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EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL LEASE FINANCE CORP | Financial_Report.xls |
EX-12 - EX-12 - INTERNATIONAL LEASE FINANCE CORP | v59547exv12.htm |
EX-31.2 - EX-31.2 - INTERNATIONAL LEASE FINANCE CORP | v59547exv31w2.htm |
EX-31.1 - EX-31.1 - INTERNATIONAL LEASE FINANCE CORP | v59547exv31w1.htm |
EX-32.1 - EX-32.1 - INTERNATIONAL LEASE FINANCE CORP | v59547exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-31616
INTERNATIONAL LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
California | 22-3059110 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
10250 Constellation Blvd., Suite 3400 | ||
Los Angeles, California | 90067 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (310) 788-1999
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of August 10, 2011, there were 45,267,723 shares of Common Stock, no par value, outstanding.
Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q
and is therefore filing this form with the reduced disclosure format.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
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EX-12 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
-2-
Table of Contents
TABLE OF DEFINITIONS
AIG
|
American International Group, Inc. | |
AIG Funding
|
AIG Funding, Inc. | |
AIGFP
|
AIG Financial Products Corp. | |
Airbus
|
Airbus S.A.S. | |
AOCI
|
Accumulated other comprehensive income | |
AVG
|
Asset Value Guarantee | |
Boeing
|
The Boeing Company | |
The Company, ILFC, we, our, us
|
International Lease Finance Corporation | |
CVA
|
Credit Value Adjustment | |
Department of the Treasury
|
United States Department of the Treasury | |
ECA
|
Export Credit Agency | |
FASB
|
Financial Accounting Standards Board | |
Fitch
|
Fitch Ratings, Inc. | |
FRBNY
|
Federal Reserve Bank of New York | |
FRBNY Credit Agreement
|
The credit agreement, dated as of September
22, 2008, as amended, between AIG and the
FRBNY |
|
GAAP
|
Generally Accepted Accounting Principles in
the United States of America |
|
IASB
|
International Accounting Standards Board | |
IFRS
|
International Financial Reporting Standards | |
Master Transaction Agreement
|
Master Transaction Agreement, entered into
by AIG on December 8, 2010, with the
Department of the Treasury |
|
Moodys
|
Moodys Investor Service, Inc. | |
MVA
|
Market Value Adjustment | |
OCI
|
Other comprehensive income | |
SEC
|
U.S. Securities and Exchange Commission | |
S&P
|
Standard and Poors, a division of The McGraw-Hill Companies, Inc. | |
SPE
|
Special Purpose Entity | |
TARP
|
Troubled Asset Relief Program | |
VaR
|
Value at Risk | |
VIEs
|
Variable Interest Entities | |
Volare
|
Estate of Volare Airlines | |
WKSI
|
Well Known Seasoned Issuer |
-3-
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and cash equivalents, including interest bearing accounts of $2,126,626 (2011) and
$3,058,747 (2010) |
$ | 2,138,483 | $ | 3,067,697 | ||||
Restricted cash, including interest bearing accounts of $421,040 (2011) and $402,373
(2010) |
421,040 | 457,053 | ||||||
Notes receivable, net of allowance, and net investment in finance and sales-type leases |
86,260 | 132,685 | ||||||
Flight equipment under operating leases |
51,603,074 | 51,646,586 | ||||||
Less accumulated depreciation |
13,891,697 | 13,120,421 | ||||||
37,711,377 | 38,526,165 | |||||||
Flight equipment held for sale |
5,220 | 255,178 | ||||||
Deposits on flight equipment purchases |
223,700 | 184,410 | ||||||
Lease receivables and other assets |
392,017 | 402,932 | ||||||
Derivative assets, net |
206,904 | 60,150 | ||||||
Deferred debt issue costs, less accumulated amortization of $217,078 (2011) and $181,460
(2010) |
296,609 | 232,576 | ||||||
$ | 41,481,610 | $ | 43,318,846 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Accrued interest and other payables |
$ | 660,899 | $ | 689,606 | ||||
Current income taxes |
117,571 | 108,898 | ||||||
Secured debt financing, net of deferred debt discount of $19,901 (2011) and $22,309
(2010) |
9,331,699 | 9,556,634 | ||||||
Unsecured debt financing, net of deferred debt discount of $42,977 (2011) and $47,977
(2010) |
15,034,585 | 16,997,466 | ||||||
Subordinated debt |
1,000,000 | 1,000,000 | ||||||
Foreign currency adjustment related to foreign currency denominated debt |
281,600 | 165,400 | ||||||
Security deposits, overhaul rental and other customer deposits |
1,682,140 | 1,620,784 | ||||||
Rentals received in advance |
269,455 | 284,115 | ||||||
Deferred income taxes |
4,712,652 | 4,663,939 | ||||||
Commitments and Contingencies Note M |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Market Auction Preferred Stock, $100,000 per share liquidation value; Series A and B,
each having 500 shares issued and outstanding |
100,000 | 100,000 | ||||||
Common stock no par value; 100,000,000 authorized shares, 45,267,723 issued and
outstanding |
1,053,582 | 1,053,582 | ||||||
Paid-in capital |
599,133 | 606,367 | ||||||
Accumulated other comprehensive income (loss) |
(38,792 | ) | (58,944 | ) | ||||
Retained earnings |
6,677,086 | 6,530,999 | ||||||
Total shareholders equity |
8,391,009 | 8,232,004 | ||||||
$ | 41,481,610 | $ | 43,318,846 | |||||
See notes to condensed, consolidated financial statements.
-4-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
(Dollars in thousands)
(Unaudited)
June 30, 2011 | June 30, 2010 | |||||||
REVENUES AND OTHER INCOME |
||||||||
Rental of flight equipment |
$ | 1,111,453 | $ | 1,163,811 | ||||
Flight equipment marketing and gain on aircraft sales |
2,176 | 42 | ||||||
Interest and other |
11,903 | 8,791 | ||||||
1,125,532 | 1,172,644 | |||||||
EXPENSES |
||||||||
Interest |
407,069 | 407,708 | ||||||
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates |
1,468 | 4,783 | ||||||
Depreciation of flight equipment |
459,689 | 475,658 | ||||||
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed |
43,815 | 53,027 | ||||||
Aircraft impairment charges on flight equipment held for use |
| 8,148 | ||||||
Loss on extinguishment of debt |
61,093 | | ||||||
Flight equipment rent |
4,500 | 4,500 | ||||||
Selling, general and administrative |
43,089 | 40,993 | ||||||
Other expenses |
(1,248 | ) | 3,469 | |||||
1,019,475 | 998,286 | |||||||
INCOME BEFORE INCOME TAXES |
106,057 | 174,358 | ||||||
Provision for income taxes |
33,377 | 63,605 | ||||||
NET INCOME |
$ | 72,680 | $ | 110,753 | ||||
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
(Dollars in thousands)
(Unaudited)
June 30, 2011 | June 30, 2010 | |||||||
REVENUES AND OTHER INCOME |
||||||||
Rental of flight equipment |
$ | 2,252,374 | $ | 2,393,674 | ||||
Flight equipment marketing and gain on aircraft sales |
2,849 | 1,326 | ||||||
Interest and other |
38,822 | 21,777 | ||||||
2,294,045 | 2,416,777 | |||||||
EXPENSES |
||||||||
Interest |
814,568 | 742,574 | ||||||
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates |
2,091 | 44,849 | ||||||
Depreciation of flight equipment |
912,220 | 965,899 | ||||||
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be disposed |
147,125 | 406,414 | ||||||
Aircraft impairment charges on flight equipment held for use |
| 8,148 | ||||||
Loss on extinguishment of debt |
61,093 | | ||||||
Flight equipment rent |
9,000 | 9,000 | ||||||
Selling, general and administrative |
94,803 | 76,630 | ||||||
Other expenses |
29,726 | 87,517 | ||||||
2,070,626 | 2,341,031 | |||||||
INCOME BEFORE INCOME TAXES |
223,419 | 75,746 | ||||||
Provision for income taxes |
77,018 | 27,919 | ||||||
NET INCOME |
$ | 146,401 | $ | 47,827 | ||||
See notes to condensed, consolidated financial statements.
-5-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
June 30, 2011 | June 30, 2010 | |||||||
NET INCOME |
$ | 72,680 | $ | 110,753 | ||||
OTHER COMPREHENSIVE INCOME |
||||||||
Net changes in fair value of cash flow hedges, net of taxes of $(4,805) (2011) and
$(13,485) (2010) |
8,924 | 25,045 | ||||||
Change in unrealized appreciation on securities available for sale, net of taxes of $114
(2011) and $79 (2010) |
220 | (147 | ) | |||||
9,144 | 24,898 | |||||||
COMPREHENSIVE INCOME |
$ | 81,824 | $ | 135,651 | ||||
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
June 30, 2011 | June 30, 2010 | |||||||
NET INCOME |
$ | 146,401 | $ | 47,827 | ||||
OTHER COMPREHENSIVE INCOME |
||||||||
Net changes in fair value of cash flow hedges, net of taxes of $(10,965) (2011) and
$(40,172) (2010) |
20,363 | 74,606 | ||||||
Change in unrealized appreciation on securities available for sale, net of taxes of $114
(2011) and $66 (2010) |
(211 | ) | (123 | ) | ||||
20,152 | 74,483 | |||||||
COMPREHENSIVE INCOME |
$ | 166,553 | $ | 122,310 | ||||
See notes to condensed, consolidated financial statements.
-6-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
June 30, 2011 | June 30, 2010 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 146,401 | $ | 47,827 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation of flight equipment |
912,220 | 965,899 | ||||||
Deferred income taxes |
37,862 | 19,754 | ||||||
Derivative instruments |
(115,426 | ) | 374,814 | |||||
Foreign currency adjustment of non-US$ denominated debt |
116,200 | (334,720 | ) | |||||
Amortization of deferred debt issue costs |
34,317 | 21,873 | ||||||
Amortization of debt discount |
7,408 | 4,983 | ||||||
Amortization of prepaid lease costs |
23,465 | 20,282 | ||||||
Aircraft impairment charges and fair value adjustments |
147,125 | 414,562 | ||||||
Lease expenses related to aircraft sales |
(2,437 | ) | 89,213 | |||||
Interest paid-in-kind to AIG Funding |
| 28,920 | ||||||
Other, including foreign exchange adjustments on foreign currency denominated
cash and gain on aircraft sales |
(23,941 | ) | (24,122 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Lease receivables and other assets |
(9,613 | ) | 51,776 | |||||
Accrued interest and other payables |
(31,010 | ) | 63,738 | |||||
Current income taxes |
8,673 | 4,668 | ||||||
Tax benefit sharing payable to AIG |
| (85,000 | ) | |||||
Rentals received in advance |
(14,660 | ) | (36,847 | ) | ||||
Net cash provided by operating activities |
1,236,584 | 1,627,620 | ||||||
INVESTING ACTIVITIES |
||||||||
Acquisition of flight equipment |
(182,610 | ) | (219,450 | ) | ||||
Payments for deposits and progress payments |
(80,195 | ) | (25,078 | ) | ||||
Proceeds from disposal of flight equipment |
234,714 | 24,641 | ||||||
Restricted cash |
36,013 | (568,664 | ) | |||||
Collections on notes receivable and finance and sales-type leases |
44,737 | 66,407 | ||||||
Other |
(4,369 | ) | | |||||
Net cash provided by (used in) investing activities |
48,290 | (722,144 | ) | |||||
FINANCING ACTIVITIES |
||||||||
Proceeds from debt financing |
2,431,463 | 4,315,872 | ||||||
Payments in reduction of debt financing |
(4,626,686 | ) | (2,637,564 | ) | ||||
Debt issue costs |
(99,651 | ) | (100,131 | ) | ||||
Payment of common and preferred dividends |
(314 | ) | (207 | ) | ||||
Security and rental deposits received |
42,862 | 28,885 | ||||||
Security and rental deposits returned |
(46,721 | ) | (24,608 | ) | ||||
Transfers of security and rental deposits on sales of aircraft |
(19,391 | ) | | |||||
Overhaul rentals collected |
249,927 | 295,996 | ||||||
Overhaul deposits reimbursed |
(170,915 | ) | (153,266 | ) | ||||
Transfer of overhauls rentals on sales of aircraft |
(18,623 | ) | | |||||
Net change in other deposits |
42,678 | 6,873 | ||||||
Net cash (used in) provided by financing activities |
(2,215,371 | ) | 1,731,850 | |||||
Net (decrease) increase in cash |
(930,497 | ) | 2,637,326 | |||||
Effect of exchange rate changes on cash |
1,283 | (4,842 | ) | |||||
Cash at beginning of period |
3,067,697 | 336,911 | ||||||
Cash at end of period |
$ | 2,138,483 | $ | 2,969,395 | ||||
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
June 30, 2011 | June 30, 2010 | |||||||
Cash paid during the period for: |
||||||||
Interest, excluding interest capitalized of $2,790 (2011) and $3,080 (2010) |
$ | 883,434 | $ | 642,067 | ||||
Income taxes, net |
30,482 | (a) | 3,495 |
(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 $50,905 were applied to Acquisition of flight
equipment under operating leases.
Customer deposits of $13,103 were forfeited and recognized in income.
Flight equipment under operating leases in the amount of $5,220 were transferred to Flight equipment held for sale.
Flight equipment under operating leases in the amount of $3,050 were transferred to Lease
receivables and other assets upon the part-out of an aircraft.
2010:
Flight equipment under operating leases in the amount of $2,165,077 were transferred to Flight
equipment held for sale.
Net
investments in finance leases of $192,161 were transferred to Flight equipment under
operating leases.
Deposits on flight equipment purchases of $29,177 were applied to Acquisition of flight
equipment under operating leases.
Lease receivables and other assets in the amount of $11,193 and Deposits on flight equipment
purchases of $36,799 were applied to Acquisition of flight equipment under operating leases.
Flight equipment under operating leases in the amount of $3,225 were transferred to Lease
receivables and other assets.
See notes to condensed, consolidated financial statements.
-8-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
(Unaudited)
A. Basis of Preparation
ILFC is an indirect 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 N Variable Interest Entities for further discussions on VIEs. All material
intercompany accounts have been eliminated in consolidation.
Results for the three and six
month periods ended June 30, 2011 include an out of period adjustment related to prior quarters
and years which increased pre-tax income by $8.1 million and $8.3 million, respectively. The
out of period 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 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 six months ended June 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
We did not adopt any new accounting standards during the first six months of 2011.
Future Application of Accounting Standards:
A Creditors 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 creditors evaluation of whether a restructuring is a troubled debt restructuring and
requires additional disclosures about a creditors 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. The new standard is effective for interim and annual periods beginning on July 1,
2011, with early adoption permitted. We are required to apply the guidance in the accounting
standard retrospectively for all modifications and restructuring activities that have occurred
since January 1, 2011. For receivables that are considered newly impaired under the guidance,
we are required to measure the impairment of those receivables prospectively in the first
period of adoption. In addition, we must begin providing the disclosures about troubled debt
restructuring activities in the period of adoption. We are currently assessing the effect of
adoption of this new standard on our consolidated financial position, results of operations and
cash flows.
-9-
Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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 FASBs 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 standards 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 have no effect on our consolidated financial
statements because we already use the two-statement approach to present comprehensive income.
C. Restricted Cash
We entered into ECA facility agreements in 1999 and 2004 through subsidiaries. See Note G
Debt Financings. We had no loans outstanding under the 1999 ECA facility as of June 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 June 30, 2011, we had segregated security deposits, overhaul rentals and
rental payments aggregating approximately $397 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 June 30, 2011.
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
In March 2010, we entered into a $550 million secured term loan through a newly formed
subsidiary. The proceeds from this transaction are restricted until the collateral is
transferred to certain of our subsidiaries that guarantee the debt on a secured basis and whose
equity were pledged to secure the term loan and at June 30, 2011, approximately $24 million of
the proceeds remained restricted.
The subsidiaries described above meet the definition of a VIE and have been designated as
non-restricted subsidiaries, under our indentures. See Note G Debt Financings and Note N -
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
June 30, 2011, we had four aircraft under finance and sales type leases with aggregate
principal balance of $65.7 million and notes receivable with aggregate principal balance, net
of allowance, of $20.6 million. At December 31, 2010, the principal related to the 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.
We had the following activity in our allowance for credit losses on notes receivable for
the following period:
(Dollars in thousands) | ||||
Allowance for credit losses: |
||||
Balance at December 31, 2010 |
$ | 21,042 | ||
Provision |
12,163 | |||
Write-offs |
| |||
Recoveries |
(1,531 | ) | ||
Balance at June 30, 2011 |
$ | 31,674 | ||
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
E. Aircraft Impairment Charges and Fair Value Adjustments on Flight Equipment Sold or to be Disposed
We reported the following impairment charges and fair value adjustments on flight
equipment during the three and six months ended June 30, 2011 and 2010, respectively:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||||||||||||||||||
Aircraft | Impairment | Aircraft | Impairment | Aircraft | Impairment | Aircraft | Impairment | |||||||||||||||||||||||||
Impaired | Charges and | Impaired | Charges and | Impaired | Charges and | Impaired | Charges and | |||||||||||||||||||||||||
or | Fair Value | or | Fair Value | or | Fair Value | or | Fair Value | |||||||||||||||||||||||||
Adjusted | Adjustments | Adjusted | Adjustments | Adjusted | Adjustments | Adjusted | Adjustments | |||||||||||||||||||||||||
Loss/(Gain) | (Dollars in millions) | |||||||||||||||||||||||||||||||
Impairment
charges and fair
value adjustments
on aircraft likely
to be sold or sold |
5 | $ | 41.1 | | (b) | $ | 0.5 | 14 | $ | 148.1 | 2 | $ | 32.7 | |||||||||||||||||||
Fair value
adjustments on held
for sale aircraft
sold or transferred
from held for sale
back to flight
equipment under
operating leases
(a) |
2 | 2.7 | 6 | 40.1 | 10 | (3.5 | ) | 56 | 361.3 | |||||||||||||||||||||||
Impairment
charges on aircraft
designated for
part-out |
| | 1 | 12.4 | 1 | 2.5 | 1 | 12.4 | ||||||||||||||||||||||||
Total
Impairment charges
and fair value
adjustments on
flight equipment |
7 | $ | 43.8 | 7 | $ | 53.0 | 25 | $ | 147.1 | 59 | $ | 406.4 | ||||||||||||||||||||
(a) | Included in these amounts are net fair value credit adjustments related to aircraft previously held for sale, but which no longer met such criteria and were subsequently reclassified to Flight equipment under operating leases. Also included in these amounts are fair value credit adjustments related to sales price adjustments related to aircraft that were previously held for sale and sold during periods presented. | |
(b) | Amounts relate to two aircraft that were previously impaired, but additional fair value adjustments were recorded in the current period. |
Three months ended June 30, 2011
Aircraft impairment charges and fair value adjustments on flight equipment totaled $43.8
million for the three months ended June 30, 2011, due to the following factors:
| $41.1 million of impairment charges and fair value adjustments were recorded on five aircraft. This amount was the result of (i) $41.9 million of impairment charges on 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 on aircraft sold to third parties from our fleet held for use aggregating a net credit of $0.8 million. | ||
| $2.7 million of fair value adjustments were recorded on aircraft reclassified to or from Flight equipment held for sale. During the three months ended June 30, 2011, we had one aircraft that |
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
met the criteria for and was classified as Flight equipment held for sale. In addition, we determined that one aircraft we had previously classified as Flight equipment held for sale no longer met the criteria and reclassified that aircraft to Flight equipment under operating lease during the three months ended June 30, 2011. In accordance with GAAP, we recorded the 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 did not have any impairment charges on aircraft designated for part-out for the three months ended June 30, 2011. |
Three months ended June 30, 2010
Aircraft impairment charges and fair value adjustments on flight equipment totaled $53.0
million for the three months ended June 30, 2010, due to the following factors:
| $0.5 million of fair value adjustments were recorded on two aircraft we deemed more likely than not to be sold. | ||
| $40.1 million of impairment charges were recorded on six aircraft that met the criteria for and were classified as 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. |
Six months ended June 30, 2011
Aircraft impairment charges and fair value adjustments on flight equipment totaled $147.1
million for the six months ended June 30, 2011, due to the following factors:
| $148.1 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 $130.8 million on nine 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 six months ended June 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, 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. The fair value of the parts is included in Lease receivables and other assets on our Condensed, Consolidated Balance Sheet. |
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
Six months ended June 30, 2010
Aircraft impairment charges and fair value adjustments on flight equipment totaled $406.4
million for the six months ended June 30, 2010, due to the following factors:
| $32.7 million of impairment charges were recorded on two 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. | ||
| $361.3 million of impairment charges were recorded on 56 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 June 30, 2010, 56 of the 59 aircraft met the criteria to be recorded as 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. |
F. Flight Equipment Held for Sale
We had the following activity in Flight equipment held for sale for the six months ended
June 30, 2011:
Aircraft | Carrying Value | |||||||
Flight Equipment Held for Sale | (Dollars in thousands) | |||||||
Balance at December 31, 2010 |
9 | $ | 255,178 | |||||
Transferred from Flight equipment held for
sale to Flight equipment under operating
leases |
(3 | ) | (76,438 | ) | ||||
Transferred from Flight equipment under
operating leases to Flight equipment held for
sale |
1 | 5,220 | ||||||
Flight equipment sold |
(6 | ) | (178,740 | ) | ||||
Flight equipment held for sale at June 30, 2011 |
1 | $ | 5,220 | |||||
At June 30, 2011 and December 31, 2010, we had one and nine aircraft, respectively, that
met the criteria for, and were classified as, Flight equipment held for sale. The balance in
Flight equipment held for sale of $5.2 million and $255.2 million at June 30, 2011 and December
31, 2010, respectively, represents the estimated fair value of such
aircraft less cost to sell. We cease
recognition of depreciation expense on aircraft subsequent to transferring them from Flight
equipment under operating leases. During the six months ended June 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 six aircraft that were classified as Flight equipment held for sale
and recorded fair value adjustments related to those aircraft aggregating net credits of $0.3
million and $3.2 million for the three and six months ended June 30, 2011, respectively.
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
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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.
G. Debt Financings
Our debt financing was comprised of the following at the following dates:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Secured |
||||||||
Senior secured bonds |
$ | 3,900,000 | $ | 3,900,000 | ||||
ECA financings |
2,549,627 | 2,777,285 | ||||||
Bank debt (a) |
1,601,973 | 1,601,658 | ||||||
Other secured financings |
1,300,000 | 1,300,000 | ||||||
Less: Deferred debt discount |
(19,901 | ) | (22,309 | ) | ||||
9,331,699 | 9,556,634 | |||||||
Unsecured |
||||||||
Bonds and Medium-Term Notes |
14,870,562 | 16,810,843 | ||||||
Bank debt |
207,000 | 234,600 | ||||||
Less: Deferred debt discount |
(42,977 | ) | (47,977 | ) | ||||
15,034,585 | 16,997,466 | |||||||
Total Senior Debt Financings |
24,366,284 | 26,554,100 | ||||||
Subordinated Debt |
1,000,000 | 1,000,000 | ||||||
$ | 25,366,284 | $ | 27,554,100 | |||||
(a) | Of this amount, $105.4 million (2011) and $113.7 million (2010) is non-recourse to ILFC. These secured financings were incurred by VIEs and consolidated into our condensed, consolidated financial statements. |
The above amounts represent the anticipated settlement of our outstanding debt obligations
as of June 30, 2011 and December 31, 2010. Certain adjustments required to present currently
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 then 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 N Variable
Interest Entities for more information on VIEs.
At June 30, 2011, approximately $21 billion of our flight equipment was pledged as
collateral for the $9.3 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
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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 related leases. In addition, two of ILFCs 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 governing the senior secured notes contains customary covenants that, among
other things, restrict our and our restricted subsidiaries ability to: (i) create liens; (ii)
sell, transfer or otherwise
dispose of assets; (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; (v) make investments in or transfer assets to
non-restricted subsidiaries; and (vi) 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.
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 and we had no loans outstanding under the 1999 ECA facility as of
June 30, 2011. The loans made under the ECA facilities were used to fund a portion of each
aircrafts net purchase price. 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.
In January 1999, we entered into the 1999 ECA facility and used amounts borrowed under
this facility to finance purchases of 62 Airbus aircraft through 2001. At June 30, 2011, all
loans under the facility had been paid in full. The facility is, however, party to a
cross-collateralization agreement relating to the 2004 ECA facility, as further discussed
below. The net book value of the aircraft used as collateral under this facility was $1.5
billion at June 30, 2011.
In May 2004, we entered into the 2004 ECA facility, which was amended in May 2009 to allow
us to borrow up to $4.6 billion for the purchase of Airbus aircraft delivered through June 30,
2010. We used $4.3 billion of the available amount to finance purchases of 76 aircraft. Each
aircraft purchased was financed by a ten-year fully amortizing loan. As of June 30, 2011,
approximately $2.5 billion was outstanding under this facility. The interest rates on the loans
outstanding under the facility are either fixed or based on LIBOR and ranged from 0.37% to
4.71% at June 30, 2011. The net book value of the aircraft purchased under this facility was
$4.4 billion at June 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 for aircraft with
loan balances outstanding under the 2004 ECA facility (segregated rental payments are used to
make scheduled principal and interest payments on the outstanding debt under the 2004 ECA
facility). The segregated funds are deposited into separate accounts pledged to and controlled
by the security trustee of the facility. In addition, we must register the existing
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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 (mortgages are only required to
be filed on aircraft with loan balances outstanding or otherwise as agreed in connection with
the cross-collateralization agreement as described below). At June 30, 2011, we had segregated
security deposits, overhaul rentals and rental payments aggregating approximately $397 million
related to aircraft funded under the 2004 ECA facility. The segregated amounts will fluctuate
with changes in security deposits, overhaul rentals, rental payments and debt maturities
related to the aircraft funded under the 2004 ECA facility.
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 our 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. As of June 30, 2011, there were no outstanding
obligations under the 1999 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 $10.3 billion. The disposition amount will
be reduced by approximately $91.4 million at the end of each calendar quarter during 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 $285.2 million at June 30, 2011, due in full at the time of such a termination
event.
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 June 30, 2011.
Secured Bank Debt
We have a credit facility, dated October 13, 2006, as amended, under which the original
maximum amount available was $2.5 billion. We repaid aggregate principal amounts of loans
outstanding under this facility of $800 million and $200 million in the fourth quarter of 2010
and in June 2011, respectively. The amended facility prohibits us from re-borrowing amounts
repaid under this facility. Therefore, the current size of the facility is $1.5 billion. As of
June 30, 2011, we had secured loans of $1.29 billion outstanding under the facility, all of
which will mature in October 2012. The interest on $1.25 billion of the secured loans is based
on LIBOR plus a margin of 2.15%, plus facility fees of 0.2% on the outstanding principal
balance and the remaining $43.0 million had an interest rate of 4.75% at June 30, 2011. The
remaining $207 million outstanding under the facility consists of unsecured loans that will
mature on their originally scheduled maturity date of October 13, 2011, with a LIBOR based
interest rate plus a margin of 0.65% plus facility fees of 0.2% of the outstanding balance.
The collateralization requirement under the amended facility provides that the $1.29
billion of secured loans must be secured by a lien on the equity interests of certain of ILFCs
non-restricted subsidiaries that own
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June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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.
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 of
approximately $2.4 billion as of January 1, 2011. The $2.4 billion equals an initial
loan-to-value ratio of approximately 65% and the equity interests in certain SPEs that will own
the aircraft and related equipment and leases that are pledged as security for the loans. The
proceeds of the loan will be 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 June 30, 2011 and August 5, 2011, respectively,
approximately $181 million and $696 million 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 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.
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 (i) incur additional
indebtedness; (ii) create liens; (iii) consolidate, merge or dispose of all or substantially
all of their assets; and (iv) enter into transactions with affiliates.
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 June 30, 2011, the interest rates on
the $82.0 million and $24.0 million tranches were 3.34% and 5.04%, 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 June 30, 2011, $83.8 million was outstanding under the two
tranches and the net book value of the aircraft was $134.7 million.
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NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
In June 2009, we borrowed $55.4 million through a non-restricted subsidiary, which owns
one aircraft leased to an airline. Half of the original loan amortizes over five years and the
remaining $27.7 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 June
30, 2011, $43.7 million was outstanding and the net book value of the aircraft was $89.8
million.
Other Secured Financing Arrangements
On March 17, 2010, we entered into 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 of 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. On March 17, 2010,
we also entered into an additional term loan agreement of $550 million 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 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. The proceeds from this loan are restricted from use in our operations until we
transfer the related collateral to the non-restricted subsidiaries. At June 30, 2011,
approximately $24 million of the proceeds
remained restricted. We can voluntarily prepay the loan at any time, subject to a 1%
prepayment penalty prior to March 17, 2012. Both loans require a loan-to-value ratio of no more
than 63%. The loans also contain customary covenants and events of default, including
limitations on the ability of us and our subsidiaries, 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.
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 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.
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 June 30, 2011, after the completion of tender offers to purchase certain notes on
June 17, 2011, as further discussed below, we also had $7.2 billion of public bonds and
medium-term notes outstanding, with interest rates ranging from 0.60% to 7.95%, 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.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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.
The following notes were accepted for purchase by us in the tender offers:
Aggregate | Aggregate | |||||||||||
Principal Amount | Principal Amount | |||||||||||
Outstanding | Total Principal | Outstanding upon | ||||||||||
before Tender | Amount Accepted | Completion of | ||||||||||
Offers (a) | for Purchase (b) | Tender Offers | ||||||||||
Title of Security | (Dollars in thousands) | |||||||||||
4.750% Medium-Term
Notes, Series Q,
due January 13,
2012 |
$ | 500,000 | $ | 293,496 | $ | 206,504 | ||||||
5.400% Medium-Term
Notes, Series R,
due February 15,
2012 |
750,000 | 386,623 | 363,377 | |||||||||
5.350% Medium-Term
Notes, Series R,
due March 1, 2012 |
600,000 | 265,371 | 334,629 | |||||||||
5.300% Medium-Term
Notes, Series R,
due May 1, 2012 |
850,000 | 402,993 | 447,007 | |||||||||
5.550% Medium-Term
Notes, Series Q,
due September 5,
2012 |
300,000 | 100,872 | 199,128 | |||||||||
5.000% Medium-Term
Notes, Series Q,
due September 15,
2012 |
300,000 | 103,564 | 196,436 | |||||||||
5.250% Medium-Term
Notes, Series Q,
due January 10,
2013 |
300,000 | 72,234 | 227,766 | |||||||||
6.375% Medium-Term
Notes, Series R,
due March 25, 2013 |
1,000,000 | 47,146 | 952,854 | |||||||||
Total |
$ | 4,600,000 | $ | 1,672,299 | $ | 2,927,701 | ||||||
(a) | As of June 2, 2011. | |
(b) | Includes notes that were validly tendered and accepted on June 2, 2011, and for which payment was settled on June 3, 2011. |
Euro Medium-Term Note Programme: We have a $7.0 billion Euro Medium-Term Note
Programme, which will expire in September 2011. We had approximately $1.2
billion of Euro denominated notes outstanding under such Programme at June 30, 2011. The notes
mature on August 15, 2011, and bear interest based on Euribor with a spread of 0.375%. As a
bond issue matures, the principal amount of that bond becomes available for new issuances under
the Programme. We have eliminated the currency exposure arising from the notes by hedging the
notes into U.S. dollars and fixing the interest rates at a range of 5.355% to 5.367%. We
translate the debt into U.S. dollars using current exchange rates prevailing at the balance
sheet date. The foreign exchange adjustment for the foreign currency denominated notes was
$281.6 million and $165.4 million at June 30, 2011 and December 31, 2010, respectively.
A rollforward for the six months ended June 30, 2011, of the foreign currency adjustment related to foreign currency denominated notes is presented
below:
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
(Dollars in thousands) | ||||
Foreign currency adjustment related to foreign currency
denominated debt at December 31, 2010 |
$ | 165,400 | ||
Foreign currency period adjustment of non-US$ denominated debt |
116,200 | |||
Foreign currency adjustment related to foreign currency
denominated debt at June 30, 2011 |
$ | 281,600 | ||
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 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
On January 31, 2011, we entered into a new $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 June 30, 2011, no amounts
were outstanding under this revolving facility.
As of June 30, 2011, $207.0 million of unsecured loans were outstanding under our credit
agreement dated as of October 13, 2006. These loans remain unsecured and mature on October 13,
2011, the original maturity date for this credit facility. The interest on the loans is 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. See Secured Bank Debt
above.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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 June 30, 2011, the interest rate was 5.74%. The $400
million tranche has a fixed interest rate of 6.25% until the 2015 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.
H. Derivative Activities
We use derivatives to manage exposures to interest rate and foreign currency risks. At
June 30, 2011, we had interest rate and foreign currency swap agreements with a related
counterparty and interest rate cap agreements with an unrelated counterparty. Our foreign
currency swap agreements mature on August 15, 2011, our interest rate swap agreements mature in
2014 and 2015, and our interest rate cap agreements mature in 2018.
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 re-designation of a derivative contract, the balance accumulated in
AOCI at the time of the re-designation is amortized into income over the remaining life of the
underlying derivative.
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 and foreign currency 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
trades and 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 derivative portfolio is recorded at fair value on our
balance sheet on a net basis in Derivative assets, net (see Note I Fair Value Measurements).
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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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
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:
Asset Derivatives | Liability Derivatives | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
USD | USD | |||||||||||||||
(In thousands) | ||||||||||||||||
June 30, 2011: |
||||||||||||||||
Derivatives designated as
hedging instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 553,319 | $ | (48,004 | ) | |||||||
Foreign exchange swap agreements |
| 1,000,000 | 254,200 | | | |||||||||||
Total derivatives designated as
hedging instruments |
$ | 254,200 | $ | (48,004 | ) | |||||||||||
Derivatives not designated as
hedging instruments: |
||||||||||||||||
Interest rate cap agreements |
$ | 83,788 | $ | 708 | $ | | $ | | ||||||||
Total derivatives |
$ | 254,908 | $ | (48,004 | ) | |||||||||||
December 31, 2010: |
||||||||||||||||
Derivatives designated as
hedging instruments: |
||||||||||||||||
Interest rate swap agreements (a) |
$ | | $ | | $ | 625,717 | $ | (56,244 | ) | |||||||
Foreign exchange swap agreements |
| 1,000,000 | 114,431 | | | |||||||||||
Total derivatives designated as
hedging instruments |
$ | 114,431 | $ | (56,244 | ) | |||||||||||
Derivatives not designated as
hedging instruments: |
||||||||||||||||
Interest rate cap agreements |
$ | 89,520 | $ | 1,963 | $ | | $ | | ||||||||
Total derivatives |
$ | 116,394 | $ | (56,244 | ) | |||||||||||
(a) | Converts floating interest rate debt into fixed rate debt. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
During the three and six months ended June 30, 2011 and 2010, we recorded the
following in OCI related to derivative instruments:
Gain (Loss) | Gain (Loss) | |||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Effective portion of change in fair
market value of derivatives (a)(b) |
$ | 44,955 | $ | (166,030 | ) | $ | 145,613 | $ | (221,234 | ) | ||||||
Foreign exchange component of cross currency
swaps (credited) charged to income |
(32,100 | ) | 203,520 | (116,200 | ) | 334,720 | ||||||||||
Amortization of balances of de-designated
hedges and other adjustments |
874 | 1,040 | 1,915 | 1,292 | ||||||||||||
Income tax effect |
(4,805 | ) | (13,485 | ) | (10,965 | ) | (40,172 | ) | ||||||||
Net changes in cash flow hedges, net of taxes |
$ | 8,924 | $ | 25,045 | $ | 20,363 | $ | 74,606 | ||||||||
(a) | Includes $(255) and $(299) of combined CVA and MVA for the three and six month periods ended June 30, 2011, respectively, and $25,208 and $(62,620) of combined CVA and MVA for the three and six month periods ended June 30, 2010, respectively. | |
(b) | 2010 includes losses of $(15,409) on a derivative contract that matured during the six months ended June 30, 2010, that was de-designated as a cash flow hedge and then subsequently re-designated during the life of the contract. |
The following table presents the effective portion of the unrealized gain (loss) on
derivative positions recorded in OCI:
Amount of Unrealized Gain or (Loss) | ||||||||||||||||
Recorded in OCI on Derivatives | ||||||||||||||||
(Effective Portion) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Derivatives Designated as Cash Flow Hedges | (Dollars in thousands) | |||||||||||||||
Interest rate swap agreements |
$ | (6,093 | ) | $ | 4,836 | $ | (5,717 | ) | $ | (4,582 | ) | |||||
Foreign exchange swap agreements |
34,778 | (198,011 | ) | 117,494 | (271,080 | ) | ||||||||||
Total (a) |
$ | 28,685 | $ | (193,175 | ) | $ | 111,777 | $ | (275,662 | ) | ||||||
(a) | Includes $(255) and $(299) of combined CVA and MVA for the three and six month periods ended June 30, 2011, respectively, and $25,208 and $(62,620) of combined CVA and MVA for the three and six month periods ended June 30, 2010, respectively. |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
The following table presents amounts reclassified from AOCI into income when cash payments
were made or received on our qualifying cash flow hedges:
Amount of Gain or (Loss) Reclassified from | ||||||||||||||||
AOCI Into Income | ||||||||||||||||
(Effective Portion) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
Location of Gain or (Loss) Reclassified from AOCI | June 30, | June 30, | ||||||||||||||
into Income (Effective Portion) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Interest rate swap agreements interest expense |
$ | (6,511 | ) | $ | (8,128 | ) | $ | (13,414 | ) | $ | (16,915 | ) | ||||
Foreign exchange swap agreements interest expense |
(9,759 | ) | (19,017 | ) | (20,422 | ) | (37,289 | ) | ||||||||
Foreign exchange swap agreements lease revenue |
| | | (224 | ) | |||||||||||
Total |
$ | (16,270 | ) | $ | (27,145 | ) | $ | (33,836 | ) | $ | (54,428 | ) | ||||
We estimate that within the next twelve months, we will amortize into earnings
approximately $73.3 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 Income for the three and six months ended June 30, 2011 and
2010:
Amount of Gain or (Loss) Recognized | ||||||||||||||||
in Income on Derivatives | ||||||||||||||||
(Ineffective Portion) (a) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Derivatives Designated as Cash Flow Hedges: |
||||||||||||||||
Interest rate swap agreements |
$ | (27 | ) | $ | (32 | ) | $ | (58 | ) | $ | (91 | ) | ||||
Foreign exchange swap agreements |
(322 | ) | (2,338 | ) | 1,008 | (25,629 | ) | |||||||||
Total |
(349 | ) | (2,370 | ) | 950 | (25,720 | ) | |||||||||
Derivatives Not Designated as a Hedge: |
||||||||||||||||
Interest rate cap agreements (b) |
(245 | ) | (1,373 | ) | (1,126 | ) | (2,428 | ) | ||||||||
Reconciliation to Condensed, Consolidated
Statements of Income: |
||||||||||||||||
Income effect of maturing derivative contracts |
| | | (15,409 | ) | |||||||||||
Reclassification of amounts de-designated as
hedges recorded in AOCI |
(874 | ) | (1,040 | ) | (1,915 | ) | (1,292 | ) | ||||||||
Effect from derivatives, net of change in
hedged items due to changes in foreign exchange
rates |
$ | (1,468 | ) | $ | (4,783 | ) | $ | (2,091 | ) | $ | (44,849 | ) | ||||
(a) | All components of each derivatives gain or loss were included in the assessment of effectiveness. | |
(b) | An additional $(77) and $(6) and $(131) and $(7) of amortization of premium paid to the derivative counterparty was recognized in Interest expense during the three and six months ended June 30, 2011 and 2010, respectively. |
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
I. | 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 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 June 30, 2011 and December 31, 2010, categorized using the fair value
hierarchy described above.
Level 1 | Level 2 | Level 3 | Counterparty Netting (a) | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
June 30, 2011: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 254,908 | $ | | $ | (48,004 | ) | $ | 206,904 | |||||||||
Derivative liabilities |
| (48,004 | ) | | 48,004 | | ||||||||||||||
Total |
$ | | $ | 206,904 | $ | | $ | | $ | 206,904 | ||||||||||
December 31, 2010: |
||||||||||||||||||||
Derivative assets |
$ | | $ | 116,394 | $ | | $ | (56,244 | ) | $ | 60,150 | |||||||||
Derivative liabilities |
| (56,244 | ) | | 56,244 | | ||||||||||||||
Total |
$ | | $ | 60,150 | $ | | $ | | $ | 60,150 | ||||||||||
(a) | As permitted under GAAP, we have elected to offset derivative assets and derivative liabilities under our master netting agreement. |
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 aircrafts 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 six months
ended June 30, 2011 and 2010, as provided in Note E 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 six months ended June 30, 2011:
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
Impairment | ||||||||||||||||||||||||
Charges and | Depreciation | Carrying | ||||||||||||||||||||||
Book Value at | Fair Value | and Other | Value at June | |||||||||||||||||||||
December 31, 2010 | Adjustments | Reclassifications | Sales | Adjustments | 30, 2011 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Flight equipment under operating lease |
$ | 331.2 | $ | (150.6 | ) | $ | 75.6 | $ | (53.0 | ) | $ | (11.4 | ) | $ | 191.8 | |||||||||
Flight equipment held for sale |
262.2 | 3.5 | (78.7 | ) | (181.8 | ) | | 5.2 | ||||||||||||||||
Lease receivables and other assets |
| | 3.1 | | | 3.1 | ||||||||||||||||||
Total |
$ | 593.4 | $ | (147.1 | ) | $ | | $ | (234.8 | ) | $ | (11.4 | ) | $ | 200.1 | |||||||||
J. | 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
approximates its fair value.
Notes Receivable: The fair values for notes receivable are estimated using discounted cash
flow analyses, using market derived discount rates.
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.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
The carrying amounts and fair values of our financial instruments at June 30, 2011 and
December 31, 2010, are as follows:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount | Fair Value of | Carrying Amount of | Fair Value of | |||||||||||||
of Asset (Liability) | Asset (Liability) | Asset (Liability) | Asset (Liability) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash, including restricted cash |
$ | 2,559,523 | (a) | $ | 2,559,523 | $ | 3,524,750 | (a) | $ | 3,524,750 | ||||||
Notes receivable |
20,628 | 19,548 | 65,065 | 64,622 | ||||||||||||
Debt financing (including
subordinated debt and foreign
currency adjustment) |
(25,647,884 | ) | (26,750,239 | ) | (27,719,500 | ) | (28,267,765 | ) | ||||||||
Derivative assets |
206,904 | 206,904 | 60,150 | 60,150 |
(a) | Includes restricted cash of $421.0 million (2011) and $457.1 million (2010). |
K. | Security Deposits on Aircraft, Overhaul Rentals and Other Customer Deposits |
As of June 30, 2011 and 2010, Security deposits, Overhaul rentals and Other customer
deposits were comprised of:
June 30, | ||||||||
2011 | December 31, 2010 | |||||||
(Dollars in thousands) | ||||||||
Security deposits paid by lessees |
$ | 901,832 | $ | 945,195 | ||||
Overhaul rentals |
607,419 | 555,423 | ||||||
Other customer deposits |
172,889 | 120,166 | ||||||
Total |
$ | 1,682,140 | $ | 1,620,784 | ||||
L. | 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 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.
Derivatives and Insurance Premiums: The counterparty of all of our interest rate swap and
foreign currency swap agreements as of June 30, 2011 was AIG Markets, Inc., a wholly-owned
subsidiary of AIG. See
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
Note I Fair Value Measurements and Note H Derivative Activities. In addition, we
purchase insurance through a broker who may place part of our policies with AIG. Total
insurance premiums were $3.7 million and $3.5 million for the six months ended June 30, 2011
and 2010, respectively.
Our financial statements include the following amounts involving related parties:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||
Income Statement | (Dollars in thousands) | |||||||||||||||
Expense (income): |
||||||||||||||||
Interest expense on loans from AIG
Funding |
$ | | $ | 62,035 | | $ | 122,545 | |||||||||
Effect from derivatives on contracts
with AIGFP novated to AIG Markets,
Inc. |
(1,223 | ) | (3,410 | ) | (965 | ) | (42,421 | ) | ||||||||
Interest on derivative contracts with
AIGFP novated to AIG Markets, Inc. |
16,270 | 27,145 | 33,836 | 54,204 | ||||||||||||
Lease revenue related to hedging of
lease receipts with AIGFP |
| | | 224 | ||||||||||||
Allocation of corporate costs from AIG |
(10,246 | ) | 1,617 | (4,140 | ) | 5,877 | ||||||||||
Management fees received |
(2,305 | ) | (2,387 | ) | (4,545 | ) | (4,685 | ) | ||||||||
Management fees paid |
24 | 114 | 52 | 354 |
December 31, | ||||||||
Balance Sheet | June 30, 2011 | 2010 | ||||||
(Dollars in thousands) | ||||||||
Asset (liability): |
||||||||
Derivative assets, net |
$ | 206,196 | $ | 58,187 | ||||
Income taxes payable to AIG (a) |
(142,442 | ) | (108,784 | ) | ||||
Accrued corporate costs payable to AIG |
(21,954 | ) | (20,753 | ) |
(a) | We paid approximately $26 million to AIG during the six months ended June 30, 2011. |
M. | Commitments and Contingencies |
Guarantees
| Asset Value Guarantees: We have guaranteed a portion of the residual value of 20 aircraft to financial institutions and other unrelated third parties for a fee. These guarantees expire at various dates through 2023 and generally obligate us to pay the shortfall between the fair market value and the guaranteed value of the aircraft and provide us with an option to purchase the aircraft for the guaranteed value. At June 30, 2011, the maximum aggregate potential commitment that we were obligated to pay under such guarantees, without any offset for the projected value of the aircraft, was approximately $470 million. | ||
| Aircraft Loan Guarantees: We guarantee two loans collateralized by aircraft to financial institutions. The guarantees expire in 2014, when the loans mature, and obligate us to pay an amount |
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
up to the guaranteed value upon the default of the borrower, which may be offset by a portion of the underlying value of the aircraft collateral. At June 30, 2011, the guaranteed value, without any offset for the projected value of the aircraft, was approximately $20 million. |
Management regularly reviews the underlying values of the aircraft collateral to determine
our exposure under these guarantees. The next strike date for asset value guarantees is in the
fourth quarter of 2011. If called upon to perform under these contracts, our maximum exposure
is approximately $9 million. We do not currently anticipate that we will be required to perform
under any of the guarantees based upon the underlying values of the aircraft collateralized.
Legal Contingencies
| Flash Airlines, Yemen Airways-Yemenia and Airblue Limited: We are named in lawsuits in connection with the 2004 crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an Egyptian carrier; the 2009 crash of our Airbus A310-300 aircraft on lease to Yemen Airways-Yemenia, a Yemeni carrier; and the 2010 crash of our Airbus A320-200 aircraft on lease to Airblue Limited, a Pakistani carrier. These lawsuits were filed by the families of victims on the flights and seek unspecified damages for wrongful death, costs, and fees. The Flash Airlines litigation originally commenced in May 2004 in California, but all U.S. proceedings were dismissed in favor of proceedings in France where claims are pending before the Tribunal de Grande Instance civil courts in Bobigny and Paris. As of August 5, 2011, the parties are engaged in settlement negotiations. We believe that we have substantial defenses to this action and available liability insurance is adequate to cover our defense costs and any potential liability. The Yemen Airways litigation and the Airblue Limited litigation were filed in January 2011 and March 2011, respectively, in California Superior Court in Los Angeles County. We have been served with the complaints, and each litigation is in its incipient stage. While the plaintiffs have not specified any amount of damages, we believe that we are adequately covered by available liability insurance for both lawsuits and that we have substantial defenses to these actions. We do not believe that the outcome of any of these lawsuits will have a material effect on our consolidated financial condition, results of operations or cash flows. |
We are also a party to various claims and litigation matters arising in the ordinary
course of our business. We do not believe the outcome of any of these matters will be material
to our consolidated financial position, results of operations or cash flows.
N. | Variable Interest Entities |
Our leasing and financing activities require us to use many forms of entities to achieve
our business objectives and we have participated to varying degrees in the design and formation
of these entities. Our involvement in VIEs varies and includes being a passive investor in the
VIE with involvement from other parties, managing and structuring all activities of the VIE,
and being the sole shareholder of the VIE. See Note G Debt Financings for more information on
entities created for the purpose of obtaining financing.
Investment Activities
We have variable interests in ten entities to which we previously sold aircraft. The
interests include debt financings, preferential equity interests and, in some cases, providing
guarantees to banks which had provided the secured senior financings to the entities. Each
entity owns one aircraft. The individual financing agreements are cross-collateralized by the
aircraft. Because we do not control the activities which significantly impact the economic
performance of the entities, we do not consolidate the entities into our condensed,
consolidated financial statements. We have a credit facility with these entities to provide
financing up to approximately $13.5 million, of which approximately $7.6 million was borrowed
at June 30, 2011. The
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
maximum exposure to loss for these entities is approximately $19 million, which is the combined
net carrying value of this investment and maximum borrowings available under the credit
facility at June 30, 2011.
Non-Recourse Financing Structures
We continue to consolidate one entity in which ILFC has a variable interest that was
established to obtain secured financing for the purchase of an aircraft. ILFC provided $39.0
million of subordinated financing to the entity and the entity borrowed $106.0 million from
third parties, $82.0 million of which is non-recourse to ILFC. The entity owns one aircraft
with a net book value of $134.7 million at June 30, 2011. We have determined that we are the
primary beneficiary of this entity because we control and manage all aspects of this entity,
including directing the activities that most significantly affect the entitys economic
performance, and we absorb the majority of the risks and rewards of this entity.
We also consolidate a wholly-owned subsidiary we created for the purpose of obtaining
secured financing for an aircraft. The entity meets the definition of a VIE because it does not
have sufficient equity to operate without ILFCs subordinated financial support in the form of
intercompany notes, which serve as equity even though they are legally debt instruments. This
entity borrowed $55.4 million from a third party. The loan is non-recourse to ILFC and is
secured by the aircraft and the lease receivables. The entity owns one aircraft with a net book
value of $89.8 million at June 30, 2011. We have determined that we are the primary beneficiary
of this entity because we control and manage all aspects of this entity, including directing
the activities that most significantly affect the entitys economic performance, and we absorb
the majority of the risks and rewards of this entity.
Wholly-Owned ECA Financing Vehicles
We have created certain wholly-owned subsidiaries for the purpose of purchasing aircraft
and obtaining financing secured by such aircraft. The secured debt is guaranteed by the
European ECAs. The entities meet the definition of a VIE because they do not have sufficient
equity to operate without ILFCs subordinated financial support in the form of intercompany
notes, which serve as equity even though they are legally debt instruments. We control and
manage all aspects of these entities, including directing the activities that most
significantly affect the entitys economic performance, we absorb the majority of the risks and
rewards of these entities and we guarantee the activities of these entities. These entities are
therefore consolidated into our condensed, consolidated financial statements.
Other Secured Financings
We have created a number of wholly-owned subsidiaries for the purpose of obtaining secured
financings. The entities meet the definition of a VIE because they do not have sufficient
equity to operate without ILFCs subordinated financial support in the form of intercompany
notes, which serve as equity even though they are legally debt instruments. One of the entities
borrowed $550 million from third parties and a portfolio of 37 aircraft will be transferred
from ILFC to the subsidiaries of the entity to secure the loan. We control and manage all
aspects of these entities, including directing the activities that most significantly affect
the entitys economic performance, we absorb the majority of the risks and rewards of these
entities and we guarantee the activities of these entities. These entities are therefore
consolidated into our condensed, consolidated financial statements. See Note G Debt
Financings for more information on these financings.
Wholly-Owned Leasing Entities
We have created wholly-owned subsidiaries for the purpose of facilitating aircraft leases
with airlines. The entities meet the definition of a VIE because they do not have sufficient
equity to operate without ILFCs subordinated financial support in the form of intercompany
loans, which serve as equity even though they are legally debt instruments. We control and
manage all aspects of these entities, including directing the activities that most
significantly affect the entitys economic performance, we absorb the majority of the risks and
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2011
(Unaudited)
rewards of these entities and we guarantee the activities of these entities. These entities are
therefore consolidated into our condensed, consolidated financial statements.
O. | Other Expenses |
Three
Months Ended June 30, 2011 and 2010
For the three month periods ended June 30, 2011 and 2010, Other expenses consist primarily
of lease charges related to aircraft reclassified to or from Flight equipment held for sale.
Six Months Ended June 30, 2011 and 2010 |
For the six months ended June 30, 2011, we recognized a $20 million expense related to the
cancellation of an aircraft engine order. We eliminated the economic effect of the $20 million
expense by negotiating with our manufacturer vendors to recover these costs. The recovery will
be in two payments. One of these payments is related to a 2007 agreement with one manufacturer
for us to extend our evaluation period of aircraft under order until at least 2010. This
payment is contingent upon our cancelling of the aircraft order and is not contingent on
placing any new order with the manufacturer. As a result of the cancellation of such aircraft
order in March 2011, we recorded the related payment receivable of $10 million in Interest and
other in the Condensed, Consolidated Statement of Income for the six months ended June 30,
2011. The second payment of $10 million is related to an agreement with another manufacturer,
which among other contractual terms, includes a provision to reimburse us for the remaining
costs associated with the March 2011 order cancellation. The reimbursement payment will be
recognized as a reduction of the cost basis of future aircraft deliveries, as we determined the
payment to be connected with the purchase of such aircraft. In addition to this charge, for the
six months ended June 30, 2011, Other expenses include $12.2 million resulting from the write
down of two notes receivable, partially offset by approximately $2.5 million aggregate lease
related income, net of lease charges.
For the six months ended June 30, 2010, Other expenses consist of lease related costs we
expensed as a result of agreements with third parties to sell aircraft subject to operating
leases.
P. | Subsequent Event |
On August 2, 2011, we entered into a stock purchase agreement with AerCap, Inc. (AerCap)
and AerCap Holdings N.V. to acquire all of the issued and outstanding shares of capital stock
of AeroTurbine, Inc., a wholly-owned direct subsidiary of AerCap (AeroTurbine), for an
aggregate cash purchase price of $228 million. In connection with the acquisition, we have also
agreed to guarantee AeroTurbines $425 million secured revolving credit facility. There was
approximately $298.6 million outstanding under this facility as of July 31, 2011.
The closing of this acquisition is currently expected to occur during 2011 and is subject
to the satisfaction of several customary closing conditions, including applicable antitrust
approvals.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Statement Regarding Forward-looking Information
This quarterly report on Form 10-Q and other publicly available documents may contain or
incorporate statements that constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this
Form 10-Q and include statements regarding, among other matters, the state of the airline industry,
our access to the capital markets, our ability to restructure leases and repossess aircraft, the
structure of our leases, regulatory matters pertaining to compliance with governmental regulations
and other factors affecting our financial condition or results of operations. Words such as
expects, anticipates, intends, plans, believes, seeks, estimates and should, and
variations of these words and similar expressions, are used in many cases to identify these
forward-looking statements. Any such forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and other factors that may cause our actual results,
performance or achievements, or industry results to vary materially from our future results,
performance or achievements, or those of our industry, expressed or implied in such forward-looking
statements. Such factors include, among others, general industry, economic and business conditions,
which will, among other things, affect demand for aircraft, availability and creditworthiness of
current and prospective lessees, lease rates, availability and cost of financing and operating
expenses, governmental actions and initiatives, and environmental and safety requirements, as well
as the factors discussed under Part II Item 1A. Risk Factors, in this Form 10-Q. We do not
intend and undertake no obligation to update any forward-looking information to reflect actual
results or future events or circumstances.
Overview
We generate the majority of our revenues from leasing new and used commercial jet aircraft to
foreign and domestic airlines. We also generate revenues from: (i) remarketing commercial jet
aircraft for our own account when we sell our leased aircraft at or before the expiration of their
leases; (ii) providing fleet management services, leasing, re-leasing and sales services on behalf
of the owner of aircraft; and (iii) fees received in exchange for providing asset value guarantees
on aircraft and, in limited circumstances, loan guarantees to buyers of aircraft or to financial
institutions.
Operating Results
We reported a decrease in net income of approximately $38.1 million for the three months ended
June 30, 2011, as compared to the same period in 2010, primarily due to a loss on extinguishment of
debt related to the tender offers we completed in June 2011, which was partially offset by lower
aircraft impairment charges. For the six months ended June 30, 2011, net income increased by $98.6
million as compared to the same period in 2010, primarily due to lower aircraft impairment and
lease related charges and lower depreciation expense, offset by higher interest expense and loss on
extinguishment of debt.
Our Fleet
During the six months ended June 30, 2011, we had the following activity related to Flight
equipment under operating leases:
Number of | ||||
Aircraft | ||||
Flight equipment under operating leases at December 31, 2010 |
933 | |||
Aircraft purchases |
4 | |||
Aircraft sold from Flight equipment under operating leases |
(5 | ) | ||
Aircraft designated for part-out |
(1 | ) | ||
Aircraft transferred from Flight equipment held for use to Flight equipment held for sale |
(1 | ) | ||
Aircraft transferred from Flight equipment held for sale to Flight equipment held for use |
3 | |||
Flight equipment under operating leases at June 30, 2011 |
933 | |||
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As of June 30, 2011, we owned 933 aircraft in our leased fleet, had four additional aircraft
in the fleet classified as finance and sales-type leases, and provided fleet management services
for 90 aircraft. The weighted average age of our fleet was 7.6 years at June 30, 2011. During 2011,
we have contracted to purchase 80 A320neos and 20 A321neos from Airbus, canceled our previous A380
purchase commitments, and contracted to purchase 33 737-800 aircraft from Boeing. These orders
bring our total future orders of new aircraft to 236, for delivery through 2019 with an aggregate
estimated purchase price of $17.6 billion. Two of these aircraft are scheduled to deliver during
the remainder of 2011. We also have the rights to purchase an additional 50 A320neo Family
aircraft. Currently we are considering purchasing new aircraft from airlines and leasing
them back to the airlines and intend to complete at least one such transaction in
2011. We anticipate financing future aircraft purchases in part by operating cash flows and in
part by incurring additional debt.
During the three and six months ended June 30, 2011 and 2010, we recorded the following
aircraft impairment charges and fair value adjustments:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||||||||||||||||||
Aircraft | Impairment | Aircraft | Impairment | Aircraft | Impairment | Aircraft | Impairment | |||||||||||||||||||||||||
Impaired | Charges and | Impaired | Charges and | Impaired | Charges and | Impaired | Charges and | |||||||||||||||||||||||||
or | Fair Value | or | Fair Value | or | Fair Value | or | Fair Value | |||||||||||||||||||||||||
Adjusted | Adjustments | Adjusted | Adjustments | Adjusted | Adjustments | Adjusted | Adjustments | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Loss/(Gain) |
||||||||||||||||||||||||||||||||
Impairment
charges and fair
value adjustments
on aircraft likely
to be sold or sold |
5 | $ | 41.1 | | (b) | $ | 0.5 | 14 | $ | 148.1 | 2 | $ | 32.7 | |||||||||||||||||||
Fair value
adjustments on held
for sale aircraft
sold or transferred
from held for sale
back to flight
equipment under
operating leases
(a) |
2 | 2.7 | 6 | 40.1 | 10 | (3.5 | ) | 56 | 361.3 | |||||||||||||||||||||||
Impairment
charges on aircraft
designated for
part-out |
| | 1 | 12.4 | 1 | 2.5 | 1 | 12.4 | ||||||||||||||||||||||||
Total
Impairment charges
and fair value
adjustments on
flight equipment |
7 | $ | 43.8 | 7 | $ | 53.0 | 25 | $ | 147.1 | 59 | $ | 406.4 | ||||||||||||||||||||
(a) | Included in these amounts are net fair value credit adjustments related to aircraft previously held for sale, but which no longer met such criteria and were subsequently reclassified to Flight equipment under operating leases. Also included in these amounts are fair value credit adjustments related to sales price adjustments related to aircraft that were previously held for sale and sold during periods presented. | |
(b) | Amounts relate to two aircraft that were previously impaired, but additional fair value adjustments were recorded in the current period. |
We continue to manage our fleet by ordering new aircraft with high customer demand and
through potential sales or part-outs of our older aircraft which cannot be economically leased to
follow on customers. Any sale of aircraft may result in an accounting loss because the market for
used aircraft is depressed due to the introduction of new and more fuel efficient aircraft models,
the economic downturn, and limited availability of buyer financing. As new and more fuel efficient
aircraft enter the marketplace and negatively affect the demand for older aircraft, lease rates on
older aircraft may deteriorate and we may incur additional impairment charges on older aircraft
remaining
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in our fleet. The potential for impairment or fair value adjustments could be material to our
results of operations for an individual period.
Debt Financing
We generally fund our operations, including aircraft purchases, through available cash
balances, internally generated funds, including aircraft sales, and debt financings. We borrow
funds to purchase new and used flight equipment, make progress payments during aircraft
construction and pay off maturing debt obligations. These funds are borrowed both on a secured and
unsecured basis from various sources. See Liquidity below.
New Financing Arrangements: During the three months ended June 30, 2011, we continued to
improve our liquidity position by issuing $2.25 billion of unsecured notes with maturity dates in
2016 and 2019 under our shelf registration statement. We used a portion of these proceeds to
complete cash tender offers for notes with original maturity dates through 2013 and an aggregate
principal amount of approximately $1.7 billion, as further discussed below under Liquidity.
Cost of Borrowing
While our cost of borrowing is increasing as we refinance our existing debt with new financing
arrangements, reflecting relatively higher interest rates caused by our current long-term debt
ratings, our margins are improving due to our deleveraging. Our average composite interest rate and
our average debt outstanding were as follows for the following periods:
Three Months Ended | ||||||||||||
June 30, | December 31, | June 30, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(Dollars in thousands) | ||||||||||||
Average Composite Interest Rate |
5.90 | % | 5.42 | % | 4.88 | % | ||||||
Average Debt Outstanding |
$ | 25,782 | $ | 28,822 | $ | 31,986 |
Industry Condition and Sources of Revenue
Our revenues are principally derived from scheduled and charter airlines and companies
associated with the airline industry. We derive more than 90% of our revenues from airlines outside
of the United States. The airline industry is cyclical, economically sensitive, and highly
competitive. Airlines and related companies are affected by fuel prices and shortages, political or
economic instability, natural disasters, terrorist activities, changes in national policy,
competitive pressures, labor actions, pilot shortages, insurance costs, recessions, health concerns
and other political or economic events adversely affecting world or regional trading markets. Our
customers ability to react to and cope with the volatile competitive environment in which they
operate, as well as our own competitive environment, will affect our revenues and income.
The Middle East and Northern Africa have recently experienced political unrest. We have 63
aircraft on lease in the region. The unrest has had no significant impact on our operating results
to date and we continue to closely monitor the region.
During the six months ended June 30, 2011, fuel prices increased dramatically, which may put
downward pressure on demand and lease rates for used aircraft. Although we currently still see
robust demand for our new aircraft, we believe airline profitability and aircraft lease rates on
older aircraft will remain vulnerable to increasing fuel costs and other political and economic
disruptions through the remainder of 2011.
One of our customers, P.T. Mandala Airlines (Mandala), that operated two of our owned
aircraft, ceased operations on January 13, 2011. At June 30, 2011, we had leased both aircraft to
other airlines. In total, we had two aircraft in our fleet that were not subject to a signed lease
agreement or a signed letter of intent at June 30, 2011.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We typically contract to re-lease aircraft before the end of the existing lease term. For
aircraft returned before the end of the lease term, we have generally been able to re-lease
aircraft within two to six months of their return. There are lags between changes in market
conditions and their impact on our results, as contracts not yet reflecting current lease rates
remain in effect. Therefore, the current market conditions and any potential effect they may have
on our results may not be fully reflected in our current results.
Management monitors all lessees that are behind in lease payments, and discusses relevant
operational and financial issues facing the lessees with our marketing executives, in order to
determine the amount of rental income to recognize for the past due amounts. Lease payments are due
in advance and we generally recognize rental income only to the extent we have received payments or
hold security deposits. At June 30, 2011, 13 customers operating 42 aircraft were two or more
months past due on $24.2 million of lease payments relating to some of those aircraft. Of this
amount, we recognized $22.4 million in rental income through June 30, 2011. In comparison, at June
30, 2010, 14 customers operating 51 aircraft were two or more months past due on $19.9 million of
lease payments relating to some of those aircraft, $14.7 million of which we recognized in rental
income through June 30, 2010.
Management also reviews all outstanding notes that are in arrears to determine whether we
should reserve for, or write off any portion of, the notes receivable. In this process, management
evaluates the collectability of each note and the value of the underlying collateral, if any, by
discussing relevant operational and financial issues facing the lessees with our marketing
executives. As of June 30, 2011, amounts in arrears were immaterial.
Despite industry cyclicality, the adverse demand shocks from recent political unrest and
natural disasters and potential financial stress caused by the increase in fuel prices, we are
optimistic about the long-term future of air transportation and, more specifically, the growing
role that the leasing industry, and ILFC specifically, provides in the fleet transactions necessary
to facilitate the growth of commercial air transport. At June 30, 2011, we had signed leases for
all of our new aircraft deliveries through 2012. Furthermore, we have contracted with Airbus and
Boeing to purchase new fuel efficient aircraft with delivery dates through 2019. For these reasons,
we believe we are well positioned to manage the current cycle and for the long-term future.
Agreement to Acquire AeroTurbine
On August 2, 2011, we entered into a stock purchase agreement with AerCap, Inc. (AerCap) and
AerCap Holdings N.V. to acquire all of the issued and outstanding shares of capital stock of
AeroTurbine, Inc., a wholly-owned direct subsidiary of AerCap (AeroTurbine), for an aggregate
cash purchase price of $228 million. In connection with the acquisition, we have also agreed to
guarantee AeroTurbines $425 million secured revolving credit facility. There was approximately
$298.6 million outstanding under this facility as of July 31, 2011. The acquisition of AeroTurbine
is expected to create synergies to maximize the value in the remaining life and ultimate
disposition of aircraft and provide a tool to optimize future aircraft portfolio and operational
strategies.
The closing of this acquisition is currently expected to occur during 2011 and is subject to
the satisfaction of several customary closing conditions, including applicable antitrust approvals.
Liquidity
During
2011, our liquidity management strategy is to better align our future debt maturities more
closely with future operating cash flows. Consistent with this strategy, we used approximately
$1.75 billion of the approximately $2.2 billion net proceeds generated from the issuance of $2.25
billion of unsecured notes with maturity dates in 2016 and 2019 to purchase existing notes maturing
in 2012 and 2013 with an aggregate principal amount of approximately $1.67 billion through tender
offers we completed on June 17, 2011.
During the six months ended June 30, 2011, we entered into a new three-year $2.0 billion
unsecured revolving credit facility and, through a non-restricted subsidiary, we entered into a
secured term loan agreement for approximately $1.3 billion, which was subsequently increased to
approximately $1.5 billion of lender commitments.
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The $1.5 billion becomes available to us as we transfer aircraft into certain non-restricted
subsidiaries. The obligations of the subsidiary borrower under the secured term loan agreement are
guaranteed on an unsecured basis by ILFC and on a secured basis by the subsidiaries holding the
aircraft, as described in greater detail under Debt Financings Other Secured Financing
Arrangements. At August 5, 2011, we had not drawn on our unsecured revolving credit agreement and
funds aggregating $696 million had been advanced to the subsidiary borrower under the secured term
loan. In addition, we issued $2.25 billion aggregate principal amount of notes due in 2016 and 2019
under our shelf registration statement.
We generated cash flows from operations of approximately $1.2 billion for the six months ended
June 30, 2011. During the six months ended June 30, 2011, we repaid approximately $2.8 billion of
maturing debt and repaid an additional $200 million under our credit facility dated as of October
13, 2006, with current maturity dates in October 2011 and 2012. We had approximately $2.1 billion
in cash and cash equivalents that remained available for use in our operations at June 30, 2011. We
also had approximately $421 million of cash restricted from use in our operations at June 30, 2011,
$24 million of which will become available to us as we fulfill certain collateral requirements, as
described elsewhere herein.
Any new issuance of debt by us or our subsidiaries will be subject to the consent of the
Department of the Treasury if, after giving effect to the incurrence of the debt and use of
proceeds therefrom, we increase our net indebtedness by more than $1 billion compared to the same
date in the previous year, or compared to December 8, 2010, if the measurement is made before
December 8, 2011. We cannot predict whether the Department of the Treasury will consent to us
incurring debt in excess of this amount. Our bank credit facilities and indentures also limit our
ability to incur secured indebtedness. The most restrictive covenant in our bank credit facilities
permits us and our subsidiaries to incur secured indebtedness totaling up to 30% of our
consolidated net tangible assets, as defined in the credit agreement, minus $2.0 billion, which
limit currently totals approximately $10.0 billion. As of August 5, 2011, we were able to incur an
additional $4.1 billion of secured indebtedness under this covenant. Our debt indentures also
restrict us and our subsidiaries from incurring secured indebtedness
in excess of up to 12.5% of our
consolidated net tangible assets, as defined in the indentures. However, we may obtain secured
financing without regard to the 12.5% consolidated net tangible asset limit under our indentures by
doing so through subsidiaries that qualify as non-restricted under such indentures.
In addition to addressing our liquidity needs through debt financings, we may also pursue
potential aircraft sales in connection with our ongoing fleet strategy. During the six months ended
June 30, 2011, we sold 11 aircraft for approximately $235 million in gross proceeds. In evaluating
potential sales, we balance the need for funds with the long-term value of holding aircraft and our
long-term prospects. Furthermore, we would need approval from the Department of the Treasury if we
entered into sales transactions with aggregate consideration exceeding $2.5 billion during any
twelve month period. We cannot predict whether the Department of the Treasury would consent to any
future aircraft sales if their consent were required.
We believe the sources of liquidity mentioned above, together with our cash generated from
operations, will be sufficient to operate our business and repay our debt maturities for at least
the next twelve months.
Our Relationship with AIG
Potential Change in Ownership
AIG is considering strategic alternatives for ILFC, which may include a potential sale,
spinoff or initial public offering. If AIG sells more than 49% of our common stock without certain
lenders consent, it would be an event of default under our credit agreement maturing in October
2011 and 2012 and would allow our lenders to declare such debt immediately due and payable.
Accordingly, any plans to sell us by AIG prior to October 2012 would require consideration of this
credit arrangement, under which $1.3 billion was outstanding at August 5, 2011.
In addition, an event of default or declaration of acceleration under this credit agreement
could also result in an event of default or declaration of acceleration under our other debt
agreements, including the indentures.
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AIG Loans from the FRBNY and Department of the Treasury
In September 2008, liquidity issues resulted in AIG seeking and receiving governmental support
through the FRBNY Credit Agreement and TARP funding from the Department of the Treasury, as more
fully described in AIGs Annual Report on Form 10-K for the year ended December 31, 2010. On
January 14, 2011, AIG was recapitalized and the FRBNY Credit Agreement was repaid and terminated
through a series of transactions, including the Master Transaction Agreement discussed below, that
resulted in the Department of the Treasury becoming AIGs majority shareholder with ownership of
approximately 92% of AIGs outstanding common stock. In May 2011, the Department of the Treasury
sold a portion of AIGs common stock in a public offering and the Department of the Treasury
currently owns approximately 77% of AIGs outstanding common stock following such sale. AIG
understands that, subject to market conditions, the Department of the Treasury intends to dispose
of its ownership interest in AIG over time.
AIG Recapitalization and the Master Transaction Agreement
On January 14, 2011, pursuant to the Master Transaction Agreement, AIG completed a series of
integrated transactions to recapitalize AIG with the Department of the Treasury, the FRBNY and the
AIG Credit Facility Trust, including the repayment of all amounts owed under the FRBNY Credit
Facility. The recapitalization transactions are more fully described in ILFCs and AIGs Annual
Reports on Form 10-K for the year ended December 31, 2010.
Designated Entity Consent Rights: Pursuant to the Master Transaction Agreement, until certain
amounts are repaid to the Department of the Treasury, ILFC will be required to get the Department
of the Treasurys consent in order to take specified significant actions, which include (i)
amending or waiving any provisions of our articles of incorporation, bylaws, or similar
organizational document in a manner that would adversely affect, in any material respect, the
rights of our equity interests; (ii) authorizing or issuing any equity interests, unless to AIG or
a wholly-owned subsidiary of AIG; (iii) selling or disposing of assets for total consideration
greater than or equal to $2.5 billion in any twelve-month period; (iv) acquiring assets after
December 8, 2010, other than pursuant to existing purchase commitments at such date, with aggregate
scheduled payments under the purchase contracts for such assets greater than or equal to $2.5
billion in any twelve-month period; (v) engaging in any public offering or other sale or transfer
of our equity interests; (vi) voluntarily liquidating, filing for bankruptcy, or taking any other
legal action evidencing insolvency; and (vii) increasing our net indebtedness by more than $1
billion compared to the same date in the previous year, or compared to December 8, 2010, if the
measurement is made before December 8, 2011.
Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations are
based upon our condensed, consolidated financial statements, which 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. The preparation of our financial statements requires management
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities.
We believe the following critical accounting policies could have a significant impact on our
results of operations, financial position and financial statement disclosures, and may require
subjective and complex estimates and judgments. For a detailed discussion on the application of
these accounting policies, see Part II Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December
31, 2010, and Note I of Notes to Condensed, Consolidated Financial Statements for fair value of
flight equipment.
| Overhaul Rentals | ||
| Flight Equipment |
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| Recoverability Assessment: In monitoring the aircraft in our fleet for impairment charges, we consider facts and circumstances, including potential sales, that would require us to modify our assumptions used in our recoverability assessments and prepare revised recoverability assessments as necessary. | ||
| Recurring Recoverability Assessment: We identify those aircraft that are most susceptible to failing the recoverability assessment and monitor those aircraft more closely, which may result in more frequent recoverability assessments. The recoverability of these aircraft is sensitive to changes in contractual cash flows, future cash flow estimates and residual values. These are typically older aircraft that are less in demand and have lower lease rates. As of June 30, 2011, we had identified 44 aircraft as being susceptible to failing the recoverability test. These aircraft had a net book value of approximately $2.0 billion at June 30, 2011. All of these aircraft passed the recoverability assessment with aggregate undiscounted cash flows exceeding the carrying value of aircraft between 0.1% and 102.7%, which represents a 16.2% excess above the net carrying value of those aircraft. Management believes that the carrying values of these aircraft are supported by the estimated future undiscounted cash flows expected to be generated by each aircraft. | ||
| Recoverability Assessment Potential Sales: We recorded the following impairment charges and fair value adjustments for the six months ended June 30, 2011: (i) $148.1 million on certain aircraft held for use as a result of recoverability analysis performed on aircraft likely to be sold in future periods, and five aircraft sold during the period; (ii) $5.9 million on certain aircraft being either sold from Flight equipment held for sale, or certain aircraft transferred between Flight equipment held for sale and Flight equipment held for use; and (iii) $2.5 million related to one aircraft that was parted-out. These impairment charges and fair value adjustments were offset by (i) $3.3 million of net aggregate fair value credit adjustments recorded related to two other aircraft previously held for sale that were reclassified as held for use during the six months ended June 30, 2011 and (ii) $6.1 million aggregate fair value credit adjustments related to five aircraft previously held for sale and sold during the period. See Note E of Notes to Condensed, Consolidated Financial Statements. | ||
| Flight Equipment Held for Sale | ||
| Depreciable Lives and Residual Values | ||
| Derivative Financial Instruments | ||
| Fair Value Measurements | ||
| Lease Revenue | ||
| Income Taxes |
Debt Financings
We generally fund our operations, including aircraft purchases, through available cash
balances, internally generated funds, including aircraft sales, and debt financings. We borrow
funds to purchase new and used flight equipment, make progress payments during aircraft
construction and pay off maturing debt obligations. These funds are borrowed on both a secured and
unsecured basis from various sources. During the six months ended June 30, 2011, we (i) issued
$2.25 billion of unsecured notes under our shelf registration statement; (ii) entered into a new
three-year $2.0 billion unsecured revolving credit facility; and (iii) entered into a secured
term loan agreement with commitments of approximately $1.3 billion, which commitments were
subsequently increased to approximately $1.5
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billion,
as further discussed below under Unsecured Bank Debt and Other Secured Financing
Arrangements. At August 5, 2011, we had not drawn on the revolving credit facility and funds
aggregating $696 million had been advanced to the subsidiary borrower under the secured term loan
agreement.
Our debt financing was comprised of the following at June 30, 2011 and December 31, 2010:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Secured |
||||||||
Senior secured bonds |
$ | 3,900,000 | $ | 3,900,000 | ||||
ECA financings |
2,549,627 | 2,777,285 | ||||||
Bank debt (a) |
1,601,973 | 1,601,658 | ||||||
Other secured financings |
1,300,000 | 1,300,000 | ||||||
Less: Deferred debt discount |
(19,901 | ) | (22,309 | ) | ||||
9,331,699 | 9,556,634 | |||||||
Unsecured |
||||||||
Bonds and Medium-Term Notes |
14,870,562 | 16,810,843 | ||||||
Bank debt |
207,000 | 234,600 | ||||||
Less: Deferred debt discount |
(42,977 | ) | (47,977 | ) | ||||
15,034,585 | 16,997,466 | |||||||
Total Senior Debt Financings |
24,366,284 | 26,554,100 | ||||||
Subordinated Debt |
1,000,000 | 1,000,000 | ||||||
$ | 25,366,284 | $ | 27,554,100 | |||||
Selected interest rates and ratios which
include the economic effect of derivative
instruments: |
||||||||
Composite interest rate |
5.99 | % | 5.66 | % | ||||
Percentage of total debt at fixed rates |
78.08 | % | 79.30 | % | ||||
Composite interest rate on fixed rate debt |
6.08 | % | 6.38 | % | ||||
Bank prime rate |
3.25 | % | 3.25 | % |
(a) | Of this amount, $105.4 million (2011) and $113.7 million (2010) is non-recourse to ILFC. These secured financings were incurred by VIEs and consolidated into our condensed, consolidated financial statements. |
The above amounts represent the anticipated settlement of our outstanding debt obligations as
of June 30, 2011 and December 31, 2010. Certain adjustments required to present currently
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 then 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 N of Notes to Condensed,
Consolidated Financial Statements for more information on VIEs.
At June 30, 2011, approximately $21 billion of our flight equipment was pledged as collateral
for the $9.3 billion of secured debt outstanding.
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our debt agreements contain various affirmative and restrictive covenants, as described in
greater detail below. As of June 30, 2011, we were in compliance with the covenants in our debt
agreements.
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 related leases. In addition, two of ILFCs 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 governing the senior secured notes contains customary covenants that, among
other things, restrict our and our restricted subsidiaries ability to: (i) create liens; (ii)
sell, transfer or otherwise dispose of assets; (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; (v) make investments in or transfer assets to
non-restricted subsidiaries; and (vi) 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.
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 and we had no loans outstanding under the 1999 ECA facility as of June 30, 2011. The loans
made under the ECA facilities were used to fund a portion of each aircrafts net purchase price.
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.
In January 1999, we entered into the 1999 ECA facility and used amounts borrowed under this
facility to finance purchases of 62 Airbus aircraft through 2001. At June 30, 2011, all loans under
the facility had been paid in full. The facility is, however, party to a cross-collateralization
agreement relating to the 2004 ECA facility, as further discussed below. The net book value of the
aircraft used as collateral under this facility was $1.5 billion at June 30, 2011.
In May 2004, we entered into the 2004 ECA facility, which was amended in May 2009 to allow us
to borrow up to $4.6 billion for the purchase of Airbus aircraft delivered through June 30, 2010.
We used $4.3 billion of the available amount to finance purchases of 76 aircraft. Each aircraft
purchased was financed by a ten-year fully amortizing loan. As of June 30, 2011, approximately $2.5
billion was outstanding under this facility. The interest rates on the loans outstanding under the
facility are either fixed or based on LIBOR and ranged from 0.37% to 4.71% at June 30, 2011. The
net book value of the aircraft purchased under this facility was $4.4 billion at June 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 for aircraft with loan balances
outstanding under the 2004 ECA facility (segregated rental payments are used to make scheduled
principal and interest payments on the
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outstanding debt under the 2004 ECA facility). The segregated funds are deposited into
separate accounts pledged to and controlled by the security trustee of the facility. 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
(mortgages are only required to be filed on aircraft with loan balances outstanding or otherwise as
agreed in connection with the cross-collateralization agreement as described below). At June 30,
2011, we had segregated security deposits, overhaul rentals and rental payments aggregating
approximately $397 million related to aircraft funded under the 2004 ECA facility. The segregated
amounts will fluctuate with changes in security deposits, overhaul rentals, rental payments and
debt maturities related to the aircraft funded under the 2004 ECA facility.
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 our 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. As of June 30,
2011, there were no outstanding obligations under the 1999 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 $10.3 billion. The disposition amount will be
reduced by approximately $91.4 million at the end of each calendar quarter during 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 $285.2 million
at June 30, 2011, due in full at the time of such a termination event.
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 June 30, 2011.
Secured Bank Debt
We have a credit facility, dated October 13, 2006, as amended, under which the original
maximum amount available was $2.5 billion. We repaid aggregate principal amounts of loans
outstanding under this facility of $800 million and $200 million in the fourth quarter of 2010 and
in June 2011, respectively. The amended facility prohibits us from re-borrowing amounts repaid
under this facility. Therefore, the current size of the facility is $1.5 billion. As of June 30,
2011, we had secured loans of $1.29 billion outstanding under the facility, all of which will
mature in October 2012. The interest on $1.25 billion of the secured loans is based on LIBOR plus a
margin of 2.15%, plus facility fees of 0.2% on the outstanding principal balance and the remaining
$43.0 million had an interest rate of 4.75% at June 30, 2011. The remaining $207 million
outstanding under the facility consists of unsecured loans that will mature on their originally
scheduled maturity date of October 13, 2011, with a LIBOR based interest rate plus a margin of
0.65% plus facility fees of 0.2% of the outstanding balance.
The collateralization requirement under the amended facility provides that the $1.29 billion
of secured loans must be secured by a lien on the equity interests of certain of ILFCs
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
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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.
We intend to use the proceeds from the secured term loan agreement entered into on March 30,
2011, described in more detail below, to prepay a portion of the amounts outstanding under this
credit facility.
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 of approximately $2.4 billion as of January 1, 2011. The $2.4 billion
equals an initial loan-to-value ratio of approximately 65% and the equity interests in certain SPEs
that will own the aircraft and related equipment and leases that are pledged as security for the
loans. The proceeds of the loan will be 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 June 30, 2011 and August 5, 2011, respectively, approximately
$181 million and $696 million 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 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.
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 (i) incur additional indebtedness; (ii)
create liens; (iii) consolidate, merge or dispose of all or substantially all of their assets; and
(iv) enter into transactions with affiliates.
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 June 30, 2011, the interest rates on the $82.0 million and $24.0 million
tranches were 3.34% and 5.04%, 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 June
30, 2011, $83.8 million was outstanding under the two tranches and the net book value of the
aircraft was $134.7 million.
In June 2009, we borrowed $55.4 million through a non-restricted subsidiary, which owns one
aircraft leased to an airline. Half of the original loan amortizes over five years and the
remaining $27.7 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 June 30, 2011, $43.7 million was outstanding and the net book value of the
aircraft was $89.8 million.
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Other Secured Financing Arrangements
On March 17, 2010, we entered into 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 of
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. On March 17, 2010, we also entered into an
additional term loan agreement of $550 million 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 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. The proceeds from this loan are restricted from
use in our operations until we transfer the related collateral to the non-restricted subsidiaries.
At June 30, 2011, approximately $24 million of the proceeds remained restricted. We can voluntarily
prepay the loan at any time, subject to a 1% prepayment penalty prior to March 17, 2012. Both loans
require a loan-to-value ratio of no more than 63%. The loans also contain customary covenants and
events of default, including limitations on the ability of us and our subsidiaries, 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.
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 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.
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
June 30, 2011, after the completion of tender offers to purchase certain notes on June 17, 2011, as
further discussed below, we also had $7.2 billion of public bonds and medium-term notes
outstanding, with interest rates ranging from 0.60% to 7.95%, 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. Any remaining net proceeds from this offering will be used for
general corporate purposes, including the repayment of existing indebtedness.
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. See Note G of Notes to Condensed, Consolidated Financial Statements for
further information.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Euro Medium-Term Note Programme: We have a $7.0 billion Euro Medium-Term Note Programme, which
will expire in September 2011. We had approximately $1.2 billion of Euro denominated
notes outstanding under such Programme at June 30, 2011. The notes mature on August 15, 2011, and
bear interest based on Euribor with a spread of 0.375%. As a bond issue matures, the principal
amount of that bond becomes available for new issuances under the Programme. We have eliminated the
currency exposure arising from the notes by hedging the notes into U.S. dollars and fixing the
interest rates at a range of 5.355% to 5.367%. We translate the debt into U.S. dollars using
current exchange rates prevailing at the balance sheet date. The foreign exchange adjustment for
the foreign currency denominated notes was $281.6 million and $165.4 million at June 30, 2011 and
December 31, 2010, respectively.
A rollforward for the six months ended June 30, 2011, of
the foreign currency adjustment related to foreign currency denominated notes is presented below:
(Dollars in thousands) | ||||
Foreign currency adjustment related to foreign currency
denominated debt at December 31, 2010 |
$ | 165,400 | ||
Foreign currency period adjustment of non-US$ denominated debt |
116,200 | |||
Foreign currency adjustment related to foreign currency
denominated debt at June 30, 2011 |
$ | 281,600 | ||
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 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.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Unsecured Bank Debt
On January 31, 2011, we entered into a new $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 June 30, 2011, no amounts were outstanding under this
revolving facility.
As of June 30, 2011, $207.0 million of unsecured loans were outstanding under our credit
agreement dated as of October 13, 2006. These loans remain unsecured and mature on October 13,
2011, on the original maturity date for this credit facility. The interest on the loans is 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. 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 June 30, 2011, the interest rate was 5.74%. The $400 million tranche has a
fixed interest rate of 6.25% until the 2015 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.
Derivatives
We employ derivative products to manage our exposure to interest rates risks and foreign
currency risks. We enter into derivative transactions only to economically hedge interest rate risk
and currency risk and not to speculate on interest rates or currency fluctuations. These derivative
products include interest rate swap agreements, foreign currency swap agreements and interest rate
cap agreements. At June 30, 2011, all our interest rate swap and foreign currency swap agreements
were designated as and accounted for as cash flow hedges and we had not designated our interest
rate cap agreements as hedges.
When interest rate and foreign currency swaps are effective as cash flow hedges, they offset
the variability of expected future cash flows, both economically and for financial reporting
purposes. We have historically used such instruments to effectively mitigate foreign currency and
interest rate risks. The effect of our ability to apply hedge accounting for the swap agreements is
that changes in their fair values are recorded in OCI instead of in earnings for each reporting
period. As a result, reported net income will not be directly influenced by changes in interest
rates and currency rates.
The counterparty to our interest rate swaps and foreign currency swaps at June 30, 2011, is
AIG Markets, Inc., a wholly-owned subsidiary of AIG. The swap agreements are subject to a bilateral
security agreement and a master netting agreement, which would allow the netting of derivative
assets and liabilities in the case of default under any one contract. Failure of the counterparty
to perform under the derivative contracts would have a material
impact on our results of operations and cash flows. The counterparty to our interest rate cap
agreements is an independent third party with whom we do not have a master netting agreement.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Credit Ratings
Because of our current long-term debt ratings, the 2004 ECA facility imposes the following
restrictions: (i) we must segregate all security deposits, overhaul rentals and rental payments
related to the aircraft financed under our 2004 ECA facility into separate accounts controlled by
the security trustee (segregated rental payments are used to make scheduled principal and interest
payments on the outstanding debt) and (ii) we must file individual mortgages on the aircraft funded
under both the 1999 and 2004 ECA facilities in the local jurisdictions in which the respective
aircraft are registered.
While a ratings downgrade does not result in a default under any of our debt agreements, it
could adversely affect our ability to issue debt and obtain new financings, or renew existing
financings, and it would increase the cost of such financings.
The following table summarizes our current ratings by Fitch, Moodys and S&P, the nationally
recognized rating agencies:
Unsecured Debt Ratings
Rating Agency | Long-term Debt | Corporate Rating | Outlook | Date of Last Ratings Action | ||||||||||||
Fitch |
BB | BB | Stable | June 2, 2011 | ||||||||||||
Moodys |
B1 | B1 | Positive | May 12, 2011 | ||||||||||||
S&P |
BBB- | BBB- | Stable | May 19, 2011 |
Secured Debt Ratings
$3.9 Billion | ||||||||||||
Rating Agency | $750 Million Term Loan | $550 Million Term Loan | Senior Secured Notes | |||||||||
Fitch |
BBB- | BB | BBB- | |||||||||
Moodys |
Ba2 | Ba3 | Ba3 | |||||||||
S&P |
BBB | BBB- | BBB- |
These credit ratings are the current opinions of the rating agencies. As such, they may be
changed, suspended or withdrawn at any time by the rating agencies as a result of various
circumstances including changes in, or unavailability of, information.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Existing Commitments
The following table summarizes our contractual obligations at June 30, 2011:
Commitments Due by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Bonds and
medium-term notes |
$ | 14,870,562 | $ | 1,881,688 | $ | 2,017,613 | $ | 3,421,375 | $ | 1,039,786 | $ | 1,260,100 | $ | 5,250,000 | ||||||||||||||
Unsecured Bank Loans |
207,000 | 207,000 | | | | | | |||||||||||||||||||||
Senior Secured Bonds |
3,900,000 | | | | 1,350,000 | | 2,550,000 | |||||||||||||||||||||
Secured Bank Loans |
1,601,973 | 7,061 | 1,321,487 | 34,109 | 54,863 | 28,516 | 155,937 | |||||||||||||||||||||
ECA Financings |
2,549,627 | 214,480 | 428,960 | 428,960 | 423,862 | 335,794 | 717,571 | |||||||||||||||||||||
Other Secured
Financings |
1,300,000 | | | | | 750,000 | 550,000 | |||||||||||||||||||||
Subordinated Debt |
1,000,000 | | | | | | 1,000,000 | |||||||||||||||||||||
Interest Payments on
Debt Outstanding
(a)(b) |
9,568,076 | 766,173 | 1,398,311 | 1,213,466 | 1,007,593 | 829,099 | 4,353,434 | |||||||||||||||||||||
Operating Leases (c)(d) |
58,765 | 6,252 | 12,851 | 14,147 | 14,558 | 10,259 | 698 | |||||||||||||||||||||
Pension Obligations (e) |
9,770 | 1,539 | 1,577 | 1,639 | 1,676 | 1,676 | 1,663 | |||||||||||||||||||||
Purchase Commitments |
17,652,100 | 87,400 | 435,800 | 1,015,100 | 1,625,300 | 2,477,900 | 12,010,600 | |||||||||||||||||||||
Total |
$ | 52,717,873 | $ | 3,171,593 | $ | 5,616,599 | $ | 6,128,796 | $ | 5,517,638 | $ | 5,693,344 | $ | 26,589,903 | ||||||||||||||
Contingent Commitments
Contingency Expiration by Fiscal Year | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
AVGs (f) |
$ | 490,164 | $ | 8,880 | $ | 37,950 | $ | 96,003 | $ | 34,717 | $ | 157,132 | $ | 155,482 | ||||||||||||||
Total (g) |
$ | 490,164 | $ | 8,880 | $ | 37,950 | $ | 96,003 | $ | 34,717 | $ | 157,132 | $ | 155,482 | ||||||||||||||
(a) | Future interest payments on floating rate debt are estimated using floating interest rates in effect at June 30, 2011. | |
(b) | Includes the effect of interest rate and foreign currency derivative instruments. | |
(c) | Excludes fully defeased aircraft sale-lease back transactions. | |
(d) | Minimum rentals have not been reduced by minimum sublease rentals of $5.8 million receivable in the future under non-cancellable subleases. | |
(e) | Our pension obligations are part of intercompany expenses, which AIG allocates to us on an annual basis. The amount is an estimate of such allocation. The column 2011 consists of total estimated allocations for 2011 and the column Thereafter consists of the 2016 estimated allocation. The amount allocated has not been material to date. | |
(f) | From time to time, we participate with airlines, banks and other financial institutions in the financing of aircraft by providing asset guarantees, put options or loan guarantees collateralized by aircraft. As a result, should we be called upon to fulfill our obligations, we would have recourse to the value of the underlying aircraft. | |
(g) | Excluded from total contingent commitments are $263.1 million of uncertain tax liabilities and any effect of net tax liabilities. The future cash flows to these liabilities are uncertain and we are unable to make reasonable estimates of the outflows. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Off-Balance-Sheet Arrangements
We have not established any unconsolidated entities for the purpose of facilitating
off-balance sheet arrangements or for other contractually narrow or limited purposes. We have,
however, from time to time established subsidiaries, entered into joint ventures or created other
partnership arrangements or trusts with the limited purpose of leasing aircraft or facilitating
borrowing arrangements. See Note N of Notes to Condensed, Consolidated Financial Statements for
more information regarding our involvement with VIEs.
Results of Operations
Income before Income Taxes for the Three and Six Months Ended June 30, 2011 Versus 2010
Our income before income taxes decreased by approximately $68.3 million for the three month
period ended June 30, 2011, as compared to the same period in 2010. This decrease was primarily due
to the following factors:
| A decrease in rental revenue of approximately 4.5% due to a net decrease in our fleet to 933 aircraft at June 30, 2011, as compared to 946 aircraft at June 30, 2010, as a result of aircraft sales and lower lease rates on used aircraft. | ||
| A $61.1 million loss on extinguishment of debt in 2011 as a result of the tender offers we completed in June 2011. |
The
decreases were partially offset by lower impairment charges and fair value adjustments.
Our income before income taxes increased approximately $147.7 million for the six month period
ended June 30, 2011, as compared to the same period in 2010, because lower impairment charges and
fair value adjustments in 2011 offset the above factors. See below for a more detailed discussion
of the effects of each item affecting income for the three and six months ended June 30, 2011, as
compared with the same periods in 2010.
Three Months Ended June 30, 2011 Versus 2010
Revenues from rentals of flight equipment decreased 4.5% to $1,111.5 million for the three
months ended June 30, 2011, from $1,163.8 million for the same period in 2010. The average number
of aircraft in our fleet decreased to 933 at June 30, 2011, compared to 970 at June 30, 2010,
primarily due to reclassification of aircraft to Flight equipment held for sale and sales of
aircraft from our leased fleet. Revenues from rentals of flight equipment decreased by (i) $35.4
million due to a decrease in lease rates on aircraft in our fleet during both periods, that were
re-leased or had lease rates change between the two periods; (ii) $21.2 million due to aircraft in
service during the three months ended June 30, 2010, and sold prior to June 30, 2011; and (iii)
$11.8 million due to lost revenue relating to aircraft in transition between lessees primarily
resulting from repossessions of aircraft. These revenue decreases were partly offset by increases
of (i) $10.2 million due to an increase in the aggregate number of hours flown on which we collect
overhaul revenue; and (ii) $5.9 million due to the addition of four new aircraft to our fleet after
June 30, 2010, and aircraft in our fleet as of June 30, 2010, that earned revenue for a greater
number of days during the three months ended June 30, 2011, than during the same period in 2010.
Two aircraft in our fleet were not subject to a signed lease agreement or a signed letter of
intent at June 30, 2011.
In addition to our leasing operations, we engage in the marketing of our flight equipment
throughout the lease term, as well as the sale of third party owned flight equipment and other
marketing services on a principal and
commission basis. Flight equipment marketing and gain on aircraft sales consisted primarily of
sales of aircraft parts and remained relatively constant between the periods.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest and other revenue increased to $11.9 million for the three months ended June 30,
2011, compared to $8.8 million for the same period in 2010 due to (i) a $7.0 million increase in
foreign exchange gain, net of losses; and (ii) a $2.2 million increase in payment from bankruptcy
claims. These increases were partially offset by (i) a decrease in interest and dividend revenue of
$4.4 million driven by a decrease in our notes receivable principal balance; (ii) a $0.8 million
decrease in forfeitures of security deposits due to lessees non-performance under leases; and
(iii) other minor fluctuations aggregating a decrease of $0.9 million.
Interest expense remained relatively constant at $407.1 million for the three months ended
June 30, 2011, compared to $407.7 million for the same period in 2010. Our average composite
interest rate increased 1.02% between the two periods, offset by a decrease in average debt
outstanding (excluding the effect of debt discount and foreign exchange adjustments) to $25.8
billion during the three months ended June 30, 2011, compared to $32.0 billion during the same
period in 2010.
Our composite borrowing rates in the second quarters of 2011 and 2010, which include the
effect of derivatives, were as follows:
2011 | 2010 | Increase | ||||||||||
Beginning of Quarter |
5.80 | % | 4.69 | % | 1.11 | % | ||||||
End of Quarter |
5.99 | % | 5.07 | % | 0.92 | % | ||||||
Average |
5.90 | % | 4.88 | % | 1.02 | % |
We recorded derivative related charges aggregating $1.5 million for the three months ended
June 30, 2011, as compared to $4.8 million for the same period in 2010, primarily related to
ineffectiveness of derivatives designated as cash flow hedges. (See Note H of Notes to Condensed,
Consolidated Financial Statements.)
During the three months ended June 30, 2011, we issued unsecured senior notes and used a
portion of the proceeds from these notes in cash tender offers to repurchase existing outstanding
notes, incurring a loss of $61.1 million from the early extinguishment of debt. See Note G of Notes
to Condensed, Consolidated Financial Statements.
Depreciation of flight equipment decreased 3.4% to $459.7 million for the three months ended
June 30, 2011, compared to $475.7 million for the same period in 2010, due to a decrease in the
cost of our fleet held for use from $40.8 billion at June 30, 2010 to $37.7 billion at June 30,
2011. The decrease in the cost of our fleet held for use was due to a combination of sales of
aircraft and impairment charges to our fleet.
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be
disposed aggregated $43.8 million on seven aircraft for the three months ended June 30, 2011,
compared to $53.0 million on seven aircraft for the same period in 2010. The decrease was primarily
due to higher impairment charges recorded during the three months ended June 30, 2010, due to the
part-out of an aircraft. We did not part any aircraft out during the three months ended June 30,
2010. See Note E of Notes to Condensed, Consolidated Financial Statements. During the three months
ended June 30, 2011, we did not incur any charges related to Aircraft impairment on flight
equipment held for use, compared to charges of $8.1 million for the same period in 2010.
Selling, general and administrative expenses increased to $43.1 million for the three months
ended June 30, 2011, compared to $41.0 million for the same period in 2010 due to (i) an increase
in aircraft related costs of $5.0 million from the addition of aircraft in our leased fleet; (ii)
an increase of $5.2 million relating to professional costs in connection with strategic
initiatives; and (iii) an increase in retention bonuses of $3.6 million. These increases were
partially offset by (i) an $11.3 million decrease in salaries and employee related expenses, $8.1
million of
which was due to an out of period adjustment principally relating to the forfeiture of
share-based deferred compensation awards for certain employees that terminated their employment
with us in 2010 (see Note A of Notes
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
to Condensed, Consolidated Financial Statements for more information on the out of period
adjustment); and (ii) other minor fluctuations aggregating a decrease of $0.4 million.
Other expenses consists primarily of lease related charges and decreased by $4.7 million for
the three months ended June 30, 2011, compared to the same period in 2010. The decrease is
primarily due to the transfer of one aircraft from Flight equipment held for sale to Flight
equipment held for use during the three months ended June 30, 2011, when the aircraft no longer met
the criteria for held for sale, resulting in a reversal of lease related charges.
Our effective tax rate for the quarter ended June 30, 2011, decreased to 31.5% from 36.5% for
the same period in 2010. The decrease is primarily due to the $11.3 million out of period
adjustment recorded in the three months ended June 30, 2011, and discussed above. The $11.3 million
out of period adjustment is treated as a permanent item for income taxes. Our effective tax rate
continues to be impacted by minor permanent items and interest accrued on uncertain tax positions
and prior period audit adjustments. Our reserve for uncertain tax positions increased by $24.3
million for the three-month period ended June 30, 2011, due to the continued uncertainty of tax
benefits related to the Foreign Sales Corporation and Extraterritorial Income regimes, the benefits
of which, if realized, would have a significant impact on our effective tax rate.
Other comprehensive income was $9.1 million for the three months ended June 30, 2011, compared
to $24.9 million for the same period in 2010. This change was primarily due to changes in the
market values and aggregate notional value on derivatives qualifying for and designated as cash
flow hedges.
Six Months Ended June 30, 2011 Versus 2010
Revenues from rentals of flight equipment decreased 5.9% to $2,252.4 million for the six
months ended June 30, 2011, from $2,393.7 million for the same period in 2010. The average number
of aircraft in our fleet decreased to 933 at June 30, 2011, compared to 981 at June 30, 2010,
primarily due to reclassification of aircraft to Flight equipment held for sale and sales of
aircraft from our leased fleet. Revenues from rentals of flight equipment decreased by (i) $93.8
million due to aircraft in service during the six months ended June 30, 2010, and sold prior to
June 30, 2011; (ii) $56.5 million due to a decrease in lease rates on aircraft in our fleet during
both periods, that were re-leased or had lease rates change between the two periods; and (iii)
$16.0 million due to lost revenue relating to aircraft in transition between lessees primarily
resulting from repossessions of aircraft. These revenue decreases were partly offset by increases
of (i) $12.8 million due to an increase in the aggregate number of hours flown on which we collect
overhaul revenue; and (ii) $12.2 million due to the addition of four new aircraft to our fleet
after June 30, 2010, and aircraft in our fleet as of June 30, 2010, that earned revenue for a
greater number of days during the six months ended June 30, 2011, than during the same period in
2010.
Two aircraft in our fleet were not subject to a signed lease agreement or a signed letter of
intent at June 30, 2011.
In addition to our leasing operations, we engage in the marketing of our flight equipment
throughout the lease term, as well as the sale of third party owned flight equipment and other
marketing services on a principal and commission basis. Flight equipment marketing and gain on
aircraft sales consisted primarily of sales of aircraft parts and remained relatively constant
between the periods.
Interest and other revenue increased to $38.8 million for the six months ended June 30, 2011,
compared to $21.8 million for the same period in 2010 due to (i) $10.0 million of other income
related to the extension of our evaluation period of aircraft under order (see Note O of Condensed,
Consolidated Financial Statements for further discussion); (ii) a $10.6 million increase in foreign
exchange gain, net of losses; and (iii) a $2.2 million increase in payment from bankruptcy claims.
These increases were partially offset by (i) a decrease in interest and dividend revenue of $5.2
million driven by a decrease in our notes receivable principal balance; (ii) a $0.5 million
decrease in
forfeitures of security deposits due to lessees non-performance under leases; and (iii) other
minor fluctuations aggregating $0.1 million.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest expense increased to $814.6 million for the six months ended June 30, 2011, compared
to $742.6 million for the same period in 2010 due to a 1.12% increase in our average composite
interest rate, partially offset by a decrease in average debt outstanding (excluding the effect of
debt discount and foreign exchange adjustments) to $26.5 billion during the six months ended June
30, 2011, compared to $30.6 billion during the same period in 2010.
Our composite borrowing rates in the first six months of 2011 and 2010, which include the
effect of derivatives, were as follows:
2011 | 2010 | Increase (Decrease) |
||||||||||
Beginning of six months |
5.66 | % | 4.35 | % | 1.31 | % | ||||||
End of six months |
5.99 | % | 5.07 | % | 0.92 | % | ||||||
Average |
5.83 | % | 4.71 | % | 1.12 | % |
We recorded derivative related charges aggregating $2.1 million for the six months ended June
30, 2011, compared to $44.8 million for the same period in 2010. The decrease is primarily due to
losses recorded in the six months ended June 30, 2010, consisting of $15.4 million related to swaps
that matured and $28.1 million related to changes in market values of economic hedges, compared to
ineffectiveness of cash flow hedges and changes in market values of economic hedges aggregating
$0.2 million for the same period in 2011. See Note H of Notes to Condensed, Consolidated Financial
Statements.
During the six months ended June 30, 2011, we issued unsecured senior notes and used a portion
of the proceeds from these notes in cash tender offers to repurchase existing outstanding notes,
incurring a loss of $61.1 million from the early extinguishment of debt. See Note G of Notes to
Condensed, Consolidated Financial Statements.
Depreciation of flight equipment decreased 5.6% to $912.2 million for the six months ended
June 30, 2011, compared to $965.9 million for the same period in 2010, due to a decrease in the
cost of our fleet held for use from $40.8 billion at June 30, 2010, to $37.7 billion at June 30,
2011. The decrease in the cost of our fleet held for use was due to a combination of sales of
aircraft and impairment charges to our fleet.
Aircraft impairment charges and fair value adjustments on flight equipment sold or to be
disposed decreased to $147.1 million for the six months ended June 30, 2011, compared to $406.4
million for the same period in 2010. The decrease was primarily due to fewer aircraft sold or
identified as likely to be sold at June 30, 2011, as compared to the same period in 2010. During
the six months ended June 30, 2011, we recorded impairment charges and fair value adjustments on 25
aircraft, compared to 59 aircraft during the six months ended June 30, 2010. See Note E of Notes to
Condensed, Consolidated Financial Statements. For the six months ended June 30, 2011, we did not
incur any charges related to Aircraft impairment on flight equipment held for use, compared to
charges of $8.1 million for the same period in 2010.
Selling, general and administrative expenses increased to $94.8 million for the six months
ended June 30, 2011, compared to $76.6 million for the same period in 2010 due to (i) an $11.6
million increase in aircraft related costs; (ii) a $12.0 million increase in salaries and employee
related benefits due to an increase in employees from 182 at June 30, 2010 to 214 at June 30, 2011,
and an increase in performance incentives; (iii) a $5.2 million increase relating to professional
costs in connection with strategic initiatives; and (iv) other minor fluctuations aggregating an
increase of $0.7 million. These increases were partially offset by $11.3 million, $8.3 million of
which was an out of period adjustment relating to the forfeiture of share-based deferred
compensation awards for certain employees that
terminated their employment with us in 2010 (see Note A of Notes to Condensed, Consolidated
Financial Statements).
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other expenses for the six months ended June 30, 2011, consisted of:
| $20 million of contract cancellation costs. We eliminated the economic effect of the $20 million expense by negotiating with our manufacturer vendors to recover these costs. The recovery will be in two payments. One of these payments is related to a 2007 agreement with one manufacturer for us to extend our evaluation period of aircraft under order until at least 2010. This payment is contingent upon our cancelling of the aircraft order and is not contingent on placing any new order with the manufacturer. As a result of the cancellation of that aircraft order in March 2011, we recorded the related payment receivable of $10 million in Interest and other in the condensed, consolidated statement of operations for the six months ended June 30, 2011. The second payment of $10 million is related to an agreement with another manufacturer, which among other contractual items includes a provision to reimburse us for the remaining costs associated with the March 2011 order cancellation. The reimbursement payment will be recognized as a reduction of the cost basis of future aircraft deliveries, as we determined the payment is connected with the purchase of such aircraft. | ||
| $12.2 million of aggregate charges related to the write down of three notes receivable. |
The charges were partially offset by $2.5 million of lease related income, net of lease
charges.
Other expenses for the six months ended June 30, 2010, consisted of $87.5 million of
aggregated lease related costs we expensed as a result of agreements to sell leased aircraft to
third parties.
Our effective tax rate for the six months ended June 30, 2011, decreased to 34.5% from 36.9%
for the same period in 2010. The decrease is primarily due to the $11.3 million out of period
adjustment related to the forfeiture of share-based deferred compensation awards for certain
employees that terminated their employment with us in 2010, recorded in the three months ended June
30, 2011, and discussed above. The $11.3 million out of period adjustment is treated as a permanent
item for income taxes. Our effective tax rate continues to be impacted by minor permanent items and
interest accrued on uncertain tax positions and prior period audit adjustments. Our reserve for
uncertain tax positions increased by $37.7 million for the six-month period ended June 30, 2011, as
compared to the same period in 2010, due to the continued uncertainty of tax benefits related to
the Foreign Sales Corporation and Extraterritorial Income regimes, the benefits of which, if
realized, would have a significant impact on our effective tax rate.
Other comprehensive income decreased to $20.2 million for the six months ended June 30, 2011,
compared to $74.5 million for the same period in 2010. This decrease was primarily due to changes
in the market values and aggregate notional value on derivatives qualifying for and designated as
cash flow hedges.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk
Many companies focus their risk management efforts by measuring potential losses in fair
values. Such measurements are performed through the application of various statistical techniques.
One such technique is VaR, a summary statistical measure that uses historical interest rates,
foreign currency exchange rates and equity prices and estimates the volatility and correlation of
these rates and prices to calculate the maximum loss that could occur over a defined period of time
given a certain probability.
We believe that statistical models alone do not provide a reliable method of monitoring and
controlling market risk. While VaR models are relatively sophisticated, the quantitative market
risk information generated is limited by the assumptions and parameters established in creating the
related models. Therefore, such models are tools and do not substitute for the experience or
judgment of senior management.
We are exposed to market risk and the risk of loss of fair value and possible liquidity strain
resulting from adverse fluctuations in interest rates and foreign exchange prices. We employ a
variety of derivative instruments to manage our exposure to interest rate and foreign currency
risks. We statistically measure the loss of fair value through the application of a VaR model on a
quarterly basis. In this analysis, the net fair value of our operations is determined using the
financial instrument assets and other assets and liabilities. This includes tax adjusted future
flight equipment lease revenues and financial instrument liabilities, which includes future
servicing of current debt. The estimated impact of current derivative positions is also taken into
account.
We calculate the VaR with respect to the net fair value by using historical scenarios. This
methodology entails re-pricing all assets and liabilities under explicit changes in market rates
within a specific historical time period. In this case, the most recent three years of historical
information for interest rates and foreign exchange rates were used to construct the historical
scenarios at June 30, 2011, and December 31, 2010. For each scenario, each financial instrument is
re-priced. Scenario values for our operations are then calculated by netting the values of all the
underlying assets and liabilities. The final VaR number represents the maximum adverse deviation in
net fair market value incurred by these scenarios with 95% confidence (i.e., only 5% of historical
scenarios show losses greater than the VaR figure). A one month holding period is assumed in
computing the VaR figure. The following table presents the average, high and low VaRs on a combined
basis and of each component at market risk for our operations with respect to its fair value for
the periods ended June 30, 2011 and December 31, 2010. The VaR increased from the fourth quarter of
2010 to the second quarter of 2011 due to an increase in the average duration of our outstanding
debt and a decrease in the three year US dollar yield.
ILFC Market Risk | ||||||||||||||||||||||||
At | At | |||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Average | High | Low | Average | High | Low | |||||||||||||||||||
Combined |
$ | 122.0 | $ | 190.3 | $ | 20.0 | $ | 88.9 | $ | 158.6 | $ | 20.0 | ||||||||||||
Interest Rate |
121.9 | 190.3 | 20.0 | 88.9 | 158.5 | 20.0 | ||||||||||||||||||
Currency |
0.2 | 0.3 | 0.0 | 0.2 | 0.3 | 0.0 |
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ITEM 4. CONTROLS AND PROCEDURES
(A) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the periods specified in the
rules and forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to our management, including the Chief Executive Officer and the Senior
Vice President and Chief Financial Officer (collectively, the Certifying Officers), as
appropriate, to allow timely decisions regarding required disclosure.
In conjunction with the close of each fiscal quarter, we conduct a review and
evaluation under the supervision and with the participation of our management, including the
Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined
in Rules 13a 15(e) and 15d 15(e) of the Securities Exchange Act of 1934, as amended.
Based on that evaluation, our Certifying Officers have concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of June 30,
2011, the end of the period covered by this report.
(B) Changes in Internal Control Over Financial Reporting
There has been a change in our Certifying Officers. On May 11, 2011, Elias F. Habayeb
was named Senior Vice President and Chief Financial Officer and is signing this Form 10-Q,
replacing Frederick S. Cromer as the Principal Financial Officer.
Other than the changes discussed in the previous paragraph, there have been no changes
in our internal control over financial reporting during the three months ended June 30,
2011, that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Flash Airlines, Yemen Airways-Yemenia and Airblue Limited: We are named in lawsuits in
connection with the 2004 crash of our Boeing 737-300 aircraft on lease to Flash Airlines, an
Egyptian carrier; the 2009 crash of our Airbus A310-300 aircraft on lease to Yemen Airways-Yemenia,
a Yemeni carrier; and the 2010 crash of our Airbus A320-200 aircraft on lease to Airblue Limited, a
Pakistani carrier. These lawsuits were filed by the families of victims on the flights and seek
unspecified damages for wrongful death, costs, and fees. The Flash Airlines litigation originally
commenced in May 2004 in California, but all U.S. proceedings were dismissed in favor of
proceedings in France where claims are pending before the Tribunal de Grande Instance civil courts
in Bobigny and Paris. As of August 5, 2011, the parties are engaged in settlement negotiations. We
believe that we have substantial defenses to this action and available liability insurance is
adequate to cover our defense costs and any potential liability. The Yemen Airways litigation and
the Airblue Limited litigation were filed in January 2011 and March 2011, respectively, in
California Superior Court in Los Angeles County. We have been served with the complaints, and each
litigation is in its incipient stage. While the plaintiffs have not specified any amount of
damages, we believe that we are adequately covered by available liability insurance for both
lawsuits and that we have substantial defenses to these actions. We do not believe that the outcome
of any of these lawsuits will have a material effect on our consolidated financial condition,
results of operations or cash flows.
Estate of Volare Airlines: As disclosed in previous filings, including our Form 10-Q for the
three months ended March 31, 2011, we were involved in a lawsuit related to Volare, an Italian
airline, which had filed for bankruptcy in Italy in 2004. The litigation was dismissed on June 15,
2011. The settlement amount was accrued prior to December 31, 2010, and was not material to our
consolidated financial position, results of operations or cash flows.
We are also a party to various claims and litigation matters arising in the ordinary course of
our business. We do not believe the outcome of any of these matters will be material to our
consolidated financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Our business is subject to numerous significant risks and uncertainties as described below.
Many of these risks are interrelated and occur under similar business and economic conditions, and
the occurrence of certain of them may in turn cause the emergence, or exacerbate the effect, of
others. Such a combination could materially increase the severity of the impact on us.
Capital Structure Risk
The aircraft leasing business is capital intensive and we have a substantial amount of
indebtedness, which requires significant interest and principal payments. As of June 30, 2011, we
had approximately $25.4 billion in principal amount of indebtedness outstanding.
Our substantial level of indebtedness could have important consequences to holders of our
debt, including the following:
| making it more difficult for us to satisfy our obligations with respect to our indebtedness; | ||
| requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for other purposes, including acquiring new aircraft and exploring business opportunities; | ||
| increasing our vulnerability to adverse economic and industry conditions; |
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PART II. OTHER INFORMATION (CONTINUED)
| limiting our flexibility in planning for, or reacting to, changes in our business and industry; and | ||
| limiting our ability to borrow additional funds or refinance our existing indebtedness. |
Liquidity Risk
We will require a significant amount of cash to service our indebtedness and make planned
capital expenditures and we may not have adequate capital resources to meet our obligations as they
become due. We borrow funds to purchase new and used flight equipment, make progress payments
during aircraft construction and pay off maturing debt obligations. We borrow on both a secured and
an unsecured basis from various sources.
In 2009, we had limited access to our traditional sources of liquidity and we borrowed funds
from AIG Funding to fulfill our liquidity needs, which we repaid in 2010 when we regained access to
debt markets. On January 31, 2011, we entered into a new three-year $2.0 billion unsecured
revolving credit facility. On March 30, 2011, through a non-restricted subsidiary, we 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 $1.5 billion becomes available
to us as we transfer aircraft into non-restricted subsidiaries, which will guarantee the loan on a
secured basis. On May 24, 2011, we issued $2.25 billion of aggregate principal amount of senior
unsecured notes, with $1.0 billion maturing in 2016 and $1.25 billion maturing in 2019. On June 17,
2011, we completed 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. As of August 5,
2011, we had not drawn on our unsecured revolving credit agreement and $696 million had been
advanced to the subsidiary borrower under the secured term loan. We intend to use the proceeds from
the secured term loan agreement to prepay a portion of the $1.5 billion outstanding under our
credit facility dated as of October 13, 2006, with current maturity dates in October 2011 and 2012.
Any new issuance of debt by us or our subsidiaries will be subject to the consent of the
Department of the Treasury if, after giving effect to the incurrence of the debt and use of
proceeds therefrom, we increase our net indebtedness by more than $1 billion compared to the same
date in the previous year, or compared to December 8, 2010, if the measurement is made before
December 8, 2011. We cannot predict whether the Department of the Treasury would consent to us
incurring debt in excess of this amount. Our bank credit facilities and indentures also limit our
ability to incur secured indebtedness. The most restrictive covenant in our bank credit facilities
permits us and our subsidiaries to incur secured indebtedness totaling up to 30% of our
consolidated net tangible assets, as defined in the credit agreement, minus $2.0 billion, which
limit currently totals approximately $10.0 billion. As of August 5, 2011, we were able to incur an
additional $4.1 billion of secured indebtedness under this covenant. Our debt indentures also
restrict us and our subsidiaries from incurring secured indebtedness in excess of 12.5% of our
consolidated net tangible assets, as defined in the indentures. However, we may obtain secured
financing without regard to the 12.5% consolidated net tangible asset limit under our indentures by
doing so through subsidiaries that qualify as non-restricted under our indentures.
In addition to addressing our liquidity needs through debt financings, we also pursue
potential aircraft sales in connection with our ongoing fleet strategy. During the six months ended
June 30, 2011, we sold 11 aircraft which generated proceeds of approximately $235 million. In
evaluating potential sales, we balance the need for funds with the long-term value of holding
aircraft and long-term prospects for us. Furthermore, we would need approval from the Department of
the Treasury if we entered into sales transactions with aggregate consideration exceeding $2.5
billion during any twelve month period. We cannot predict whether the Department of the Treasury
would consent to any future aircraft sales if their consent were required.
Because the current market for aircraft is depressed due to the economic downturn and limited
availability of buyer financing, sales of aircraft would likely result in a realized loss. The
potential for impairment or fair value adjustments could be material to our results of operations
for an individual period. The amount of the potential
resulting aggregate loss would be dependent upon the specific aircraft sold, the sale price,
the sale date and any other sale contingencies.
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PART II. OTHER INFORMATION (CONTINUED)
We may, or may not, continue to have access to the secured or unsecured debt markets in the
future or be able to sell additional aircraft. We believe that our cash on hand, including cash
generated from the above-mentioned financing arrangements, and cash flows generated from
operations, which include aircraft sales, are sufficient for us to operate our business and repay
our maturing debt obligations for the next twelve months. If we are unable to generate or raise
sufficient cash, we may be unable to meet our debt obligations as they become due. Further, we may
not be able to meet our aircraft purchase commitments as they become due, which could expose us to
breach of contract claims by our lessees and manufacturers.
Borrowing Risks
Sovereign
Debt Crisis - On August 5, 2011, Standard & Poors lowered its long term sovereign credit rating on the United
States of America from AAA to AA+. While U.S. lawmakers reached agreement to raise the federal debt
ceiling on August 2, 2011, the downgrade reflected Standard & Poors view that the fiscal
consolidation plan within that agreement fell short of what would be necessary to stabilize the
U.S. governments medium term debt dynamics. This downgrade could have material adverse impacts on
financial markets and economic conditions in the United States and throughout the world and, in
turn, the markets anticipation of these impacts could have a material adverse effect on our
business, financial condition and liquidity. In particular, it could adversely affect the cost and
availability of funding. Further, the sovereign debt crisis could lower consumer confidence, which
could result in a loss of revenue for our lessees and impact their ability to meet their financial
obligations.
Credit Ratings Downgrade Risk - Our ability to access debt markets and other financing sources
is, in part, dependent on our credit ratings. In addition to affecting the availability of
financing, credit ratings also directly affect our cost of financing. Between September 2008 and
February 2010, we experienced multiple downgrades in our credit ratings by the three major
nationally recognized statistical rating organizations. These credit rating downgrades, combined
with externally generated volatility, limited our ability to access debt markets in 2009 and part
of 2010 and resulted in unattractive funding costs. Although S&P raised its ratings on ILFCs
senior unsecured debt and affirmed its corporate credit rating in May 2011, our ratings could be
downgraded in the future. Further ratings downgrades could increase our borrowing costs and limit
our access to the debt markets.
Because of our current long-term debt ratings, the 2004 ECA facility imposes the following
restrictions: (i) we must segregate all security deposits, overhaul rentals and rental payments
related to the aircraft financed under our 2004 ECA facility into separate accounts controlled by
the security trustee (segregated rental payments are used to make scheduled principal and interest
payments on the outstanding debt) and (ii) we must file individual mortgages on the aircraft funded
under the 2004 ECA facility in the local jurisdictions in which the respective aircraft are
registered. At June 30, 2011, we had segregated security deposits, overhaul rentals and rental
payments aggregating approximately $397 million related to aircraft funded under the 2004 ECA
facility.
Further ratings downgrades could increase our borrowing costs and limit our access to the debt
markets.
Interest Rate Risk - We are impacted by fluctuations in interest rates. Our lease rates are
generally fixed over the life of the lease. Changes, both increases and decreases, in our cost of
borrowing, as reflected in our composite interest rate, directly impact our net income. We manage
the interest rate volatility and uncertainty by maintaining a balance between fixed and floating
rate debt, through derivative instruments and through varying debt maturities.
Our cost of borrowing for new financings is increasing due to our long-term debt ratings. The
interest rates that we obtain on our debt financing are a result of several components, including
credit spreads, swap spreads, duration and new issue premiums. These are all in addition to the
underlying Treasury or LIBOR rates, as applicable. Volatility in our perceived risk of default, our
parents risk of default or in a market sectors risk of default all have an impact on our cost of
funds. A 1% increase in our composite interest rate at June 30, 2011, would have increased our
interest expense by approximately $250 million annually, which would put downward pressure on our
operating margins.
Restrictive Covenants on Our Operations
The agreements governing certain of our indebtedness contain covenants that restrict, among
other things, our ability to:
| incur debt; | ||
| encumber our assets; | ||
| dispose of certain assets; |
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PART II. OTHER INFORMATION (CONTINUED)
| consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; | ||
| enter into sale-leaseback transactions; | ||
| make equity or debt investments in other parties; | ||
| enter into transactions with affiliates; | ||
| make capital expenditures; | ||
| designate our subsidiaries as unrestricted subsidiaries; and | ||
| pay dividends and distributions. |
These covenants may affect our ability to operate and finance our business as we deem
appropriate.
Relationship with AIG
AIG as Our Parent Company - We are an indirect wholly-owned subsidiary of AIG. Although
neither AIG nor any of its subsidiaries is a co-obligor or guarantor of our debt securities,
circumstances affecting AIG have an impact on us and we can give no assurance how further changes
in circumstances related to AIG may impact us.
AIG Master Transaction Agreement with the Department of the Treasury Although we are not a
party to the Master Transaction Agreement, we are a Designated Entity under the agreement, and we
and our subsidiaries are restricted from taking certain significant actions without obtaining prior
written consent from the Department of the Treasury under the agreement, including:
| amending or waiving any provisions of our articles of incorporation, bylaws, or similar organizational document in a manner that would adversely affect, in any material respect, the rights of our equity interests; | ||
| authorizing or issuing any equity interests, unless to AIG, or a wholly-owned subsidiary of AIG; | ||
| selling or disposing of assets for total consideration greater than or equal to $2.5 billion in any twelve month period; | ||
| acquiring assets after December 8, 2010, other than pursuant to existing purchase commitments at such date, with aggregate scheduled payments under the purchase contracts for such assets greater than or equal to $2.5 billion in any twelve month period; | ||
| engaging in any public offering or other sale or transfer of our equity interests; | ||
| voluntarily liquidating, filing for bankruptcy, or taking any other legal action evidencing insolvency; and | ||
| increasing our net indebtedness by more than $1 billion compared to the same date in the previous year, or compared to December 8, 2010, if the measurement is made before December 8, 2011. |
Additionally, under the Master Transaction Agreement, if
the Department of the Treasury still holds preferred interests in
certain special purpose vehicles on May 1, 2013, the Department of the Treasury may direct AIG to sell
certain assets, including shares of ILFC.
AIG as Our Counterparty of Derivatives AIG Markets, Inc., a wholly-owned subsidiary of AIG
with an explicit guarantee from AIG, is the counterparty of all our interest rate swaps and foreign
currency swaps. If our counterparty is unable to meet its obligations under the derivative
contracts, it would have a material impact on our financial results and cash flows.
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PART II. OTHER INFORMATION (CONTINUED)
Key Personnel Risk
Our senior managements reputation and relationships with lessees and sellers of aircraft are
an important element of our business. The American Recovery and Reinvestment Act of 2009 (the
Act) imposed restrictions on bonus and other incentive compensation payable to certain AIG
employees. Three members of our senior management team are subject to the compensation limitations
imposed by the Act. The restrictions and limitations on compensation imposed on us may adversely
affect our ability to attract new talent and retain and motivate our existing impacted employees.
If we are unable to retain our key employees due to the compensation restrictions or for any other
reason, and we fail to attract new talent, it could negatively impact our ability to conduct
business.
Overall Airline Industry Risk
We operate as a supplier and financier to airlines. The risks affecting our airline customers
are generally out of our control and impact our customers to varying degrees. As a result, we are
indirectly impacted by all the risks facing airlines today. Our ability to succeed is dependent
upon the financial strength of our customers. Their ability to compete effectively in the
marketplace and manage these risks has a direct impact on us. These risks include:
|
demand for air travel | | geopolitical events | ||||
|
competition between carriers | | security, terrorism and war | ||||
|
fuel prices and availability | | worldwide health concerns | ||||
|
labor costs and stoppages | | equity and borrowing capacity | ||||
|
maintenance costs | | environmental concerns | ||||
|
employee labor contracts | | government regulation | ||||
|
air traffic control infrastructure constraints | | interest rates | ||||
|
airport access | | overcapacity | ||||
|
insurance costs and coverage | | natural disasters | ||||
|
heavy reliance on automated systems |
To the extent that our customers are affected by these risk factors, we may experience:
| lower demand for the aircraft in our fleet and, generally, reduced market lease rates and lease margins; | ||
| a higher incidence of lessee defaults and repossessions affecting net income due to maintenance, consulting and legal costs associated with the repossessions, as well as lost revenue for the time the aircraft are off lease and possibly lower lease rates from the new lessees; | ||
| a higher incidence of situations where we engage in restructuring lease rates for our troubled customers which reduces overall lease revenue; | ||
| an inability to immediately place new and used aircraft on commercially acceptable terms when they become available through our purchase commitments and regular lease terminations, resulting in lower lease margins due to aircraft not earning revenue and resulting in payments for storage, insurance and maintenance; and |
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PART II. OTHER INFORMATION (CONTINUED)
| a loss if our aircraft is damaged or destroyed by an event specifically excluded from the insurance policy such as dirty bombs, bio-hazardous materials and electromagnetic pulsing. |
Lessee Non-Performance Risk
Our business depends on the ability of our airline customers to meet their obligations to us
and if their ability materially decreases, it may negatively affect our business, financial
condition, results of operations and cash flows, as discussed above in Overall Airline Industry
Risk.
We manage lessee non-performance risk by obtaining security deposits and overhaul rentals as
well as continuous monitoring of lessee performance and outlook.
Airframe, Engine and Other Manufacturer Risks
The supply of jet transport aircraft, which we purchase and lease, is dominated by two
airframe manufacturers, Boeing and Airbus, and a limited number of engine manufacturers. As a
result, we are dependent on the manufacturers success in remaining financially stable, producing
aircraft and related components that meet the airlines demands, in both type and quantity, and
fulfilling their contractual obligations to us. Should the manufacturers fail to respond
appropriately to changes in the market environment or fail to fulfill their contractual
obligations, we may experience:
| missed or late delivery of aircraft ordered by us and an inability to meet our contractual obligations to our customers, resulting in lost or delayed revenues, lower growth rates and strained customer relationships; | ||
| an inability to acquire aircraft and related components on terms which will allow us to lease those aircraft to customers at a profit, resulting in lower growth rates or a contraction in our fleet; | ||
| a marketplace with too many aircraft available, creating downward pressure on demand for the aircraft in our fleet and reduced market lease rates; and | ||
| poor customer support from the manufacturers of aircraft and components resulting in reduced demand for a particular manufacturers product, creating downward pressure on demand for those aircraft in our fleet and reduced market lease rates for those aircraft. |
Aircraft Related Risks
Residual Value We bear the risk of re-leasing or selling the aircraft in our fleet that are
subject to operating leases at the end of their lease terms. Operating leases bear a greater risk
of realizations of residual values, because only a portion of the equipments value is covered by
contractual cash flows at lease inception. In addition to factors linked to the aviation industry
in general, other factors that may affect the value and lease rates of our aircraft include (i)
maintenance and operating history of the airframe and engines; (ii) the number of operators using
the particular type of aircraft; and (iii) aircraft age. If both demand for aircraft and market
lease rates decrease and the conditions continue for an extended period, they could affect the
market value of aircraft in our fleet and may result in impairment charges. During the six months
ended June 30, 2011, we recorded net impairment charges aggregating $147.1 million related to
aircraft we sold, held for sale, had agreed to sell or designated for part-out. See Note E of Notes
to Condensed, Consolidated Financial Statements. Further, deterioration of aircraft values may
create losses related to our aircraft asset value guarantees.
Obsolescence Risk Aircraft are long-lived assets requiring long lead times to develop and
manufacture. As a result, aircraft of a particular model and type tend to become obsolete and less
in demand over time, as newer more advanced and efficient aircraft are manufactured. This life
cycle, however, can be shortened by world events,
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PART II. OTHER INFORMATION (CONTINUED)
government regulation or customer preferences. As aircraft in our fleet approach obsolescence,
demand for that particular model and type will decrease. This may result in declining lease rates,
impairment charges or losses related to aircraft asset value guarantees.
In 2010 we recorded impairment charges on certain aircraft types due to unfavorable trends
affecting the airline industry in general and specific models of aircraft, including the potential
for lower demand for certain aircraft models as a result of the announcement from Airbus of new,
efficient engine options for its future narrow body aircraft.
Greenhouse Gas Emissions Risk Aircraft emissions of greenhouse gases vary with aircraft type
and age. In response to climate change, if any, worldwide government bodies may impose future
restrictions or financial penalties on operations of aircraft with high emissions. It is unclear
what effect, if any, such regulations will have on our operations.
Other Risks
Foreign Currency Risk We are exposed to foreign currency risk through the issuance of debt
denominated in foreign currencies and through leases negotiated in Euros. We reduce the foreign
currency risk by negotiating the majority of our leases in U.S. dollars and by hedging all the
foreign currency denominated debt through derivative instruments. If the Euro exchange rate to the
U.S. dollar deteriorates, we will record less lease revenue on lease payments received in Euros.
Accounting Pronouncements In August 2010, the FASB and the IASB issued an Exposure Draft
that proposes substantial changes to existing lease accounting that will affect all lease
arrangements. Subsequent meetings of the joint committee of the FASB and the IASB have made further
changes to the proposed lease accounting.
Under the current proposed accounting model, lessees will be required to record an asset
representing the right-to-use the leased item for the lease term (Right-of-Use Asset) and a
liability to make lease payments. The Right-of-Use asset and liability incorporate the rights
arising under the lease and are based on the lessees assessment of expected payments to be made
over the lease term. The proposed model requires measuring these amounts at the present value of
the future expected payments.
Under the current proposed accounting model, lessors will apply the receivable and residual
method. This will require a lessor to derecognize its flight equipment into a receivable based upon
the present value of lease payment under a lease and a residual value. Revenue recognized would be
interest income based upon the effective interest rate explicit in the lease.
The FASB and IASB intend to issue another exposure draft in the fourth quarter of 2011. The
proposal does not include a proposed effective date; rather it is expected to be considered as part
of the evaluation of the effective dates for the major projects currently undertaken by the FASB.
The FASB and IASB continue to deliberate on the proposed accounting. As a result, currently
management is unable to assess the effects the adoption of the new finalized lease standard will
have on our financial statements. Although we believe the presentation of our financial statements,
and those of our lessees, could change, we do not believe the accounting pronouncement will change
the fundamental economic reasons for which the airlines lease aircraft. Therefore, we do not
believe it will have a material impact on our business.
Tax Related Risks We operate in multiple jurisdictions and may become subject to a wide
range of income and other taxes. If we are unable to execute our business in jurisdictions with
preferential tax treatment, our operations may be subject to significant income and other taxes.
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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS
a) Exhibits
3.1
|
Restated Articles of Incorporation of the Company (filed as an exhibit to Form 10-Q for the quarter ended September 30, 2008, and incorporated herein by reference). | |
3.2
|
Amended and Restated By-laws of the Company (filed as an exhibit to Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference). | |
4.1
|
Third Supplemental Indenture, dated as of May 24, 2011, to an indenture, dated August 1, 2006, by and between the Company and Deutsche Bank Trust Company Americas, as trustee (filed as an exhibit to Form 8-K filed on May 24, 2011, and incorporated herein by reference). | |
4.2
|
Officers Certificate, dated as of May 24, 2011, establishing the terms of the 5.75% senior notes due 2016 and the 6.25% senior notes due 2019 (filed as an exhibit to Form 8-K filed on May 24, 2011, and incorporated herein by reference). | |
4.3
|
The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. | |
10.1
|
Incremental Lender Assumption Agreement, dated as of April 21, 2011, among Temescal Aircraft Inc., the Company, Park Topanga Aircraft Inc., Charmlee Aircraft Inc., Ballysky Aircraft Ireland Limited, KfW IPEX-Bank GmbH, as the incremental lender, and Citibank, N.A., as administrative agent (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference). | |
12.
|
Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. | |
31.1
|
Certification of Chief Executive Officer. | |
31.2
|
Certification of Senior Vice President and Chief Financial Officer. | |
32.1
|
Certification under 18 U.S.C., Section 1350. |
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL LEASE FINANCE CORPORATION
August 10, 2011 | /s/ Henri Courpron | |||
HENRI COURPRON | ||||
Chief Executive Officer (Principal Executive Officer) |
||||
August 10, 2011 | /s/ Elias Habayeb | |||
ELIAS HABAYEB | ||||
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
||||
August 10, 2011 | /s/ Kurt H. Schwarz | |||
KURT H. SCHWARZ | ||||
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
||||
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Table of Contents
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. | ||
3.1
|
Restated Articles of Incorporation of the Company (filed as an exhibit to Form 10-Q for the quarter ended September 30, 2008, and incorporated herein by reference). | |
3.2
|
Amended and Restated By-laws of the Company (filed as an exhibit to Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference). | |
4.1
|
Third Supplemental Indenture, dated as of May 24, 2011, to an indenture, dated August 1, 2006, by and between the Company and Deutsche Bank Trust Company Americas, as trustee (filed as an exhibit to Form 8-K filed on May 24, 2011, and incorporated herein by reference). | |
4.2
|
Officers Certificate, dated as of May 24, 2011, establishing the terms of the 5.75% senior notes due 2016 and the 6.25% senior notes due 2019 (filed as an exhibit to Form 8-K filed on May 24, 2011, and incorporated herein by reference). | |
4.3
|
The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. | |
10.1
|
Incremental Lender Assumption Agreement, dated as of April 21, 2011, among Temescal Aircraft Inc., the Company, Park Topanga Aircraft Inc., Charmlee Aircraft Inc., Ballysky Aircraft Ireland Limited, KfW IPEX-Bank GmbH, as the incremental lender, and Citibank, N.A., as administrative agent (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (filed as an exhibit to Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference). | |
12.
|
Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. | |
31.1
|
Certification of Chief Executive Officer. | |
31.2
|
Certification of Senior Vice President and Chief Financial Officer. | |
32.1
|
Certification under 18 U.S.C., Section 1350. |
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