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 March 31, 2013:



	Derivative Liabilities
Hedged Item	Current Notional Amount		Effective Date	Maturity Date	Future Maximum Notional Amount		Floating Rate	Fixed Rate	Balance Sheet Location	Fair Value
Interest rate derivatives designated as cash flow hedges:
Securitization No. 1	$	233,605	Jun-06	Jun-16	$	233,605	1M LIBOR + 0.27%	5.78%	Fair value of derivative liabilities	$	33,397
Securitization No. 2	560,999		Jun-12	Jun-17	560,999		1M LIBOR	1.26% to 1.28%	Fair value of derivative liabilities	10,404
Total interest rate derivatives designated as cash flow hedges	$	794,604			$	794,604				$	43,801

Interest rate derivatives not designated as cash flow hedges:
Securitization No. 1	91,951		Jun-06	Jun-16	91,951		1M LIBOR + 0.27%	5.78%	Fair value of derivative liabilities	13,146
Total interest rate derivatives not designated as cash flow hedges	91,951				91,951					13,146

Total interest rate derivative liabilities	$	886,555			$	886,555				$	56,947

The weighted average interest pay rates of these derivatives at December 31, 2012 and March 31, 2013 were 2.91% and 2.93%, respectively.

For the three months ended March 31, 2013, 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 $4,676. 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 $16,975.

Our interest rate derivatives involve counterparty credit risk. As of March 31, 2013, our interest rate derivatives are held with the following counterparties: JP Morgan Chase Bank NA, Citibank Canada NA, and Wells Fargo Bank NA. All of our counterparties or guarantors of these counterparties are considered investment grade (senior unsecured ratings of Baa2 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. 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 March 31, 2013, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $985 related to interest rate derivatives designated as cash flow hedges and $230 related to interest rate derivatives not designated as cash flow hedges.

Following is the effect of interest rate derivatives on the statement of financial performance for the three months ended March 31, 2013:



Effective Portion				Ineffective Portion
Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (a)	Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (b)	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative (c)
Interest rate derivatives	$(725)	Interest expense	$(12,825)	Interest expense	$(128)


(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 the three months ended March 31, 2013.


(b)	This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate derivatives for the three months ended March 31, 2013 plus any effective amortization of net deferred interest rate derivative losses.


(c)	This represents both realized and unrealized ineffectiveness incurred during the three months ended March 31, 2013.

On an ongoing basis, terminated swap notionals are evaluated against debt forecasts. To the extent that interest payments are deemed remote to occur, deferred gains or losses are accelerated into interest expense as applicable.

For the three months ended March 31, 2013, the amount of deferred net loss reclassified from OCI into interest expense related to our terminated interest rate derivatives was $7,933. 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 $27,759 of which $17,663 relates to Term Financing No. 1 interest rate derivatives terminated in 2012, $1,608 relates to Term Financing No. 1 derivatives terminated in 2008, $7,262 relates to ECA Term Financings for New A330 Aircraft and $1,227 relates to other financings.

For the three months ended March 31, 2013, the amount of effective deferred loss reclassified from OCI into interest expense related to our undesignated active interest rate derivative was $341. The amount of effective deferred loss expected to be reclassified from OCI into interest expense over the next 12 months related to our undesignated active interest rate derivative under our Securitization No. 1 is $1,678.

The following table summarizes amounts charged directly to the consolidated statement of income for the three months ended March 31, 2012 and 2013, respectively, related to our interest rate derivatives:



	Three Months Ended March 31,
	2012			2013
Interest Expense:
Hedge ineffectiveness (gains) losses	$	(1,519	)	$	128
Amortization:
Amortization of loss of designated interest rate derivative	—			341
Amortization of deferred losses	4,071			7,933
Total Amortization	4,071			8,274
Total charged to interest expense	$	2,552		$	8,402

Other Income (Expense):
Mark to market (losses) gains on undesignated interest rate derivatives	$	(113	)	$	1,215
Total charged to other income (expense)	$	(113	)	$	1,215

Derivatives Not Designated as Hedging Instruments under ASC 815

Location of Gain
or (Loss)
Recognized in Income
On Derivative

Amount of Gain
or (Loss)
Recognized in Income on
Derivative

Interest rate derivatives

Other income (expense)