Attached files
file | filename |
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EX-12 - EX-12 - INTERNATIONAL LEASE FINANCE CORP | v59474exv12.htm |
EX-10.2 - EX-10.2 - INTERNATIONAL LEASE FINANCE CORP | v59474exv10w2.htm |
EX-32.1 - EX-32.1 - INTERNATIONAL LEASE FINANCE CORP | v59474exv32w1.htm |
EX-31.2 - EX-31.2 - INTERNATIONAL LEASE FINANCE CORP | v59474exv31w2.htm |
EX-31.1 - EX-31.1 - INTERNATIONAL LEASE FINANCE CORP | v59474exv31w1.htm |
EX-10.3 - EX-10.3 - INTERNATIONAL LEASE FINANCE CORP | v59474exv10w3.htm |
EX-10.4 - EX-10.4 - INTERNATIONAL LEASE FINANCE CORP | v59474exv10w4.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
[ ] 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 (State or other jurisdiction of incorporation or organization) |
22-3059110 (I.R.S. Employer Identification No.) |
|
10250 Constellation Blvd., Suite 3400 Los Angeles, California (Address of principal executive offices) |
90067 (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
X No
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 No
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 | Accelerated filer | Non-accelerated filer X | Smaller reporting company | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes No X
As of May 10, 2011, 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
-2-
Table of Contents
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 | |
AVG
|
Asset Value Guarantee | |
Boeing
|
The Boeing Company | |
The Company, ILFC, we, our, us
|
International Lease Finance Corporation | |
CVA
|
Credit Value Adjustment | |
Department of the Treasury
|
United States Department of the Treasury | |
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 |
|
Master Transaction Agreement
|
Master Transaction Agreement, entered into
by AIG on December 8, 2010, with the
Department of the Treasury |
|
Moodys
|
Moodys Investor Service, Inc. | |
MVA
|
Market Value Adjustment | |
OCI
|
Other comprehensive income | |
SEC
|
U.S. Securities and Exchange Commission | |
S&P
|
Standard and Poors, a division of The McGraw-Hill Companies, Inc. | |
TARP
|
Troubled Asset Relief Program | |
VaR
|
Value at Risk | |
VIEs
|
Variable Interest Entities | |
Volare
|
Estate of Volare Airlines | |
WKSI
|
Well Known Seasoned Issuer |
-3-
Table of Contents
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)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and cash equivalents, including interest bearing accounts of $2,147,869 (2011) and
$3,058,747 (2010) |
$ | 2,155,769 | $ | 3,067,697 | ||||
Restricted cash, including interest bearing accounts of $401,857 (2011) and $402,373
(2010) |
401,857 | 457,053 | ||||||
Notes receivable, net of allowance, and net investment in finance and sales-type leases |
91,358 | 132,685 | ||||||
Flight equipment under operating leases |
51,565,044 | 51,646,586 | ||||||
Less accumulated depreciation |
13,439,542 | 13,120,421 | ||||||
38,125,502 | 38,526,165 | |||||||
Flight equipment held for sale |
27,378 | 255,178 | ||||||
Deposits on flight equipment purchases |
200,614 | 184,410 | ||||||
Lease receivables and other assets |
398,243 | 402,932 | ||||||
Derivative assets, net |
178,579 | 60,150 | ||||||
Deferred debt issue costs, less accumulated amortization of $197,424 (2011) and $181,460
(2010) |
283,756 | 232,576 | ||||||
$ | 41,863,056 | $ | 43,318,846 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Accrued interest and other payables |
$ | 559,202 | $ | 689,606 | ||||
Current income taxes |
79,127 | 108,898 | ||||||
Secured debt financing, net of deferred debt discount of $21,112 (2011) and $22,309
(2010) |
9,402,279 | 9,556,634 | ||||||
Unsecured debt financing, net of deferred debt discount of $45,683 (2011) and $47,977
(2010) |
15,664,486 | 16,997,466 | ||||||
Subordinated debt |
1,000,000 | 1,000,000 | ||||||
Foreign currency adjustment related to foreign currency denominated debt |
249,500 | 165,400 | ||||||
Security deposits, overhaul rental and other customer deposits |
1,611,289 | 1,620,784 | ||||||
Rentals received in advance |
263,931 | 284,115 | ||||||
Deferred income taxes |
4,714,981 | 4,663,939 | ||||||
Commitments
and Contingencies - Note M |
||||||||
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 |
608,070 | 606,367 | ||||||
Accumulated other comprehensive income (loss) |
(47,936 | ) | (58,944 | ) | ||||
Retained earnings |
6,604,545 | 6,530,999 | ||||||
Total shareholders equity |
8,318,261 | 8,232,004 | ||||||
$ | 41,863,056 | $ | 43,318,846 | |||||
See notes to condensed, consolidated financial statements.
-4-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
March 31, 2011 | March 31, 2010 | |||||||
REVENUES AND OTHER INCOME |
||||||||
Rental of flight equipment |
$ | 1,140,921 | $ | 1,229,862 | ||||
Flight equipment marketing and gain on aircraft sales |
674 | 1,284 | ||||||
Interest and other |
26,918 | 12,986 | ||||||
1,168,513 | 1,244,132 | |||||||
EXPENSES |
||||||||
Interest |
407,500 | 334,866 | ||||||
Effect from derivatives, net of change in hedged
items due to changes in foreign exchange rates |
622 | 40,066 | ||||||
Depreciation of flight equipment |
452,531 | 490,241 | ||||||
Aircraft impairment charges and fair value
adjustments on flight equipment sold or to be
disposed of |
103,310 | 353,387 | ||||||
Flight equipment rent |
4,500 | 4,500 | ||||||
Selling, general and administrative |
51,713 | 35,637 | ||||||
Other expenses |
30,975 | 84,047 | ||||||
1,051,151 | 1,342,744 | |||||||
INCOME (LOSS) BEFORE INCOME TAXES |
117,362 | (98,612 | ) | |||||
Provision (benefit) for income taxes |
43,641 | (35,686 | ) | |||||
NET INCOME (LOSS) |
$ | 73,721 | $ | (62,926 | ) | |||
See notes to condensed, consolidated financial statements.
-5-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
March 31, 2011 | March 31, 2010 | |||||||
NET INCOME (LOSS) |
$ | 73,721 | $ | (62,926 | ) | |||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX |
||||||||
Net changes in fair value of cash flow hedges, net of taxes of $(6,160) (2011) and
$(26,687) (2010) |
11,439 | 49,561 | ||||||
Change in unrealized appreciation on securities available for sale, net of taxes of $0
(2011) and $(13) (2010) |
(431 | ) | 24 | |||||
11,008 | 49,585 | |||||||
COMPREHENSIVE INCOME (LOSS) |
$ | 84,729 | $ | (13,341 | ) | |||
See notes to condensed, consolidated financial statements.
-6-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
March 31, 2011 | March 31, 2010 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income (loss) |
$ | 73,721 | $ | (62,926 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation of flight equipment |
452,531 | 490,241 | ||||||
Deferred income taxes |
44,883 | (54,884 | ) | |||||
Derivative instruments |
(100,830 | ) | 140,578 | |||||
Foreign currency adjustment of non-US$ denominated debt |
84,100 | (131,200 | ) | |||||
Amortization of deferred debt issue costs |
15,964 | 8,966 | ||||||
Amortization of debt discount |
3,490 | 1,436 | ||||||
Amortization of prepaid lease costs |
11,540 | 10,534 | ||||||
Aircraft impairment charges and fair value adjustments |
103,310 | 353,387 | ||||||
Lease expenses related to aircraft sales |
(644 | ) | 84,047 | |||||
Interest paid-in-kind to AIG Funding |
| 28,920 | ||||||
Other, including foreign exchange adjustments on foreign currency denominated
cash and gain on aircraft sales |
(1,531 | ) | (14,685 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Lease receivables and other assets |
(4,174 | ) | 18,643 | |||||
Accrued interest and other payables |
(131,681 | ) | 5,414 | |||||
Current income taxes |
(29,771 | ) | 4,934 | |||||
Tax benefit sharing payable to AIG |
| (85,000 | ) | |||||
Rentals received in advance |
(20,184 | ) | (20,365 | ) | ||||
Net cash provided by operating activities |
500,724 | 778,040 | ||||||
INVESTING ACTIVITIES |
||||||||
Acquisition of flight equipment |
(98,487 | ) | | |||||
Payments for deposits and progress payments |
(47,940 | ) | (10,518 | ) | ||||
Proceeds from disposal of flight equipment |
198,643 | | ||||||
Restricted cash |
55,196 | (584,772 | ) | |||||
Collections on notes receivable and finance and sales-type leases |
37,380 | 13,779 | ||||||
Other |
(2,814 | ) | (147 | ) | ||||
Net cash provided by (used in) investing activities |
141,978 | (581,658 | ) | |||||
FINANCING ACTIVITIES |
||||||||
Proceeds from debt financing |
| 3,407,175 | ||||||
Payments in reduction of debt financing |
(1,490,825 | ) | (739,906 | ) | ||||
Debt issue costs |
(67,144 | ) | (60,868 | ) | ||||
Payment of common and preferred dividends |
(175 | ) | (87 | ) | ||||
Security and rental deposits received |
19,380 | 10,202 | ||||||
Security and rental deposits returned |
(15,808 | ) | (7,764 | ) | ||||
Transfers of security and rental deposits on sales of aircraft |
(19,391 | ) | | |||||
Overhaul rentals collected |
105,570 | 94,890 | ||||||
Overhaul deposits reimbursed |
(82,914 | ) | (80,781 | ) | ||||
Transfer of overhauls rentals on sales of aircraft |
(18,623 | ) | ||||||
Net change in other deposits |
14,679 | 4,879 | ||||||
Net cash (used in) provided by financing activities |
(1,555,251 | ) | 2,627,740 | |||||
Net (decrease) increase in cash |
(912,549 | ) | 2,824,122 | |||||
Effect of exchange rate changes on cash |
621 | (753 | ) | |||||
Cash at beginning of period |
3,067,697 | 336,911 | ||||||
Cash at end of period |
$ | 2,155,769 | $ | 3,160,280 | ||||
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
March 31, 2011 | March 31, 2010 | |||||||
Cash paid during the period for: |
||||||||
Interest, excluding interest capitalized of $2,106 (2011) and $1,474 (2010) |
$ | 544,459 | $ | 321,867 | ||||
Income taxes, net |
28,528 | (a) | 270 |
(a) | Approximately $26 million was paid to AIG for ILFC tax liability. |
Non-Cash Investing and Financing Activities
2011:
Held for sale assets in the amount of $49,060 were reclassified to Flight equipment under operating leases in the amount of $52,420, with $3,360 realized in income for aircraft that no longer meet the definition of held for sale. |
$31,734 of Deposits on flight equipment purchases were applied to Acquisition of flight equipment under operating leases. | |||
Customer security deposits of $7,354 were forfeited and recognized in income. | |||
$3,050 of Flight equipment under operating leases was transferred to Other assets upon the part-out of an aircraft. |
2010:
$7,619 of Deposits on flight equipment purchases were applied to Acquisition of flight equipment under operating leases. |
See notes to condensed, consolidated financial statements.
-8-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(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. See Note N Variable
Interest Entities for further discussions on VIEs. 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
2010 unaudited, condensed, consolidated financial statements to conform to the 2011
presentation. Operating results for the three months ended March 31, 2011, are not necessarily
indicative of the results that may be expected for the year ending December 31, 2011. 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,
2010. |
||
B. | Recent Accounting Pronouncements |
|
We did not adopt any new accounting standards during the first three months of 2011. |
||
C. | Restricted Cash |
|
We entered into ECA facility agreements in 1999 and 2004 through subsidiaries. See Note G
Debt Financings. We had no loans outstanding under the 1999 ECA facility as of March 31,
2011. Our current long-term debt ratings require us to segregate security deposits, overhaul
rentals and rental payments received under the leases of the aircraft funded under the 2004 ECA
facility (segregated rental payments are used to make scheduled principal and interest payments
on the outstanding debt). The segregated funds are deposited into separate accounts pledged to
and controlled by the security trustee of the 2004 ECA facility. At March 31, 2011, we had
segregated security deposits, overhaul rentals and rental payments aggregating approximately
$355 million related to aircraft funded under the 2004 ECA facility. The segregated amounts
fluctuate with changes in security deposits, overhaul rentals, rental payments and debt
maturities related to the aircraft funded under the 2004 ECA facility. In addition, if a
default resulting in an acceleration of the obligations under the 2004 ECA facility were to
occur, pursuant to a cross-collateralization agreement, we would have to segregate lease
payments, overhaul rentals and security deposits received after such acceleration event
occurred relating to all the aircraft funded under the 1999 ECA facility, even though those
aircraft are no longer subject to a loan at March 31, 2011. |
||
In March 2010, we entered into a $550 million secured term loan through a newly formed
subsidiary. The proceeds from this transaction are restricted until the collateral is
transferred to certain of our subsidiaries that guarantee the debt on a secured basis and whose
equity were pledged to secure the term loan and at March 31, 2011, approximately $47 million of
the proceeds remained restricted. |
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
The subsidiaries described above meet the definition of a VIE and have been designated as
non-restricted subsidiaries, under our indentures. See Note G Debt Financings and Note N -
Variable Interest Entities. |
||
D. | Allowance for Credit Losses |
|
On occasion we enter into finance or sales type leases, or in limited circumstances we
will advance cash, or accept a notes receivable, in conjunction with the sale of an aircraft.
At March 31, 2011, we had four aircraft under finance and sales type leases with aggregate
principal balance of $66.5 million and notes receivable with aggregate principal balance, net
of allowance, of $24.9 million. At December 31, 2010, the principal related to the four
aircraft under finance leases aggregated $67.6 million and the principal of our notes
receivable aggregated $65.1 million. |
||
We had the following activity in our allowance for credit losses on notes receivable for
the following periods: |
(Dollars in thousands) | ||||
Allowance for credit losses: |
||||
Balance at December 31, 2009 |
$ | 1,531 | ||
Provision |
19,511 | |||
Write-offs |
| |||
Recoveries |
| |||
Balance at December 31, 2010 |
$ | 21,042 | ||
Provision |
11,619 | |||
Write-offs |
| |||
Recoveries |
(1,531 | ) | ||
Balance at March 31, 2011 |
$ | 31,130 | ||
E. | Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to
be Disposed of |
|
We reported the following impairment charges and fair value adjustments on flight
equipment during the three months ended March 31, 2011 and 2010, respectively, as follows: |
Three Months Ended | ||||||||||||||||
March 31, 2011 | March 31, 2010 | |||||||||||||||
Aircraft | Impairment | Impairment | ||||||||||||||
Impaired | Charges and | Charges and | ||||||||||||||
or | Fair Value | Aircraft | Fair Value | |||||||||||||
Adjusted | Adjustments | Impaired | Adjustments | |||||||||||||
Loss/(Gain) |
(Dollars in millions) | |||||||||||||||
Impairment
charges on aircraft
likely to be sold
and fair value
adjustments on
aircraft likely to
be sold or sold |
9 | $ | 107.0 | 52 | $ | 353.4 | ||||||||||
Fair value
adjustments on held
for sale aircraft
sold or transferred
from held for sale
back to flight
equipment under
operating leases |
8 | (6.2 | ) | | | |||||||||||
Impairment charges
on aircraft
designated for
part-out |
1 | $ | 2.5 | | $ | | ||||||||||
Total Impairment
charges and fair
value adjustments
on flight equipment |
18 | $ | 103.3 | 52 | $ | 353.4 | ||||||||||
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Three months ended March 31, 2011 |
||
During the three months ended March 31, 2011, we sold three aircraft to third parties from
our Fleet held for use, and as a result recorded fair value adjustments aggregating $5.9
million for the three months ended March 31, 2011. Additionally, we were in negotiations with
third parties for the sale of six aircraft and deemed those aircraft more likely than not to be
sold as of March 31, 2011. These aircraft did not meet the criteria required to be classified
as Flight equipment held for sale; however, due to current market conditions and in accordance
with GAAP we recorded impairment charges aggregating $101.1 million related to those aircraft. |
||
In addition, during the three months ended March 31, 2011, we determined that two aircraft
we had previously classified as Flight equipment held for sale no longer met the criteria and
reclassified those aircraft to Flight equipment under operating lease. In accordance with
GAAP, we recorded the two aircraft at the lower of depreciated cost, had the aircraft never
been classified as Flight equipment held for sale, or its fair value at the date of the
reclassification of the aircraft, and recorded fair value adjustments resulting in a net credit
of $3.3 million related to those aircraft for the three months ended March 31, 2011. We also
sold six aircraft that were classified as Flight equipment held for sale, and recorded fair
value adjustments related to those aircraft aggregating a net credit of $2.9 million. |
||
During the three months ended March 31, 2011, we also designated one aircraft for part-out
and recorded impairment charges of $2.5 million to record the parts at their fair value. The
fair value of the parts is included in Lease receivables and other assets on our Condensed
Consolidated Balance Sheet. |
||
Three months ended March 31, 2010 |
||
On April 13, 2010, to generate liquidity to repay maturing debt obligations, we signed an
agreement to sell 53 aircraft from our existing fleet to a third party for an aggregate
purchase price of $1.987 billion. As of May 7, 2010, we were also a party to negotiations to
sell two 747-300s manufactured in 1988. As of March 31, 2010, none of the aircraft met the
criteria required under GAAP to be recorded as held for sale; however, due to market conditions
at that time and in accordance with GAAP, we recorded impairment charges aggregating $353.4
million related to 52 of these 55 aircraft for the three months ended March 31, 2010. |
||
F. | Flight Equipment Held for Sale |
|
At March 31, 2011 and December 31, 2010, we had one and nine aircraft, respectively, that
met the criteria for, and were classified as, Flight equipment held for sale. The balance in
Flight equipment held for sale of $27.4 million and $255.2 million at March 31, 2011 and
December 31, 2010, respectively, represents the estimated fair value of such aircraft. We cease
recognition of depreciation expense on aircraft subsequent to transferring them from Flight
equipment under operating leases. During the three months ended March 31, 2011, we transferred
two aircraft that no longer met the criteria for Flight equipment held for sale to Flight
equipment under operating leases. Subsequent to March 31, 2011, we determined that the
remaining aircraft classified as Flight equipment held for sale at March 31, 2011 no longer met
the criteria for the classification and, at such determination, the aircraft was transferred to
Flight equipment under operating leases. |
||
Net cash proceeds from sales of flight equipment classified as held for sale is received
as each individual aircraft sale is consummated. The actual purchase price may differ from the
recorded estimated fair value of the aircraft when classified as held for sale, depending on
the timing of the completion of a sale and, in some cases, whether an aircraft classified as
held for sale is subsequently substituted with different aircraft. |
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
We had the following activity in Flight equipment held for sale for the three months ended
March 31, 2011: |
Flight Equipment Held for Sale | Aircraft | Carrying Value | |||||||
(Dollars in thousands) | |||||||||
Balance at December 31, 2010 |
9 | $ | 255,178 | ||||||
Transferred to Flight equipment under operating
leases |
(2 | ) | (49,060 | ) | |||||
Flight equipment sold |
(6 | ) | (178,740 | ) | |||||
Flight equipment held for sale at March 31, 2011 |
1 | $ | 27,378 | ||||||
G. Debt Financings | |||||||||
Our debt financing was comprised of the following at the following dates: |
|||||||||
March 31, | |||||||||
2011 | December 31, 2010 | ||||||||
(Dollars in thousands) | |||||||||
Secured |
|||||||||
Senior secured bonds |
$ | 3,900,000 | $ | 3,900,000 | |||||
ECA financings |
2,626,088 | 2,777,285 | |||||||
Bank debt |
1,465,400 | 1,465,400 | |||||||
Other secured financings (a) |
1,431,903 | 1,436,258 | |||||||
Less: Deferred debt discount |
(21,112 | ) | (22,309 | ) | |||||
9,402,279 | 9,556,634 | ||||||||
Unsecured |
|||||||||
Bonds and Medium-Term Notes |
15,475,569 | 16,810,843 | |||||||
Bank debt |
234,600 | 234,600 | |||||||
Less: Deferred debt discount |
(45,683 | ) | (47,977 | ) | |||||
15,664,486 | 16,997,466 | ||||||||
Total Senior Debt Financings |
25,066,765 | 26,554,100 | |||||||
Subordinated Debt |
1,000,000 | 1,000,000 | |||||||
$ | 26,066,765 | $ | 27,554,100 | ||||||
(a) | Of this amount, $109.6 million (2011) and $113.7 million (2010) is non-recourse to
ILFC. These secured financings were incurred by VIEs and consolidated into our condensed
consolidated financial statements. |
The above amounts represent the anticipated settlement of our outstanding debt obligations
as of March 31, 2011 and December 31, 2010. Certain adjustments required to present currently
outstanding hedged debt obligations have been recorded and presented separately on our
Condensed, Consolidated Balance Sheets, including adjustments related to foreign currency
hedging and interest rate hedging activities. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
We have created direct and indirect wholly-owned subsidiaries for the purpose of
purchasing aircraft and obtaining financings secured by such aircraft. These entities have been
designated as non-restricted subsidiaries under our indentures, and meet the definition of a
VIE. We have determined that we are the primary beneficiary of such VIEs and, accordingly, we consolidate such entities into our
condensed, consolidated financial statements. See Note N Variable Interest Entities for more
information on VIEs. |
||
Senior Secured Bonds On August 20, 2010, we issued $3.9 billion of senior secured notes, with $1.35 billion maturing in September 2014 and bearing interest of 6.5%, $1.275 billion maturing in September 2016 and bearing interest of 6.75%, and $1.275 billion maturing in September 2018 and bearing interest of 7.125%. The notes are secured by a designated pool of aircraft, initially consisting of 174 aircraft and their related leases and certain cash collateral. In addition, two of ILFCs subsidiaries, which either own or hold leases of aircraft included in the pool securing the notes, have guaranteed the notes. We can redeem the notes at any time prior to their maturity, provided we give notification between 30 to 60 days prior to the intended redemption date and subject to a penalty of the greater of 1% of the outstanding principal amount and a make-whole premium. There is no sinking fund for the notes. |
||
The indenture governing the senior secured notes contains customary covenants that, among
other things, restrict our and our restricted subsidiaries ability to: (i) create liens; (ii)
sell, transfer or otherwise dispose of assets; (iii) declare or pay dividends or acquire or
retire shares of our capital stock; (iv) designate restricted subsidiaries as non-restricted
subsidiaries or designate non-restricted subsidiaries; (v) make investments in or transfer
assets to non-restricted subsidiaries; and (vi) consolidate, merge, sell or otherwise dispose
of all, or substantially all, of our assets. |
||
The indenture also provides for customary events of default, including but not limited to,
the failure to pay scheduled principal and interest payments on the notes, the failure to
comply with covenants and agreements specified in the indenture, the acceleration of certain
other indebtedness resulting from non-payment of that indebtedness, and certain events of
insolvency. If any event of default occurs, any amount then outstanding under the senior
secured notes may immediately become due and payable. |
||
We used the proceeds from the issuance of the senior secured bonds to repay in full loans
from AIG Funding. |
||
Export Credit Facilities We entered into ECA facility agreements in 1999 and 2004 through certain direct and indirect wholly-owned subsidiaries that have been designated as non-restricted subsidiaries under our indentures. The 1999 and 2004 ECA facilities were used to fund purchases of Airbus aircraft through 2001 and June 2010, respectively. New financings are no longer available to us under either ECA facility and we had no loans outstanding under the 1999 ECA facility as of March 31, 2011. The loans made under the ECA facilities were used to fund a portion of each aircrafts net purchase price. The loans are guaranteed by various European ECAs. We have collateralized the debt with pledges of the shares of wholly-owned subsidiaries that hold title to the aircraft financed under the facilities. |
||
In January 1999, we entered into the 1999 ECA facility and used amounts borrowed under
this facility to finance purchases of 62 Airbus aircraft through 2001. At March 31, 2011, all
loans under the facility had been paid in full. The facility is, however, party to a
cross-collateralization agreement relating to the 2004 ECA facility, as further discussed
below. The net book value of the aircraft used as collateral under this facility was $1.6
billion at March 31, 2011. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
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 June 30,
2010. We used $4.3 billion of the available amount to finance purchases of 76 aircraft. Each
aircraft purchased was financed by a ten-year fully amortizing loan. As of March 31, 2011,
approximately $2.6 billion was outstanding under this facility. The interest rates on the loans
outstanding under the facility are either fixed or based on LIBOR and ranged from 0.42% to
4.71% at March 31, 2011. The net book value of the aircraft purchased under this facility was
$4.2 billion at March 31, 2011. |
||
Our current long-term debt ratings require us to segregate security deposits, overhaul
rentals and rental payments received for aircraft with loan balances outstanding under the 2004
ECA facility (segregated rental payments are used to make scheduled principal and interest
payments on the outstanding debt under the 2004 ECA facility). The segregated funds are
deposited into separate accounts pledged to and controlled by the security trustee of the
facility. In addition, we must register the existing individual mortgages on certain aircraft
funded under both the 1999 and 2004 ECA facilities in the local jurisdictions in which the
respective aircraft are registered (mortgages are only required to be filed on aircraft with
loan balances outstanding or otherwise as agreed in connection with the cross-collateralization
agreement as described below). At March 31, 2011, we had segregated security deposits, overhaul
rentals and rental payments aggregating approximately $355 million related to aircraft funded
under the 2004 ECA facility. The segregated amounts will fluctuate with changes in security
deposits, overhaul rentals, rental payments and debt maturities related to the aircraft funded
under the 2004 facility. |
||
During the first quarter of 2010, we entered into agreements to cross-collateralize the
1999 ECA facility with the 2004 ECA facility. As part of such cross-collateralization we (i)
guaranteed the obligations under the 2004 ECA facility through our subsidiary established to
finance Airbus aircraft under our 1999 ECA facility; (ii) agreed to grant mortgages over
certain aircraft financed under the 1999 ECA facility and security interests over other
collateral related to the aircraft financed under the 1999 ECA facility to secure the guaranty
obligation; (iii) accepted a loan-to-value ratio (aggregating the loans and aircraft from the
1999 ECA facility and the 2004 ECA facility) of no more than 50%, in order to release liens
(including the liens incurred under the cross-collateralization agreement) on any aircraft
financed under the 1999 or 2004 ECA facilities or other assets related to the aircraft; and
(iv) agreed to allow proceeds generated from certain disposals of aircraft to be applied to
obligations under the 2004 ECA facility. As of March 31, 2011, there were no outstanding
obligations under the 1999 facility. |
||
We also agreed to additional restrictive covenants relating to the 2004 ECA facility,
restricting us from (i) paying dividends on our capital stock with the proceeds of asset sales
and (ii) selling or transferring aircraft with an aggregate net book value exceeding a certain
disposition amount, which is currently approximately $10.4 billion. The disposition amount will
be reduced by approximately $91.4 million at the end of each calendar quarter during the
effective period. The covenants are in effect from the date of the agreement until December 31,
2012. A breach of these restrictive covenants would result in a termination event for the ten
loans funded subsequent to the date of the agreement and would make those loans, which
aggregated $295.4 million at March 31, 2011, due in full at the time of such a termination
event. |
||
In addition, if a termination event resulting in an acceleration of the obligations under
the 2004 ECA facility were to occur, pursuant to the cross-collateralization agreement, we
would have to segregate lease payments, overhaul rentals and security deposits received after
such acceleration event occurred relating to all the aircraft funded under the 1999 ECA
facility, even though those aircraft are no longer subject to a loan at March 31, 2011. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Secured Bank Debt We have a credit facility, dated October 13, 2006, as amended, under which the original
maximum amount available was $2.5 billion. We repaid $800 million aggregate principal amount of
loans outstanding under this facility in the fourth quarter of 2010 and the amended facility
prohibits us from re-borrowing amounts repaid under this facility. Therefore, the current size
of the facility is $1.7 billion. As of March 31, 2011, we had secured loans of $1.465 billion
outstanding under the facility, all of which will mature in October 2012. The interest on the
secured loans is based on LIBOR plus a margin of 2.15%, plus facility fees of 0.2% on the
outstanding principal balance. The remaining $235 million outstanding under the facility
consists of unsecured loans that will mature on their originally scheduled maturity date in
October 2011, with a LIBOR based interest rate equal to 0.96% at March 31, 2011. |
||
The collateralization requirement under the amended facility provides that the $1.465
billion of secured loans must be secured by a lien on the equity interests of certain of ILFCs
non-restricted subsidiaries that own aircraft with aggregate appraised values of originally not
less than 133% of the outstanding principal amount (the Required Collateral Amount). The
credit facility includes an ongoing requirement, tested periodically, that the appraised value
of the eligible aircraft owned by the pledged subsidiaries must be equal to or greater than
100% of the Required Collateral Amount. This ongoing requirement is subject to the right to
transfer additional eligible aircraft to the pledged subsidiaries or ratably prepay the loans.
We also guarantee the secured loans through certain other subsidiaries. |
||
The credit facility also contains financial and restrictive covenants that (i) limit our
ability to incur indebtedness, (ii) restrict certain payments, liens and sales of assets by us,
and (iii) require us to maintain a fixed charge coverage ratio and consolidated tangible net
worth in excess of certain minimum levels. |
||
We intend to use the proceeds from the secured term loan agreement entered into on March
30, 2011, described in more detail below under Other Secured Financing Arrangements to prepay a
portion of the amounts outstanding under this credit facility. |
||
Other Secured Financing Arrangements In May 2009, ILFC provided $39.0 million of subordinated financing to a non-restricted subsidiary. The entity used these funds and an additional $106.0 million borrowed from third parties to purchase an aircraft, which it 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 in May 2018 with interest rates based on LIBOR. At March 31, 2011, the interest rates on the $82.0 million and $24.0 million tranches were 3.41% and 5.11%, 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 March 31, 2011, $86.7 million was outstanding under the two tranches and the net book value of the aircraft was $135.9 million. |
||
In June 2009, we borrowed $55.4 million through a non-restricted subsidiary, which owns
one aircraft leased to an airline. Half of the original loan amortizes over 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 March
31, 2011, $45.2 million was outstanding and the net book value of the aircraft was $90.6
million. |
||
On March 17, 2010, we entered into a $750 million term loan agreement secured by 43
aircraft and all related equipment and leases. The aircraft had an average appraised base
market value of approximately $1.3 billion, for an initial loan-to-value ratio of approximately
56%. The loan matures on March 17, 2015, and |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
bears interest at LIBOR plus a margin of 4.75%
with a LIBOR floor of 2.0%. The principal of the loan is payable in full at maturity with no
scheduled amortization, but we can voluntarily prepay the loan at any time. On March 17, 2010,
we also entered into an additional term loan agreement of $550 million through a newly formed
non-restricted subsidiary. The obligations of the subsidiary borrower are guaranteed on an
unsecured basis by ILFC and on a secured basis by certain non-restricted subsidiaries of ILFC
that hold title to 37 aircraft. The aircraft had an average appraised base market value of
approximately $969 million, for an initial loan-to-value ratio of approximately 57%. The loan
matures on March 17, 2016, and bears interest at LIBOR plus a margin of 5.0% with a LIBOR floor
of 2.0%. The principal of the loan is payable in full at maturity with no scheduled
amortization. The proceeds from this loan are restricted from use in our operations until we
transfer the related collateral to the non-restricted subsidiaries. At March 31, 2011,
approximately $47 million of the proceeds remained restricted. We can voluntarily prepay the
loan at any time, subject to a 1% prepayment penalty prior to March 17, 2012. Both loans
require a loan-to-value ratio of no more than 63%. The loans also contain customary covenants
and events of default, including limitations on the ability of us and our subsidiaries, as
applicable, to create liens; incur additional indebtedness; consolidate, merge, sell or
otherwise dispose of all or substantially all of our assets; and enter into transactions with
affiliates. |
||
On March 30, 2011, one of our non-restricted subsidiaries entered into a secured term loan
agreement with lender commitments in the amount of $1.3245 billion, which was subsequently
increased to $1.5245 billion. The loan matures on March 30, 2018, with scheduled principal
payments commencing in June 2012, and bears interest at LIBOR plus a margin of 2.75%, or, if
applicable, a base rate plus a margin of 1.75%. The obligations of the subsidiary borrower are
guaranteed on an unsecured basis by ILFC and on a secured basis by certain wholly owned
subsidiaries of the subsidiary borrower. The security granted initially includes a portfolio of
54 aircraft, together with attached leases and all related equipment, with an average appraised
base market value of approximately $2.4 billion as of January 1, 2011, which equals an initial
loan-to-value ratio of approximately 65%, and the equity interests in certain special purpose
subsidiaries of the subsidiary borrower (SPEs) that will own the aircraft and related
equipment and leases that are pledged as security for the loans. The proceeds of the loan
will be made available to the subsidiary borrower as aircraft are transferred to the SPEs, at
an advance rate equal to 65% of the initial appraised value of the aircraft transferred to the
SPEs. |
||
The subsidiary borrower will be required to maintain compliance with a maximum
loan-to-value ratio, which varies over time, as set forth in the term loan agreement. If the
subsidiary borrower does not maintain compliance with the maximum loan-to-value ratio, it will
be required to either prepay portions of the outstanding loans or transfer additional aircraft
to SPEs, subject to certain concentration criteria, so that the ratio is equal to or less than
the maximum loan-to-value ratio. |
||
We can voluntarily prepay the loan at any time, subject to a 2% prepayment penalty prior
to March 30, 2012, and a 1% prepayment penalty between March 30, 2012 and March 30, 2013. The
loan facility contains customary covenants and events of default, including covenants that
limit the ability of the subsidiary borrower and its subsidiaries to (i) incur additional
indebtedness; (ii) create liens; (iii) consolidate, merge or dispose of all or substantially
all of their assets; and (iv) enter into transactions with affiliates. |
||
Unsecured Bonds and Medium-Term Notes |
||
Automatic Shelf Registration: We have an effective automatic shelf registration statement
filed with the SEC. As a result of our WKSI status, we have an unlimited amount of debt
securities registered for sale. |
||
Pursuant to our automatic shelf registration: (i) on August 20, 2010, we issued $500
million of 8.875% notes due 2017 and (ii) on December 7, 2010, we issued $1.0 billion of 8.25%
notes due 2020. At March 31, 2011, we also had $8.7 billion of public bonds and medium-term
notes outstanding, with interest rates ranging from 0.62% to 7.50%, which we had issued in
prior years under previous registration statements. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Euro Medium-Term Note Programme: We have a $7.0 billion Euro Medium-Term Note Programme,
under which we had approximately $1.2 billion of Euro denominated notes outstanding at March
31, 2011. The notes mature on August 15, 2011, and bear interest based on Euribor with a spread
of 0.375%. The Programme is perpetual. As a bond issue matures, the principal amount of that
bond becomes available for new issuances under the Programme. We have eliminated the currency
exposure arising from the notes by hedging the notes into U.S. dollars and fixing the interest
rates at a range of 5.355% to 5.367%. We translate the debt into U.S. dollars using current
exchange rates prevailing at the balance sheet date. The foreign exchange adjustment for the
foreign currency denominated notes was $249.5 million and $165.4 million at March 31, 2011 and
December 31, 2010, respectively. |
||
A rollforward for the quarter ended March 31, 2011, of the foreign exchange adjustment for
the foreign currency adjustment related to foreign currency denominated notes is presented
below: |
(Dollars in thousands) | ||||
Foreign currency adjustment related to foreign currency
denominated debt at December 31, 2010 |
$ | 165,400 | ||
Foreign currency period adjustment of non-US$ denominated debt |
84,100 | |||
Foreign currency adjustment related to foreign currency
denominated debt at March 31, 2011 |
$ | 249,500 | ||
Other Senior Notes: On March 22, 2010 and April 6, 2010, we issued a combined $1.25
billion aggregate principal amount of 8.625% senior notes due September 15, 2015, and $1.5
billion aggregate principal amount of 8.750% senior notes due March 15, 2017, pursuant to an
indenture dated as of March 22, 2010. The notes are due in full on their scheduled maturity
dates. The notes are not subject to redemption prior to their stated maturity and there are no
sinking fund requirements. In connection with the note issuances, we entered into registration
rights agreements obligating us to, among other things, complete a registered exchange offer to
exchange the notes of each series for new registered notes of such series with substantially
identical terms, or register the notes pursuant to a shelf registration statement. |
||
The annual interest rate on the affected notes increased by 0.25% per year for 90 days,
commencing on January 26, 2011, because the registration statement relating to the exchange
offer was not declared effective by the SEC by that date, as required under the registration
rights agreement. On April 26, 2011, the annual interest rate on the affected notes increased
by an additional 0.25% because we were unable to consummate the exchange offer by such date.
The registration statement was declared effective on April 6, 2011, and we completed the
exchange offer on May 5, 2011. The applicable interest rate reverted to the original level when
the exchange offer was consummated. |
||
The indenture governing the notes contains customary covenants that, among other things,
restrict our, and our restricted subsidiaries, ability to (i) incur liens on assets; (ii)
declare or pay dividends or acquire or retire shares of our capital stock during certain events
of default; (iii) designate restricted subsidiaries as non-restricted subsidiaries or designate
non-restricted subsidiaries; (iv) make investments in or transfer assets to non-restricted
subsidiaries; and (v) consolidate, merge, sell, or otherwise dispose of all or substantially
all of our assets. |
||
The indenture also provides for customary events of default, including but not limited to,
the failure to pay scheduled principal and interest payments on the notes, the failure to
comply with covenants and agreements specified in the indenture, the acceleration of certain
other indebtedness resulting from non- |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
payment of that indebtedness, and certain events of
insolvency. If any event of default occurs, any amount then outstanding under the senior notes
may immediately become due and payable. |
||
Unsecured Bank Debt On January 31, 2011, we entered into a new $2.0 billion unsecured three-year revolving credit facility with a group of 11 banks that will expire on January 31, 2014. This revolving credit facility provides for interest rates based on either a base rate or LIBOR plus an applicable margin determined by a ratings-based pricing grid. The credit agreement contains customary events of default and restrictive financial covenants that require us to maintain a minimum fixed charge coverage ratio, a minimum consolidated tangible net worth and a maximum ratio of consolidated debt to consolidated tangible net worth. As of March 31, 2011, no amounts were outstanding under this revolving facility. |
||
As of March 31, 2011, $234.6 million of unsecured loans were outstanding under our credit
agreement dated as of October 13, 2006. These loans remain unsecured and mature in October 2011
on the original maturity date for this credit facility. The interest on the loans is LIBOR
based and was 0.96% at March 31, 2011. The remaining outstanding loans under the agreement, as
amended, are secured. See Secured Bank Debt above. |
||
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 had a call option date of December 21, 2010, and the $400 million tranche has a call option date of December 21, 2015. We did not exercise the call option at December 21, 2010 and the interest rate on the $600 million tranche changed from a fixed interest rate of 5.90% to a floating rate with an initial credit spread of 1.55% plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and (iii) 30-year constant maturity treasury. The interest will reset quarterly and at March 31, 2011, the interest rate was 5.97%. The $400 million tranche has a fixed interest rate of 6.25% until the 2015 call option date, and if we do not exercise the call option, the interest rate will change to a floating rate, reset quarterly, based on the initial credit spread of 1.80% plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and (iii) 30-year constant maturity treasury. If we choose to redeem the $600 million tranche, we must pay 100% of the principal amount of the bonds being redeemed, plus any accrued and unpaid interest to the redemption date. If we choose to redeem only a portion of the outstanding bonds, at least $50 million principal amount of the bonds must remain outstanding. |
||
H. | Derivative Activities |
|
We use derivatives to manage exposures to interest rate and foreign currency risks. At
March 31, 2011, we had interest rate and foreign currency swap agreements with a related
counterparty and interest rate cap agreements with an unrelated counterparty. |
||
We record changes in fair value of derivatives in income or OCI depending on the
designation of the hedge as either a fair value hedge or cash flow hedge, 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, the balance accumulated in
AOCI at the time of the re-designation is amortized into income over the remaining life of the
underlying derivative. Our foreign currency swap agreements mature in August 2011, our interest
rate swap agreements mature through 2015, and our interest rate cap agreements mature in 2018. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
We have 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 sheet on a net basis in Derivative assets, net (see Note I 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) | ||||||||||||||||
March 31, 2011: |
||||||||||||||||
Derivatives designated as
hedging instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 583,176 | $ | (47,406 | ) | |||||||
Foreign exchange swap agreements |
| 1,000,000 | 224,956 | | | |||||||||||
Total derivatives designated as
hedging instruments |
$ | 224,956 | $ | (47,406 | ) | |||||||||||
Derivatives not designated as
hedging instruments: |
||||||||||||||||
Interest rate cap agreements |
$ | 86,660 | $ | 1,029 | $ | | $ | | ||||||||
Total derivatives |
$ | 225,985 | $ | (47,406 | ) | |||||||||||
December 31, 2010: |
||||||||||||||||
Derivatives designated as
hedging instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 625,717 | $ | (56,244 | ) | |||||||
Foreign exchange swap agreements |
| 1,000,000 | 114,431 | | | |||||||||||
Total derivatives designated as
hedging instruments |
$ | 114,431 | $ | (56,244 | ) | |||||||||||
Derivatives not designated as
hedging instruments: |
||||||||||||||||
Interest rate cap agreements |
$ | 89,520 | $ | 1,963 | $ | | $ | | ||||||||
Total derivatives |
$ | 116,394 | $ | (56,244 | ) | |||||||||||
(a) | Converts floating interest rate debt into fixed rate debt. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
During the three months ended March 31, 2011 and 2010, we recorded the following in OCI related to derivative instruments: |
Gain (Loss) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Effective portion of change in fair market value of derivatives (a)(b) |
$ | 100,658 | $ | (55,204 | ) | |||
Amortization of balances of de-designated hedges and other adjustments |
1,041 | 252 | ||||||
Foreign exchange component of cross currency swaps charged (credited) to
income |
(84,100 | ) | 131,200 | |||||
Income tax effect |
(6,160 | ) | (26,687 | ) | ||||
Net changes in cash flow hedges, net of taxes |
$ | 11,439 | $ | 49,561 | ||||
(a) | Includes $(44) and $(21,987) of combined CVA and MVA for the three months ended March 31, 2011 and 2010, respectively. | |
(b) | 2010 includes losses of $(15,409) on a derivative contract that matured during the three months ended March 31, 2010, that was de-designated as a cash flow hedge and then subsequently re-designated during the life of the contract. |
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 | ||||||||
March 31, | ||||||||
Derivatives Designated as Cash Flow Hedges | 2011 | 2010 | ||||||
(Dollars in thousands) | ||||||||
Interest rate swap agreements |
$ | 376 | $ | (9,418 | ) | |||
Foreign exchange swap agreements |
82,716 | (73,069 | ) | |||||
Total (a) |
$ | 83,092 | $ | (82,487 | ) | |||
(a) | Includes $(44) and $(21,987) of combined CVA and MVA for the three months ended March 31, 2011 and 2010, respectively. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
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 | ||||||||
Location of Gain or (Loss) Reclassified from AOCI | March 31, | |||||||
into Income (Effective Portion) | 2011 | 2010 | ||||||
(Dollars in thousands) | ||||||||
Interest rate swap agreements interest expense |
$ | (6,903 | ) | $ | (8,787 | ) | ||
Foreign exchange swap agreements interest expense |
(10,663 | ) | (18,272 | ) | ||||
Foreign exchange swap agreements lease revenue |
| (224 | ) | |||||
Total |
$ | (17,566 | ) | $ | (27,283 | ) | ||
We estimate that within the next twelve months, we will amortize into earnings approximately $28.6 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 Operations for the three months ended March 31, 2011 and 2010: |
Amount of Gain or (Loss) | ||||||||
Recognized | ||||||||
in Income on Derivatives | ||||||||
(Ineffective Portion) (a) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Derivatives Designated as Cash Flow Hedges: |
||||||||
Interest rate swap agreements |
$ | (31 | ) | $ | (59 | ) | ||
Foreign exchange swap agreements |
1,330 | (23,291 | ) | |||||
Total |
1,299 | (23,350 | ) | |||||
Derivatives Not Designated as a Hedge: |
||||||||
Interest rate cap agreements |
(880 | ) | (1,055 | ) | ||||
Reconciliation to Condensed, Consolidated Statements of Operations: |
||||||||
Income effect of maturing derivative contracts |
| (15,409 | ) | |||||
Reclassification of amounts de-designated as hedges recorded in AOCI |
(1,041 | ) | (252 | ) | ||||
Effect from derivatives, net of change in hedged items due to
changes in foreign exchange rates |
$ | (622 | ) | $ | (40,066 | ) | ||
(a) | All components of each derivatives gain or loss were included in the assessment of effectiveness. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
I. | Fair Value Measurements |
Fair value is defined 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. Assets and liabilities recorded at fair value on our Condensed, Consolidated Balance Sheets are measured and classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the fair value. 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. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis |
The following table presents our assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, categorized using the fair value hierarchy described above. |
Counterparty | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting (a) | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
March 31, 2011: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 225,985 | $ | | $ | (47,406 | ) | $ | 178,579 | |||||||||
Derivative liabilities |
| (47,406 | ) | | 47,406 | | ||||||||||||||
Total |
$ | | $ | 178,579 | $ | | $ | | $ | 178,579 | ||||||||||
December 31, 2010: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 116,394 | $ | | $ | (56,244 | ) | $ | 60,150 | |||||||||
Derivative liabilities |
| (56,244 | ) | | 56,244 | | ||||||||||||||
Total |
$ | | $ | 60,150 | $ | | $ | | $ | 60,150 | ||||||||||
(a) | As permitted under GAAP, we have elected to offset derivative assets and derivative liabilities under our master netting agreement. |
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis |
We measure the fair value of aircraft and certain other 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. |
The fair value of an aircraft is classified as a Level 3 valuation. Fair value of flight equipment is determined using an income approach based on the present value of cash flows from contractual lease agreements, contingent rentals where appropriate, and projected future lease payments, which extend to the end of the aircrafts economic life in its highest and best use configuration, as well as a disposition value, based on the expectations of market participants. |
We recognized impairment charges and fair value adjustments for the three months ended March 31, 2011 and 2010, as provided in Note E Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed of. |
The following table presents the effect on our Condensed, consolidated financial statements as a result of the non-recurring impairment charges and fair value adjustments recorded to Flight equipment for the three months ended March 31, 2011: |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Impairment | Carrying | |||||||||||||||||||||||
Book Value at | Charges and | Depreciation | Value at | |||||||||||||||||||||
December 31, | Fair Value | and Other | March 31, | |||||||||||||||||||||
2010 | Adjustments | Reclassifications | Sales | Adjustments | 2011 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Flight equipment
under operating
lease |
$ | 243.7 | $ | (109.5 | ) | $ | 49.3 | $ | (17.2 | ) | $ | (4.2 | ) | $ | 162.1 | |||||||||
Flight equipment
held for sale |
227.6 | 6.2 | (52.4 | ) | (181.4 | ) | | | ||||||||||||||||
Lease receivables
and other assets |
| | 3.1 | | | 3.1 | ||||||||||||||||||
Total |
$ | 471.3 | $ | (103.3 | ) | $ | | $ | (198.6 | ) | $ | (4.2 | ) | $ | 165.2 | |||||||||
J. | Fair Value Disclosures of Financial Instruments |
We used the following methods and assumptions in estimating our fair value disclosures for financial instruments: |
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 fair value of our long-term fixed rate debt is estimated using discounted cash flow analyses, based on our spread to U.S. Treasury bonds for similar debt at year end. The fair value of our long-term floating rate debt is estimated using discounted cash flow analysis based on credit default spreads. |
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. |
AVGs: Guarantees entered into after December 31, 2002, are included in Accrued interest and other payables on our Condensed, Consolidated Balance Sheets. Fair value is approximately equal to unamortized fees. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
The carrying amounts and fair values of our financial instruments at March 31, 2011 and December 31, 2010, are as follows: |
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount | Fair Value of | Carrying Amount of | Fair Value of | |||||||||||||
of Asset (Liability) | Asset (Liability) | Asset (Liability) | Asset (Liability) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash, including restricted cash |
$ | 2,557,626 | (a) | $ | 2,557,626 | $ | 3,524,750 | (a) | $ | 3,524,750 | ||||||
Notes receivable |
24,881 | 23,469 | 65,065 | 64,622 | ||||||||||||
Debt financing (including
subordinated debt and foreign
currency adjustment, excluding debt
discount) |
(26,383,306 | ) | (27,132,644 | ) | (27,789,786 | ) | (28,267,765 | ) | ||||||||
Derivative assets |
178,579 | 178,579 | 60,150 | 60,150 | ||||||||||||
Guarantees |
(9,535 | ) | (11,084 | ) | (10,013 | ) | (11,654 | ) |
(a) | Includes restricted cash of $401.9 million (2011) and $457.1 million (2010). |
K. | Security Deposits on Aircraft, Overhaul Rentals and Other Customer Deposits |
As of March 31, 2011 and 2010, Security Deposits, overhaul rentals and other customer deposits were comprised of: |
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Security deposits paid by lessees |
$ | 919,220 | $ | 945,195 | ||||
Overhaul rentals |
557,179 | 555,423 | ||||||
Other customer deposits |
134,890 | 120,166 | ||||||
Total |
$ | 1,611,289 | $ | 1,620,784 | ||||
L. | Related Party Transactions |
Intercompany Allocations and Fees: 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. During the three months ended March 31, 2010, we paid AIG $85.0 million that was due and payable on a loan related to certain tax planning activities we had participated in during 2002 and 2003. | ||
Loans from AIG Funding, Inc.: We borrowed $3.9 billion from AIG Funding, an affiliate of our parent, in 2009 to assist in funding our liquidity needs. On August 20, 2010, we prepaid in full the principal balance of approximately $3.9 billion plus accrued interest. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Derivatives and Insurance Premiums: All of our interest rate swap and foreign currency swap agreements are with AIGFP, a related party. See Note I Fair Value Measurements and Note H Derivative Activities. In addition, we purchase insurance through a broker who may place part of our policies with AIG. Total insurance premiums were $2.0 million and $1.5 million for the three months ended March 31, 2011 and 2010, respectively. |
Our financial statements include the following amounts involving related parties: |
Three Months Ended | ||||||||
Statement of Operations | March 31, 2011 | March 31, 2010 | ||||||
(Dollars in thousands) | ||||||||
Expense (income): |
||||||||
Interest expense on loans from AIG Funding |
$ | | $ | 60,510 | ||||
Effect from derivatives on contracts with AIGFP |
(258 | ) | (39,011 | ) | ||||
Interest on derivative contracts with AIGFP |
17,566 | 27,059 | ||||||
Lease revenue related to hedging of lease receipts with AIGFP |
| 224 | ||||||
Allocation of corporate costs from AIG |
6,106 | 4,260 | ||||||
Management fees received |
(2,240 | ) | (2,298 | ) | ||||
Management fees paid to subsidiaries of AIG |
27 | 240 |
Balance Sheet | March 31, 2011 | December 31, 2010 | ||||||
(Dollars in thousands) | ||||||||
Asset (liability): |
||||||||
Derivative assets, net |
$ | 177,550 | $ | 58,187 | ||||
Income taxes payable to AIG (a) |
(79,127 | ) | (108,784 | ) | ||||
Accrued corporate costs payable to AIG |
(21,844 | ) | (20,753 | ) |
(a) | We paid approximately $26 million to AIG during the three months ended March 31, 2011. |
M. | 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 March 31, 2011, the maximum aggregate potential commitment that we were obligated to pay under such guarantees, without any offset for the projected value of the aircraft, was approximately $530 million. | ||
| Aircraft Loan Guarantees: We guarantee two loans collateralized by aircraft to financial institutions. 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 |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
underlying value of the aircraft collateral. At March 31, 2011, the guaranteed value, without any offset for the projected value of the aircraft, was approximately $22 million. |
Management regularly reviews the underlying values of the aircraft collateral to determine our exposure under these guarantees. The next strike date for asset value guarantees is in June 2011. If called upon to perform under these contracts, we would purchase three aircraft for approximately $27.8 million. We do not currently anticipate that we will be required to perform under any of the three guarantees based upon the underlying values of the aircraft collateralized. |
Legal Contingencies |
| Flash Airlines, Yemen Airways-Yemenia and Airblue Limited: We are named in lawsuits in connection with the 2004 crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an Egyptian carrier; the 2009 crash of our Airbus A310-300 aircraft on lease to Yemen Airways-Yemenia, a Yemeni carrier; and the 2010 crash of our Airbus A320-200 aircraft on lease to Airblue Limited, a Pakistani carrier. These lawsuits were filed by the families of victims on the flights and seek unspecified damages for wrongful death, costs, and fees. The Flash Airlines litigation originally commenced in May 2004 in California, but all U.S. proceedings were dismissed in favor of proceedings in France where claims are pending before the Tribunal de Grande Instance civil courts in Bobigny and Paris. As of May 9, 2011, the parties are engaged in settlement negotiations. We believe that we have substantial defenses to this action and available liability insurance is adequate to cover our defense costs and any potential liability. The Yemen Airways litigation and the Airblue Limited litigation were filed in January 2011 and March 2011, respectively, in California Superior Court in Los Angeles County. We have been served with the complaints, and each litigation is in its incipient stage. While the plaintiffs have not specified any amount of damages, we believe that we are adequately covered by available liability insurance for both lawsuits and that we have substantial defenses to these actions. We do not believe that the outcome of any of these lawsuits will have a material effect on our consolidated financial condition, 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 29.6 million 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. At March 31, 2011, we have reached a definitive settlement with the trustee of the estate, in which we have agreed to pay an amount that has been accrued and included in Accrued interest and other payable on our condensed consolidated balance sheets at March 31, 2011 and December 31, 2010. The settlement amount accrued was not 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. |
N. | Variable Interest Entities |
Our leasing and financing activities require us to use many forms of entities to achieve our business objectives and we have participated to varying degrees in the design and formation of these entities. Our involvement in VIEs varies and includes being a passive investor in the VIE with involvement from other |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
parties, managing and structuring all activities of the VIE, and being the sole shareholder of the VIE. See Note G Debt Financings for more information on entities created for the purpose of obtaining financing. |
Investment Activities |
We have variable interests in ten entities to which we previously sold aircraft. The interests include debt financings, preferential equity interests and, in some cases, providing guarantees to banks which had provided the secured senior financings to the entities. Each entity owns one aircraft. The individual financing agreements are cross-collateralized by the aircraft. Because we do not control the activities which significantly impact the economic performance of the entities, we do not consolidate the entities into our condensed, consolidated financial statements. We have a credit facility with these entities to provide financing up to approximately $13.5 million, of which approximately $8.4 million was borrowed at March 31, 2011. The maximum exposure to loss for these entities is approximately $20 million, which is the combined net carrying value of this investment and maximum borrowings available under the credit facility at March 31, 2011. |
Non-Recourse Financing Structures |
We continue to consolidate one entity in which ILFC has a variable interest that was established to obtain secured financing for the purchase of an aircraft. ILFC provided $39.0 million of subordinated financing to the entity and the entity borrowed $106.0 million from third parties, $82.0 million of which is non-recourse to ILFC. The entity owns one aircraft with a net book value of $135.9 million at March 31, 2011. We have determined that we are the primary beneficiary of this entity because we control and manage all aspects of this entity, including directing the activities that most significantly affect the entitys economic performance, and we absorb the majority of the risks and rewards of this entity. |
We also consolidate a wholly-owned subsidiary we created for the purpose of obtaining secured financing for an aircraft. The entity meets the definition of a VIE because it does not have sufficient equity to operate without ILFCs subordinated financial support in the form of intercompany notes, which serve as equity even though they are legally debt instruments. This entity borrowed $55.4 million from a third party. The loan is non-recourse to ILFC and is secured by the aircraft and the lease receivables. The entity owns one aircraft with a net book value of $90.6 million at March 31, 2011. We have determined that we are the primary beneficiary of this entity because we control and manage all aspects of this entity, including directing the activities that most significantly affect the entitys economic performance, and we absorb the majority of the risks and rewards of this entity. |
Wholly-Owned ECA Financing Vehicles |
We have created certain wholly-owned subsidiaries for the purpose of purchasing aircraft and obtaining financing secured by such aircraft. The secured debt is guaranteed by the European ECAs. The entities meet the definition of a VIE because they do not have sufficient equity to operate without ILFCs subordinated financial support in the form of intercompany notes, which serve as equity even though they are legally debt instruments. We control and manage all aspects of these entities and guarantee the activities of these entities and they are therefore consolidated into our condensed, consolidated financial statements. |
Other Secured Financings |
We have created a number of wholly-owned subsidiaries for the purpose of obtaining secured financings. The entities meet the definition of a VIE because they do not have sufficient equity to operate without ILFCs subordinated financial support in the form of intercompany notes, which serve as equity even though they are legally debt instruments. One of the entities borrowed $550 million from third parties and a portfolio of 37 aircraft will be transferred from ILFC to the subsidiaries of the entity to secure the loan. We control and manage all aspects of these entities and guarantee the activities of these entities and they are therefore consolidated into our condensed, consolidated financial statements. See Note G Debt Financings for more information on these financings. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2011
(Unaudited)
Wholly-Owned Leasing Entities |
We have created wholly-owned subsidiaries for the purpose of facilitating aircraft leases with airlines. The entities meet the definition of a VIE because they do not have sufficient equity to operate without ILFCs subordinated financial support in the form of intercompany loans, which serve as equity even though they are legally debt instruments. We control and manage all aspects of these entities and guarantee the activities of these entities and they are therefore consolidated into our condensed, consolidated financial statements. |
O. | Other Expenses |
We recognized a $20 million expense for the three months ended March 31, 2011, which is included in Other expenses in our Condensed, Consolidated Statement of Operations and is related to the cancellation of an aircraft engine order. We eliminated the economic effect of the $20 million expense by negotiating with our manufacturer vendors to recover these costs. The recovery will be in two payments. One of these payments is related to a 2007 agreement with one manufacturer for us to extend our evaluation period of aircraft under order until at least 2010. This payment is contingent upon our cancelling of the aircraft order and is not contingent on placing any new order with the manufacturer. As a result of the cancellation of such aircraft order in March 2011, we recorded the related payment receivable of $10 million in Interest and other in the condensed, consolidated statement of operations for the period ended March 31, 2011. The second payment of $10 million is related to an agreement with another manufacturer, which among other contractual terms, includes a provision to reimburse us for the remaining costs associated with the March 2011 order cancellation. The reimbursement payment will be recognized as a reduction of the cost basis of future aircraft deliveries, as we determined the payment to be connected with the purchase of such aircraft. In addition to this charge, for the three months ended March 31, 2011, Other expenses include $11.6 million resulting from the write down of two notes receivable, partially offset by approximately $0.6 million aggregate lease related income. |
Other expenses of $84.0 million for the three months ended March 31, 2010 relate to lease related costs we expensed as a result of agreements to sell aircraft, subject to operating leases, to third parties. |
P. | Subsequent Events |
On April 21, 2011, we increased the lender commitments under our term loan agreement dated March 30, 2011, by $200 million to a total commitment of $1.5245 billion. See Note G Debt Financings. |
On April 22, 2011, we signed a purchase agreement to acquire 80 A320neos and 20 A321neos from Airbus. The first aircraft is scheduled to deliver in 2015. We had entered into a memorandum of understanding with Airbus to acquire such aircraft during the first quarter of 2011. |
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Table of Contents
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF | |
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 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. We do not
intend and undertake no obligation to update any forward-looking information to reflect actual
results or future events or circumstances.
Overview
We generate the majority of our revenues from leasing new and used commercial jet aircraft to
foreign and domestic airlines. We also generate revenues from: (i) remarketing commercial jet
aircraft for our own account when we sell our leased aircraft at or before the expiration of their
leases; (ii) providing fleet management services, leasing, re-leasing and sales services on behalf
of the owner of aircraft; and (iii) fees received in exchange for providing asset value guarantees
on aircraft and, in limited circumstances, loan guarantees to buyers of aircraft or to financial
institutions.
Recent Developments
New Financing Arrangements: During the three months ended March 31, 2011, we continued to
improve our liquidity position by entering into a new $2.0 billion unsecured revolving credit
facility and a new $1.5 billion secured term loan agreement as further discussed below under
Liquidity.
New Aircraft Purchase Agreements: We have signed purchase agreements to acquire 33 787-800
from Boeing and 80 A320neos and 20 A321neos from Airbus. The first aircraft in the A320neo family
is scheduled to deliver in 2015.
Management Team: During the three months ended March 31, 2011, Alan H. Lund, our Vice Chairman
and President retired as President, but will remain as Vice Chairman and a member of our board.
Our Chief Financial Officer, Mr. Frederick S. Cromer, succeeded Mr. Lund as President.
Operating Results
We reported net income of approximately $73.7 million for the three months ended March 31,
2011, compared to a net loss of $62.9 million for the same period in 2010 primarily due to lower
recorded aircraft fair value adjustments and impairment charges. We recorded fair value adjustments
on three aircraft we sold, and we recorded impairment charges on six aircraft we agreed to sell and
one we parted-out during the three months ended March 31, 2011, as compared to impairment charges
recorded on 52 aircraft we agreed to sell during the same period in 2010. The lower aggregate
aircraft fair value adjustments and impairment charges were partially offset by
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(i) a decrease in revenues from rentals of flight equipment primarily due to a reduction in
the size of our fleet as a result of aircraft sales and (ii) an increase in interest expense driven
by higher composite borrowing rates.
During the three months ended March 31, 2011 and 2010, respectively, we recorded the following
aircraft impairment charges and fair value adjustments:
Three Months Ended | ||||||||||||||||
March 31, 2011 | March 31, 2010 | |||||||||||||||
Aircraft | Impairment | Impairment | ||||||||||||||
Impaired | Charges and | Charges and | ||||||||||||||
or | Fair Value | Aircraft | Fair Value | |||||||||||||
Adjusted | Adjustments | Impaired | Adjustments | |||||||||||||
Loss/(Gain) |
(Dollars in millions) | |||||||||||||||
Impairment charges on aircraft likely to be sold
and fair value adjustments on aircraft likely to be
sold or sold |
9 | $ | 107.0 | 52 | $ | 353.4 | ||||||||||
Fair value adjustments on held for sale aircraft sold
or transferred from held for sale back to flight
equipment under operating leases |
8 | (6.2 | ) | | | |||||||||||
Impairment charges on aircraft designated for part-out |
1 | $ | 2.5 | | $ | | ||||||||||
Total Impairment charges and fair value adjustments
on flight equipment |
18 | $ | 103.3 | 52 | $ | 353.4 | ||||||||||
(a) | Included in the amount for 2011 is a $3.3 million net fair value credit adjustment related
to two aircraft previously held for sale, but which no longer met such criteria. We
reclassified those aircraft to Flight equipment under operating leases during the three months
ended March 31, 2011. Also included in this amount for 2011 is $2.9 million aggregated fair
value credit adjustments related to sales price adjustments for six aircraft that were
previously held for sale and sold during the three months ended March 31, 2011. |
Cost of borrowing: Our cost of borrowing is increasing as we refinance our existing debt with
new financing arrangements, reflecting relatively higher interest rates caused by our current
long-term debt ratings. Our average composite interest rate and our average debt outstanding were
as follows for the following periods:
Three Months Ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(Dollars in thousands) | ||||||||||||
Average Composite Interest Rate |
5.73 | % | 5.42 | % | 4.52 | % | ||||||
Average Debt Outstanding |
$ | 26,879 | $ | 28,822 | $ | 31,103 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our Fleet
During the three months ended March 31, 2011, we had the following activity related to Flight
equipment under operating leases:
Number of | ||||
Aircraft | ||||
Flight equipment under operating leases at December 31, 2010 |
933 | |||
Aircraft transferred from Flight equipment held for sale to Flight equipment held for use |
2 | |||
Aircraft purchases |
2 | |||
Aircraft sold from Flight equipment under operating leases |
(3 | ) | ||
Aircraft designated for part-out |
(1 | ) | ||
Flight equipment under operating leases at March 31, 2011 |
933 | |||
As of March 31, 2011, we owned 933 aircraft in our leased fleet, had four additional aircraft
in the fleet classified as finance and sales-type leases, and provided fleet management services
for 92 aircraft. During 2011, we have contracted to purchase 80 A320neos and 20 A321neos from
Airbus, canceled our previous A380 purchase commitments, and contracted to purchase 33 737-800
aircraft from Boeing. These orders bring our total future orders to 236 new aircraft, for delivery
through 2019 with an aggregate estimated purchase price of $17.6 billion. Four of these aircraft
are scheduled to deliver during the remainder of 2011. Currently we are also considering purchasing
new aircraft from airlines and leasing them back to the airlines. We anticipate financing future
aircraft purchases in part by operating cash flows and in part by incurring additional debt.
Debt Financing
We generally fund our operations, including aircraft purchases, through available cash
balances, internally generated funds, including aircraft sales, 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 are borrowed both on a secured and
unsecured basis from various sources. See Liquidity below.
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, natural disasters, 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.
The Middle East and Northern Africa have recently experienced political unrest. We have 67
aircraft on lease in the region. The unrest has had no significant impact on our operating results
to date.
During the three months ended March 31, 2011, fuel prices increased dramatically, which may
put downward pressure on demand for aircraft and slow the recovery in lease rates that we have seen
over the past ten months. We believe airline profitability and aircraft lease rates will remain
vulnerable to increasing fuel costs and other political and economic disruptions through the
remainder of 2011.
One of our customers, P.T. Mandala Airlines (Mandala), that operated two of our owned
aircraft, ceased operations on January 13, 2011. At March 31, 2011, we had leased one aircraft to
another airline and the other
aircraft remained off lease. In total, we had four aircraft in our fleet that were not subject
to a signed lease agreement or a signed letter of intent at March 31, 2011, two of which were
subsequently leased.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
There are lags between changes in market conditions and their impact on our results, as
contracts not yet reflecting current lease rates remain in effect. Therefore, the current market
conditions and any potential effect they may have on our results may not be fully reflected in our
current results. 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 March 31, 2011, 17 customers operating 77 aircraft
were two or more months past due on $36.2 million of lease payments relating to some of those
aircraft. Of this amount, we recognized $32.4 million in rental income through March 31, 2011. In
comparison, at March 31, 2010, 11 customers operating 31 aircraft were two or more months past due
on $29.8 million of lease payments relating to some of those aircraft, $22.7 million of which we
recognized in rental income through March 31, 2010.
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 March 31, 2011, one customer with $0.6 million carrying value of notes
receivable, net of reserves, was two months or more behind on principal and interest payments
totaling $0.5 million.
Despite industry cyclicality and current financial stress, we are optimistic about the
long-term future of air transportation and, more specifically, the growing role that the leasing
industry, and ILFC specifically, provides in the fleet transactions necessary to facilitate the
growth of commercial air transport. At March 31, 2011, we had signed leases for all of our new
aircraft deliveries through the end of August 2012. Furthermore, we have contracted with Airbus and
Boeing, respectively, to purchase 100 A320neo family aircraft and 74 787s with delivery dates
through 2019. For these reasons, we believe we are well positioned to manage the current cycle and
for the long-term future.
Liquidity
During the three months ended March 31, 2011, we entered into a new three-year $2.0 billion
unsecured revolving credit facility and, through a non-restricted subsidiary, we entered into a
secured term loan agreement for approximately $1.3 billion, which was subsequently increased to
approximately $1.5 billion of lender commitments. The $1.5 billion becomes available to us as we
transfer aircraft into certain non-restricted subsidiaries. The obligations of the subsidiary
borrower under the secured term loan agreement are guaranteed on an unsecured basis by ILFC and on
a secured basis by the subsidiaries holding the aircraft, as described in greater detail under
Debt Financings Other Secured Financing Arrangements. At May 9, 2011, we had not drawn on our
unsecured revolving credit agreement and no funds had been advanced to the subsidiary borrower
under the approximately $1.5 billion secured term loan. We intend to use the proceeds from the
secured term loan agreement to prepay a portion of the $1.7 billion outstanding under our credit
facility dated as of October 13, 2006, with current maturity dates in October 2011 and 2012.
We generated cash flows from operations of $500.7 million for the three months ended March 31,
2011. Using existing cash, we repaid approximately $1.5 billion of maturing debt during the three
months ended March 31, 2011 and we had approximately $2.2 billion in cash and cash equivalents that
remained available for use in our operations at March 31, 2011. We also had approximately $401.9
million of cash restricted from use in our operations at March 31, 2011, $47 million of which will
become available to us as we fulfill certain collateral requirements, as described elsewhere
herein.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Any new issuance of debt by us or our subsidiaries will be subject to the consent of the
Department of the Treasury if, after giving effect to the incurrence of the debt and use of
proceeds therefrom, we increase our net indebtedness by more than $1 billion compared to the same
date in the previous year, or compared to December 8, 2010, if the measurement is made before
December 8, 2011. We cannot predict whether the Department of the Treasury will consent to us
incurring debt in excess of this amount. Our bank credit facilities and indentures also limit our
ability to incur secured indebtedness. The most restrictive covenant in our bank credit facilities
permits us and our subsidiaries to incur secured indebtedness totaling up to 30% of our
consolidated net tangible assets, as defined in the credit agreement, minus $2.0 billion, which
limit currently totals approximately $10.0 billion. As of May 9, 2011, we were able to incur an
additional $4.8 billion of secured indebtedness under this covenant. Our debt indentures also
restrict us and our subsidiaries from incurring secured indebtedness in excess of to 12.5% of our
consolidated net tangible assets, as defined in the indentures. However, we may obtain secured
financing without regard to the 12.5% consolidated net tangible asset limit under our indentures by
doing so through subsidiaries that qualify as non-restricted under our debt indentures.
In addition to addressing our liquidity needs through debt financings, we also pursue
potential aircraft sales in connection with our ongoing fleet strategy. During the three months
ended March 31, 2011, we sold nine aircraft for approximately $200 million in gross proceeds. In
evaluating potential sales, we balance the need for funds with the long-term value of holding
aircraft and long-term prospects for us. Furthermore, we would need approval from the Department of
the Treasury if we entered into sales transactions with aggregate consideration exceeding $2.5
billion during any twelve month period. We cannot predict whether the Department of the Treasury
would consent to any future aircraft sales if their consent were required.
Because the current market for aircraft is depressed due to the economic downturn and limited
availability of buyer financing, sales of aircraft would likely result in a realized loss. The
potential for impairment or fair value adjustments could be material to our results of operations
for an individual period. The amount of the potential resulting aggregate loss would be dependent
upon the specific aircraft sold, the sale price, the sale date and any other sale contingencies.
We believe the sources of liquidity mentioned above, together with our cash generated from
operations, will be sufficient to operate our business and repay our debt maturities for at least
the next twelve months.
Our Relationship with AIG
Potential Change in Ownership
AIG does not have any present intention to sell us. If AIG does sell more than 49% of our
common stock without certain lenders consent, it would be an event of default under one of our
credit agreements maturing in October 2011 and 2012 and would allow our lenders to declare such
debt immediately due and payable. Accordingly, any plans of such a sale of us by AIG prior to
October 2012, would require consideration of this credit arrangement, under which $1.7 billion was
outstanding at March 31, 2011. In addition, an event of default or declaration of acceleration
under our credit agreement could also result in an event of default under our other debt
agreements, including the indentures.
AIG Loans from the FRBNY and Department of the Treasury
In September 2008, liquidity issues resulted in AIG seeking and receiving governmental support
through the FRBNY Credit Agreement and TARP funding from the Department of the Treasury, as more
fully described in AIGs Annual Report on Form 10-K for the year ended December 31, 2010. On
January 14, 2011, AIG was recapitalized and the FRBNY Credit Agreement was repaid and terminated
through a series of transactions, including the Master Transaction Agreement discussed below, that
resulted in the Department of the Treasury becoming AIGs majority shareholder with ownership of
approximately 92% of AIGs outstanding common stock. AIG understands that, subject to market
conditions, the Department of the Treasury intends to dispose of its ownership interest in AIG over
time.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AIG Recapitalization and the Master Transaction Agreement
On January 14, 2011 (the Closing), pursuant to the Master Transaction Agreement, AIG
completed a series of integrated transactions to recapitalize AIG (the Recapitalization) with the
Department of the Treasury, the FRBNY and the AIG Credit Facility Trust, including the repayment of
all amounts owed under the FRBNY Credit Facility. The Recapitalization transactions discussed below
are more fully described in AIGs Annual Report on Form 10-K for the year ended December 31, 2010.
Repayment and Termination of the FRBNY Credit Facility: At the Closing, AIG repaid to the
FRBNY approximately $21 billion in cash, representing complete repayment of all amounts owed under
the FRBNY Credit Facility, and the FRBNY Credit Facility was terminated. The funds for the
repayment were loaned to AIG, in the form of secured limited recourse debt, by special purpose
vehicles (SPVs) from the proceeds of AIGs sale of 67 percent of the ordinary shares of AIA Group
Limited in its initial public offering and from AIGs sale of American Life Insurance Company. The
loans from the SPVs are secured by pledges and any proceeds received from the sale by AIG and
certain of its subsidiaries of certain collateral, including all or part of their equity interests
in ILFC.
Repurchase and Exchange of SPV Preferred Interests: At the Closing, AIG drew down an
approximate $20.3 billion commitment from the Department of the Treasury pursuant to the Securities
Purchase Agreement, dated as of April 17, 2009, between AIG and the Department of the Treasury and
used such funds to purchase the FRBNYs preferred interests in the SPVs (the SPV Preferred
Interests). AIG then transferred the SPV Preferred Interests to the Department of the Treasury. If
any SPV Preferred Interests are outstanding on May 1, 2013, the Department of the Treasury will
have the right to compel the sale of all or a portion of one or more designated subsidiaries of
AIG, including ILFC (each, a Designated Entity), on terms that the Department of the Treasury
will determine.
Designated Entity Consent Rights: Pursuant to the Master Transaction Agreement, as long as the
Department of the Treasury holds any SPV Preferred Interests, ILFC will be required to get the
Department of the Treasurys consent in order to take specified significant actions, which include
(i) amending or waiving any provisions of our articles of incorporation, bylaws, or similar
organizational document in a manner that would adversely affect, in any material respect, the
rights of our equity interests; (ii) authorizing or issuing any equity interests, unless to AIG or
a wholly owned subsidiary of AIG; (iii) selling or disposing of assets for total consideration
greater than or equal to $2.5 billion in any twelve-month period; (iv) acquiring assets after
December 8, 2010, other than pursuant to existing purchase commitments at such date, with aggregate
scheduled payments under the purchase contracts for such assets greater than or equal to $2.5
billion in any twelve-month period; (v) engaging in any public offering or other sale or transfer
of our equity interests; (vi) voluntarily liquidating, filing for bankruptcy, or taking any other
legal action evidencing insolvency; and (vii) increasing our net indebtedness by more than $1
billion compared to the same date in the previous year, or compared to December 8, 2010, if the
measurement is made before December 8, 2011.
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 our 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.
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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 the following critical accounting policies could have a significant impact on our
results of operations, financial position and financial statement disclosures, and may require
subjective and complex estimates and judgments:
| Overhaul Rentals |
||
| Flight Equipment |
||
| Recoverability Assessment: In monitoring the aircraft in our fleet for impairment
charges, we consider facts and circumstances, including potential sales, that would
require us to modify our assumptions used in our recoverability assessments and prepare
revised recoverability assessments as necessary. |
||
| Recurring Recoverability Assessment: 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 assessments. The
recoverability of these aircraft is sensitive to changes in contractual cash flows,
future cash flow estimates and residual values. These are typically older aircraft that
are less in demand and have lower lease rates. As of March 31, 2011, we had identified
51 aircraft as being susceptible to failing the recoverability test. These aircraft had
a net book value of approximately $2.3 billion at March 31, 2011. All of these aircraft
passed the recoverability assessment with aggregate undiscounted cash flows exceeding
the carrying value of aircraft between 1.4% and 83.1%, which represents a 19.7% excess
above the net carrying value of those aircraft. Management believes that the carrying
values of these aircraft are supported by the estimated future undiscounted cash flows
expected to be generated by each aircraft. |
||
| Recoverability Assessment Potential Sales: We recorded the following impairment
charges and fair value adjustments for the three months ended March 31, 2011: (i)
$110.2 million on certain aircraft held for use as a result of recoverability analysis
performed on aircraft likely to be sold in future periods, and four aircraft sold
during the period, one of which was held for sale; and (ii) $2.5 million related to one
aircraft that was parted-out. These impairment charges and fair value adjustments were
offset by (i) $3.3 million of net aggregate fair value credit adjustments recorded
related to two other aircraft previously held for sale that were reclassified as held
for use during the three months ended March 31, 2011 and (ii) $6.1 million aggregate
fair value credit adjustments related to six aircraft previously held for sale and sold
during the period. See Note E of Notes to Condensed, Consolidated Financial Statements. |
||
| Flight Equipment Held for Sale |
||
| Depreciable Lives and Residual Values |
||
| Derivative Financial Instruments |
||
| Fair Value Measurements |
||
| Lease Revenue |
||
| Income Taxes |
For a detailed discussion on the application of these 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
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the year ended December 31, 2010, and Note I of Notes to Condensed,
Consolidated Financial Statements for fair value of flight equipment.
Debt Financings
We generally fund our operations, including aircraft purchases, through available cash
balances, internally generated funds, including aircraft sales, 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 are borrowed on both a secured and
unsecured basis from various sources. During the three months ended March 31, 2011, we entered into
a new three-year $2.0 billion unsecured revolving credit facility and a secured term loan agreement
of approximately $1.3 billion, which was subsequently upsized to approximately $1.5 billion, as
further discussed below under Revolving Credit Facilities and Other Secured Financing Arrangements.
At May 9, 2011, we had not drawn on the revolving credit facility and no funds had been advanced to
the subsidiary borrower under the approximately $1.5 billion secured term loan.
Our debt financing was comprised of the following at March 31, 2011 and December 31, 2010:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Secured |
||||||||
Senior secured bonds |
$ | 3,900,000 | $ | 3,900,000 | ||||
ECA financings |
2,626,088 | 2,777,285 | ||||||
Bank debt (a) |
1,465,400 | 1,465,400 | ||||||
Other secured financings (a) |
1,431,903 | 1,436,258 | ||||||
Less: Deferred debt discount |
(21,112 | ) | (22,309 | ) | ||||
9,402,279 | 9,556,634 | |||||||
Unsecured |
||||||||
Bonds and Medium-Term Notes |
15,475,569 | 16,810,843 | ||||||
Bank debt |
234,600 | 234,600 | ||||||
Less: Deferred debt discount |
(45,683 | ) | (47,977 | ) | ||||
15,664,486 | 16,997,466 | |||||||
Total Senior Debt Financings |
25,066,765 | 26,554,100 | ||||||
Subordinated Debt |
1,000,000 | 1,000,000 | ||||||
$ | 26,066,765 | $ | 27,554,100 | |||||
Selected interest rates and ratios which
include the economic effect of derivative
instruments: |
||||||||
Composite interest rate |
5.80 | % | 5.66 | % | ||||
Percentage of total debt at fixed rates |
78.42 | % | 79.30 | % | ||||
Composite interest rate on fixed rate debt |
6.31 | % | 6.38 | % | ||||
Bank prime rate |
3.25 | % | 3.25 | % |
(a) | Of this amount, $109.6 million (2011) and $113.7 million (2010) is non-recourse to ILFC.
These secured financings were incurred by VIEs and consolidated into our condensed,
consolidated financial statements. |
The above amounts represent the anticipated settlement of our outstanding debt obligations as
of March 31, 2011 and December 31, 2010. Certain adjustments required to present currently
outstanding hedged debt obligations
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
have been recorded and presented separately on our Condensed,
Consolidated Balance Sheets, including adjustments related to foreign currency hedging and interest
rate hedging activities.
We have created direct or indirect wholly-owned, subsidiaries for the purpose of purchasing
aircraft and obtaining financings secured by such aircraft. These entities have been designated as
non-restricted subsidiaries, under our indentures, and meet the definition of a VIE. We have
determined that we are the primary beneficiary of such VIEs and, accordingly, we consolidate such
entities into our condensed, consolidated financial statements. See Note N of Notes to Condensed
Consolidated Financial Statements for more information on VIEs.
Our debt agreements contain various affirmative and restrictive covenants, as described in
greater detail below. As of March 31, 2011, we were in compliance with the covenants in our debt
agreements.
Senior Secured Bonds
On August 20, 2010, we issued $3.9 billion of senior secured notes, with $1.35 billion
maturing in September 2014 and bearing interest of 6.5%, $1.275 billion maturing in September 2016
and bearing interest of 6.75%, and $1.275 billion maturing in September 2018 and bearing interest
of 7.125%. The notes are secured by a designated pool of aircraft, initially consisting of 174
aircraft and their related leases and certain cash collateral. In addition, two of ILFCs
subsidiaries, which either own or hold leases of aircraft included in the pool securing the notes,
have guaranteed the notes. We can redeem the notes at any time prior to their maturity, provided we
give notification between 30 to 60 days prior to the intended redemption date and subject to a
penalty of the greater of 1% of the outstanding principal amount and a make-whole premium. There
is no sinking fund for the notes.
The indenture governing the senior secured notes contains customary covenants that, among
other things, restrict our and our restricted subsidiaries ability to: (i) create liens; (ii)
sell, transfer or otherwise dispose of assets; (iii) declare or pay dividends or acquire or retire
shares of our capital stock; (iv) designate restricted subsidiaries as non-restricted subsidiaries
or designate non-restricted subsidiaries; (v) make investments in or transfer assets to
non-restricted subsidiaries; and (vi) consolidate, merge, sell or otherwise dispose of all, or
substantially all, of our assets.
The indenture also provides for customary events of default, including but not limited to, the
failure to pay scheduled principal and interest payments on the notes, the failure to comply with
covenants and agreements specified in the indenture, the acceleration of certain other indebtedness
resulting from non-payment of that indebtedness, and certain events of insolvency. If any event of
default occurs, any amount then outstanding under the senior secured notes may immediately become
due and payable.
We used the proceeds from the issuance of the senior secured bonds to repay in full loans from
AIG Funding.
Export Credit Facilities
We entered into ECA facility agreements in 1999 and 2004 through certain direct and indirect
wholly-owned subsidiaries that have been designated as non-restricted subsidiaries under our
indentures. The 1999 and 2004 ECA facilities were used to fund purchases of Airbus aircraft through
2001 and June 2010, respectively. New financings are no longer available to us under either ECA
facility and we had no loans outstanding under the 1999 ECA facility as of March 31, 2011. The
loans made under the ECA facilities were used to fund a portion of each aircrafts net purchase
price. The loans are guaranteed by various European ECAs. We have collateralized the debt with
pledges of the shares of wholly-owned subsidiaries that hold title to the aircraft financed under
the facilities.
In January 1999, we entered into the 1999 ECA facility and used amounts borrowed under this
facility to finance purchases of 62 Airbus aircraft through 2001. At March 31, 2011, all loans
under the facility had been paid in full. The facility is, however, party to a
cross-collateralization agreement relating to the 2004 ECA facility, as further discussed below.
The net book value of the aircraft used as collateral under this facility was $1.6 billion at March
31, 2011.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 June 30, 2010.
We used $4.3 billion of the available amount to finance purchases of 76 aircraft. Each aircraft
purchased was financed by a ten-year fully amortizing loan. As of March 31, 2011, approximately
$2.6 billion was outstanding under this facility. The interest rates on the loans outstanding under
the facility are either fixed or based on LIBOR and ranged from 0.42% to 4.71% at March 31, 2011.
The net book value of the aircraft purchased under this facility was $4.2 billion at March 31,
2011.
Our current long-term debt ratings require us to segregate security deposits, overhaul rentals
and rental payments received for aircraft with loan balances outstanding under the 2004 ECA
facility (segregated rental payments are used to make scheduled principal and interest payments on
the outstanding debt under the 2004 ECA facility). The segregated funds are deposited into separate
accounts pledged to and controlled by the security trustee of the facility. In addition, we must
register the existing individual mortgages on certain aircraft funded under both the 1999 and 2004
ECA facilities in the local jurisdictions in which the respective aircraft are registered
(mortgages are only required to be filed on aircraft with loan balances outstanding or otherwise as
agreed in connection with the cross-collateralization agreement as described below). At March 31,
2011, we had segregated security deposits, overhaul rentals and rental payments aggregating
approximately $355 million related to aircraft funded under the 2004 ECA facility. The segregated
amounts will fluctuate with changes in security deposits, overhaul rentals, rental payments and
debt maturities related to the aircraft funded under the 2004 facility.
During the first quarter of 2010, we entered into agreements to cross-collateralize the 1999
ECA facility with the 2004 ECA facility. As part of such cross-collateralization we (i) guaranteed
the obligations under the 2004 ECA facility through our subsidiary established to finance Airbus
aircraft under our 1999 ECA facility; (ii) agreed to grant mortgages over certain aircraft financed
under the 1999 ECA facility and security interests over other collateral related to the aircraft
financed under the 1999 ECA facility to secure the guaranty obligation; (iii) accepted a
loan-to-value ratio (aggregating the loans and aircraft from the 1999 ECA facility and the 2004 ECA
facility) of no more than 50%, in order to release liens (including the liens incurred under the
cross-collateralization agreement) on any aircraft financed under the 1999 or 2004 ECA facilities
or other assets related to the aircraft; and (iv) agreed to allow proceeds generated from certain
disposals of aircraft to be applied to obligations under the 2004 ECA facility. As of March 31,
2011, there were no outstanding obligations under the 1999 facility.
We also agreed to additional restrictive covenants relating to the 2004 ECA facility,
restricting us from (i) paying dividends on our capital stock with the proceeds of asset sales and
(ii) selling or transferring aircraft with an aggregate net book value exceeding a certain
disposition amount, which is currently approximately $10.4 billion. The disposition amount will be
reduced by approximately $91.4 million at the end of each calendar quarter during the effective
period. The covenants are in effect from the date of the agreement until December 31, 2012. A
breach of these restrictive covenants would result in a termination event for the ten loans funded
subsequent to the date of the agreement and would make those loans, which aggregated $295.4 million
at March 31, 2011, due in full at the time of such a termination event.
In addition, if a termination event resulting in an acceleration of the obligations under the
2004 ECA facility were to occur, pursuant to the cross-collateralization agreement, we would have
to segregate lease payments, overhaul rentals and security deposits received after such
acceleration event occurred relating to all the aircraft funded under the 1999 ECA facility, even
though those aircraft are no longer subject to a loan at March 31, 2011.
Secured Bank Debt
We have a credit facility, dated October 13, 2006, as amended, under which the original
maximum amount available was $2.5 billion. We repaid $800 million aggregate principal amount of
loans outstanding under this facility in the fourth quarter of 2010 and the amended facility
prohibits us from re-borrowing amounts repaid under this facility. Therefore, the current size of
the facility is $1.7 billion. As of March 31, 2011, we had secured loans of $1.465 billion
outstanding under the facility, all of which will mature in October 2012. The interest on the
secured loans is based on LIBOR plus a margin of 2.15%, plus facility fees of 0.2% on the
outstanding principal balance.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The remaining $235 million outstanding under the facility consists of unsecured loans that will
mature on their originally scheduled maturity date in October 2011, with a LIBOR based interest
rate equal to 0.96% at March 31, 2011.
The collateralization requirement under the amended facility provides that the $1.465 billion
of secured loans must be secured by a lien on the equity interests of certain of ILFCs
non-restricted subsidiaries that own aircraft with aggregate appraised values of originally not
less than 133% of the outstanding principal amount (the Required Collateral Amount). The credit
facility includes an ongoing requirement, tested periodically, that the appraised value of the
eligible aircraft owned by the pledged subsidiaries must be equal to or greater than 100% of the
Required Collateral Amount. This ongoing requirement is subject to the right to transfer additional
eligible aircraft to the pledged subsidiaries or ratably prepay the loans. We also guarantee the
secured loans through certain other subsidiaries.
The credit facility also contains financial and restrictive covenants that (i) limit our
ability to incur indebtedness, (ii) restrict certain payments, liens and sales of assets by us, and
(iii) require us to maintain a fixed charge coverage ratio and consolidated tangible net worth in
excess of certain minimum levels.
We intend to use the proceeds from the secured term loan agreement entered into on March 30,
2011, as described in more detail below under Other Secured Financing Arrangements, to prepay a
portion of the amounts outstanding under this credit facility.
Other Secured Financing Arrangements
In May 2009, ILFC provided $39.0 million of subordinated financing to a non-restricted
subsidiary. The entity used these funds and an additional $106.0 million borrowed from third
parties to purchase an aircraft, which it 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 in May 2018 with interest
rates based on LIBOR. At March 31, 2011, the interest rates on the $82.0 million and $24.0 million
tranches were 3.41% and 5.11%, 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 March
31, 2011, $86.7 million was outstanding under the two tranches and the net book value of the
aircraft was $135.9 million.
In June 2009, we borrowed $55.4 million through a non-restricted subsidiary, which owns one
aircraft leased to an airline. Half of the original loan amortizes over 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 March 31,
2011, $45.2 million was outstanding and the net book value of the aircraft was $90.6 million.
On March 17, 2010, we entered into a $750 million term loan agreement secured by 43 aircraft
and all related equipment and leases. The aircraft had an average appraised base market value of
approximately $1.3 billion, for an initial loan-to-value ratio of approximately 56%. The loan
matures on March 17, 2015, and bears interest at LIBOR plus a margin of 4.75% with a LIBOR floor of
2.0%. The principal of the loan is payable in full at maturity with no scheduled amortization, but we can voluntarily prepay the loan at any time. On March 17, 2010,
we also entered into an additional term loan agreement of $550 million through a newly formed
non-restricted subsidiary. The obligations of the subsidiary borrower are guaranteed on an
unsecured basis by ILFC and on a secured basis by certain non-restricted subsidiaries of ILFC that
hold title to 37 aircraft. The aircraft had an average appraised base market value of approximately
$969 million, for an initial loan-to-value ratio of approximately 57%. The loan matures on March
17, 2016, and bears interest at LIBOR plus a margin of 5.0% with a LIBOR floor of 2.0%. The
principal of the loan is payable in full at maturity with no scheduled amortization. The proceeds
from this loan are restricted from use in our operations until we transfer the related collateral
to the non-restricted subsidiaries. At March 31, 2011, approximately $47 million of the proceeds
remained restricted. We can voluntarily prepay the loan
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
at any time, subject to a 1% prepayment penalty prior to March 17, 2012. Both loans require a
loan-to-value ratio of no more than 63%. The loans also contain customary covenants and events of
default, including limitations on the ability of us and our subsidiaries, as applicable, to create
liens; incur additional indebtedness; consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and enter into transactions with affiliates.
On March 30, 2011, one of our non-restricted subsidiaries entered into a secured term loan
agreement with lender commitments in the amount of $1.3245 billion, which was subsequently
increased to $1.5245 billion. The loan matures on March 30, 2018, with scheduled principal
payments commencing in June 2012, and bears interest at LIBOR plus a margin of 2.75%, or, if
applicable, a base rate plus a margin of 1.75%. The obligations of the subsidiary borrower are
guaranteed on an unsecured basis by ILFC and on a secured basis by certain wholly-owned
subsidiaries of the subsidiary borrower. The security granted initially includes a portfolio of 54
aircraft, together with attached leases and all related equipment, with an average appraised base
market value of approximately $2.4 billion as of January 1, 2011, which equals an initial
loan-to-value ratio of approximately 65%, and the equity interests in certain special purpose
subsidiaries of the subsidiary borrower (SPEs) that will own the aircraft and related equipment
and leases that are pledged as security for the loans. The proceeds of the loan will be made
available to the subsidiary borrower as aircraft are transferred to the SPEs, at an advance rate
equal to 65% of the initial appraised value of the aircraft transferred to the SPEs. The subsidiary
borrower will be required to maintain compliance with a maximum loan-to-value ratio, which varies
over time, as set forth in the term loan agreement. If the subsidiary borrower does not maintain
compliance with the maximum loan-to-value ratio, it will be required to either prepay portions of
the outstanding loans or transfer additional aircraft to SPEs, subject to certain concentration
criteria, so that the ratio is equal to or less than the maximum loan-to-value ratio. We can
voluntarily prepay the loan at any time, subject to a 2% prepayment penalty prior to March 30,
2012, and a 1% prepayment penalty between March 30, 2012 and March 30, 2013. The loan facility
contains customary covenants and events of default, including covenants that limit the ability of
the subsidiary borrower and its subsidiaries to (i) incur additional indebtedness; (ii) create
liens; (iii) consolidate, merge or dispose of all or substantially all of their assets; and (iv)
enter into transactions with affiliates.
Unsecured Bonds and Medium-Term Notes
Automatic Shelf Registration: We have an effective automatic shelf registration statement
filed with the SEC. As a result of our WKSI status, we have an unlimited amount of debt securities
registered for sale.
Pursuant to our automatic shelf registration: (i) on August 20, 2010, we issued $500 million
of 8.875% notes due 2017 and (ii) on December 7, 2010, we issued $1.0 billion of 8.25% notes due
2020. At March 31, 2011, we also had $8.7 billion of public bonds and medium-term notes
outstanding, with interest rates ranging from 0.62% to 7.50%, which we had issued in prior years
under previous registration statements.
Euro Medium-Term Note Programme: We have a $7.0 billion Euro Medium-Term Note Programme, under
which we had approximately $1.2 billion of Euro denominated notes outstanding at March 31, 2011.
The notes mature on August 15, 2011, and bear interest based on Euribor with a spread of 0.375%.
The Programme is perpetual. As a bond issue matures, the principal amount of that bond becomes
available for new issuances under the Programme. We have eliminated the currency exposure arising
from the notes by hedging the notes into U.S. dollars and fixing the interest rates at a range of
5.355% to 5.367%. We translate the debt into U.S. dollars using current exchange rates prevailing
at the balance sheet date. The foreign exchange adjustment for the foreign currency denominated
notes was $249.5 million and $165.4 million at March 31, 2011 and December 31, 2010, respectively.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
A rollforward for the quarter ended March 31, 2011, of the foreign exchange adjustment for the
foreign currency adjustment related to foreign currency denominated notes is presented below:
(Dollars in thousands) | ||||
Foreign currency adjustment related to foreign currency
denominated debt at December 31, 2010 |
$ | 165,400 | ||
Foreign currency period adjustment of non-US$ denominated debt |
84,100 | |||
Foreign currency adjustment related to foreign currency
denominated debt at March 31, 2011 |
$ | 249,500 | ||
Other Senior Notes: On March 22, 2010 and April 6, 2010, we issued a combined $1.25 billion
aggregate principal amount of 8.625% senior notes due September 15, 2015, and $1.5 billion
aggregate principal amount of 8.750% senior notes due March 15, 2017, pursuant to an indenture
dated as of March 22, 2010. The notes are due in full on their scheduled maturity dates. The notes
are not subject to redemption prior to their stated maturity and there are no sinking fund
requirements. In connection with the note issuances, we entered into registration rights agreements
obligating us to, among other things, complete a registered exchange offer to exchange the notes of
each series for new registered notes of such series with substantially identical terms, or register
the notes pursuant to a shelf registration statement.
The annual interest rate on the affected notes increased by 0.25% per year for 90 days,
commencing on January 26, 2011, because the registration statement relating to the exchange offer
was not declared effective by the SEC by that date, as required under the registration rights
agreement. On April 26, 2011, the annual interest rate on the affected notes increased by an
additional 0.25% because we were unable to consummate the exchange offer by such date. The
registration statement was declared effective on April 6, 2011 and we completed the exchange offer
on May 5, 2011. The applicable interest rate reverted to the original level when the exchange offer
was consummated.
The indenture governing the notes contains customary covenants that, among other things,
restrict our and our restricted subsidiaries ability to (i) incur liens on assets; (ii) declare or
pay dividends or acquire or retire shares of our capital stock during certain events of default;
(iii) designate restricted subsidiaries as non-restricted subsidiaries or designate non-restricted
subsidiaries; (iv) make investments in or transfer assets to non-restricted subsidiaries; and (v)
consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets.
The indenture also provides for customary events of default, including but not limited to, the
failure to pay scheduled principal and interest payments on the notes, the failure to comply with
covenants and agreements specified in the indenture, the acceleration of certain other indebtedness
resulting from non-payment of that indebtedness, and certain events of insolvency. If any event of
default occurs, any amount then outstanding under the senior notes may immediately become due and
payable.
Unsecured Bank Debt
On January 31, 2011, we entered into a new $2.0 billion unsecured three-year revolving credit
facility with a group of 11 banks that will expire on January 31, 2014. This revolving credit
facility provides for interest rates based on either a base rate or LIBOR plus an applicable margin
determined by a ratings-based pricing grid. The credit agreement contains customary events of
default and restrictive financial covenants that require us to maintain a minimum fixed charge coverage ratio, a minimum consolidated tangible net worth and a maximum
ratio of consolidated debt to consolidated tangible net worth. No amounts were outstanding under
this revolving facility as of March 31, 2011 or May 9, 2011.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As of March 31, 2011, $234.6 million of unsecured loans were outstanding under our credit
agreement dated as of October 13, 2006. These loans remain unsecured and mature in October 2011 on
the original maturity date for this credit facility. The interest on the loans is LIBOR based and
was 0.96% at March 31, 2011. The remaining outstanding loans under the agreement, as amended, are
secured. See Secured Bank Debt above.
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 had a call option date of December 21, 2010, and the $400 million tranche has a
call option date of December 21, 2015. We did not exercise the call option at December 21, 2010,
and the interest rate on the $600 million tranche changed from a fixed interest rate of 5.90% to a
floating rate with an initial credit spread of 1.55% plus the highest of (i) 3 month LIBOR; (ii)
10-year constant maturity treasury; and (iii) 30-year constant maturity treasury. The interest will
reset quarterly and at March 31, 2011, the interest rate was 5.97%. The $400 million tranche has a
fixed interest rate of 6.25% until the 2015 call option date, and if we do not exercise the call
option, the interest rate will change to a floating rate, reset quarterly, based on the initial
credit spread of 1.80% plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity
treasury; and (iii) 30-year constant maturity treasury. If we choose to redeem the $600 million
tranche, we must pay 100% of the principal amount of the bonds being redeemed, plus any accrued and
unpaid interest to the redemption date. If we choose to redeem only a portion of the outstanding
bonds, at least $50 million principal amount of the bonds must remain outstanding.
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 March 31, 2011, 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. 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 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.
Credit Ratings
Our current long-term debt ratings impose the following restrictions under our 2004 ECA
facility: (i) we must segregate all security deposits, overhaul rentals and rental payments related
to the aircraft financed under our 2004 ECA facility into separate accounts controlled by the
security trustee (segregated rental payments are used to make scheduled principal and interest
payments on the outstanding debt) and (ii) we must file individual mortgages on the aircraft funded
under both the 1999 and 2004 ECA facilities in the local jurisdictions in which the respective
aircraft are registered.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
While a ratings downgrade does not result in a default under any of our debt agreements, it
could adversely affect our ability to issue unsecured debt and obtain new financings, or renew
existing financings, and it would increase the cost of such financings.
The following table summarizes our current ratings by Fitch, Moodys and S&P, the nationally
recognized rating agencies:
Unsecured Debt Ratings
Rating Agency | Long-term Debt | Corporate Rating | Outlook | Date of Last Ratings Action | ||||
Fitch
|
BB | BB | Evolving | April 30, 2010 | ||||
Moodys
|
B1 | B1 | Stable | August 11, 2010 | ||||
S&P
|
BB+ | BBB- | Negative | June 9, 2010 |
Secured Debt Ratings
$3.9 Billion | ||||||
Rating Agency | $750 Million Term Loan | $550 Million Term Loan | Senior Secured Notes | |||
Fitch
|
BBB- | BB | BBB- | |||
Moodys
|
Ba2 | Ba3 | Ba3 | |||
S&P
|
BBB | BBB- | BBB- |
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.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Existing Commitments
The following table summarizes our contractual obligations at March 31, 2011:
Commitments Due by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Bonds and
medium-term notes |
$ | 15,475,569 | $ | 3,064,121 | $ | 3,570,607 | $ | 3,540,815 | $ | 1,039,926 | $ | 1,260,100 | $ | 3,000,000 | ||||||||||||||
Unsecured Bank Loans |
234,600 | 234,600 | | | | | | |||||||||||||||||||||
Senior Secured Bonds |
3,900,000 | | | | 1,350,000 | | 2,550,000 | |||||||||||||||||||||
Secured Bank Loans |
1,465,400 | | 1,465,400 | | | | | |||||||||||||||||||||
ECA Financings |
2,626,088 | 290,942 | 428,960 | 428,960 | 423,862 | 335,794 | 717,570 | |||||||||||||||||||||
Other Secured
Financings |
1,431,903 | 10,491 | 14,877 | 15,963 | 36,716 | 760,370 | 593,486 | |||||||||||||||||||||
Subordinated Debt |
1,000,000 | | | | | | 1,000,000 | |||||||||||||||||||||
Interest Payments on
Debt Outstanding
(a)(b) |
9,218,969 | 1,184,159 | 1,286,265 | 1,072,161 | 865,953 | 687,997 | 4,122,434 | |||||||||||||||||||||
Operating Leases (c)(d) |
56,834 | 9,005 | 12,453 | 12,951 | 13,362 | 9,063 | | |||||||||||||||||||||
Pension Obligations (e) |
9,770 | 1,539 | 1,577 | 1,639 | 1,676 | 1,676 | 1,663 | |||||||||||||||||||||
Purchase Commitments
(f) |
17,551,400 | 174,300 | 308,800 | 1,015,100 | 1,615,600 | 2,457,900 | 11,979,700 | |||||||||||||||||||||
Total |
$ | 52,970,533 | $ | 4,969,157 | $ | 7,088,939 | $ | 6,087,589 | $ | 5,347,095 | $ | 5,512,900 | $ | 23,964,853 | ||||||||||||||
Contingent Commitments
Contingency Expiration by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
AVGs (g) |
$ | 551,394 | $ | 27,841 | $ | 78,950 | $ | 96,003 | $ | 35,986 | $ | 157,132 | $ | 155,482 | ||||||||||||||
Total (h) |
$ | 551,394 | $ | 27,841 | $ | 78,950 | $ | 96,003 | $ | 35,986 | $ | 157,132 | $ | 155,482 | ||||||||||||||
(a) | Future interest payments on floating rate debt are estimated using floating interest rates in effect at March 31, 2011. | |
(b) | Includes the effect of interest rate and foreign currency derivative instruments. | |
(c) | Excludes fully defeased aircraft sale-lease back transactions. | |
(d) | Minimum rentals have not been reduced by minimum sublease rentals of $6.1 million receivable in the future under non-cancellable subleases. | |
(e) | 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 2011 consists of total estimated allocations for 2011 and the column Thereafter consists of the 2016 estimated allocation. The amount allocated has not been material to date. | |
(f) | The amounts include 80 A320neos and 20 A321neos from Airbus. We entered into a purchase agreement to acquire such aircraft from Airbus in April 2011. | |
(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 $239.8 million of uncertain tax liabilities and any effect of net tax liabilities. The future cash flows to these liabilities are uncertain and we are unable to make reasonable estimates of the outflows. |
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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. See Note N of Notes to Condensed, Consolidated Financial Statements for
more information regarding our involvement with VIEs.
Results of Operations
Income before Income Taxes for the Three Months Ended March 31, 2011 Versus 2010
We reported income before income taxes of approximately $73.7 million for the three months
ended March 31, 2011, compared to a loss of $62.9 million for the same period in 2010. The improved
result was primarily due to lower impairment charges recorded for the three months ended March 31,
2011, as compared to the same period in 2010. We recorded the following impairment charges and fair
value adjustments for Impairment of aircraft sold, agreed to be sold, held for sale or designated
for part-out for the two periods:
| During the three months ended March 31, 2011, we (i) sold nine aircraft to third parties, six of which were previously recorded as Flight equipment held for sale; (ii) were in negotiations with third parties for the sale of six aircraft and deemed those aircraft more likely than not to be sold; and (iii) designated one aircraft for part-out. Based on a fair value analysis, we recorded impairment charges and fair value adjustments aggregating $112.7 million related to ten of those 16 aircraft. These impairment charges and fair value adjustments were partially offset by fair value credit adjustments aggregating $9.4 million related to the five aircraft sold and previously recorded as Flight equipment held for sale and two other aircraft reclassified from Flight equipment held for sale to held for use during the period. | ||
| During the three months ended March 31, 2010, we performed recoverability assessments in conjunction with potential sales of aircraft and determined that 52 aircraft were not fully recoverable. Based upon a fair value analysis, we recorded impairment charges aggregating $353.4 million to record these aircraft to their fair value. |
See below for a more detailed discussion of the effects of each item affecting income for the
three months ended March 31, 2011, as compared with the same period in 2010.
Three Months Ended March 31, 2011 Versus 2010
Revenues from rentals of flight equipment decreased 7.2% to $1,140.9 million for the three
months ended March 31, 2011, from $1,229.9 million for the same period in 2010. The number of
aircraft in our fleet decreased to 933 at March 31, 2011, compared to 993 at March 31, 2010,
primarily due to the sale of 68 aircraft during the 12 month period. Revenues from rentals of
flight equipment decreased by (i) $71.9 million due to a decrease related to aircraft in service
during the three months ended March 31, 2010, and sold prior to March 31, 2011; (ii) $20.8 million
due to a decrease in lease rates on aircraft in our fleet during both periods, that were re-leased
or had lease rates change between the two periods; and (iii) $4.2 million due to lost revenue
relating to aircraft in transition between lessees primarily resulting from repossessions of
aircraft. These revenue decreases were partly offset by increases of (i) $6.3 million due to the
addition of seven new aircraft to our fleet after March 31, 2010, and aircraft in our fleet as of
March 31, 2010, that earned revenue for a greater number of days during the three months ended
March 31, 2011, than during the same period in 2010; and (ii) $2.6 million due to an increase in
the aggregate number of hours flown on which we collect overhaul revenue.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Four aircraft in our fleet were not subject to a signed lease agreement or a signed letter of
intent at March 31, 2011, two of which were 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. Flight equipment marketing and gain on
aircraft sales remained relatively consistent between periods.
Interest and other revenue increased to $26.9 million for the three months ended March 31,
2011, compared to $13.0 million for the same period in 2010 due to (i) $10 million of other income
related to the extension of our evaluation period of aircraft under order (see Note O of Notes to
Condensed, Consolidated Financial Statements for further discussion); (ii) a $3.6 million increase
in foreign exchange gain, net of losses; and (iii) other minor fluctuations aggregating an increase
of $0.3 million.
Interest expense increased to $407.5 million for the three months ended March 31, 2011,
compared to $334.9 million for the same period in 2010 due to a 1.21% increase in our average
composite interest rate, partially offset by a decrease in average debt outstanding (excluding the
effect of debt discount and foreign exchange adjustments) to $26.9 billion during the three months
ended March 31, 2011, compared to $31.1 billion during the same period in 2010.
Our composite borrowing rates in the first quarters of 2011 and 2010, which include the effect
of derivatives, were as follows:
Increase | ||||||||||||
2011 | 2010 | (Decrease) | ||||||||||
Beginning of Quarter |
5.66 | % | 4.35 | % | 1.31 | % | ||||||
End of Quarter |
5.80 | % | 4.69 | % | 1.11 | % | ||||||
Average |
5.73 | % | 4.52 | % | 1.21 | % |
We recorded charges aggregating $0.6 million and $40.1 million related to derivatives for the
three months ended March 31, 2011 and 2010, respectively. The decrease is primarily due to losses
related to matured swaps aggregating $15.4 million and changes in market values of economic hedges
aggregating $24.4 million recorded for the three months ended March 31, 2010, compared to
ineffectiveness of cash flow hedges and change in market values of economic hedges aggregating $0.6
million for the same period in 2011. See Note H of Notes to Condensed, Consolidated Financial
Statements.
Depreciation of flight equipment decreased 7.6% to $452.5 million for the three months ended
March 31, 2011, compared to $490.2 million for the same period in 2010, due to a decrease in the
cost of our fleet held for use from $43.1 billion at March 31, 2010, to $38.1 billion at March 31,
2011. The cost of our fleet held for use was reduced by sales of aircraft and impairment charges to
our fleet held for use.
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be
disposed decreased to $103.3 million for the three months ended March 31, 2011 compared to $353.4
million for the same period in 2010. The decrease was primarily due to fewer aircraft sold or
identified as likely to be sold at March 31, 2011, as compared to March 31, 2010. See Note E of
Notes to Condensed, Consolidated Financial Statements.
Flight equipment rent expense relates to two sale-leaseback transactions.
Selling, general and administrative expenses increased to $51.7 million for the three months
ended March 31, 2011, compared to $35.6 million for the three months ended March 31, 2010 due to
(i) an $8.5 million increase in
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
salaries and employee related costs as a result of non-recurring
credits recorded in 2010; (ii) an increase in aircraft related costs of $6.5 million; and (iii)
other minor fluctuations aggregating an increase of $1.1 million.
Other expenses for the three months ended March 31, 2011, primarily consists of $20.0 million of
contract cancellation costs. We eliminated the economic effect of the $20.0 million expense by
negotiating with our manufacturer vendors to recover these costs. The recovery will be in two
payments. One of these payments is related to a 2007 agreement with one manufacturer for us to
extend our evaluation period of aircraft under order until at least 2010. This payment is
contingent upon our cancelling of the aircraft order and is not contingent on placing any new order
with the manufacturer. As a result of the cancellation of that aircraft order in March 2011, we
recorded the related payment receivable of $10.0 million in Interest and other in the condensed,
consolidated statement of operations for the three months ended March 31, 2011. The second payment
of $10.0 million is related to an agreement with another manufacturer, which among other contractual
items includes a provision to reimburse us for the remaining costs associated with the March 2011
order cancellation. The reimbursement payment will be recognized as a reduction of the cost basis
of future aircraft deliveries, as we determined the payment is connected with the purchase of such
aircraft. In addition to this charge, for the three months ended March 31, 2011, Other expenses
include $11.6 million resulting from the write down of two notes receivable, partially offset by
$0.6 million aggregate lease related income, compared to $84.0 million of aggregated lease related
costs we expensed as a result of agreements to sell leased aircraft to third parties for the same
period in 2010.
Our effective tax rate for the quarter ended March 31, 2011, increased to 37.0% from 36.2% for
the same period in 2010. Our results before the effect of income taxes for the three months ended
March 31, 2011, was pre-tax income of $117.3 million compared to a pre-tax loss of $98.6 million
for the same period in 2010. 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 $14.4 million for the three months ended March 31,
2011, 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 $11.0 million for the three months ended March 31, 2011,
compared to $49.6 million for the same period in 2010. This change was primarily due to changes in
the market values and aggregate notional value on derivatives qualifying for and designated as cash
flow hedges.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Value at Risk
Measuring potential losses in fair values has recently become the focus of risk management
efforts by many companies. Such measurements are 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 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.
We believe that statistical models alone do not provide a reliable 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 employ a
variety of derivative instruments to manage our exposure to interest rate and foreign currency
risks. We statistically measure the loss of fair value through the application of a VaR model on a
quarterly basis. In this analysis, the net fair value of our operations is determined using the
financial instrument assets and other assets and liabilities. 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 March 31, 2011, and December 31, 2010. For each scenario, each financial instrument is
re-priced. Scenario values for our operations 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 market value incurred by 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 following table presents the average, high and low VaRs on a combined
basis and of each component at market risk for our operations with respect to its fair value for
the periods ended March 31, 2011 and December 31, 2010. The VaR remained relatively constant from
the fourth quarter of 2010 to the first quarter of 2011.
ILFC Market Risk | ||||||||||||||||||||||||
At | At | |||||||||||||||||||||||
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Average | High | Low | Average | High | Low | |||||||||||||||||||
Combined |
$ | 105.1 | $ | 161.0 | $ | 20.0 | $ | 88.9 | $ | 158.6 | $ | 20.0 | ||||||||||||
Interest Rate |
105.1 | 160.9 | 20.0 | 88.9 | 158.5 | 20.0 | ||||||||||||||||||
Currency |
0.2 | 0.3 | 0.1 | 0.2 | 0.3 | 0.0 |
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ITEM 4. 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. Such information is accumulated and communicated to our management, including the Chief Executive Officer and the Senior Vice President and Chief Financial Officer (collectively, the Certifying Officers), as appropriate, to allow timely decisions regarding required disclosure. | ||
In conjunction with the close of each fiscal quarter, we conduct a review and evaluation under the supervision and with the participation of our 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 amended. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2011, the end of the period covered by this report. | ||
(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 March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. |
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Flash Airlines, Yemen Airways-Yemenia and Airblue Limited: We are named in lawsuits in
connection with the 2004 crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an
Egyptian carrier; the 2009 crash of our Airbus A310-300 aircraft on lease to Yemen Airways-Yemenia,
a Yemeni carrier; and the 2010 crash of our Airbus A320-200 aircraft on lease to Airblue Limited, a
Pakistani carrier. These lawsuits were filed by the families of victims on the flights and seek
unspecified damages for wrongful death, costs, and fees. The Flash Airlines litigation originally
commenced in May 2004 in California, but all U.S. proceedings were dismissed in favor of
proceedings in France where claims are pending before the Tribunal de Grande Instance civil courts
in Bobigny and Paris. As of May 9, 2011, the parties are engaged in settlement negotiations. We
believe that we have substantial defenses to this action and available liability insurance is
adequate to cover our defense costs and any potential liability. The Yemen Airways litigation and
the Airblue Limited litigation were filed in January 2011 and March 2011, respectively, in
California Superior Court in Los Angeles County. We have been served with the complaints, and each
litigation is in its incipient stage. While the plaintiffs have not specified any amount of
damages, we believe that we are adequately covered by available liability insurance for both
lawsuits and that we have substantial defenses to these actions. We do not believe that the outcome
of any of these lawsuits will have a material effect on our consolidated financial condition,
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 29.6 million 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. At March 31, 2011, we have reached a
definitive settlement with the trustee of the estate, in which we have agreed to pay an amount that
has been accrued and included in Accrued interest and other payable on our condensed consolidated
balance sheets at March 31, 2011 and December 31, 2010. The settlement amount accrued was not
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 significant risks and uncertainties as described below.
Many of these risks are interrelated and occur under similar business and economic conditions, and
the occurrence of certain of them may in turn cause the emergence, or exacerbate the effect, of
others. Such a combination could materially increase the severity of the impact on us.
Capital Structure Risk
The aircraft leasing business is capital intensive and we have a substantial amount of
indebtedness, which requires significant interest and principal payments. As of March 31, 2011, we
had approximately $26.1 billion in principal amount of indebtedness outstanding.
Our substantial level of indebtedness could have important consequences to holders of our
debt, including the following:
| making it more difficult for us to satisfy our obligations with respect to our indebtedness; |
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PART II. OTHER INFORMATION (CONTINUED)
| requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for other purposes, including acquiring new aircraft and exploring business opportunities; | ||
| increasing our vulnerability to adverse economic and industry conditions; | ||
| limiting our flexibility in planning for, or reacting to, changes in our business and industry; and | ||
| limiting our ability to borrow additional funds or refinance our existing indebtedness. |
Liquidity Risk
We will require a significant amount of cash to service our indebtedness and make planned
capital expenditures and we may not have adequate capital resources to meet our obligations as they
become due. We borrow funds to purchase new and used flight equipment, make progress payments
during aircraft construction and pay off maturing debt obligations. We borrow on both a secured and
an unsecured basis from various sources.
In 2009, we had limited access to our traditional sources of liquidity and we borrowed funds
from AIG Funding to fulfill our liquidity needs, which we repaid in 2010 when we regained access to
debt markets. On January 31, 2011, we entered into a new three-year $2.0 billion unsecured
revolving credit facility. On March 30, 2011, through a non-restricted subsidiary, we entered into
a secured term loan agreement with lender commitments in the amount of approximately $1.3 billion,
which was subsequently increased to approximately $1.5 billion. The $1.5 billion becomes available
to us as we transfer aircraft into non-restricted subsidiaries, which will guarantee the loan on a
secured basis. As of May 9, 2011, we had not drawn on our unsecured revolving credit agreement and
no funds had been advanced to the subsidiary borrower under the approximately $1.5 billion secured
term loan. We intend to use the proceeds from the secured term loan agreement to prepay a portion
of the $1.7 billion outstanding under our credit facility dated as of October 13, 2006, with
current maturity dates in October 2011 and 2012.
Any new issuance of debt by us or our subsidiaries will be subject to the consent of the
Department of the Treasury if, after giving effect to the incurrence of the debt and use of
proceeds therefrom, we increase our net indebtedness by more than $1 billion compared to the same
date in the previous year, or compared to December 8, 2010, if the measurement is made before
December 8, 2011. We cannot predict whether the Department of the Treasury would consent to us
incurring debt in excess of this amount. Our bank credit facilities and indentures also limit our
ability to incur secured indebtedness. The most restrictive covenant in our bank credit facilities
permits us and our subsidiaries to incur secured indebtedness totaling up to 30% of our
consolidated net tangible assets, as defined in the credit agreement, minus $2.0 billion, which
limit currently totals approximately $10.0 billion. As of May 9, 2011, we were able to incur an
additional $4.8 billion of secured indebtedness under this covenant. Our debt indentures also
restrict us and our subsidiaries from incurring secured indebtedness in excess of 12.5% of our
consolidated net tangible assets, as defined in the indentures. However, we may obtain secured
financing without regard to the 12.5% consolidated net tangible asset limit under our indentures by
doing so through subsidiaries that qualify as non-restricted under our debt indentures.
In addition to addressing our liquidity needs through debt financings, we also pursue
potential aircraft sales in connection with our ongoing fleet strategy. During the three months
ended March 31, 2011, we sold nine aircraft which generated proceeds of approximately $200 million.
In evaluating potential sales, we balance the need for funds with the long-term value of holding
aircraft and long-term prospects for us. Furthermore, we would need approval from the Department of
the Treasury if we entered into sales transactions with aggregate consideration exceeding $2.5
billion during any twelve month period. We cannot predict whether the Department of the Treasury
would consent to any future aircraft sales if their consent were required.
Because the current market for aircraft is depressed due to the economic downturn and limited
availability of buyer financing, sales of aircraft would likely result in a realized loss. The
potential for impairment or fair value adjustments could be material to our results of operations
for an individual period. The amount of the potential
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PART II. OTHER INFORMATION (CONTINUED)
resulting aggregate loss would be dependent upon the specific aircraft sold, the sale price, the
sale date and any other sale contingencies.
We may, or may not, continue to have access to the secured or unsecured debt markets in the
future or be able to sell additional aircraft. We believe that our cash on hand, including cash
generated from the above-mentioned financing arrangements, and cash flows generated from
operations, which include aircraft sales, are sufficient for us to operate our business and repay
our maturing debt obligations for the next twelve months. If we are unable to generate or raise
sufficient cash, we may be unable to meet our 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.
Borrowing Risks
Credit Ratings Downgrade Risk - Our ability to access debt markets and other financing sources
is, in part, dependent on our credit ratings. In addition to affecting the availability of
financing, credit ratings also directly affect our cost of financing. Since September 2008, we have
experienced multiple downgrades in our credit ratings by the three major nationally recognized
statistical rating organizations. These credit rating downgrades, combined with externally
generated volatility, limited our ability to access debt markets and resulted in unattractive
funding costs.
Additionally, our current long-term debt ratings impose the following restrictions under our
2004 ECA facility: (i) we must segregate all security deposits, overhaul rentals and rental
payments related to the aircraft financed under our 2004 ECA facility into separate accounts
controlled by the security trustee (segregated rental payments are used to make scheduled principal
and interest payments on the outstanding debt) and (ii) we must file individual mortgages on the
aircraft funded under the 2004 ECA facility in the local jurisdictions in which the respective
aircraft are registered. At March 31, 2011, we had segregated security deposits, overhaul rentals
and rental payments aggregating approximately $355 million related to aircraft funded under the
2004 ECA facility.
Further ratings downgrades could increase our borrowing costs and limit our access to the debt
markets.
Interest Rate Risk - We are impacted by fluctuations in interest rates. Our lease rates are
generally fixed over the life of the lease. Changes, both increases and decreases, in our cost of
borrowing, as reflected in our composite interest rate, directly impact our net income. We manage
the interest rate volatility and uncertainty by maintaining a balance between fixed and floating
rate debt, through derivative instruments and through varying debt maturities.
Our cost of borrowing for new financings is increasing due to our long-term debt ratings. The
interest rates that we obtain on our debt financing are a result of several components, including
credit spreads, swap spreads, duration and new issue premiums. These are all in addition to the
underlying Treasury or LIBOR rates, as applicable. Volatility in our perceived risk of default, our
parents risk of default or in a market sectors risk of default all have an impact on our cost of
funds. A 1% increase in our composite interest rate at March 31, 2011, would have increased our
interest expense by approximately $260 million annually, which would put downward pressure on our
operating margins.
Restrictive Covenants on Our Operations
The agreements governing certain of our indebtedness contain covenants that restrict, among
other things, our ability to:
| incur debt; | ||
| encumber our assets; | ||
| dispose of certain assets; |
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PART II. OTHER INFORMATION (CONTINUED)
| consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; | ||
| enter into sale-leaseback transactions; | ||
| make equity or debt investments in other parties; | ||
| enter into transactions with affiliates; | ||
| make capital expenditures; | ||
| designate our subsidiaries as unrestricted subsidiaries; and | ||
| pay dividends and distributions. |
These covenants may affect our ability to operate and finance our business as we deem
appropriate.
Relationship with AIG
AIG as Our Parent Company - We are an indirect wholly-owned subsidiary of AIG. Although
neither AIG nor any of its subsidiaries is a co-obligor or guarantor of our debt securities,
circumstances affecting AIG have an impact on us and we can give no assurance how further changes
in circumstances related to AIG may impact us.
AIG Master Transaction Agreement with the Department of the Treasury Although we are not a
party to the Master Transaction Agreement, we are a Designated Entity under the agreement, and we
and our subsidiaries are restricted from taking certain significant actions without obtaining prior
written consent from the Department of the Treasury under the agreement, including:
| amending or waiving any provisions of our articles of incorporation, bylaws, or
similar organizational document in a manner that would adversely affect, in any material
respect, the rights of our equity interests; |
||
| authorizing or issuing any equity interests, unless to AIG, or a wholly-owned
subsidiary of AIG; |
||
| selling or disposing of assets for total consideration greater than or equal to $2.5
billion in any twelve month period; |
||
| acquiring assets after December 8, 2010, other than pursuant to existing purchase
commitments at such date, with aggregate scheduled payments under the purchase contracts
for such assets greater than or equal to $2.5 billion in any twelve month period; |
||
| engaging in any public offering or other sale or transfer of our equity interests; |
||
| voluntarily liquidating, filing for bankruptcy, or taking any other legal action
evidencing insolvency; and |
||
| increasing our net indebtedness by more than $1 billion compared to the same date in
the previous year, or compared to December 8, 2010, if the measurement is made before
December 8, 2011. |
Additionally, under the Master Transaction Agreement, if AIG has not repaid certain loans to
the Department of Treasury by May 1, 2013, the Department of the Treasury may direct AIG to sell
certain assets, including shares of ILFC.
AIG as Our Counterparty of Derivatives - AIGFP, a wholly-owned subsidiary of AIG with an
explicit guarantee from AIG, is the counterparty of all our interest rate swaps and foreign
currency swaps. If our
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PART II. OTHER INFORMATION (CONTINUED)
counterparty is unable to meet its obligations under the derivative contracts, it would have a
material impact on our financial results and cash flows.
Key Personnel Risk
Our senior managements reputation and relationships with lessees and sellers of aircraft are
an important element of our business. On March 31, 2011, Alan H. Lund retired as our President and
Frederick S. Cromer was promoted to President and Chief Financial Officer effective April 1, 2011.
Mr. Lund will serve as a special advisor to the senior executive team through June 2011 and will
remain on our board of directors as Vice Chairman. Furthermore, the American Recovery and
Reinvestment Act of 2009 (the Act) imposed restrictions on bonus and other incentive compensation
payable to certain AIG employees. Three members of our senior management team are subject to the
compensation limitations imposed by the Act. The restrictions and limitations on compensation
imposed on us may adversely affect our ability to attract new talent and retain and motivate our
existing impacted employees. If we are unable to retain our key employees due to the compensation
restrictions or for any other reason, and we fail to attract new talent, it could negatively impact
our ability to conduct business.
Overall Airline Industry Risk
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 ability to succeed is dependent
upon the financial strength of our customers. Their ability to compete effectively in the
marketplace and manage these risks has a direct impact on us. These risks include:
| demand for air travel | | geopolitical events | |||||
| competition between carriers | | security, terrorism and war | |||||
| fuel prices and availability | | worldwide health concerns | |||||
| labor costs and stoppages | | equity and borrowing capacity | |||||
| maintenance costs | | environmental concerns | |||||
| employee labor contracts | | government regulation | |||||
| air traffic control infrastructure constraints | | interest rates | |||||
| airport access | | overcapacity | |||||
| insurance costs and coverage | | natural disasters | |||||
| heavy reliance on automated systems |
To the extent that our customers are affected by these risk factors, we may experience:
| lower demand for the aircraft in our fleet and, generally, reduced market lease rates and lease margins; | ||
| a higher incidence of lessee defaults, lease restructurings and repossessions affecting net income due to maintenance, consulting and legal costs associated with the repossessions, as well as lost revenue for the time the aircraft are off lease and possibly lower lease rates from the new lessees; | ||
| a higher incidence of situations where we engage in restructuring lease rates for our troubled customers which reduces overall lease revenue; | ||
| an inability to immediately place new and used aircraft on commercially acceptable terms when they become available through our purchase commitments and regular lease terminations, resulting in |
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PART II. OTHER INFORMATION (CONTINUED)
lower lease margins due to aircraft not earning revenue and resulting in payments for
storage, insurance and maintenance; and |
|||
| a loss if our aircraft is damaged or destroyed by an event specifically excluded
from the insurance policy such as dirty bombs, bio-hazardous materials and
electromagnetic pulsing. |
Lessee Non-Performance Risk
Our business depends on the ability of our airline customers to meet their obligations to us
and if their ability materially decreases, it may negatively affect our business, financial
condition, results of operations and cash flows, as discussed above in Overall Airline Industry
Risk.
We manage lessee non-performance risk by obtaining security deposits and overhaul rentals as
well as continuous monitoring of lessee performance and outlook.
Airframe, Engine and Other Manufacturer Risks
The supply of jet transport aircraft, which we purchase and lease, is dominated by two
airframe manufacturers, Boeing and Airbus, and a limited number of engine manufacturers. As a
result, we are dependent on the manufacturers success in remaining financially stable, producing
aircraft and related components that meet the airlines demands, in both type and quantity, and
fulfilling their contractual obligations to us. Should the manufacturers fail to respond
appropriately to changes in the market environment or fail to fulfill their contractual
obligations, we may experience:
| missed or late delivery of aircraft ordered by us and an inability to meet our
contractual obligations to our customers, resulting in lost or delayed revenues,
lower growth rates and strained customer relationships; |
||
| an inability to acquire aircraft and related components on terms which will allow
us to lease those aircraft to customers at a profit, resulting in lower growth rates
or a contraction in our fleet; |
||
| a marketplace with too many aircraft available, creating downward pressure on
demand for the aircraft in our fleet and reduced market lease rates; and |
||
| poor customer support from the manufacturers of aircraft and components resulting
in reduced demand for a particular manufacturers product, creating downward
pressure on demand for those aircraft in our fleet and reduced market lease rates
for those aircraft. |
Aircraft Related Risks
Residual Value We bear the risk of re-leasing or selling the aircraft in our fleet that are
subject to operating leases at the end of their lease terms. Operating leases bear a greater risk
of realizations of residual values, because only a portion of the equipments value is covered by
contractual cash flows at lease inception. In addition to factors linked to the aviation industry
in general, other factors that may affect the value and lease rates of our aircraft include (i)
maintenance and operating history of the airframe and engines; (ii) the number of operators using
the particular type of aircraft; and (iii) aircraft age. If both demand for aircraft and market
lease rates decrease and the conditions continue for an extended period, they could affect the
market value of aircraft in our fleet and may result in impairment charges. During the three months
ended March 31, 2011, we recorded net impairment charges aggregating $103.3 million related to
aircraft we sold, held for sale, had agreed to sell or designated for part-out. See Note E of Notes
to Condensed, Consolidated Financial Statements. Further, deterioration of aircraft values may
create losses related to our aircraft asset value guarantees.
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PART II. OTHER INFORMATION (CONTINUED)
Obsolescence Risk Aircraft are long-lived assets requiring long lead times to develop and
manufacture. As a result, aircraft of a particular model and type tend to become obsolete and less
in demand over time, as newer more advanced and efficient aircraft are manufactured. This life
cycle, however, can be shortened by world events, government regulation or customer preferences. As
aircraft in our fleet approach obsolescence, demand for that particular model and type will
decrease. This may result in declining lease rates, impairment charges or losses related to
aircraft asset value guarantees.
In 2010 we recorded impairment charges on certain aircraft types due to unfavorable trends
affecting the airline industry in general and specific models of aircraft, including the potential
for lower demand for certain aircraft models as a result of the announcement from Airbus of new,
efficient engine options for its future narrow body aircraft.
Greenhouse Gas Emissions Risk Aircraft emissions of greenhouse gases vary with aircraft type
and age. In response to climate change, if any, worldwide government bodies may impose future
restrictions or financial penalties on operations of aircraft with high emissions. It is unclear
what effect, if any, such regulations will have on our operations.
Other Risks
Foreign Currency Risk We are exposed to foreign currency risk through the issuance of debt
denominated in foreign currencies and through leases negotiated in Euros. We reduce the foreign
currency risk by negotiating the majority of our leases in U.S. dollars and by hedging all the
foreign currency denominated debt through derivative instruments. If the Euro exchange rate to the
U.S. dollar deteriorates, we will record less lease revenue on lease payments received in Euros.
Accounting Pronouncements In August 2010, the FASB issued an Exposure Draft that proposes
substantial changes to existing lease accounting that will affect all lease arrangements. The
FASBs proposal requires that all leases be recorded on the statement of financial position of both
lessees and lessors.
Under the proposed accounting model, lessees will be required to record an asset representing
the right-to-use the leased item for the lease term (Right-of-Use Asset) and a liability to make
lease payments. The Right-of-Use asset and liability incorporate the rights, including renewal
options, and obligations, including contingent payments and termination payments, arising under the
lease and are based on the lessees assessment of expected payments to be made over the lease term.
The proposed model requires measuring these amounts at the present value of the future expected
payments.
Under the proposed accounting model, lessors will apply one of two approaches to each lease
based on whether the lessor retains exposure to significant risks or benefits associated with the
underlying asset, as defined. The performance obligation approach will be applied when the lessor
has retained exposure to significant risks or benefits associated with the underlying lease, and
the de-recognition approach will apply when the lessor does not retain significant risks or
benefits associated with the underlying asset.
The comment period for this proposal ended in December 2010 and the FASB intends to issue a
final standard in 2011. The proposal does not include a proposed effective date; rather it is
expected to be considered as part of the evaluation of the effective dates for the major projects
currently undertaken by the FASB. The FASB continues to deliberate on the proposed accounting as
presented in the Exposure Draft. In subsequent meetings in January and February 2011, the FASB
discussed and agreed to make substantial revisions to the proposed accounting in the Exposure
Draft. These affect both lessees and lessors. As a result, currently management is unable to assess
the effects the adoption of the new finalized lease standard will have on our financial statements.
Although we believe the presentation of our financial statements, and those of our lessees, could
change, we do not believe the accounting pronouncement will change the fundamental economic reasons
for which the airlines lease aircraft. Therefore, we do not believe it will have a material impact
on our business.
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PART II. OTHER INFORMATION (CONTINUED)
Tax Related Risks We operate in multiple jurisdictions and may become subject to a wide
range of income and other taxes. If we are unable to execute our business in jurisdictions with
preferential tax treatment, our operations may be subject to significant income and other taxes.
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
(filed as an exhibit to Form 10-Q for the quarter ended June 30, 2010,
and incorporated herein by reference). |
||
4. | 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 Three-Year Revolving Credit
Agreement, dated as of January 31, 2011, among the Company, the banks
named therein and Citibank, N.A., as administrative agent (filed as an
exhibit to Form 8-K filed on January 31, 2011 and incorporated herein
by reference). |
||
10.2 | Term Loan Credit Agreement, dated as of March
30, 2011, among Temescal Aircraft Inc., as borrower, the Company, Park
Topanga Aircraft Inc., Charmlee Aircraft Inc., and Ballysky Aircraft
Ireland Limited, as obligors, the lenders identified therein, Citibank
N.A., as administrative agent and collateral agent, Citigroup Global
Markets Inc. and Credit Suisse Securities (USA) LLC, as joint lead
structuring agents and joint lead placement agents, and BNP Paribas,
as joint placement agent (portions of this exhibit have been omitted
pursuant to a request for confidential treatment). |
||
10.3 | Aircraft Mortgage and Security Agreement,
dated as of March 30, 2011, among Park Topanga Aircraft Inc., Temescal
Aircraft Inc., Ballysky Aircraft Ireland Limited, Charmlee Aircraft
Inc., the additional grantors referred to therein, and Citibank, N.A.,
as collateral agent (portions of this exhibit have been omitted
pursuant to a request for confidential treatment). |
||
10.4 | Incremental Lender Assumption Agreement,
dated as of April 21, 2011, among Temescal Aircraft Inc., the Company,
Park Topanga Aircraft Inc., Charmlee Aircraft Inc., Ballysky Aircraft
Ireland Limited, KfW IPEX-Bank GmbH, as the incremental lender, and
Citibank, N.A., as administrative agent (portions of this exhibit have
been omitted pursuant to a request for confidential treatment). |
||
12. | Computation of Ratios of Earnings to Fixed
Charges and Preferred Stock Dividends. |
||
31.1 | Certification of Chief Executive Officer. | ||
31.2 | Certification of President and Chief Financial Officer. |
||
32.1 | Certification under 18 U.S.C., Section 1350. |
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Table of Contents
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
May 10, 2011 | /s/ Henri Courpron | |||
HENRI COURPRON | ||||
Chief Executive Officer
(Principal Executive Officer) |
||||
May 10, 2011 | /s/ Frederick S. Cromer | |||
FREDERICK S. CROMER | ||||
President and
Chief Financial Officer (Principal Financial Officer) |
||||
May 10, 2011 | /s/ Kurt H. Schwarz | |||
KURT H. SCHWARZ | ||||
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
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Table of Contents
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 (filed as an exhibit to
Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by
reference). |
||
4. | 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 Three-Year Revolving Credit Agreement, dated as of
January 31, 2011, among the Company, the banks named therein and Citibank, N.A.,
as administrative agent (filed as an exhibit to Form 8-K filed on January 31, 2011
and incorporated herein by reference). |
||
10.2 | Term Loan Credit Agreement, dated as of March 30, 2011, among
Temescal Aircraft Inc., as borrower, the Company, Park Topanga Aircraft Inc.,
Charmlee Aircraft Inc., and Ballysky Aircraft Ireland Limited, as obligors, the
lenders identified therein, Citibank N.A., as administrative agent and collateral
agent, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC, as
joint lead structuring agents and joint lead placement agents, and BNP Paribas, as
joint placement agent (portions of this exhibit have been omitted pursuant to a
request for confidential treatment). |
||
10.3 | Aircraft Mortgage and Security Agreement, dated as of March 30, 2011,
among Park Topanga Aircraft Inc., Temescal Aircraft Inc., Ballysky Aircraft
Ireland Limited, Charmlee Aircraft Inc., the additional grantors referred to
therein, and Citibank, N.A., as collateral agent (portions of this exhibit have
been omitted pursuant to a request for confidential treatment). |
||
10.4 | Incremental Lender Assumption Agreement, dated as of April 21, 2011,
among Temescal Aircraft Inc., the Company, Park Topanga Aircraft Inc., Charmlee
Aircraft Inc., Ballysky Aircraft Ireland Limited, KfW IPEX-Bank GmbH, as the
incremental lender, and Citibank, N.A., as administrative agent (portions of this
exhibit have been omitted pursuant to a request for confidential treatment). |
||
12. | Computation of Ratios of Earnings to Fixed Charges and Preferred
Stock Dividends. |
||
31.1 | Certification of Chief Executive Officer. | ||
31.2 | Certification of President and Chief Financial Officer. | ||
32.1 | Certification under 18 U.S.C., Section 1350. |
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