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, which are based upon lessee-reported usage and billed monthly, and 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 accounted for as a liability, which is reduced when maintenance work is performed during the lease and reimbursement to the lessee is paid. 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 are recorded as maintenance reserves revenue (assuming cash is received or collections are reasonably assured).

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 balance sheets reflect refundable maintenance payments billed to lessees based on usage and accrued maintenance costs as liabilities for maintenance reserves. At March 31, 2012 and December 31, 2011, the Company's maintenance reserves and accruals consisted of the following:

	March 31, 2012		December 31, 2011

Refundable maintenance reserves	$	5,440,700	$	4,801,300
Accrued maintenance costs		985,500		1,013,400
	$	6,426,200	$	5,814,700

Additions to and deductions from the Company's accrued maintenance costs during the three months ended March 31, 2012 and 2011 for aircraft maintenance were as follows:

	For Three Months Ended March 31,
	2012			2011

Balance, beginning of period	$	1,013,400		$	2,446,800

Additions:
Charged to expense		754,800			4,592,500
Reversals of previously accrued maintenance costs		(300	)		(24,400	)
Total maintenance expense		754,500			4,568,100
Capital equipment		46,000			207,400
Accrued claims related to refundable maintenance reserves		292,300			8,700
Prepaid maintenance		122,500			(407,900	)
Total additions		1,215,300			4,376,300

Deductions:
Payments		1,026,200			3,940,700
Other		217,000			-
Total deductions		1,243,200			3,940,700

Net (decrease)/increase in accrued maintenance costs		(27,900	)		435,600

Balance, end of period	$	985,500		$	2,882,400