Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives [Abstract]

Derivatives

Note 12. Derivatives

     The objective of our hedging policy is to adopt a risk averse position with respect to changes in interest rates. Accordingly, we have entered into a number of interest rate derivatives to hedge the current and expected future interest rate payments on our variable rate debt. Interest rate derivatives are agreements in which a series of interest rate cash flows are exchanged with a third party over a prescribed period. The notional amount on an interest rate derivative is not exchanged. Our interest rate derivatives typically provide that we make fixed rate payments and receive floating rate payments to convert our floating rate borrowings to fixed rate obligations to better match the largely fixed rate cash flows from our investments in flight equipment.

     We held the following interest rate derivatives as of June 30, 2011:

Derivative Assets

Future

Current

Maximum

Notional

Effective

Maturity

Notional

Floating

Fixed

Balance Sheet

Hedged Item

Amount

Date

Date

Amount

Rate

Rate

Location

Fair Value

Interest rate derivatives not designated as cash flow hedges:

ECA Term Financing for New A330 Aircraft (1)

$

—

Jul-11

Jul-23

$ 67,000

3M LIBOR

4.0

%

Other assets

$

—

(1) This swaption expired on July 13, 2011

Derivative Liabilities

Future

Current

Maximum

Notional

Effective

Maturity

Notional

Floating

Fixed

Balance Sheet

Hedged Item

Amount

Date

Date

Amount

Rate

Rate

Location

Fair Value

Interest rate derivatives designated as cash flow hedges:

Securitization No. 1

$

413,317

Jun-06

Jun-16

$

413,317

1M LIBOR

5.78

%

Fair value of

$  55,516

+ 0.27%

derivative

liabilities

Securitization No. 2

972,340

Jun-07

Jun-12

972,340

1M LIBOR

5.25

%

Fair value of

44,613

to

derivative

5.36

%

liabilities

Term Financing No. 1(1)

560,755

Jun-08

May-13

560,755

1M LIBOR

4.04

%

Fair value of

32,978

derivative

liabilities

Term Financing No. 1(1)

—

May-13

May-15

477,838

1M LIBOR

5.31

%

Fair value of

21,548

derivative

liabilities

Total interest rate derivatives

$

1,946,412

$

2,424,250

$154,655

(1) The interest payments related to Term Financing No. 1 are being hedged by two consecutive interest rate derivatives. When the first matures in May 2013, the next becomes effective.

     The weighted average interest pay rate of these derivatives at December 31, 2010 and June 30, 2011 was 5.01% and 5.04%, respectively.

     For the six months ended June 30, 2011, the amount of loss reclassified from accumulated other comprehensive income (“OCI”) into interest expense related to net interest settlements on active interest rate derivatives was $45,705. The amount of loss expected to be reclassified from OCI into interest expense over the next 12 months related to net interest settlements on active interest rate derivatives is $84,155.

     Our interest rate derivatives involve counterparty credit risk. As of June 30, 2011, our interest rate derivatives are held with the following counterparties: JP Morgan Chase Bank NA, Citibank Canada NA and HSH Nordbank AG. All of our counterparties or guarantors of these counterparties are considered investment grade (senior unsecured ratings of A3 or above) by Moody’s Investors Service. All are also considered investment grade (long-term foreign issuer ratings of A or above) by Standard and Poor’s except HSH Nordbank AG which is not rated. We do not anticipate that any of these counterparties will fail to meet their obligations.

     In addition to the derivative liability above, another component of the fair value of our interest rate derivatives is accrued interest. As of June 30, 2011, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $5,413 related to interest rate derivatives designated as cash flow hedges.

     Historically, the Company acquired its aircraft using short term credit facilities and equity. The short term credit facilities were refinanced by securitizations or term debt facilities secured by groups of aircraft. The Company completed two securitizations and two term financings during the period 2006 through 2008. The Company entered into interest rate derivatives to hedge interest payments on variable rate debt for acquired aircraft as well as aircraft that it expected to acquire within certain future periods. In conjunction with its financing strategy, the Company used interest rate derivatives for periods ranging from 5 to 10 years to fix the interest rates on the variable rate debt that it incurred to acquire aircraft in anticipation of the expected securitization or term debt re-financings.

     At the time of each re-financing, the initial interest rate derivatives were terminated and new interest rate derivatives were executed as required by each specific debt financing. At the time of each interest rate derivative termination, certain interest rate derivatives were in a gain position and others were in a loss position. Since the hedged interest payments for the variable rate debt associated with each terminated interest rate derivative were probable of occurring, the gain or loss was deferred in accumulated other comprehensive income (loss) and is being amortized into interest expense over the relevant period for each interest rate derivative.

     Generally, our interest rate derivatives are hedging current interest payments on debt and future interest payments on long-term debt. In the past, we have entered into forward-starting interest rate derivatives to hedge the anticipated interest payment on long-term financings. These interest rate derivatives were terminated and new, specifically tailored interest rate derivatives were entered into upon closing of the relevant long-term financing.

     Following is the effect of interest rate derivatives on the statement of financial performance for the six months ended June 30, 2011:

Effective Portion								Ineffective Portion
	Amount of				Amount of				Amount of
Derivatives in	Gain or (Loss)			Location of	Gain or (Loss)				Gain or (Loss)
ASC 815	Recognized in			Gain or (Loss)	Reclassified from			Location of	Recognized in
Cash Flow	OCI on			Reclassified from	Accumulated OCI			Gain or (Loss)	Income on
Hedging	Derivative			Accumulated	into Income			Recognized in	Derivative
Relationships	(a)			OCI into Income	(b)			Income on Derivative	(c)
Interest rate derivatives		$  (20,857	)	Interest expense		$  (51,283	)	Interest expense		$   (469	)

(a)	This represents the change in fair market value of our interest rate derivatives since year end, net of taxes, offset by the amount of actual cash paid related to the net settlements of the interest rate derivatives for each of the six months ended June 30, 2011.
(b)	This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate derivatives for each of the six months ended June 30, 2011 plus any effective amortization of net deferred interest rate derivative losses.
(c)	This represents both realized and unrealized ineffectiveness incurred during the six months ended June 30, 2011.

		Amount of Gain
	Location of Gain	or (Loss)
	or (Loss)	Recognized in
Derivatives Not Designated as	Recognized in Income	Income on
Hedging Instruments under ASC 815	On Derivative	Derivative
Interest rate derivatives	Other income (expense)	$	(616	)

     The following table summarizes the deferred (gains) and losses and related amortization into interest expense for our terminated interest rate derivative contracts for the six months ended June 30, 2010 and 2011:

														Amount of Deferred
														(Gain) or Loss
														Amortized						Amount of
														(including Accelerated						Deferred
														Amortization) into						(Gain) or Loss
	Original							Deferred			Unamortized			Interest Expense for						Expected to be
	Maximum				Fixed			(Gain) or			Deferred (Gain) or			the Six Months Ended						Amortized
	Notional		Effective	Maturity	Rate		Termination	Loss Upon			Loss at			June 30,						over the Next
Hedged Item	Amount		Date	Date	%		Date	Termination			June 30, 2011			2010			2011			Twelve Months
Securitization No. 1	$	400,000	Dec-05	Aug-10		4.61	Jun-06	$	(12,968	)		$     —		$	(1,480	)	$	—			$       —
Securitization No. 1		200,000	Dec-05	Dec-10		5.03	Jun-06		(2,541	)		—			(106	)		—			—
Securitization No. 2		500,000	Mar-06	Mar-11		5.07	Jun-07		(2,687	)		—			(345	)		(122	)		—
Securitization No. 2		200,000	Jan-07	Aug-12		5.06	Jun-07		(1,850	)		(355	)		(178	)		(168	)		(324	)
Securitization No. 2		410,000	Feb-07	Apr-17		5.14	Jun-07		(3,119	)		(1,489	)		(185	)		(174	)		(353	)
Term Financing No. 1		150,000	Jul-07	Dec-17		5.14	Mar-08		15,281			8,578			976			907			1,710
Term Financing No. 1		440,000	Jun-07	Feb-13		4.88	Partial — Mar-08 Full — Jun-08		26,281			7,697			2,844			2,643			4,984
Term Financing No. 1		248,000	Aug-07	May-13		5.33	Jun-08		9,888			2,853			1,472			837			1,570
2010-1 Notes		360,000	Jan-08	Feb-19		5.16	Partial — Jun-08 Full — Oct-08		23,077			9,423			1,076			747			988
ECA Term Financing for New A330 Aircraft		238,000	Jan-11	Apr-16		5.23	Dec-08		19,430			15,907			—			2,525	(1)		3,895
ECA Term Financing for New A330 Aircraft		231,000	Apr-10	Oct-15		5.17	Partial — Jun-08 Full — Dec-08		15,310			10,701			—			1,031			3,152
ECA Term Financing for New A330 Aircraft		238,000	Jul-11	Sep-16		5.27	Dec-08		17,254			15,969			—			—			1,838
Total								$	103,356			$ 69,284		$	4,074		$	8,226			$ 17,460

(1) Includes accelerated amortization of deferred losses in the amount of $1,839 related to an aircraft sold during the period.

     For the six months ended June 30, 2011, the amount of deferred net loss (including $1,847 of accelerated amortization) reclassified from OCI into interest expense related to our terminated interest rate derivatives was $8,226. The amount of deferred net loss expected to be reclassified from OCI into interest expense over the next 12 months related to our terminated interest rate derivatives is $17,460. Over the next twelve months, we expect the amortization of deferred net losses to increase as the gains on Securitizations No. 1 and No. 2 are either fully amortized or will be in the near future and the losses on the forward starting A330 swaps begin to amortize as we take delivery of these aircraft.

          The following table summarizes amounts charged directly to the consolidated statement of income for the three and six months ended June 30, 2010 and 2011, respectively, related to our interest rate derivatives:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Interest Expense:
Hedge ineffectiveness (gains) losses	$	902		$	(123	)	$	1,769		$	(598	)
Amortization:
Accelerated amortization of deferred losses(1)		6			1,847			453			1,847
Amortization of deferred losses		1,764			3,544			3,621			6,379
Total Amortization		1,770			5,391			4,074			8,226
Total charged to interest expense	$	2,672		$	5,268		$	5,843		$	7,628
Other Income (Expense):
Mark to market gains (losses) on undesignated interest rate derivatives	$	(176	)	$	(257	)	$	(546	)	$	(616	)
Total charged to other income (expense)	$	(176	)	$	(257	)	$	(546	)	$	(616	)

(1) Includes accelerated amortization of deferred losses in the amount of $1,839 related to an aircraft sold during the three and six months ended June 30, 2011.