3.	Maintenance and Accrued Costs

Maintenance costs under the Company's triple net operating leases are generally the responsibility of the lessees. Most of the Company's leases require payment of “maintenance reserves” (based upon usage) that are intended to accumulate funds that are expected to cover most or all of the cost of the lessees' performance of certain maintenance obligations under the leases. Some of these payments for maintenance reserves are refundable, and some are non-refundable.

Refundable maintenance reserves received by the Company are based on lessee-reported usage during the applicable month and are accounted for as a liability, which is reduced when maintenance work is performed during the lease. Maintenance reserves that are refundable to the lessee are refunded after all return conditions specified in the lease and, in some cases, any other payments due under the lease are satisfied. Any refundable reserves retained by the Company to satisfy return conditions are recorded as revenue when the aircraft is returned.

Non-refundable maintenance reserves billed to lessees are recorded monthly as maintenance reserves revenue (assuming cash is received or collections are reasonably assured) based on the lessee-reported asset usage during the applicable month.

The Company uses the direct expensing method to account for maintenance costs that are either incurred by the Company directly (usually associated with off-lease aircraft) or which are paid pursuant to non-refundable maintenance reserve provisions of its leases. Maintenance costs incurred by the Company are expensed as maintenance is performed. Maintenance costs associated with non-refundable reserves are expensed in the period in which sufficient information is received from the lessee to estimate maintenance costs, or when a reimbursement claim is made by the lessee for maintenance incurred where no earlier estimate was possible.

The timing difference between recording maintenance reserves revenue as usage occurs and recording maintenance expense as maintenance is performed can have material effects on the volatility of reported earnings.

The accompanying condensed balance sheets reflect refundable maintenance payments billed to lessees based on usage and accrued maintenance costs as liabilities for maintenance reserves. At June 30, 2011 and December 31, 2010, the Company's maintenance reserves and accruals consisted of the following:

	June 30, 2011		December 31, 2010

Refundable maintenance reserves	$	5,109,300	$	4,415,100
Accrued maintenance costs		2,956,900		2,446,800
	$	8,066,200	$	6,861,900

Additions to and deductions from the Company's accrued maintenance costs during the six months ended June 30, 2011 and 2010 for aircraft maintenance were as follows:

	For the Six Months Ended June 30,
	2011			2010

Balance, beginning of period	$	2,446,800		$	2,433,700

Additions:
Charged to expense		7,909,000			5,915,700
Reversals of previously accrued maintenance costs		(401,300	)		(130,400	)
Total maintenance expense		7,507,700			5,785,300
Capital equipment		242,600			151,700
Accrued claims related to refundable maintenance reserves		81,200			662,000
Prepaid maintenance		201,100			198,300
Total additions		8,032,600			6,797,300

Deductions -
Payments		6,915,500			4,813,200
Other		607,000			159,400
		7,522,500			4,972,600

Net increase in accrued maintenance costs		510,100			1,824,700

Balance, end of period	$	2,956,900		$	4,258,400