Derivatives

9 Months Ended

Sep. 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.

     In September 2011, we entered into a series of interest rate forward contracts with a combined notional amount of $645,543. These forward starting interest rate derivatives are hedging the variable rate interest payments related to Securitization No. 2 for the period June 2012 through June 2017. These interest rate derivatives were designated at inception as cash flow hedges for accounting purposes.

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

	Derivative Liabilities
					Future
	Current				Maximum
	Notional		Effective	Maturity	Notional		Floating	Fixed
Hedged Item	Amount		Date	Date	Amount		Rate	Rate			Balance Sheet Location	Fair Value
Interest rate derivatives designated as cash flow hedges:
Currently in effect:
Securitization No. 1	$	382,841	Jun-06	Jun-16	$	382,841	1M LIBOR + 0.27%		5.78	%	Fair value of derivative liabilities	$	62,727
Securitization No. 2		961,282	Jun-07	Jun-12		961,282	1M LIBOR	5.25% to 5.36%			Fair value of derivative liabilities		32,252
Term Financing No. 1		549,940	Jun-08	May-13		549,940	1M LIBOR		4.04	%	Fair value of derivative liabilities		29,301
Total interest rate derivatives currently in effect	$	1,894,063			$	1,894,063							124,280
Forward starting:
Securitization No. 2	$	—	Jun-12	Jun-17	$	645,543	1M LIBOR	1.26% to 1.28%			Fair value of derivative liabilities		2,550
Term Financing No. 1		—	May-13	May-15		477,838	1M LIBOR		5.31	%	Fair value of derivative liabilities		30,744
Total forward starting interest rate derivatives	$	—			$	1,123,381							33,294
Total interest rate derivative liabilities												$	157,574

     The weighted average interest pay rate of these derivatives at December 31, 2010 and September 30, 2011 was 5.01% and 5.03%, respectively.

     For the nine months ended September 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 $68,321. 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 $70,154.

     Our interest rate derivatives involve counterparty credit risk. As of September 30, 2011, our interest rate derivatives are held with the following counterparties: JP Morgan Chase Bank NA, Citibank Canada NA, HSH Nordbank AG and Wells Fargo Bank NA. 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 September 30, 2011, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $5,123 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.

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

Effective Portion								Ineffective Portion
					Amount of				Amount of
Derivatives in	Amount of			Location of	Gain or (Loss)			Location of	Gain or (Loss)
ASC 815	Gain or (Loss)			Gain or (Loss)	Reclassified from			Gain or (Loss)	Recognized in
Cash Flow	Recognized in OCI			Reclassified from	Accumulated OCI			Recognized in	Income on
Hedging	on Derivative			Accumulated OCI	into Income			Income on	Derivative
Relationships	(a)			into Income	(b)			Derivative	(c)
Interest rate derivatives	$	(46,051	)	Interest expense	$	(77,522	)	Interest expense	$	(968	)

(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 nine months ended September 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 nine months ended September 30, 2011 plus any effective amortization of net deferred interest rate derivative losses.
(c)	This represents both realized and unrealized ineffectiveness incurred during the nine months ended September 30, 2011 excluding accelerated amortization of deferred losses of $3,551.

		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)	$	(733	)

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

														Amount of Deferred
														(Gain) or Loss
														Amortized						Amount of
											Unamortized			(including Accelerated						Deferred
											Deferred			Amortization) into						(Gain) or Loss
	Original							Deferred			(Gain) or Loss			Interest Expense for						Expected to be
	Maximum				Fixed			(Gain) or			at			the Nine Months Ended						Amortized
	Notional		Effective	Maturity	Rate		Termination	Loss Upon			September 30,			September 30,						over the Next
Hedged Item	Amount		Date	Date	%		Date	Termination			2011			2010			2011			Twelve Months
Securitization No. 1	$	400,000	Dec-05	Aug-10		4.61	Jun-06	$	(12,968	)	$	—		$	(1,847	)	$	—		$	—
Securitization No. 1		200,000	Dec-05	Dec-10		5.03	Jun-06		(2,541	)		—			(191	)		—			—
Securitization No. 2		500,000	Mar-06	Mar-11		5.07	Jun-07		(2,687	)		—			(511	)		(122	)		—
Securitization No. 2		200,000	Jan-07	Aug-12		5.06	Jun-07		(1,850	)		(272	)		(264	)		(251	)		(272	)
Securitization No. 2		410,000	Feb-07	Apr-17		5.14	Jun-07		(3,119	)		(1,399	)		(267	)		(264	)		(347	)
Term Financing No. 1		150,000	Jul-07	Dec-17		5.14	Mar-08		15,281			8,138			1,450			1,347			1,676
Term Financing No. 1		440,000	Jun-07	Feb-13		4.88	Partial — Mar-08 Full — Jun-08		26,281			6,413			4,229			3,927			4,884
Term Financing No. 1		248,000	Aug-07	May-13		5.33	Jun-08		9,888			2,462			2,233			1,228			1,553
2010-1 Notes		360,000	Jan-08	Feb-19		5.16	Partial — Jun-08 Full — Oct-08		23,077			9,112			1,390			1,058			815
ECA Term Financing for New A330 Aircraft		238,000	Jan-11	Apr-16		5.23	Dec-08		19,430			14,907			13			3,525	(1)		3,825
ECA Term Financing for New A330 Aircraft		231,000	Apr-10	Oct-15		5.17	Partial — Jun-08 Full — Dec-08		15,310			9,941			177			1,791			3,379
ECA Term Financing for New A330 Aircraft		238,000	Jul-11	Sep-16		5.27	Dec-08		17,254			14,265			—			1,704	(2)		2,584
Total								$	103,356		$	63,567		$	6,412		$	13,943		$	18,097

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

     For the nine months ended September 30, 2011, the amount of deferred net loss (including $3,551 of accelerated amortization) reclassified from OCI into interest expense related to our terminated interest rate derivatives was $13,943. 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 $18,097. 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 nine months ended September 30, 2010 and 2011, respectively, related to our interest rate derivatives:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2011			2010			2011
Interest Expense:
Hedge ineffectiveness (gains) losses	$	764		$	(118	)	$	2,533		$	(716	)
Amortization:
Accelerated amortization of deferred losses(1)		313			1,704			766			3,551
Amortization of deferred losses		2,025			4,013			5,646			10,392
Total Amortization		2,338			5,717			6,412			13,943
Total charged to interest expense	$	3,102		$	5,599		$	8,945		$	13,227
Other Income (Expense):
Mark to market gains (losses) on undesignated interest rate derivatives	$	(444	)	$	(117	)	$	(990	)	$	(733	)
Total charged to other income (expense)	$	(444	)	$	(117	)	$	(990	)	$	(733	)

(1) For the three months ended September 30, 2011, includes accelerated amortization of deferred hedge losses in the amount of $1,704 related to an aircraft sold in September 2011. For the nine months ended September 30, 2011, includes accelerated amortization of deferred hedge losses in the amount of $3,543 related to two aircraft sold in 2011.