Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 2. Fair Value Measurements

     Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:

• Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.

• Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

     The valuation techniques that may be used to measure fair value are as follows:

• Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

• Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.

• Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

     The following tables set forth our financial assets and liabilities as of December 31, 2010 and September 30, 2011 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

	Fair Value		Fair Value Measurements at December 31, 2010
	as of		Using Fair Value Hierarchy
	December 31,								Valuation
	2010		Level 1		Level 2		Level 3		Technique
Assets:
Cash and cash equivalents	$	239,957	$	239,957	$	—	$	—	Market
Restricted cash and cash equivalents		191,052		191,052		—		—	Market
Derivative assets		374		—		374		—	Income
Total	$	431,383	$	431,009	$	374	$	—
Liabilities:
Derivative liabilities	$	179,585	$	—	$	124,404	$	55,181	Income

	Fair Value		Fair Value Measurements at September 30, 2011
	as of		Using Fair Value Hierarchy
	September 30,								Valuation
	2011		Level 1		Level 2		Level 3		Technique
Assets:
Cash and cash equivalents	$	266,254	$	266,254	$	—	$	—	Market
Restricted cash and cash equivalents		195,573		195,573		—		—	Market
Total	$	461,827	$	461,827	$	—	$	—
Liabilities:
Derivative liabilities	$	157,574	$	—	$	97,529	$	60,045	Income

     Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivatives included in Level 2 consist of United States dollar denominated interest rate derivatives, and their fair values are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.

     Our interest rate derivatives included in Level 3 consist of United States dollar denominated interest rate swaps on Term Financing No. 1 with a guaranteed notional balance. The guaranteed notional balance has an upper notional band that matches the hedged debt and a lower notional band. The notional balance is guaranteed to match the hedged debt balance if the debt balance decreases within the upper and lower notional band. During the year ended December 31, 2010, the notional balance was adjusted to match the debt balance of Term Financing No. 1 as a result of various changes to Term Financing No. 1 including supplemental principal payments and debt payoff related to an aircraft sale. The fair value of the interest rate derivative is determined based on the adjusted upper notional band using cash flows discounted at the relevant market interest rates in effect at the period close. It incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities. The range of the guaranteed notional between the upper and lower band represents an option that may not be exercised independently of the debt notional and is therefore valued based on unobservable market inputs.

     The following tables reflect the activity for the classes of our assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2010 and 2011:

	Three Months Ended			Nine Months Ended
	September 30, 2010			September 30, 2010
	Derivative Liabilities
Balance at beginning of period	$	(59,416	)	$	(38,907	)
Total gains/(losses), net:
Included in other income (expense)		(171	)		(446	)
Included in interest expense		(58	)		(180	)
Included in other comprehensive income		(6,795	)		(26,907	)
Balance at end of period	$	(66,440	)	$	(66,440	)

	Three Months Ended			Nine Months Ended
	September 30, 2011			September 30, 2011
	Derivative Liabilities
Balance at beginning of period	$	(54,526	)	$	(55,181	)
Total gains/(losses), net:
Included in other income (expense)		(117	)		(359	)
Included in interest expense		(35	)		(74	)
Included in other comprehensive income		(5,367	)		(4,431	)
Balance at end of period	$	(60,045	)	$	(60,045	)

     For the three and nine months ended September 30, 2010 and 2011, we had no transfers into or out of Level 3 and we had no purchases, issuances, sales or settlements of Level 3 items.

     We measure the fair value of certain assets and liabilities on a non-recurring basis, when US GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft impaired are based on an income approach that uses Level 3 inputs, which include our assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

     In the three and nine months ended September 30, 2010, we recognized an impairment of $7,342 related to one Boeing Model 737-300 aircraft and one Boeing Model 737-500 aircraft, triggered by the early termination of the lease for one aircraft, a signed forward sales agreement for the other aircraft and, for each, the change to estimated future cash flows. The Company recorded $4,396 related to maintenance revenue from the previous lessee of the Boeing Model 737-500 aircraft during the three months ended March 31, 2010 and $1,765 related to maintenance revenue from the previous lessee of the Boeing Model 737-300 aircraft during the three months ended September 30, 2010.

     In the three months ended June 30, 2011, we recognized an impairment of $5,200 related to a Boeing Model 737-400 aircraft triggered by the early termination of the lease and the change to estimated future cash flows. During the three months ended September 30, 2011, we recorded an additional $1,236 impairment for this Boeing Model 737-400 aircraft triggered by our decision to sell the aircraft, whereupon we adjusted the net book value of the aircraft to its estimated disposition value. During the three months ended June 30, 2011, we recorded $2,267 related to maintenance revenue and $878 reversal of lease incentives related to the former lessee of this aircraft.

     Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short term nature.

     The fair values of our securitizations which contain third-party credit enhancements are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates of borrowing arrangements that do not contain third-party credit enhancements. The fair values of our term debt financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

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

	December 31, 2010						September 30, 2011
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	of Asset			of Asset			of Asset			of Asset
	(Liability)			(Liability)			(Liability)			(Liability)
Securitizations and term debt financings	$	(2,056,012	)	$	(1,829,277	)	$	(1,919,136	)	$	(1,715,657	)
ECA term financings		(267,311	)		(273,203	)		(545,981	)		(535,597	)
A330 PDP Facility		(88,487	)		(88,487	)		(18,083	)		(18,083	)
2010-1 Notes		(296,148	)		(328,500	)		(296,529	)		(310,500	)