3.Maintenance Reserves and Accrued Maintenance Costs

Maintenance costs under the Company's triple net 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. Such reserves are refunded after all return conditions 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.

At December 31, 2012 and 2011, the liability for maintenance reserves and accrued maintenance costs consisted of refundable maintenance payments billed to lessees based on usage and accrued maintenance costs for both off-lease aircraft and lessee maintenance claims for non-refundable maintenance reserves. Refundable maintenance reserves at December 31, 2012 also included a $6.5 million payment received from a lessee when its two aircraft leases were assigned to a new lessee upon sale of the original lessee's assets. As discussed in Note 11, the subject aircraft were returned to the Company in the first quarter of 2013.

	December 31, 2012		December 31, 2011

Refundable maintenance reserves	$	14,477,400	$	4,801,300
Accrued maintenance costs		878,700		1,013,400
	$	15,356,100	$	5,814,700

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

	For Years Ended December 31,
	2012			2011

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

Additions:
Charged to expense		4,198,800			11,466,100
Reversals of previously accrued maintenance costs		(116,700	)		(532,400	)
Total maintenance expense		4,082,100			10,933,700
Capital equipment		52,200			487,800
Accrued claims related to refundable maintenance reserves		763,900			83,500
Prepaid maintenance and other		239,700			-
Total additions		5,137,900			11,505,000

Deductions:
Payments		4,614,900			11,785,300
Prepaid maintenance		-			374,200
Other		657,700			778,900
Total deductions		5,272,600			12,938,400

Net decrease in accrued maintenance costs		(134,700	)		(1,433,400	)

Balance, end of period	$	878,700		$	1,013,400