Attached files

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EX-12.1 - EX-12.1 - INTERNATIONAL LEASE FINANCE CORP	a2206182zex-12_1.htm
EX-31.2 - EX-31.2 - INTERNATIONAL LEASE FINANCE CORP	a2206182zex-31_2.htm
EX-31.1 - EX-31.1 - INTERNATIONAL LEASE FINANCE CORP	a2206182zex-31_1.htm
EX-32.1 - EX-32.1 - INTERNATIONAL LEASE FINANCE CORP	a2206182zex-32_1.htm
EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL LEASE FINANCE CORP	Financial_Report.xls

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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(a)

Approximately $26 million was paid to AIG for ILFC tax liability.

Non-Cash Investing and Financing Activities

2011:

Flight equipment held for sale in the amount of $76,438 were reclassified to Flight equipment under operating leases in the amount of $78,673, with $2,235 realized in income when the aircraft no longer met the criteria for being classified as held for sale.

Deposits on flight equipment purchases of $58,071 were applied to Acquisition of flight equipment under operating leases.

Customer deposits of $13,244 were forfeited and recognized in income.

Flight equipment under operating leases was received from a customer in the amount of $5,500 in lieu of rent payments.

Flight equipment under operating leases in the amount of $3,050 were reclassified to Notes receivable, net of allowance, and net investment in finance and sales-type leases in the amount of $2,287, with $763 recognized in income upon the sale of the aircraft through a sales-type lease.

2010:

Flight equipment under operating leases in the amount of $2,221,454 was transferred to Flight equipment held for sale, of which $1,246,527 was subsequently sold.

Net investment in finance leases of $192,161 was transferred to Flight equipment under operating leases.

Flight equipment under operating leases with a net book value of $60,780 was transferred to Lease receivables and other assets, with $10,400 recorded in income, to record proceeds receivable for the total loss of two aircraft.

$36,799 of Deposits on flight equipment purchases were applied to Acquisition of flight equipment under operating leases.

See notes to condensed, consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

A. Basis of Preparation

        ILFC is a subsidiary of AIG Capital, which in turn is a direct 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 and accounts of all other entities in which we have a controlling financial interest. See Note O—Variable Interest Entities for further discussions on VIEs. All material intercompany accounts have been eliminated in consolidation.

        Results for the nine month period ended September 30, 2011, include an out of period adjustment recorded in the three months ended June 30, 2011, which related to prior quarters and years and which increased pre-tax income by $8.3 million. This adjustment relates principally to the forfeiture of share-based deferred compensation awards for certain employees who terminated their employment with us in 2010. Management has determined, after evaluating the quantitative and qualitative aspects of this out of period adjustment, that our current and prior period financial statements are not materially misstated and that the out of period adjustment will not be material to our estimated results of operations for the year ended December 31, 2011.

        In the opinion of management, all adjustments 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 nine months ended September 30, 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

Adoption of Recent Accounting Standard:

A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring

        In April 2011, the FASB issued an accounting standard update that amends the guidance for a creditor's evaluation of whether a restructuring is a troubled debt restructuring and requires additional disclosures about a creditor's troubled debt restructuring activities. The new standard clarifies the existing guidance on the two criteria used by creditors to determine whether a modification or restructuring is a troubled debt restructuring: (i) whether the creditor has granted a concession and (ii) whether the debtor is experiencing financial difficulties. We adopted the standard in the third quarter of 2011. The standard requires us to apply the guidance retrospectively for all modifications and restructuring activities that have occurred since January 1, 2011. For receivables that are considered newly impaired under the guidance, the standard requires us to measure the impairment of those receivables prospectively. In addition, the standard requires us to provide disclosures about

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

B. Recent Accounting Pronouncements (Continued)

troubled debt restructuring activities. The adoption of this standard had no effect on our financial position, results of operations or cash flows because we have not had any troubled debt restructuring during 2011.

Future Application of Accounting Standards:

Common Fair Value Measurements and Disclosure Requirements in GAAP and IFRS

        In May 2011, the FASB issued an accounting standard update that amends certain aspects of the fair value measurement guidance in GAAP, primarily to achieve the FASB's objective of a converged definition of fair value and substantially converged measurement and disclosure guidance with IFRS. Consequently, when the new standard becomes effective on January 1, 2012, GAAP and IFRS will be consistent, with certain exceptions including the accounting for day one gains and losses, measuring the fair value of alternative investments measured on a net asset value basis and certain disclosure requirements.

        The new standard's fair value guidance applies to all companies that measure assets, liabilities, or instruments classified in shareholders' equity at fair value or provide fair value disclosures for items not recorded at fair value. While many of the amendments to GAAP are not expected to significantly affect current practice, the guidance clarifies how a principal market is determined, addresses the fair value measurement of financial instruments with offsetting market or counterparty credit risks and the concept of valuation premise (i.e., in-use or in exchange) and highest and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and requires additional disclosures.

        The new standard is effective for us for interim and annual periods beginning on January 1, 2012. If different fair value measurements result from applying the new standard, we will recognize the difference in the period of adoption as a change in estimate. The new disclosure requirements must be applied prospectively. In the period of adoption, we will disclose any changes in valuation techniques and related inputs resulting from application of the amendments and quantify the total effect, if material. We are assessing the effect of the new standard on our consolidated statements of financial position, results of operations and cash flows.

Presentation of Comprehensive Income

        In June 2011, the FASB issued an accounting standard update that requires the presentation of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components, followed consecutively by a second statement that presents total other comprehensive income and its components. This presentation is effective January 1, 2012, and is required to be applied retrospectively. Early adoption is permitted. Adoption of the new standard will not have a significant effect on our consolidated financial statements because we already use the two-statement approach to present comprehensive income.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

C. Restricted Cash

        We entered into ECA facility agreements in 1999 and 2004 through subsidiaries. See Note H—Debt Financings. We had no loans outstanding under the 1999 ECA facility as of September 30, 2011. Because of our current long-term debt ratings, the 2004 ECA facility requires 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 September 30, 2011, and December 31, 2010, respectively, we had segregated security deposits, overhaul rentals and rental payments aggregating approximately $362.9 million and $393.7 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 September 30, 2011.

        In March 2010, we entered into a $550 million secured term loan through a newly formed subsidiary. The proceeds from this transaction were restricted until the collateral was transferred to certain of our subsidiaries that guarantee the debt on a secured basis and whose equity was pledged to secure the term loan. At December 31, 2010, $63.3 million remained restricted, all of which had become available to us as of September 30, 2011.

        The subsidiaries described above meet the definition of a VIE and have been designated as non-restricted subsidiaries under our indentures. See Note H—Debt Financings and Note O—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 note receivable, in conjunction with the sale of an aircraft. At September 30, 2011, we had five aircraft under finance and sales-type leases with aggregate principal balance of $63.6 million and notes receivable with aggregate principal balance, net of allowance, of $9.4 million. At December 31, 2010, the principal related to four aircraft under finance leases aggregated $67.6 million and we had notes receivable with aggregate principal balance, net of allowance, of $65.1 million.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

D. Allowance for Credit Losses (Continued)

        We had the following activity in our allowance for credit losses on notes receivable for the following period:

E. Aircraft Impairment Charges on Flight Equipment Held for Use

Three and nine months ended September 30, 2011

        Management evaluates quarterly the need to perform a recoverability assessment of held for use aircraft considering the requirements under GAAP and performs this assessment at least annually for all aircraft in our fleet. The undiscounted cash flows in the recoverability assessment consist of cash flows from currently contracted leases, future projected lease cash flows, including contingent rentals and an estimated disposition value, as appropriate, for each aircraft. Management is very active in the aircraft leasing industry and develops the assumptions used in the recoverability assessment based on its knowledge of active lease contracts, current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party sources.

        We perform an annual analysis of the recoverability of each individual aircraft in our fleet during the third quarter ("Assessment"). As part of this process, we update all critical and significant assumptions used in the impairment analysis, including projected lease rates and terms, residual values, overhaul rental realization and aircraft holding periods. Management uses its judgment when determining assumptions used in the recoverability analysis, taking into consideration historical data, current macro-economic and industry trends and conditions, and any changes in management's end-of-life strategy for specific aircraft. In monitoring the aircraft in our fleet for impairment charges on an on-going basis, we consider facts and circumstances, including potential sales and part-outs, that would require us to modify our assumptions used in our recoverability assessments and prepare revised recoverability assessments as necessary.

        In the Assessment performed during the third quarter of 2011, we considered recent developments including:

•

The impact of fuel price volatility and higher average fuel prices, resulting in fuel costs representing a higher percentage of airlines operating costs, which has affected airline strategies related to out-of-production aircraft.



•

The growing impact of new technology aircraft (announcements, deliveries and order backlog) on current and future demand for mid-generation aircraft.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

E. Aircraft Impairment Charges on Flight Equipment Held for Use (Continued)

•

The higher production rates sustained by manufacturers for more fuel efficient newer generation aircraft during the recent economic downturn.



•

The unfavorable impact of low rates of inflation on aircraft values.



•

Current market conditions and future industry outlook for future marketing of older mid-generation and out-of-production aircraft.



•

Decreasing number of lessees for older aircraft.

        In addition to these factors we considered our newly acquired end-of-life management capabilities from our acquisition of AeroTurbine, which we finalized on October 7, 2011, and its impact on our strategy. While our overall business model has not changed, our expectation of how we may manage out-of-production aircraft, or aircraft that have been impacted by new technology developments, changed due to the AeroTurbine acquisition. The acquisition of AeroTurbine provides us with increased choices in managing the end-of-life of aircraft in our fleet and makes the part-out of an aircraft a more economically and commercially viable option by bringing the requisite capabilities in-house and eliminating the payment of commissions to third parties. Parting-out aircraft will also enable us to retain more cash flows from an aircraft during the last cycle of its life by allowing us to eliminate certain maintenance costs and realize higher net overhaul revenues.

        As part of the Assessment performed during the three months ended September 30, 2011, management performed a review of aircraft in our fleet that are currently out-of-production, or aircraft that have been impacted by new technology developments. The purpose of the review was to identify end-of-life options that are the most likely to occur on an individual aircraft basis in light of market conditions and the AeroTurbine acquisition. Most of the aircraft reviewed were in the second half of their estimated 25 year useful life. The current economic environment for these aircraft has been challenging and the outlook is expected to become more challenging due to the trends noted above. All of these factors contributed to management's conclusion that many of these aircraft would be disposed of prior to the end of their previously estimated useful life.

        The result of the Assessment based on our updated assumptions and management's change in its end-of-life strategy for older generation aircraft indicated that the book values of 91 aircraft were not fully recoverable and these aircraft were deemed impaired as of September 30, 2011. The aircraft impaired were primarily out-of-production aircraft or aircraft that have been impacted by new technology developments that were included in the aforementioned review. We recorded impairment charges of $1.4 billion on the 91 impaired aircraft for the three and nine months ended September 30, 2011. The 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 aircraft's economic life in its highest and best use configuration, as well as a disposition value, based on the expectations of market participants.

Three and nine months ended September 30, 2010

        At the end of the third quarter of 2010, we had 13 passenger-configured 747-400's and 11 A321-100's in our fleet. After consideration of then current marketplace factors, management's

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

E. Aircraft Impairment Charges on Flight Equipment Held for Use (Continued)

estimate of the future lease rates for 747-400's and A321-100's had declined significantly. The decline in expected lease rates for the 747-400's was due to a number of unfavorable trends, including lower overall demand, as airlines replace their 747-400's with more efficient newer generation widebody aircraft. As a result, the global supply of 747-400 aircraft that were for sale, or idle, had increased. It was expected that these unfavorable trends would persist and that the global supply of 747-400's that were for sale or idle would continue to increase in the future. The decline in A321-100 lease rates was primarily due to continued and accelerated decrease in demand for this aircraft type, which is attributable to its age and limited mission application.

        As a result of the decline in lease rates, seven 747-400's, five A321-100's, and three other aircraft in our fleet held for use were deemed impaired in the third quarter of 2010 when we performed our Assessment. As a result, we recorded impairment charges aggregating $356.5 million to record these aircraft at their respective fair values.

Change in Accounting Estimate

        Our general depreciation policy is to depreciate aircraft on a straight line basis over an estimated useful life of 25 years, from the date of manufacturing, to a 15% residual value. Most aircraft in our fleet are depreciated using our general depreciation policy. For either out-of-production aircraft or aircraft for which their demand has been affected by new technology developments and freighter aircraft, we have applied a different useful life based on our estimated disposal date and an estimated residual value for each aircraft.

        In the third quarter of 2011, when we performed our full fleet annual assessment of aircraft recoverability, management evaluated and updated many key assumptions regarding our fleet, including the holding period, residual value and end-of-life options of out-of-production aircraft, or aircraft impacted by new technology developments. Management concluded that we currently expect to dispose of certain aircraft prior to the conclusion of their previously estimated useful lives. As discussed above, our decision for changing the estimated useful lives and residual values of these aircraft were based on recent developments and, in part, on our acquisition of AeroTurbine, which we completed on October 7, 2011, which will give us economically viable disposal options with the in-house capability to part-out aircraft. Based on the evaluation, management concluded that we will change the estimated useful life and/or residual value for 239 out-of-production aircraft or aircraft impacted by new technology developments beginning in the fourth quarter of 2011. These 239 aircraft are either out-of-production aircraft or aircraft for which their demand has been affected by new technology developments. The aggregate net book value of the 239 aircraft at September 30, 2011, subsequent to impairments recorded, was approximately $6.4 billion. We also will change the estimated useful life of our ten freighter aircraft to 25 years, primary due to the prospect of more fuel efficient wide-body aircraft entering the market place, which will diminish demand for older freighters in the future.

        The revisions in our estimates used in the calculation of depreciation expense will accelerate the future depreciation on the above mentioned aircraft, which will be partly offset by the reduction in carrying value due to impairment charges recorded on many of these aircraft through September 30, 2011. As a result of these factors, we estimate our depreciation expense will increase for these aircraft by approximately $35 million in the fourth quarter of 2011, as compared to the three months ended

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

E. Aircraft Impairment Charges on Flight Equipment Held for Use (Continued)

September 30, 2011. Further, over time, future depreciation is expected to decrease as these aircraft reach the end of their holding periods. We estimate an annual increase in depreciation for the year ended December 31, 2012, of approximately $80 million for these aircraft.

F. Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed

        From time to time we will dispose of aircraft from our fleet held for use prior to the conclusion of their useful life, most frequently through either a sale or part-out. As part of the recurring assessment of our fleet, management assesses potential transactions and the likelihood that each individual aircraft will continue to be held for use as part of our leased fleet, or if the aircraft will be disposed as mentioned above. If management determines that it is more likely than not that an aircraft will disposed of through either a sale or part-out as a result of a potential transaction, the aircraft, if impaired, is recorded at the lower of fair market value or its current carrying value, with any necessary adjustments recorded in income. Further, if the aircraft meets the criteria to be classified as Flight equipment held for sale, we will reclassify the aircraft from Flight equipment under operating leases into Flight equipment held for sale (subsequent to recording any necessary impairment charges or fair value adjustments).

        We reported the following impairment charges and fair value adjustments on flight equipment sold or to be disposed during the three and nine months ended September 30, 2011 and 2010, respectively:

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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

F. Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed (Continued)

Three months ended September 30, 2011

        Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed totaled $10.1 million for the three months ended September 30, 2011. This amount was the result of (i) $9.3 million of impairment charges on an aircraft that we were in negotiations with third parties to sell and we deemed more likely than not to be sold, but did not meet the criteria required to be classified as Flight equipment held for sale; and (ii) fair value adjustments of $0.8 million on an aircraft previously designated for part-out that were sold to a third party through a sales-type lease transaction.

Three months ended September 30, 2010

        Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed totaled $59.0 million for the three months ended September 30, 2010, due to the following factors:

•

$37.4 million of fair value adjustments were recorded on five aircraft we sold or deemed more likely than not to be sold.



•

$21.6 million of impairment charges were recorded on three aircraft that met the criteria for and were classified as Flight equipment held for sale.

Nine months ended September 30, 2011

        Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed totaled $157.2 million for the nine months ended September 30, 2011, due to the following factors:

•

$158.2 million of impairment charges and fair value adjustments were recorded relating to (i) fair value adjustments aggregating $17.3 million on five aircraft sold to third parties from our fleet held for use; and (ii) impairment charges of $140.9 million on 11 aircraft that we were in negotiations with third parties to sell and we deemed more likely than not to be sold, but did not meet the criteria required to be classified as Flight equipment held for sale.



•

$3.5 million of fair value credit adjustments were recorded on aircraft reclassified to or from Flight equipment held for sale. During the nine months ended September 30, 2011, we had one aircraft that met the criteria for and was classified as Flight equipment held for sale. In addition, we determined that three aircraft that 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 three 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. We recorded fair value credit adjustments of $0.3 million related to these aircraft. We also sold six aircraft that were classified as Flight equipment held for sale, including one aircraft transferred during the period, and recorded fair value adjustments related to those aircraft aggregating a net credit of $3.2 million.



•

$2.5 million of impairment charges were recorded due to the designation of one aircraft for part-out to record the parts at their fair value. Subsequent to the designation, this aircraft was sold to a third party through a sales-type lease and is included in Notes receivable, net of allowance, and net investment in finance and sales-type leases on our Condensed, Consolidated Balance Sheet.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

F. Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed (Continued)

Nine months ended September 30, 2010

        Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed totaled $465.4 million for the nine months ended September 30, 2010, due to the following factors:

•

$51.7 million of impairment charges were recorded on five aircraft that we were in negotiations with third parties to sell and we deemed more likely than not to be sold, but did not meet the criteria required to be classified as Flight equipment held for sale. In addition, we recorded fair value adjustments of $18.4 million in connection with the sale of two aircraft.



•

$382.9 million of impairment charges were recorded on 59 aircraft reclassified to Flight equipment held for sale. 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 approximately $2.0 billion. On July 6, 2010, we signed an agreement to sell an additional six aircraft to another third party. As of September 30, 2010, 58 of the 59 aircraft met the criteria to be recorded as Flight equipment held for sale. During the nine months ended September 30, 2010, we reclassified one additional aircraft to Flight equipment held for sale.



•

$12.4 million of impairment charges were recorded due to the designation of one aircraft for part-out 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.

G. Flight Equipment Held for Sale

        We had the following activity in Flight equipment held for sale for the nine months ended September 30, 2011:

Flight Equipment Held for Sale

        At September 30, 2011, we did not have any aircraft that met the criteria for, and were classified as, Flight equipment held for sale. At December 31, 2010, we had nine aircraft that met the criteria for, and were classified as, Flight equipment held for sale. The balance in Flight equipment held for sale of $255.2 million at December 31, 2010, represents the estimated fair value of such aircraft less

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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

G. Flight Equipment Held for Sale (Continued)

cost to sell. We cease recognition of depreciation expense on aircraft subsequent to transferring them from Flight equipment under operating leases. During the nine months ended September 30, 2011, we transferred three aircraft that no longer met the criteria for Flight equipment held for sale to Flight equipment under operating leases.

        In addition, we sold seven aircraft that were classified as Flight equipment held for sale and recorded fair value adjustments related to those aircraft aggregating net credits of $3.5 million for the nine months ended September 30, 2011.

        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.

H. Debt Financings

        Our debt financing was comprised of the following at the following dates:

        The above amounts represent the anticipated settlement of our outstanding debt obligations as of September 30, 2011 and December 31, 2010. Certain adjustments required to present currently

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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

H. Debt Financings (Continued)

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.

        For some of our secured debt financings, we created direct and indirect wholly-owned subsidiaries for the purpose of purchasing and holding title to aircraft, and we pledged the equity of those subsidiaries as collateral. These subsidiaries 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 O—Variable Interest Entities for more information on VIEs.

        At September 30, 2011, approximately $21.2 billion of our flight equipment was pledged as collateral for the $9.4 billion of secured debt outstanding.

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 equipment and related leases, and cash collateral when required. In addition, two of our 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 and the aircraft mortgage and security agreement governing the senior secured notes contain customary covenants that, among other things, restrict our and our restricted subsidiaries' ability to: (i) create liens; (ii) sell, transfer or otherwise dispose of the assets serving as collateral for the senior secured notes; (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; and (v) make investments in or transfer assets to non-restricted subsidiaries. The indenture also restricts our and the subsidiary guarantors' ability to 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.

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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

(Unaudited)

H. Debt Financings (Continued)

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.

        As of September 30, 2011, approximately $2.4 billion was outstanding under the 2004 ECA facility and no loans were outstanding under the 1999 ECA facility. The interest rates on the loans outstanding under the 2004 ECA facility are either fixed or based on LIBOR and ranged from 0.37% to 4.71% at September 30, 2011. The net book value of the aircraft purchased under the 2004 ECA facility was $4.3 billion at September 30, 2011. 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.

        Because of our current long-term debt ratings, the 2004 ECA facility requires us to segregate security deposits, overhaul rentals and rental payments received for aircraft with loan balances outstanding under the 2004 ECA facility. See Note C—Restricted Cash. 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. The mortgages are only required to be filed with respect to aircraft that have outstanding loan balances or otherwise as agreed in connection with the cross-collateralization agreement described below.

        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 the 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.

        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 $10.2 billion. The disposition amount will be reduced by approximately $91.4 million at the end of each calendar quarter during the remainder of 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 $279.0 million at September 30, 2011, due in full at the time of such a termination event.

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H. Debt Financings (Continued)

        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 September 30, 2011.

Secured Bank Debt

        2006 Credit Facility:    We have a credit facility, dated October 13, 2006, as amended, under which the original maximum amount available was $2.5 billion. The amended facility prohibits us from re-borrowing amounts repaid under this facility. As of September 30, 2011, the size of the facility was $530 million.

        As of September 30, 2011, we had secured loans of $456.9 million 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, for an interest rate of 2.39% at September 30, 2011. The remaining $73.1 million outstanding under the facility consisted of unsecured loans that matured and were paid in full on their originally scheduled maturity date of October 13, 2011. See Unsecured Bank Debt below.

        The collateralization requirement under the amended facility provides that the $456.9 million of secured loans must be secured by a lien on the equity interests of certain of our 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.

        2011 Secured Term Loan:    On March 30, 2011, one of our non-restricted subsidiaries 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 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, as defined in the loan agreement, of approximately $2.4 billion as of January 1, 2011, and the equity interests in certain SPEs that own the pledged aircraft and related equipment and leases.

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The $2.4 billion equals an initial loan-to-value ratio of approximately 65%. The proceeds of the loan are 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. At September 30, 2011, approximately $1.2 billion had been advanced to the subsidiary borrower under the agreement.

        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 prepay portions of the outstanding loans, deposit an amount in the cash collateral account 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 incur additional indebtedness and create liens, and covenants that limit the ability of ILFC, the subsidiary borrower and its subsidiaries to consolidate, merge or dispose of all or substantially all of their assets and enter into transactions with affiliates.

        2009 Aircraft Financings:    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 September 30, 2011, the interest rates on the $82.0 million and $24.0 million tranches were 3.37% and 5.07%, respectively. The entity entered into two interest rate cap agreements to economically hedge the related LIBOR interest rate risk in excess of 4.00%. At September 30, 2011, $80.9 million was outstanding under the two tranches and the net book value of the aircraft was $133.5 million.

        In June 2009, we borrowed $55.4 million through a non-restricted subsidiary, which owns one aircraft leased to an airline. Approximately half of the original loan amortizes over five years and the remaining $27.5 million is due in 2014. The loan is non-recourse to ILFC and is secured by the aircraft and the lease receivables. The interest rate on the loan is fixed at 6.58%. At September 30, 2011, $42.2 million was outstanding and the net book value of the aircraft was $88.9 million.

Other Secured Financing Arrangements—2010 Term Loans

        On March 17, 2010, we entered into the following term loans:

•

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, as defined in the loan agreement, of

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H. Debt Financings (Continued)

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.

•

A $550 million term loan agreement entered into 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, as defined in the loan agreement, 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. We can voluntarily prepay the loan at any time, subject to a 1% prepayment penalty prior to March 17, 2012.

        The loans require a loan-to-value ratio of no more than 63%. If we, or the subsidiary borrower, do not maintain compliance with the maximum loan-to-value ratio, we 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.

        The loans also contain customary covenants and events of default, including limitations on our and our subsidiaries' ability, 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.

Unsecured Bonds and Medium-Term Notes

        Shelf Registration Statement:    We have an effective 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 under the shelf registration statement.

        Under our shelf registration statement, we issued: (i) $1.0 billion of 5.75% notes due 2016 and $1.25 billion of 6.25% notes due 2019 on May 24, 2011; (ii) $1.0 billion of 8.25% notes due 2020 on December 7, 2010; and (iii) $500 million of 8.875% notes due 2017 on August 20, 2010. At September 30, 2011, we also had $6.5 billion of public bonds and medium-term notes outstanding, with interest rates ranging from 0.60% to 7.50%, which we had issued in prior years under previous registration statements.

        The aggregate net proceeds from the sale of the notes issued on May 24, 2011, were approximately $2.22 billion after deducting underwriting discounts and commissions, fees and estimated offering expenses. The net proceeds from the sale of the notes were primarily used to purchase notes validly tendered and accepted in our tender offers that we announced during the second quarter of 2011 to purchase various series of our outstanding debt securities for up to $1.75 billion cash consideration, as further discussed below.

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H. Debt Financings (Continued)

        Tender Offers to Purchase Notes:    On June 17, 2011, we completed the above mentioned tender offers and accepted for purchase previously issued notes with an aggregate principal amount of approximately $1.67 billion, resulting in total cash consideration, including accrued and unpaid interest, of approximately $1.75 billion. In connection with the cancellation of the notes, we recognized losses aggregating approximately $61.1 million, which included the cost of repurchasing the notes and the write off of the remaining unamortized deferred financing costs.

        Euro Medium-Term Note Programme:    We had a $7.0 billion Euro Medium-Term Note Programme, which we did not renew when it expired in September 2011. Notes of $1.2 billion previously outstanding under such Programme were repaid in full at their maturity in August 2011, leaving no amounts outstanding under the Programme. We had hedged the notes into U.S. dollars and fixed the interest rates at a range of 5.355% to 5.367%. The foreign exchange adjustment for the foreign currency denominated notes was $165.4 million at December 31, 2010.

        A rollforward for the nine months ended September 30, 2011, of the foreign currency adjustment related to foreign currency denominated notes is presented below:

        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

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H. Debt Financings (Continued)

we were unable to consummate the exchange offer by such date. We completed the exchange offer on May 5, 2011, at which time the applicable interest rate reverted to the original level.

        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

        2011 Credit Facility:    On January 31, 2011, we entered into a $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 September 30, 2011, no amounts were outstanding under this revolving credit facility.

        2006 Credit Facility:    As of September 30, 2011, $73.1 million of unsecured loans were outstanding under our credit agreement dated as of October 13, 2006. These loans matured and were paid in full on October 13, 2011, the original maturity date for this credit facility. The interest on the loans was based on LIBOR plus a margin of 0.65% plus facility fees of 0.2% of the outstanding balance. The remaining outstanding loans under the agreement, as amended, are secured and mature in October 2012. 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 September 30, 2011, the interest rate was 4.77%. The $400 million tranche has a fixed interest rate of 6.25% until the 2015

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H. Debt Financings (Continued)

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.

I. Derivative Activities

        We use derivatives to manage exposures to interest rate and foreign currency risks. At September 30, 2011, we had interest rate swap agreements with a related counterparty and interest rate cap agreements with an unrelated counterparty. During the nine months ended September 30, 2011, we were party to two foreign currency swap agreements with a related counterparty that matured during such period.

        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 de-designation of a derivative contract, the balance accumulated in AOCI at the time of the de-designation is amortized into income over the remaining life of the underlying derivative. Our interest rate swap agreements mature through 2015, and our interest rate cap agreements mature in 2018.

        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 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. During the second quarter of 2011, we novated our master netting agreement, changing our counterparty from AIGFP to AIG Markets, Inc., both wholly owned subsidiaries of AIG. All other terms of our master netting agreement remained unchanged and all instruments designated as hedges continued to qualify for their respective treatment under US GAAP. Our interest rate swap agreements are recorded at fair value on our balance sheet on a net basis in Derivative assets and Derivative liabilities (see Note J—Fair Value Measurements). Our interest rate cap agreements are included in Lease receivables and other assets. 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.

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I. Derivative Activities (Continued)

        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:

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I. Derivative Activities (Continued)

        During the three and nine months ended September 30, 2011 and 2010, we recorded the following in OCI related to derivative instruments designated as hedging instruments:

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        We estimate that within the next twelve months, we will amortize into earnings approximately $(19.3) 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 and nine months ended September 30, 2011 and 2010:

J. 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

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J. Fair Value Measurements (Continued)

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 September 30, 2011 and December 31, 2010, categorized using the fair value hierarchy described above.

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 aircraft's 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 and nine months ended September 30, 2011 and 2010, as provided in Note E—Aircraft Impairment Charges on Flight

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J. Fair Value Measurements (Continued)

Equipment Held for Use and Note F—Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed.

        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 nine months ended September 30, 2011:

K. 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 and restricted cash approximates its fair value.

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K. Fair Value Disclosures of Financial Instruments (Continued)

        Notes Receivable:    The fair values for notes receivable are estimated using discounted cash flow analyses, using market quoted discount rates that approximate the credit risk of the issuing party.

        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 a valuation model that utilizes, among other things, current interest, foreign exchange and volatility rates, as applicable.

        The carrying amounts and fair values of our financial instruments at September 30, 2011 and December 31, 2010, are as follows:

L. Security Deposits on Aircraft, Overhaul Rentals and Other Customer Deposits

        As of September 30, 2011 and 2010, Security deposits, overhaul rentals and other customer deposits were comprised of:

M. Related Party Transactions

        Related Party 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

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M. Related Party Transactions (Continued)

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 and we earn management fees from two trusts consolidated by AIG for the management of aircraft we sold to the trusts in prior years. In March 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:    We borrowed $3.9 billion from AIG Funding, a subsidiary of AIG, 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.

        Expenses Paid by AIG on Our Behalf:    We recorded $(8.1) million and $6.8 million in Additional paid in capital for the nine months ended September 30, 2011, and the year ended December 31, 2010, respectively, for compensation and other expenses paid by AIG on our behalf for which we were not required to pay.

        Derivatives and Insurance Premiums:    The counterparty of all of our interest rate swap and foreign currency swap agreements as of September 30, 2011 was AIG Markets, Inc., a wholly-owned subsidiary of AIG. See Note J—Fair Value Measurements and Note I—Derivative Activities. In addition, we purchase insurance through a broker who may place part of our policies with AIG. Total insurance premiums were $5.6 million and $5.5 million for the nine months ended September 30, 2011 and 2010, respectively.

        Our financial statements include the following amounts involving related parties:

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