billion
borrowed under our 2004 ECA facility to fund Airbus aircraft purchases, $1.7 billion borrowed from
AIG Funding to fund our other liquidity needs, including aircraft purchases and repaying our
maturing commercial paper and debt obligations as they became due, and $0.3 billion of other
financing arrangements. We had $446.5 million in cash and cash equivalents at September 30, 2009,
excluding $290.5 million of restricted cash.
-29-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our debt financing was comprised of the following at September 30, 2009 and December 31, 2008:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Public bonds and medium-term notes |
$ | 17,440,799 | $ | 19,748,541 | ||||
Bank debt |
7,092,000 | 7,558,750 | ||||||
ECA financings |
3,125,150 | 2,436,296 | ||||||
Other secured financings (a) |
157,229 | | ||||||
Loans from AIG Funding |
1,700,000 | | ||||||
Subordinated debt |
1,000,000 | 1,000,000 | ||||||
Total public, bank, intercompany, and subordinated debt |
30,515,178 | 30,743,587 | ||||||
Commercial paper |
| 1,752,000 | ||||||
Less: Deferred debt discount |
(10,769 | ) | (18,919 | ) | ||||
Total debt financing and subordinated debt |
$ | 30,504,409 | $ | 32,476,668 | ||||
Selected interest rates and ratios which include the economic effect of
derivative instruments: |
||||||||
Composite interest rate |
4.11 | % | 4.51 | % | ||||
Percentage of total debt at fixed rates |
60.26 | % | 63.89 | % | ||||
Composite interest rate on fixed rate debt |
5.47 | % | 5.41 | % | ||||
Bank prime rate |
3.25 | % | 3.25 | % |
(a) | $133.5 million of these secured financings is non-recourse to ILFC. These secured financings were incurred by either a consolidated VIE or by a wholly owned subsidiary of ILFC, each without recourse to ILFC. |
The above amounts represent the anticipated settlement of our currently outstanding debt
obligations. Certain adjustments required to present currently outstanding hedged debt obligations
have been recorded and presented separately on the balance sheet, including adjustments related to
foreign currency hedging and interest rate hedging activities. We have eliminated the currency
exposure arising from foreign currency denominated notes by hedging the notes through swaps.
Foreign currency denominated debt is translated into US dollars using exchange rates as of each
balance sheet date. The foreign exchange adjustment for the foreign currency denominated debt
hedged with derivative contracts increased the balance by $486.1 million at September 30, 2009 and
$338.1 million at December 31, 2008. Composite interest rates and percentages of total debt at
fixed rates reflect the effect of derivative instruments. Our lower composite interest rate at
September 30, 2009 compared to December 31, 2008 is driven by a decrease in short-term interest
rates.
Public Bonds and Medium-Term Notes
As discussed in Liquidity above, we currently are unable to issue debt under our existing
public debt financing arrangements. The interest rate on most of our public debt currently
outstanding is effectively fixed for the terms of the notes. Our existing public debt financing
arrangements are an automatic shelf registration and a $7.0 billion Euro medium-term note programme
as described in the table below:
Maximum | ||||||||
Offering | Sold | |||||||
(Dollars in millions) | ||||||||
Registration statement dated August 7, 2009 (a)
|
Unlimited (b) | $ | | |||||
Euro Medium-Term Note Programme dated September 4, 2009 (c)(d)
|
$ | 7,000 | 2,334 |
(a) | We may establish new medium-term note programs under this new shelf registration statement when the public debt markets become available to us again. If the public debt markets become available before a new program is established, we do have the ability to issue debt under the shelf registration statement in individual transactions. | |
(b) | As a result of our WKSI status, we have an unlimited amount of debt securities registered for sale. | |
(c) | We have hedged the foreign currency risk of the notes through derivatives. | |
(d) | This is a perpetual program. As a bond matures, the principal amount becomes available for new issuances under the program. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Bank Credit Facilities
Revolving Credit Facilities: At September 30, 2009, we were a party to three unsecured
revolving credit facilities with an original group of 35 banks for an aggregate amount of $6.5
billion, consisting of a $2.0 billion tranche that expired on October 15, 2009, a $2.0 billion
tranche that expires in October 2010, and a $2.5 billion tranche that expires in October 2011.
These revolving credit facilities provide for interest rates that vary according to the pricing
option selected at the time of borrowing. Pricing options include a base rate, a rate ranging from
0.25% over LIBOR to 0.65% over LIBOR based upon utilization, or a rate determined by a competitive
bid process with the banks. The credit facilities are subject to facility fees, currently 0.2% of
amounts available. We are currently paying the maximum fees under the facilities. The fees are
based on our current credit ratings and may decrease in the event of an upgrade to our ratings. As
of September 30, 2009, the maximum amount available of $6.5 billion under our revolving credit
facilities was outstanding and interest was accruing on the outstanding loans with interest rates
based on LIBOR ranging from 0.97% to 1.23%. The $2.0 billion tranche that matured on October 15,
2009 was repaid in full at maturity with the proceeds from the $2.0 billion loan we entered into
with AIG Funding on October 13, 2009.
Term Loans: From time to time, we enter into funded bank financing arrangements. As of
September 30, 2009, $0.6 billion was outstanding under these term loan agreements, which have
varying maturities through February 2012. The interest rates are based on LIBOR with spreads
ranging from 0.3% to 0.4%. At September 30, 2009, the interest rates ranged from 0.59% to 0.93%.
ECA Financings
Export Credit Facilities: We entered into ECA facilities in 1999 and 2004. The 2004 ECA
facility is currently used to fund purchases of Airbus aircraft, while new financings are no longer
available to us under the 1999 ECA facility. The loans made under the ECA facilities are used to
fund a portion of each aircrafts net purchase price.
In January 1999, we entered into the 1999 ECA facility to borrow up to $4.3 billion for the
purchase of Airbus aircraft delivered through 2001. We used $2.8 billion of the amount available
under this facility to finance purchases of 62 aircraft. Each aircraft purchased was financed by a
ten-year fully amortizing loan with interest rates ranging from 5.753% to 5.898%. The loans are
guaranteed by various European ECAs. We have collateralized the debt by a pledge of the shares of a
wholly-owned subsidiary that holds title to the aircraft financed under the facility. At September
30, 2009, 35 loans with an aggregate principal value of $200.3 million remained outstanding under
the facility and the net book value of the related aircraft was $1.8 billion.
In May 2004, we entered into the 2004 ECA facility, which was amended in May 2009 to allow us
to borrow up to $4.6 billion for the purchase of Airbus aircraft delivered through September 30,
2010. Funds become available under this facility when the various European ECAs provide guarantees
for aircraft based on a forward-looking calendar. The financing is for a ten-year fully amortizing
loan per aircraft at an interest rate determined through a bid process. We have collateralized the
debt by a pledge of the shares of a wholly-owned subsidiary that holds title to the aircraft
financed under this facility. As of September 30, 2009, we had financed 66 aircraft using
approximately $4 billion under this facility and approximately $2.9 billion was outstanding. The
interest rates are either fixed or based on LIBOR. At September 30, 2009, the interest rates of the
outstanding loans ranged from 0.74% to 4.71%. The net book value of the related aircraft was
approximately $4 billion at September 30, 2009. As of November 6, 2009, we had approximately $682
million available under this facility.
Under the terms of our 1999 and 2004 ECA facilities, as a result of our current long-term debt
ratings, we are required to segregate security deposits and maintenance reserves for aircraft
funded under the facilities into separate accounts. In addition to segregation of security deposits
and maintenance reserves, under the 2004 ECA facility, our debt ratings impose the following
restrictions and limitations: (i) control of the segregated accounts is transferred to the security
trustee; (ii) we must receive written consent from the security trustee before we can fund Airbus
aircraft deliveries under the facility; (iii) we must segregate rental payments received after July
31, 2009 into separate accounts controlled by the security trustee (segregated rental payments will
be used to pay principal and interest on
the outstanding debt); and (iv) we must file individual mortgages on the aircraft funded under
the facility in the local jurisdictions in which the respective lessees operate. At
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
September 30,
2009, we had segregated security deposits, maintenance reserves and rental payments aggregating approximately $229 million and $61 million
related to aircraft funded under the 2004 and 1999 ECA facilities, respectively. The segregated
amounts will fluctuate with changes in deposits, maintenance reserves, and debt maturities related
to the aircraft funded under the facilities. Since March 17, 2009, when the security trustees
consent became required to finance aircraft purchases under the 2004 ECA facility, we have obtained
consent for and financed 19 aircraft under the facility. To the extent the security trustee of the
2004 ECA facility does not allow us to fund future purchases of Airbus aircraft under the facility,
we would have to locate other sources of financing to fund these purchases, as described in greater
detail above under Liquidity, which would put additional strain on our liquidity.
Further ratings declines could impose additional restrictions under the 1999 ECA facility,
including the requirement to segregate rental payments and to receive prior consent to withdraw
funds from the segregated accounts.
Loans from AIG Funding
In March 2009 we entered into two demand note agreements aggregating $1.7 billion with AIG
Funding in order to fund our liquidity needs. At September 30, 2009, interest on the notes was
based on LIBOR with a floor of 3.5%. For September 2009, the interest rate on each note was 6.525%.
The notes were payable upon demand, but otherwise in full upon maturity, which was the earlier of
our sale by AIG or December 31, 2009. We could voluntarily prepay the notes in whole or in part at
any time without penalty or premium.
On October 13, 2009, we amended and restated the two demand note agreements with AIG Funding,
including extending the maturity dates, and entered into a new $2.0 billion term loan agreement
with AIG Funding. We used the proceeds from the $2.0 billion loan to repay in full our obligations
under our $2.0 billion revolving credit facility that matured on October 15, 2009. Both of these
loans mature on September 13, 2013 and bear interest at 3-month LIBOR plus 3.025%. The loans are
due in full at maturity with no scheduled amortization. The funds for the loans were provided to
AIG Funding by the FRBNY pursuant to the FRBNY Credit Agreement. As a condition of the FRBNY
approving these loans, we entered into guarantee agreements to guarantee the repayment of AIGs
obligations under the FRBNY Credit Agreement up to an amount equal to the aggregate outstanding
balance of the loans.
These loans (and the related guarantees) are secured by (i) a portfolio of aircraft and all
related equipment and leases, with an aggregate average appraised value as of September 30, 2009 of
approximately $7.4 billion plus additional temporary collateral with an aggregate average appraised
value as of September 30, 2009 of approximately $10 billion that will be released upon the
perfection of certain security interests, as described below, (ii) any and all collection accounts
into which rent, maintenance reserves, security deposits and other amounts owing are paid under the
leases of the pledged aircraft, and (iii) the shares or other equity interests of certain
subsidiaries of ours that may own or lease the pledged aircraft in the future. In the event the
appraised value of the collateral held falls below certain levels, we will be forced either to
prepay a portion of the term loans without penalty or premium, or to grant additional collateral.
We are also required to prepay the loans, without penalty or premium, upon (i) the sale of an
aircraft (other than upon the sale or transfer to a co-borrower under the loans) in an amount equal
to 75% of the net sale proceeds, (ii) the receipt of any hull insurance, condemnation or other
proceeds in respect of any event of loss suffered by a pledged aircraft in an amount equal to 75%
of the net proceeds received on account thereof, and (iii) the removal of an aircraft from the
collateral pool (other than in connection with the substitution of a non-pool aircraft for such
removed aircraft in accordance with the terms of the loans) in an amount equal to 75% of the most
recent appraised value of such aircraft. We are also required to repay the loans in full upon the
occurrence of a change in control, which is defined in the loan agreements to include AIG ceasing
to beneficially own 100% of our equity interests. We may voluntarily prepay the loans in part or in
full at any time without penalty or premium.
The loans contain customary affirmative and negative covenants, including restrictions on
asset transfers and capital expenditures. The loans also contain customary events of default,
including an event of default under the loans if an event of default occurs under the FRBNY Credit
Agreement. In addition, we will be in default under the loans if the security interests of the
security trustee under the loans, for the benefit of AIG Funding and the FRBNY,
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in certain aircraft pledged as collateral have not been fully perfected by December 1, 2009. The
interest rate under the loans will increase to three-month LIBOR plus 6.025% if security interests
in a specific pool of 96 aircraft have not been perfected by December 1, 2009. We expect to release
the approximately $10 billion of temporary collateral upon perfection of the security interests of
the security trustee in such 96 aircraft.
Other Secured Financing Arrangements
In May 2009, ILFC provided $39.0 million of subordinated financing to an entity, which we have
determined is a VIE of which we are the primary beneficiary. Accordingly, we consolidate the entity
into our condensed consolidated financial statements. The entity used these funds and an additional
$106.0 million borrowed from third parties to purchase an aircraft, which the entity leases to an
airline. ILFC acts as servicer of the lease for the entity. The $106.0 million loan has two
tranches. The first tranche is $82.0 million, fully amortizes over the lease term, and is
non-recourse to ILFC. The second tranche is $24.0 million, partially amortizes over the lease term,
and is guaranteed by ILFC. Both tranches of the loan are secured by the aircraft and the lease
receivables. Both tranches have nine-year terms with interest rates based on LIBOR. At September
30, 2009, the interest rates on the $82.0 million and $24.0 million tranches were 3.411% and
5.111%, respectively. The entity entered into two interest rate cap agreements to economically
hedge the related LIBOR interest rate risk in excess of 4.00%. At September 30, 2009, $103.4
million was outstanding and the net book value of the aircraft was $143.3 million.
In June 2009, we borrowed $55.4 million through a wholly-owned subsidiary that owns one
aircraft leased to an airline. The loan is non-recourse to ILFC and the loan is secured by the
aircraft and the lease receivables. The interest rate on the loan is fixed at 6.58%. At September
30, 2009, $53.9 million was outstanding and the net book value of the aircraft was $95.5 million.
Subordinated Debt
In December 2005, we issued two tranches of subordinated debt totaling $1.0 billion. Both
tranches mature on December 21, 2065, but each tranche has a different call option. The $600
million tranche has a call option date of December 21, 2010, and the $400 million tranche has a
call option date of December 21, 2015. The tranche with the 2010 call option date has a fixed
interest rate of 5.90% for the first five years, and the tranche with the 2015 call option date has
a fixed interest rate of 6.25% for the first ten years. Each tranche has an interest rate
adjustment if the call option for that tranche is not exercised. The new interest rate would be a
floating rate, reset quarterly, based on the initial credit spread of 1.55% and 1.80%,
respectively, plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and
(iii) 30-year constant maturity treasury.
Commercial Paper and Other Short-Term Debt
Commercial Paper: We have a $6.0 billion Commercial Paper Program and we had access to the
FRBNY CPFF until January 2009. As previously discussed under Liquidity, we are unable to issue
new commercial paper with our current short-term debt ratings and we cannot determine when the
commercial paper markets may be available to us again. At September 30, 2009, we have no commercial
paper outstanding.
Other short-term financing: In April 2009, we entered into a $100.0 million 90-day promissory
note agreement with a supplier in connection with the purchase of an aircraft. The interest rate
was fixed at the annual rate of 5.00%. The note was paid in full on July 22, 2009, when it
matured.
Derivatives
We employ derivative products to manage our exposure to interest rates risks and foreign
currency risks. We enter into derivative transactions only to economically hedge interest rate risk
and currency risk and not to speculate on interest rates or currency fluctuations. These derivative
products include interest rate swap agreements, foreign currency swap agreements and interest rate
cap agreements. At September 30, 2009, all our interest rate swap and foreign currency swap
agreements were designated as and accounted for as cash flow hedges and we had not designated our
interest rate cap agreements as hedges.
When interest rate and foreign currency swaps are effective as cash flow hedges, they offset
the variability of expected future cash flows, both economically and for financial reporting
purposes. We have historically used such instruments to effectively mitigate foreign currency and
interest rate risks.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The effect of our ability to apply hedge accounting for the swap agreements is that changes in their fair values are recorded in OCI
instead of in earnings for each reporting period. As a result, reported net income will not be
directly influenced by changes in interest rates and currency rates.
The counterparty to our interest rate swaps and foreign currency swaps is AIGFP, a
non-subsidiary affiliate. The swap agreements are subject to a bilateral security agreement and a
master netting agreement, which would allow the netting of derivative assets and liabilities in the
case of default under any one contract. Failure of the instruments or counterparty to perform under
the derivative contracts would have a material impact on our results of operations and cash flows.
The counterparty to our interest rate cap agreements is an independent third party with whom we do
not have a master netting agreement. The net fair value of our derivatives was decreased by
adjustments related to our counterparties credit risks and liquidity risks aggregating $54.3
million and $19.8 million at September 30, 2009 and December 31, 2008, respectively.
Credit Ratings
The following table summarizes our current ratings by Fitch, Moodys, and S&P, the nationally
recognized rating agencies:
Rating Agency | Short-term Debt | Long-term Debt | Credit Watch/Review | Date of Last Ratings Action | ||||||||||||
Fitch |
F2 | BBB | Evolving | May 15, 2009 | ||||||||||||
Moodys |
P-3 | Baa3 | Negative | July 31, 2009 | ||||||||||||
S&P |
A-2 | BBB+ | Negative | April 2, 2009 |
These credit ratings are the current opinions of the rating agencies. As such, they may be
changed, suspended or withdrawn at any time by the rating agencies as a result of various
circumstances including changes in, or unavailability of, information.
Our current long-term debt ratings require us to obtain written consent from the security
trustee of our 2004 ECA facility before we can fund Airbus aircraft purchases under the facility.
We are also required to segregate into separate accounts security deposits and maintenance reserves
under both our 1999 and 2004 ECA facilities. The most recent downgrade of our long-term debt rating
by Moodys to Baa3 on July 31, 2009 imposed the following restrictions and limitations under the
2004 ECA facility: (i) we must segregate subsequent rental payments collected under the leases;
(ii) control of the segregated accounts, aggregating $229 million at September 30, 2009,
transferred to the security trustee; and (iii) we must file individual mortgages on the aircraft
funded under the facility in the local jurisdictions in which the respective lessees operate.
While a ratings downgrade does not result in a default under any of our debt agreements,
certain downgrades would impose additional restrictions under the 1999 ECA facility, including the
requirement to segregate rental payments and to receive prior consent to withdraw funds from the
segregated accounts. In addition, such a downgrade would adversely affect our ability to re-enter
the unsecured debt markets, obtain new financing arrangements or renew existing arrangements, and
would increase the cost of such financing arrangements.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table summarizes our contractual obligations at September 30, 2009:
Existing Commitments
Commitments Due by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Public bonds and medium-term
notes |
$ | 17,440,799 | $ | 893,465 | $ | 4,001,394 | $ | 4,379,802 | $ | 3,571,716 | $ | 3,541,816 | $ | 1,052,606 | ||||||||||||||
Bank Credit Facilities |
6,500,000 | 2,000,000 | (i) | 2,000,000 | 2,500,000 | | | | ||||||||||||||||||||
Bank Term Loans |
592,000 | 4,250 | 102,750 | 335,000 | 150,000 | | | |||||||||||||||||||||
ECA Financings |
3,125,150 | 120,387 | 513,202 | 425,185 | 396,138 | 396,138 | 1,274,100 | |||||||||||||||||||||
Other Secured Financings |
157,229 | 3,419 | 12,924 | 13,855 | 14,827 | 15,923 | 96,281 | |||||||||||||||||||||
Loans from AIG Funding (i) |
1,700,000 | 1,700,000 | | | | | | |||||||||||||||||||||
Subordinated Debt |
1,000,000 | | | | | | 1,000,000 | |||||||||||||||||||||
Interest Payments on Debt
Outstanding (a)(b)(c) |
6,388,863 | 388,333 | 1,057,622 | 784,134 | 492,174 | 310,638 | 3,355,962 | |||||||||||||||||||||
Operating Leases (d)(e) |
74,103 | 2,803 | 11,515 | 11,958 | 12,439 | 12,938 | 22,450 | |||||||||||||||||||||
Pension Obligations (f) |
8,999 | 1,346 | 1,405 | 1,463 | 1,526 | 1,595 | 1,664 | |||||||||||||||||||||
Tax Benefit Sharing
Agreement Due to AIG |
85,000 | 85,000 | | | | | | |||||||||||||||||||||
Purchase Commitments |
13,963,100 | 271,200 | 242,700 | 247,600 | 639,400 | 2,277,900 | 10,284,300 | |||||||||||||||||||||
Total |
$ | 51,035,243 | $ | 5,470,203 | $ | 7,943,512 | $ | 8,698,997 | $ | 5,278,220 | $ | 6,556,948 | $ | 17,087,363 | ||||||||||||||
Contingent Commitments
Contingency Expiration by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
AVGs (g). |
$ | 557,634 | $ | | $ | | $ | 27,841 | $ | 78,950 | $ | 96,003 | $ | 354,840 | ||||||||||||||
Total (h) |
$ | 557,634 | $ | | $ | | $ | 27,841 | $ | 78,950 | $ | 96,003 | $ | 354,840 | ||||||||||||||
(a) | Includes interest on loans from AIG Funding. | |
(b) | Future interest payments on floating rate debt are estimated using floating interest rates in effect at September 30, 2009. | |
(c) | Includes the effect of interest rate and foreign currency derivative instruments. | |
(d) | Excludes fully defeased aircraft sale-lease back transactions. | |
(e) | Minimum rentals have not been reduced by minimum sublease rentals of $8,258 receivable in the future under non-cancellable subleases. | |
(f) | Our pension obligations are part of intercompany expenses, which AIG allocates to us on an annual basis. The amount is an estimate of such allocation. The column 2009 consists of total estimated allocations for 2009 and the column Thereafter consists of the 2014 estimated allocation. The amount allocated has not been material to date. | |
(g) | From time to time, we participate with airlines, banks and other financial institutions in the financing of aircraft by providing asset guarantees, put options, or loan guarantees collateralized by aircraft. As a result, should we be called upon to fulfill our obligations, we would have recourse to the value of the underlying aircraft. | |
(h) | Excluded from total contingent commitments are $148.6 million of uncertain tax liabilities. The future cash flows to these liabilities are uncertain and we are unable to make reasonable estimates of the outflows. | |
(i) | The $2.0 billion bank credit facility was repaid in October 2009 on its maturity date with proceeds from a $2.0 billion loan from AIG Funding. This loan is in addition to the $1.7 billion already owed to AIG Funding that is shown in the table above. The outstanding loans totaling $1.7 billion were also amended and restated in October 2009. The loans from AIG Funding aggregating $3.7 billion now all mature in September 2013. |
-35-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Off-Balance-Sheet Arrangements
We have not established any unconsolidated entities for the purpose of facilitating
off-balance sheet arrangements or for other contractually narrow or limited purposes. We have,
however, from time to time established subsidiaries, entered into joint ventures or created other
partnership arrangements or trusts with the limited purpose of leasing aircraft or facilitating
borrowing arrangements.
Results of Operations
Three Months Ended September 30, 2009 Versus 2008
Revenues from rentals of flight equipment increased 6.9% to $1,354.8 million for the three
months ended September 30, 2009 from $1,267.5 million for the same period in 2008. The number of
aircraft in our fleet increased to 991 at September 30, 2009, compared to 950 at September 30,
2008. Revenues from rentals of flight equipment increased by (i) $81.9 million due to the addition
of new aircraft to our fleet after September 30, 2008, and aircraft in our fleet as of September
30, 2008 that earned revenue for a greater number of days during the three-month period ended
September 30, 2009 than during the same period in 2008 and (ii) $31.2 million due to an increase in
the number of leases containing overhaul provisions and an increase in the aggregate hours flown on
which we collect overhaul revenue. These revenue increases were partially offset by (i) a $15.6
million decrease due to lower lease rates on aircraft in our fleet during both periods, that were
re-leased or had lease rates change between the two periods; (ii) an $8.1 million decrease due to
lost revenue relating to aircraft in transition between lessees primarily resulting from
repossessions of aircraft; and (iii) a $2.1 million decrease related to aircraft in service during
the three months ended September 30, 2008, and sold prior to September 30, 2009.
Two aircraft in our fleet were not subject to a signed lease agreement or a signed letter of
intent at September 30, 2009, one of which was subsequently leased.
In addition to our leasing operations, we engage in the marketing of our flight equipment
throughout the lease term, as well as the sale of third party owned flight equipment and other
marketing services on a principal and commission basis. We incurred a loss of $18.9 million from
flight equipment marketing for the three months ended September 30, 2009, compared to revenues of
$5.8 million for the same period in 2008. The loss incurred for the three months ended September
30, 2009, was due to the conversion of three operating leases into sales-type leases. We sold four
aircraft, three of which were the aircraft accounted for as sales-type leases, during the three
months ended September 30, 2009, compared to two aircraft sold during the same period in 2008.
Interest and other revenue decreased to $11.3 million for the three months ended September 30,
2009, compared to $25.7 million for the same period in 2008 due to (i) an $11.3 million decrease in
forfeitures of security deposits due to lessees non-performance under leases; (ii) a $5.8 million
decrease in revenues from consolidated VIEs, principally due to disposition of aircraft components;
(iii) a $5.0 million decrease in interest revenue directly related to customers paying down
principal balances of Notes receivable and net investment in finance and sales-type leases and a
decrease in interest rates; (iv) a $2.2 million decrease in bankruptcy settlements received related
to lessees who had previously filed for bankruptcy protection; and (v) other minor fluctuations
aggregating a net decrease of $0.1 million. The decreases were offset by a $10.0 million increase
in foreign currency exchange gains, net of losses.
Interest expense decreased to $332.8 million for the three months ended September 30, 2009,
compared to $394.4 million for the same period in 2008 as a result of a decrease in our composite
interest rate and a decrease in average debt outstanding (excluding the effect of debt discount and
foreign exchange adjustments) to $31.1 billion during the three months ended September 30, 2009,
compared to $32.7 billion during the same period in 2008.
-36-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our composite borrowing rates in the third quarters of 2009 and 2008, which include the effect
of derivatives, were as follows:
2009 | 2008 | (Decrease) | ||||||||||
Beginning of Quarter |
4.25 | % | 4.74 | % | (0.49 | )% | ||||||
End of Quarter |
4.11 | % | 5.01 | % | (0.90 | )% | ||||||
Average |
4.18 | % | 4.88 | % | (0.70 | )% |
We recorded income of $8.9 million for the three months ended September 30, 2009, compared to
$0.1 million for the same period in 2008 primarily related to ineffectiveness of derivatives
designated as cash flow hedges. In addition, for the three months ended September 30, 2008, we
recorded an out-of-period adjustment resulting in a $51.2 million decrease in expenses relating to
CVA and MVA of our cash flow hedges. The adjustment had been recorded as a charge for the six
months ended June 30, 2008. (See Note A and Note E of Notes to Condensed Consolidated Financial
Statements.)
Depreciation of flight equipment increased 5.2% to $499.7 million for the three months ended
September 30, 2009, compared to $475.1 million for the same period in 2008 due to the addition of
new aircraft to our leased fleet, which increased the total cost of the fleet.
Provision for overhauls increased to $90.9 million for the three months ended September 30,
2009, compared to $75.3 million for the same period in 2008 due to (i) an increase in the number of
leases with overhaul provisions and (ii) an increase in the aggregate number of hours flown. We
collect overhaul revenue on the aggregate number of hours flown and an increase in hours flown
result in an increase in the estimated future reimbursements.
Flight equipment rent expense relates to two sale-leaseback transactions.
Selling, general and administrative expenses decreased to $47.3 million for the three months
ended September 30, 2009, compared to $51.7 million for the same period in 2008 due to (i) a $4.3
million decrease in expenses allocated from AIG and (ii) other minor decreases aggregating $0.1
million.
Our effective tax rate for the quarter ended September 30, 2009 decreased slightly to 35.5%
from 35.7% for the same period in 2008. Our effective tax rate continues to be impacted by minor
permanent items and interest accrued on uncertain tax positions and prior period audit adjustments.
Our reserve for uncertain tax positions increased by $2.9 million for the three-month period ended
September 30, 2009, due to the continued uncertainty of tax benefits related to the Foreign Sales
Corporation and Extraterritorial Income regimes, the benefits of which, if realized, would have a
significant impact on our effective tax rate.
Other comprehensive income was $10.4 million for the three months ended September 30, 2009
compared to a loss of $75.2 million for the same period in 2008. This change was primarily due to
changes in the market value on derivatives qualifying for and designated as cash flow hedges, which
includes a credit of $26.2 million and a charge of $142.0 million to OCI relating to CVA and MVA
for the three-month periods ended September 30, 2009 and 2008, respectively. As discussed in Note A
to our condensed consolidated financial statements, the $142.0 million charge to OCI for the three
months ended September 30, 2008, includes an out-of-period adjustment in the amount of $51.2
million related to CVA and MVA. The adjustment was credited to income and charged to OCI.
Nine Months Ended September 30, 2009 Versus 2008
Revenues from rentals of flight equipment increased 5.5% to $3,915.1 million for the nine
months ended September 30, 2009 from $3,712.8 million for the same period in 2008. The number of
aircraft in our fleet increased to 991 at September 30, 2009, compared to 950 at
-37-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
September 30,
2008. Revenues from rentals of flight equipment
increased (i) $248.5 million due to the addition of new aircraft to our fleet after September 30,
2008, and aircraft in our fleet as of September 30, 2008 that earned revenue for a greater number
of days during the nine-month period ended September 30, 2009 than during the same period in 2008;
(ii) a $16.4 million increase related to an increase in the number of leases containing overhaul
provisions and an increase in the aggregate hours flown on which we collect overhaul revenue; and
(iii) $7.0 million due to lower charges taken related to the early termination of six lease
agreements in 2009 compared to ten lease agreements in 2008. These revenue increases were partially
offset by (i) a $33.1 million decrease due to lost revenue relating to aircraft in transition
between lessees primarily resulting from repossessions of aircraft from airlines who filed for
bankruptcy protection or ceased operations; (ii) a $21.2 million decrease due to lower lease rates
on aircraft in our fleet during both periods, that were re-leased or had lease rates changes
between the two periods; and (iii) a $15.3 million decrease related to aircraft in service during
the nine months ended September 30, 2008, and sold prior to September 30, 2009.
Two aircraft in our fleet were not subject to a signed lease agreement or a signed letter of
intent at September 30, 2009, one of which was subsequently leased.
In addition to our leasing operations, we engage in the marketing of our flight equipment
throughout the lease term, as well as the sale of third party owned flight equipment and other
marketing services on a principal and commission basis. We incurred a loss of $8.3 million from
flight equipment for the nine months ended September 30, 2009, compared to revenues of $45.0
million for the same period in 2008. The loss incurred for the nine months ended September 30, 2009
was due to the conversion of three operating leases into sales-type leases. We sold six aircraft,
three of which were the aircraft accounted for as sales-type leases, during the nine months ended
September 30, 2009, compared to ten aircraft and one engine sold during the same period in 2008.
Interest and other revenue decreased to $48.7 million for the nine months ended September 30,
2009, compared to $69.4 million for the same period in 2008 due to (i) a $10.4 million decrease in
forfeitures of security deposits due to lessees non-performance under leases; (ii) an $8.1 million
decrease in bankruptcy settlements received related to lessees who had previously filed for
bankruptcy protection; (iii) a $7.5 million decrease in interest revenue directly related to
customers paying down principal balances of Notes receivable and net investment in finance and
sales-type leases and a decrease in interest rates; (iv) a $6.2 million decrease in revenues from
consolidated VIEs, principally due to disposition of aircraft components; and (v) other minor
fluctuations aggregating a net decrease of $2.9 million. The decreases were offset by (i) a $5.4
million increase in proceeds received in excess of book value related to a loss of an aircraft; and
(ii) a $9.0 million increase in foreign currency exchange gains, net of losses.
Interest expense decreased to $1,041.4 million for the nine months ended September 30, 2009,
compared to $1,140.9 million for the same period in 2008 as a result of a decrease in our composite
interest rate and a decrease in average debt outstanding (excluding the effect of debt discount and
foreign exchange adjustments) to $31.5 billion during the nine months ended September 30, 2009,
compared to $32.3 billion during the same period in 2008.
Our composite borrowing rates for the nine months ended September 30, 2009 and 2008, which
include the effect of derivatives, were as follows:
2009 | 2008 | (Decrease) | ||||||||||
Beginning of Nine Months |
4.51 | % | 5.16 | % | (0.65 | )% | ||||||
End of Nine Months |
4.11 | % | 5.01 | % | (0.90 | )% | ||||||
Average |
4.31 | % | 5.08 | % | (0.77 | )% |
-38-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We recorded income of $13.2 million for the nine months ended September 30, 2009, compared to
a charge of $7.4 million for the same period 2008 primarily related to ineffectiveness of
derivatives designated as cash flow hedges.
Depreciation of flight equipment increased 5.1% to $1,460.6 million for the nine months ended
September 30, 2009, compared to $1,389.3 million for the same period in 2008 due to the addition of
new aircraft to our leased fleet, which increased the total cost of the fleet.
Provision for overhauls increased to $234.3 million for the nine months ended September 30,
2009, compared to $226.1 million for the same period in 2008 due to (i) an increase in the number
of leases with overhaul provisions and (ii) an increase in the aggregate number of hours flown. We
collect overhaul revenue on the aggregate number of hours flown and an increase in hours flown
result in an increase in the estimated future reimbursements.
Flight equipment rent expense relates to two sale-leaseback transactions.
Selling, general and administrative expenses increased to $158.7 million for the nine months
ended September 30, 2009, compared to $136.6 million for the same period in 2008 due to (i) a $13.0
million increase in salary and employee related expenses including accrued and unpaid performance,
incentive, and retention bonuses; (ii) a $12.2 million increase in operating expenses to support
the growth of our fleet; and (iii) a $7.5 million charge related to an aircraft that was classified
as an aircraft held for sale in the first quarter of 2009 and was subsequently sold. These
increases were partially offset by (i) a 2008 write down of notes receivable of $4.5 million that
did not reoccur in the current period; (ii) a $3.0 million decrease in expenses related to
consolidated VIEs; (iii) a $2.8 million decrease in expenses allocated from AIG; and (iv) other
minor decreases aggregating $0.3 million.
Our effective tax rate for the nine months ended September 30, 2009 decreased slightly to
35.3% from 35.6% for the same period in 2008. Our effective tax rate continues to be impacted by
minor permanent items and interest accrued on uncertain tax positions and prior period audit
adjustments. Our reserve for uncertain tax positions increased by $27.1 million for the nine-month
period ended September 30, 2009, due to the continued uncertainty of tax benefits related to the
Foreign Sales Corporation and Extraterritorial Income regimes, the benefits of which, if realized,
would have a significant impact on our effective tax rate.
Other comprehensive income was $0.3 million for the nine months ended September 30, 2009
compared to a loss of $81.4 million for the same period in 2008. This change was primarily due to
changes in the market value on derivatives qualifying for and designated as cash flow hedges, which
includes a $26.2 million credit and a $34.2 million charge to OCI relating to CVA and MVA in the
calculation of fair value of our derivative instruments for the nine-month periods ended September
30, 2009 and 2008, respectively.
-39-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk
Measuring potential losses in fair values is performed through the application of various
statistical techniques. One such technique is VaR, a summary statistical measure that uses
historical interest rates, foreign currency exchange rates and equity prices and which estimates
the volatility and correlation of these rates and prices to calculate the maximum loss that could
occur over a defined period of time given a certain probability.
Management believes that statistical models alone do not provide a sufficient method of
monitoring and controlling market risk. While VaR models are relatively sophisticated, the
quantitative market risk information generated is limited by the assumptions and parameters
established in creating the related models. Therefore, such models are tools and do not substitute
for the experience or judgment of senior management.
We are exposed to market risk and the risk of loss of fair value and possible liquidity strain
resulting from adverse fluctuations in interest rates and foreign exchange prices. We statistically
measure the loss of fair value through the application of a VaR model on a quarterly basis. In this
analysis, our net fair value is determined using the financial instrument and other assets. This
includes tax adjusted future flight equipment lease revenues and financial instrument liabilities,
which includes future servicing of current debt. The estimated impact of current derivative
positions is also taken into account.
We calculate the VaR with respect to the net fair value by using historical scenarios. This
methodology entails re-pricing all assets and liabilities under explicit changes in market rates
within a specific historical time period. In this case, the most recent three years of historical
information for interest rates and foreign exchange rates were used to construct the historical
scenarios at September 30, 2009, and December 31, 2008. For each scenario, each financial
instrument is re-priced. Scenario values for us are then calculated by netting the values of all
the underlying assets and liabilities. The final VaR number represents the maximum adverse
deviation in net fair value incurred under these scenarios with 95% confidence (i.e. only 5% of
historical scenarios show losses greater than the VaR figure). A one month holding period is
assumed in computing the VaR figure. The table below presents the average, high and low VaRs on a
combined basis and of each component of market risk for us for the periods ended September 30, 2009
and December 31, 2008. Total VaR for ILFC decreased from the fourth quarter of 2008 to the third
quarter of 2009 due to a decrease in interest rates offset by an increase in volatility of interest
rates.
ILFC Market Risk | ||||||||||||||||||||||||
Nine Months Ended | Year Ended | |||||||||||||||||||||||
September 30, 2009 | December 31, 2008 | |||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Average | High | Low | Average | High | Low | |||||||||||||||||||
Combined |
$ | 38.2 | $ | 41.6 | $ | 35.9 | $ | 53.2 | $ | 96.2 | $ | 36.1 | ||||||||||||
Interest Rate |
38.2 | 41.7 | 36.2 | 53.7 | 97.6 | 36.5 | ||||||||||||||||||
Currency |
0.4 | 0.7 | 0.1 | 1.0 | 1.6 | 0.7 |
-40-
ITEM 4T. CONTROLS AND PROCEDURES
(A) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission, and such information is
accumulated and communicated to our management, including the Chairman of the Board and
Chief Executive Officer and the Vice Chairman and Chief Financial Officer (collectively, the
Certifying Officers), as appropriate, to allow timely decisions regarding required
disclosure. Our management, including the Certifying Officers, recognizes that any set of
controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
We have evaluated, under the supervision and with the participation of management,
including the Certifying Officers, the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a 15(e) and 15d 15(e) of the Securities Exchange Act
of 1934 as of September 30, 2009. Based on that evaluation, our Certifying Officers have
concluded that our disclosure controls and procedures were effective at the reasonable
assurance level at September 30, 2009.
Variable Interest Entities: We have consolidated into our Condensed Consolidated
Financial Statements, financial information related to certain VIEs. Our assessment of
disclosure controls and procedures, as described above, includes the VIEs. Each of the VIEs
has a discrete number of assets and liabilities and we, as lender and guarantor to the VIEs,
have been provided sufficient information to conclude that our procedures with respect to
these VIEs are effective in providing reasonable assurance that the information required to
be disclosed by us relating to these entities is reconciled, processed, summarized and
reported within the periods specified by the Securities and Exchange Commission. However,
management has been unable to assess the effectiveness of internal controls at those
entities due to our inability to dictate or modify the control over financial reporting of
those entities, or to assess those controls.
(B) Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the
three months ended September 30, 2009, that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
-41-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Flash Airlines: We are named in lawsuits in connection with the January 3, 2004 crash of our
Boeing 737-300 aircraft on lease to Flash Airlines, an Egyptian carrier. These lawsuits were filed
by the families of victims on the flight and seek unspecified damages for wrongful death, costs and
fees. The initial lawsuit was filed in May 2004 in California, and subsequent lawsuits were filed
in California and Arkansas. All cases filed in the U.S. were dismissed on the grounds of forum non
conveniens and transferred to the French Tribunal de Grande Instance civil court in either Bobigny
or Paris. The Bobigny plaintiffs challenged French jurisdiction, whereupon the French civil court
decided to retain jurisdiction, on appeal the Paris Court of Appeal reversed, and on appeal the
French Cour de Cassation elected to defer its decision pending a trial on the merits. We believe we
are adequately covered in these cases by the liability insurance policies carried by Flash Airlines
and we have substantial defenses to these actions. We do not believe that the outcome of these
lawsuits will have a material effect on our consolidated financial condition, results of operations
or cash flows.
Krasnoyarsk Airlines: We leased a 757-200ER aircraft to a Russian airline, KrasAir, which is
now the subject of a Russian bankruptcy-like proceeding. The aircraft lease was assigned to another
Russian carrier, Air Company Atlant-Soyuz Incorporated, which defaulted under the lease. In the
first quarter of 2009, we were informed that the Russian customs authority had seized the aircraft
during a time frame we believe to be late 2008. The aircraft was seized on the basis of certain
alleged violations by KrasAir with respect to the import of the aircraft, including the import type
and customs fees owed. The Russian customs authority filed a case in April 2009 in the general
jurisdiction court in Krasnoyarsk, Russia seeking an order permitting it to confiscate the aircraft
due to these alleged violations. Shortly after the lawsuit was filed, we intervened in the lawsuit
in order to protect our ownership rights and informed the insurance underwriters under KrasAirs,
Atlant-Soyuzs, and our insurance policies of this matter. In the second quarter of 2009, the court
decided that the seizure of the aircraft by the Russian customs authority was improper and denied
the Russian customs authoritys request to confiscate the aircraft. Also in the second quarter of
2009, another Russian airline signed a lease for the aircraft. The aircraft was returned to us by
the Russian customs authority and is currently undergoing maintenance in Moscow, Russia and we are
currently negotiating a resolution of all customs-related issues with the Russian customs
authority. We cannot predict what the outcome of this matter will be, but we do not believe that it
will be material to our consolidated financial position, results of operations or cash flows.
Estate of Volare Airlines: In November 2004, Volare, an Italian airline, filed for bankruptcy
in Italy. Prior to Volares bankruptcy, we leased to Volare through wholly-owned subsidiaries two
A320-200 aircraft and four A330-200 aircraft. In addition, we managed the lease to Volare by an
entity that is a related party to us of one A330-200 aircraft. In October 2009, the Volare
bankruptcy receiver filed a claim in an Italian court in the amount of 29,592,209.92 against us
and our related party for the return to the Volare estate of all payments made by it to us and our
related party in the year prior to Volares bankruptcy filing. We have engaged Italian counsel to
represent us and intend to defend this matter vigorously. We cannot predict the outcome of this
matter, but we do not believe that it will be material to our consolidated financial position,
results of operations or cash flows.
We are also a party to various claims and litigation matters arising in the ordinary course of
our business. We do not believe the outcome of any of these matters will be material to our
consolidated financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks and uncertainties, as described below and under
Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31,
2008 and under Part II Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009, and elsewhere in this report.
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PART II. OTHER INFORMATION (CONTINUED)
We operate as a supplier and financier to airlines. The risks affecting our airline customers
are generally out of our control and impact our customers to varying degrees. As a result, we are
indirectly impacted by all the risks facing airlines today. Our customers ability to compete
effectively in the market place and manage these risks has a direct impact on us and our operating
results.
The following risk factors update certain significant factors that may affect our business and
operations described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2008 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2009
and June 30, 2009 for recent developments:
| Other Risks Key Personnel |
Our senior managements reputation and relationships with lessees and sellers of
aircraft are a critical element of our business. On October 22, 2009, the Office of the
Special Master for TARP Executive Compensation issued a Determination Memorandum to AIG
with respect to AIGs compensation of its 25 most highly compensated employees, as
described in AIGs Form 8-K filed on October 23, 2009. The Determination Memorandum sets
significant new restrictions on compensation for covered employees and a number of our
employees are covered, or may become covered, by these initiatives. The significant
restrictions and limitations on compensation imposed on us may adversely affect our
ability to retain and motivate our highest performing employees. The inability by us to
retain and motivate our highest performing employees may impact our ability to conduct
business.
| Liquidity Risk |
As of the date of this report, we are unable to access the commercial paper and
unsecured debt markets and the maximum amount available under our senior revolving credit
facilities is outstanding. We increased the total amount available under our 2004 ECA
facility by $1.0 billion in May 2009 and at November 6, 2009, we had approximately $682
million available under that facility to use for purchases of Airbus aircraft, provided we
receive consent from the security trustee, as required due to our current long-term debt
ratings.
We cannot determine when the commercial paper or unsecured debt markets may be
available to us again. We are therefore currently seeking other ways to fund our purchase
commitments of aircraft and maturing debt obligations, including through secured
financings and additional support from AIG. In March 2009, we borrowed $1.7 billion from
AIG Funding to assist in funding our liquidity needs. On October 13, 2009, we amended and
restated these existing loans and entered into a new $2.0 billion credit agreement with
AIG Funding to repay our obligations under our $2.0 billion revolving credit agreement
that matured on October 15, 2009. These term loans are secured by a portfolio of aircraft
and other assets related to the pledged aircraft. See Debt FinancingsLoans from AIG
Funding for additional information on these loans. We also entered into secured
financings with respect to two aircraft during the second quarter of 2009. Under our
existing debt agreements, we and our subsidiaries are permitted to incur secured
indebtedness totaling up to 12.5% of consolidated net tangible assets, as defined in the
debt agreements, which is currently approximately $5 billion. Therefore, we can currently
enter into additional secured financings totaling approximately $1.3 billion under our
existing debt agreements. Furthermore, it may be possible, subject to receipt of any
required consents under the FRBNY Credit Agreement and our bank facilities and term loans,
for us to obtain secured financing without regard to the 12.5% consolidated net tangible
asset limit referred to above (but subject to certain other limitations) by doing so
through subsidiaries that qualify as non-restricted under our public debt indentures.
Because of the poor condition of current credit markets and AIGs announced plans to
sell us, we may not be able to obtain secured financing from third parties on favorable
terms, if at all. We may need
to seek additional funding from AIG, which funding would be subject to the consent of
the FRBNY. We cannot predict whether AIG can obtain the FRBNYs consent to allow AIG to
provide additional support
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PART II. OTHER INFORMATION (CONTINUED)
to us. If we are not able to obtain secured financing or additional support from AIG, we
will have to pursue alternative strategies, such as selling aircraft, and due to the
current market conditions we may have to sell aircraft at a loss. If we are unable to
raise sufficient cash from these strategies, we may be unable to meet debt obligations as
they become due. Further, we may not be able to meet our aircraft purchase commitments as
they become due, which could expose us to breach of contract claims by our lessees and
manufacturers.
| Credit Ratings Downgrade Risk |
Our ability to access unsecured debt markets and other financing sources is, in part,
dependent on our maintaining investment grade credit ratings. In addition to affecting the
availability of unsecured financing, credit ratings also directly impact our cost of
financing. Since September 2008, we have experienced downgrades in our credit ratings or
outlooks by the three major nationally recognized statistical rating organizations. These
credit rating downgrades, combined with externally generated volatility, have resulted in
our being unable to access unsecured debt markets and unattractive funding costs in the
private debt markets.
Additionally, as a result of our current long-term debt ratings, we are required to
segregate security deposits and maintenance reserves for aircraft funded under the 1999
and 2004 ECA facilities into separate accounts. Under the 2004 ECA facility, the
following additional restrictions and limitations are imposed: (i) control of the
segregated accounts is transferred to the security trustee; (ii) we must receive written
consent from the security trustee before we can fund Airbus aircraft deliveries under the
facility; (iii) we must segregate rental payments received after July 31, 2009 into
separate accounts controlled by the security trustee (segregated rental payments will be
used to pay principal and interest on the outstanding debt); and (iv) we must file
individual mortgages on the aircraft funded under the facility in the local jurisdictions
in which the respective lessees operate. At September 30, 2009, we had segregated security
deposits, maintenance reserves and rental payments aggregating approximately $229 million
and $61 million related to aircraft funded under the 2004 and 1999 ECA facilities,
respectively.
We do not anticipate improvement in our credit ratings until there is clarity related
to our ownership structure. Further ratings downgrades could increase our borrowing costs,
prevent us from regaining access to the unsecured debt markets, impose additional
restrictions on us under our 1999 ECA Facility, and make it more difficult for us to
borrow under the 2004 ECA Facility.
| Restrictive Covenants on Our Operations |
AIG experienced liquidity issues beginning in the third quarter of 2008 and on
September 22, 2008, AIG entered into a credit facility and a guarantee and pledge
agreement with the FRBNY. As a subsidiary of AIG, we are subject to the covenants under
the FRBNY Credit Agreement. Additionally, on October 13, 2009, we entered into two credit
agreements with AIG Funding that also contain restrictive covenants. The covenants in
these credit agreements restrict, among other things, our ability to:
| incur debt; | ||
| encumber our assets; | ||
| dispose of certain assets; | ||
| enter into sale-leaseback transactions; | ||
| make equity or debt investments in other parties; | ||
| make capital expenditures; and | ||
| pay dividends and distributions. |
These covenants may affect our ability to operate and finance our business as we deem
appropriate.
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PART II. OTHER INFORMATION (CONTINUED)
For a detailed discussion of risk factors affecting us, see Part I Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31, 2008 and Part II Item 1A.
Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
ITEM 5. OTHER INFORMATION
a) | During the three months ended September 30, 2009, changes were made to our board of directors. As of the date of this quarterly report, our directors are as follows: |
Name | Title | |
Steven F. Udvar-Hazy
|
Chairman of the Board and Chief Executive Officer | |
John L. Plueger
|
President, Chief Operating Officer and Director | |
Alan H. Lund
|
Vice Chairman, Chief Financial Officer and Director | |
Leslie L. Gonda
|
Chairman of the Executive Committee and Director | |
William N. Dooley
|
Director | |
Robert A. Gender
|
Director | |
Louis L. Gonda
|
Director | |
David L. Herzog
|
Director | |
Alain Karaoglan
|
Director | |
Alan M. Pryor
|
Director | |
Douglas M. Steenland
|
Director |
ITEM 6. EXHIBITS
a) | Exhibits |
3.1 | Restated Articles of Incorporation of the Company (filed as an exhibit to Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference). | ||
3.2 | Amended and Restated By-laws of the Company, as adopted on September 22, 2009. | ||
4.1 | The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. | ||
10.1 | $2,000,000,000 Credit Agreement dated as of October 13, 2009, among International Lease Finance Corporation, certain subsidiaries of International Lease Finance Corporation named therein, AIG Funding, Inc., as lender, and Wells Fargo Bank Northwest, National Association, as security trustee (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | ||
10.2 | $1,700,000,000 Amended and Restated Credit Agreement dated as of October 13, 2009, among International Lease Finance Corporation, certain subsidiaries of International Lease Finance Corporation named therein, AIG Funding, Inc., as lender, and Wells Fargo Bank Northwest, National Association, as security trustee (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | ||
10.3 | First Lien Borrower Party Guarantee Agreement dated as of October 13, 2009, among International Lease Finance Corporation and certain subsidiaries of International Lease Finance Corporation named therein for the benefit of the Federal Reserve Bank of New York (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | ||
10.4 | Third Lien Borrower Party Guarantee Agreement dated as of October 13, 2009, among International Lease Finance Corporation and certain subsidiaries of International Lease Finance Corporation named therein for the benefit of the Federal Reserve Bank of New York (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | ||
12. | Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. |
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PART II. OTHER INFORMATION (CONTINUED)
31.1 | Certification of Chairman of the Board and Chief Executive Officer. | ||
31.2 | Certification of Vice Chairman and Chief Financial Officer. | ||
32.1 | Certification under 18 U.S.C., Section 1350. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL LEASE FINANCE CORPORATION |
||||
November 6, 2009 | /S/ Steven F. Udvar-Hazy | |||
STEVEN F. UDVAR-HAZY | ||||
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
||||
November 6, 2009 | /S/ Alan H. Lund | |||
ALAN H. LUND | ||||
Vice Chairman and Chief Financial Officer (Principal Financial Officer) |
||||
November 6, 2009 | /S/ Kurt H. Schwarz | |||
KURT H. SCHWARZ | ||||
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
||||
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. | ||
3.1
|
Restated Articles of Incorporation of the Company (filed as an exhibit to Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference). | |
3.2
|
Amended and Restated By-laws of the Company, as adopted on September 22, 2009. | |
4.1
|
The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. | |
10.1
|
$2,000,000,000 Credit Agreement dated as of October 13, 2009, among International Lease Finance Corporation, certain subsidiaries of International Lease Finance Corporation named therein, AIG Funding, Inc., as lender, and Wells Fargo Bank Northwest, National Association, as security trustee (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | |
10.2
|
$1,700,000,000 Amended and Restated Credit Agreement dated as of October 13, 2009, among International Lease Finance Corporation, certain subsidiaries of International Lease Finance Corporation named therein, AIG Funding, Inc., as lender, and Wells Fargo Bank Northwest, National Association, as security trustee (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | |
10.3
|
First Lien Borrower Party Guarantee Agreement dated as of October 13, 2009, among International Lease Finance Corporation and certain subsidiaries of International Lease Finance Corporation named therein for the benefit of the Federal Reserve Bank of New York (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | |
10.4
|
Third Lien Borrower Party Guarantee Agreement dated as of October 13, 2009, among International Lease Finance Corporation and certain subsidiaries of International Lease Finance Corporation named therein for the benefit of the Federal Reserve Bank of New York (filed as an exhibit to the Form 8-K filed on October 19, 2009 and incorporated herein by reference). | |
12.
|
Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. | |
31.1
|
Certification of Chairman of the Board and Chief Executive Officer. | |
31.2
|
Certification of Vice Chairman and Chief Financial Officer. | |
32.1
|
Certification under 18 U.S.C., Section 1350. |
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