10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

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:  001-13387

AeroCentury Corp.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	94-3263974
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1440 Chapin Avenue, Suite 310

Burlingame, California 94010

(Address of Principal Executive Offices)

(650) 340-1888

(Registrant’s Telephone Number Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 xNo  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 submit and post such files).  

Yes  oNo  x

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  oAccelerated filer  o

Non-accelerated filer  oSmaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  oNo  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of May 15, 2014 the issuer had 1,606,557shares of common stock, par value $0.001 per share, issued, of which 63,300 are held as treasury stock.

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PART I

FINANCIAL INFORMATION

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements in this Report other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any statements of plans and objectives for future operations and any statements of assumptions underlying any of the foregoing. Statements that include the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof, or other comparable terminology are forward-looking statements. Forward-looking statements include: (i) in Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cash Flow,” the Company’s statement that it will have adequate cash flow to meet its ongoing operational needs; (ii) in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –– Outlook,” the Company’s statements that there remains a heightened risk of an unanticipated lessee default; that there is an increased possibility that the Company’s current lessees will choose to return leased assets at lease expiration rather than renew the existing leases; that the Company is likely to experience lower on-lease utilization rates and longer lead times for remarketing of returned assets as well as lower rental rates for remarketed assets through 2014 and that such trend is expected to continue to affect the Company’s operating results through 2014; and that there is liiekly to be a lack of significant growth in the pool of customers requiring aircraft; and (iii) in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future Results,” that the Company believes it will have sufficient cash funds to make any required principal repayment that arises due to any borrowing base limitations; that most of the Company’s growth will be outside the United States; that the Company intends to continue to focus solely on regional aircraft and engines; that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage new aircraft types and engines; that effective mitigating factors exist against undue compensation-incented risk-taking by JMC; that it is contemplated that the burden and cost of complying with regulatory requirements will fall primarily upon lessees of equipment or the Company as owner of the equipment; that the costs of complying with environmental regulations will not have a material adverse effect on the Company; that the Company has sufficient cyber-security measures in place; and that sufficient replacement mechanisms exist in the event of an interruption in its internet communications ability that there would not be a material adverse financial impact on the Company’s business.  These forward-looking statements involve risks and uncertainties, and it is important to note that the Company's actual results could differ materially from those projected or assumed in such forward-looking statements. Among the factors that could cause actual results to differ materially are the factors detailed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations –– Factors That May Affect Future Results," including the lack of any unexpected lessee defaults or insolvency; compliance by the Company's lessees with obligations under their respective leases; no sudden current economic downturn or unanticipated future financial crises; the continued availability of financing for acquisitions under the Credit Facility; the Company’s success in finding appropriate assets to acquire with such financing; deviations from the assumption that future major maintenance expenses will be relatively evenly spaced over the entire portfolio; and future trends and results which cannot be predicted with certainty. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear herein. All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement or risk factor. You should consult the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission.

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 Item 1.Financial Statements.

AeroCentury Corp.

Balance Sheets

(Unaudited)

ASSETS
	March 31,			December 31,
	2014			2013
Assets:
Cash and cash equivalents	$	4,929,200		$	2,112,700
Accounts receivable, including deferred rent of $475,800 and $217,200 at      March 31, 2014 and December 31, 2013, respectively		2,501,100			3,303,800
Finance leases receivable		1,867,300			1,895,200
Aircraft and aircraft engines held for lease, net of accumulated    depreciation of $51,796,400 and $50,679,300 at      March 31, 2014 and December 31, 2013, respectively		179,709,800			152,954,600
Assets held for sale		519,800			735,000
Prepaid expenses and other		3,553,800			3,633,000
Total assets	$	193,081,000		$	164,634,300
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	1,043,900		$	1,202,700
Notes payable and accrued interest		104,980,800			77,527,300
Maintenance reserves		14,946,800			16,671,800
Accrued maintenance costs		1,547,300			1,612,100
Security deposits		7,379,200			6,265,000
Unearned revenues		1,950,000			646,700
Deferred income taxes		14,727,600			14,573,800
Income taxes payable		800			-
Total liabilities		146,576,400			118,499,400
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 2,000,000 shares    authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value, 10,000,000 shares    authorized, 1,606,557 shares issued and outstanding		1,600			1,600
Paid-in capital		14,780,100			14,780,100
Retained earnings		32,227,000			31,857,300
		47,008,700			46,639,000
Treasury stock at cost, 63,300 shares		(504,100	)		(504,100	)
Total stockholders’ equity		46,504,600			46,134,900
Total liabilities and stockholders’ equity	$	193,081,000		$	164,634,300

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Operations

(Unaudited)

	For the Three Months Ended March 31,
	2014		2013
Revenues and other income:
Operating lease revenue, net	$	5,850,800	$	4,900,200
Maintenance reserves revenue, net		1,675,800		6,528,500
Net gain on disposal of assets		391,900		218,200
Other income		84,400		550,000
		8,002,900		12,196,900
Expenses:
Maintenance		2,344,300		2,139,500
Depreciation		1,865,800		1,757,200
Management fees		1,327,300		1,095,900
Interest		1,307,000		1,065,600
Insurance		307,200		253,700
Professional fees, general and administrative and other		304,500		327,000
Other taxes		22,600		22,600
		7,478,700		6,661,500
Income before income tax provision		524,200		5,535,400
Income tax provision		154,500		1,717,500
Net income	$	369,700	$	3,817,900
Earnings per share:
Basic	$	0.24	$	2.47
Diluted	$	0.23	$	2.41
Weighted average shares used in   earnings per share computations:
Basic		1,543,257		1,543,257
Diluted		1,583,064		1,582,327

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,
	2014			2013
Net cash provided by operating activities	$	4,783,300		$	3,241,900
Investing activities:
Proceeds from sale of aircraft and aircraft engines held for lease,    net of re-sale fees		2,738,000			1,650,000
Proceeds from sale of assets held for sale, net of re-sale fees		215,200			36,000
Purchases of aircraft and aircraft engines		(32,225,000	)		(1,766,400	)
Net cash used in investing activities		(29,271,800	)		(80,400	)
Financing activities:
Borrowings under Credit Facility		30,600,000			-
Repayments of Credit Facility		(3,200,000	)		(300,000	)
Debt issuance costs		(95,000	)		(2,055,000	)
Net cash provided by/(used in) financing activities		27,305,000			(2,355,000	)
Net increase in cash and cash equivalents		2,816,500			806,500
Cash and cash equivalents, beginning of period		2,112,700			1,596,800
Cash and cash equivalents, end of period	$	4,929,200		$	2,403,300

During the three months ended March 31, 2014 and 2013, the Company paid interest totaling $1,024,800 and $715,900, respectively. The Company paid no income taxes during the three months ended March 31, 2014 or 2013.  

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

1.Organization and Summary of Significant Accounting Policies

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, 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 generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

1.Organization and Summary of Significant Accounting Policies (continued)

(c)Fair Value Measurements (continued)

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	March 31, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	4,642,500	$	4,642,500	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-
Total	$	4,642,500	$	4,642,500	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-

As of March 31, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value. During the three months ended March31, 2014 and 2013, there were no recorded impairments of long-lived assets.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

1.Organization and Summary of Significant Accounting Policies (continued)

(d)Finance Leases

The leases for one of the Company’s aircraft and two engines contain lessee purchase options at prices substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase options to be “bargain purchase options” and has classified such leases as finance leases for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance leases receivable based on the interest rate inherent in the applicable lease.  The Company recognized interest earned on finance leases as “other income” in the amount of $83,700 and $30,400 in the three months ended March 31, 2014 and 2013, respectively.

2.Adjustment of Previously Reported Financial Information

The Company adopted the direct expensing method under Financial Accounting Standards Board (“FASB”) Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG AIR-1”) on January 1, 2007.  Under FSP AUG AIR-1, non-refundable maintenance reserves were recorded as maintenance reserves revenue (assuming cash was received or collections was reasonably assured), and associated maintenance work was recorded as maintenance expense when the work was performed.The Company has evaluated its method of accounting for maintenance reserves and lessor maintenance obligations and has elected to change its method of accounting, effective January 1, 2014, to:

(i)  Recognize non-refundable maintenance reserves as liabilities for deposits against future maintenance reimbursements of maintenance reserves received in the normal course of ongoing leases;

(ii) Recognize reimbursements from such collected reserves as disbursements against the liability when claims are submitted for payment against previously collected maintenance reserves;

(iii) Reflect as liabilities non-refundable reserves received by the prior lessor upon acquisition of an aircraft which are claimable by the lessee when maintenance is performed;

(iv) Recognize as income non-refundable reserves not refunded to lessees upon termination of the lease and return of the aircraft to the Company in accordance with all lease return requirements; and

(v) Record lessor maintenance obligations as liabilities upon acquisition of an aircraft subject to a lease under which the Company assumes the prior lessor’s obligation to pay a portion of a first-time maintenance event.

In management’s judgment, the change to this accounting method is preferable in that it will provide the user of the Company’s financial statements a better understanding of the underlying business termsof the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations, and its lessor maintenance obligations.  The change in accounting method resulted in a cumulative net decrease of $8,088,200 in stockholders’ equity as of January 1, 2013.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

2.Adjustment of Previously Reported Financial Information (continued)

The effects on the Company’s December 31, 2013 balance sheet and statement of operations for the quarter ended March 31, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250

were as follows: 

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

2.Adjustment of Previously Reported Financial Information (continued)

	For the Three Months Ended March 31, 2013
	As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	4,900,200	$	4,900,200	$	-
Maintenance reserves income, net		7,134,300		6,528,500		(605,800	)
Gain on disposal of assets		218,200		218,200		-
Other income		550,000		550,000		-
		12,802,700		12,196,900		(605,800	)
Maintenance		2,405,200		2,139,500		(265,700	)
Depreciation		1,746,000		1,757,200		11,200
Management fees		1,092,100		1,095,900		3,800
Interest		1,065,600		1,065,600		-
Professional fees, general and administrative and other		327,000		327,000		-
Insurance		253,700		253,700		-
Other taxes		22,600		22,600		-
		6,912,200		6,661,500		(250,700	)
Income before taxes		5,890,500		5,535,400		(355,100	)
Tax provision		1,838,200		1,717,500		(120,700	)
Net income	$	4,052,300	$	3,817,900	$	(234,400	)
Earnings per share:
Basic	$	2.63	$	2.47	$	(0.16	)
Diluted	$	2.56	$	2.41	$	(0.15	)

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

3.Aircraft and Aircraft Engines Held for Lease or Sale

(a)Assets Held for Lease

At March 31, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	March 31, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		20	%		9		23	%
Bombardier CRJ-700		3		17	%		-		-
Fokker 100		7		16	%		7		19	%
Bombardier Dash-8-Q400		3		14	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		7	%		10		10	%
General Electric CF34-8E5 engine		3		5	%		3		6	%
Saab 340B		3		2	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		-			2		-
Saab 340A		1		-			1		-

Net book value excludes the Company’s Saab 340A aircraft and the two General Electric CT7-9B engines, which are subject to finance leases.

During the first quarter of 2014, the Company purchased three Bombardier CRJ-700 aircraft on lease to a customer in the United States, and used cash of $32,225,000 for the purchase and capital improvement of aircraft.  During the first quarter of 2013, the Company used cash of $1,766,400 for the purchase and capital improvement of aircraft and engines.

During the first quarter of 2014, the Company recorded a net gain totaling $391,900 related to the sale of a Fokker 50 aircraft and a Saab 340B aircraft.  During the first quarter of 2013, the Company sold a Fokker 50 aircraft and recorded a gain of $218,200.

During the first quarter of 2014, the Company extended the leases for five of its assets.

At March 31, 2014, thirteen of the Company’s assets, comprised of three Fokker 50 aircraft, one Dash-8-311 aircraft, one Saab 340B aircraft, six Fokker 100 aircraft, one General Electric CF34-8E5 engine and one Tay 650-15 engine, which represented 20% of the net book value of the Company’s aircraft and engines, were off lease.

As discussed in Note 8, the Company sold a Saab 340B aircraft in April 2014.  The Company has a purchase agreement and 100% deposit for the sale of another Saab 340B aircraft.  The Company has a signed purchase agreement and non-refundable deposit for sale of one of its off-lease Fokker 50 aircraft.  The Company is seeking re-lease opportunities for the other off-lease assets, other than the Tay 650-15 engine that is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

3.Aircraft and Aircraft Engines Held for Lease or Sale (continued)

(b)Assets Held for Sale

Assets held for sale include two airframes.  During the three months ended March 31, 2014 and 2013, the Company received $215,200 and $36,000, respectively, from the sale of parts belonging to the two airframes.  No adjustments to the carrying value of the Company’s assets held for sale were recorded during the three months ended March 31, 2014 and 2013.

4.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 and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease end.  Non-refundable maintenance reserves are retained by the Company at lease end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances.

Maintenance reserves in the accompanying balance sheets include refundable and non-refundable maintenance reserves payments billed to lessees, which are paid out as related maintenance is performed or, in the case of refundable reserves, at the end of the lease.  Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of reserves received from lessees and (ii) lessor maintenance obligations assumed upon acquisition of aircraft subject to a lease with such provisions.

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.  Any reserves retained by the Company at lease end are recorded as revenue at that time.

5.Notes Payable and Accrued Interest

At March 31, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	March 31, 2014		December 31, 2013
Credit Facility principal	$	104,900,000	$	77,500,000
Credit Facility accrued interest		80,800		27,300
	$	104,980,800	$	77,527,300

The Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, expires on September 30, 2015. The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a customer concentration covenant under its Credit Facility agreement at the September 30, 2013 and December 31, 2013 calculation dates.  The Company was in compliance with all other covenants under the Credit Facility agreement at December 31, 2013, and was in compliance with all covenants at March 31, 2014.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

5.Notes Payable and Accrued Interest (continued)

The unused amount of the Credit Facility was $25,100,000 and $52,500,000 as of March 31, 2014 and December 31, 2013, respectively.

The weighted average interest rate on the Credit Facility was 3.94% at March 31, 2014 and December 31, 2013.

6.Computation of Earnings Per Share

Basic and diluted earnings per share are calculated as follows:

	For the Three Months Ended March 31,
	2014		2013
Net income	$	369,700	$	3,817,900
Weighted average shares outstanding for the period		1,543,257		1,543,257
Dilutive effect of warrants		39,807		39,070
Weighted average diluted shares used in calculation    of diluted earnings per share		1,583,064		1,582,327
Basic earnings per share	$	0.24	$	2.47
Diluted earnings per share	$	0.23	$	2.41

Basic earnings per common share is computed using net income and the weighted average number of common shares outstanding during the period.  Diluted earnings per common share are computed using net income and the weighted average number of common shares outstanding, assuming dilution.  Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method.  

7.Related Party Transactions

The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").  Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company.

Under the management agreement, JMC receives a monthly management fee based on the net asset value of the assets under management. JMC also receives an acquisition fee for locating assets for the Company.  Acquisition fees are included in the cost basis of the asset purchased.  JMC may receive a remarketing fee in connection with the re-lease or sale of the Company’s assets. Remarketing fees are amortized over the applicable lease term or included in the gain or loss on sale recognized upon sale of the applicable asset.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

March 31, 2014

7.Related Party Transactions (continued)

Fees incurred during the quarters ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
	2014		2013
Management fees	$	1,327,300	$	1,095,900
Acquisition fees		980,000		60,000
Remarketing fees		64,000		68,000

8.Subsequent Events

In April 2014, the Company sold a Saab 340B aircraft and recorded a gain of approximately $83,000.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2013 and the unaudited financial statements and related notes that appear elsewhere in this report.

Critical Accounting Policies, Judgments and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company’s operating results and financial position could be materially affected.  For a discussion of Critical Accounting Policies, Judgments and Estimates, refer to Note 1 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.

For a discussion of the Company’s accounting policies regarding maintenance reserves, refer to Note 4 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.  For a discussion of the Company's change in method of accounting for certain maintenance reserves and lessor maintenance obligations and its application to prior periods, refer to Note 2 to the Company's financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

The Company recorded net income of $0.4 million in the quarter ended March 31, 2014 compared to net income of $3.8 million the same period of 2013.  

Quarterly operating lease revenue increased 19% from $4.9 million in the quarter ended March 31, 2013 to $5.9 million in the first quarter of 2014, primarily as a result of increases in operating lease revenue from assets purchased during 2013 and 2014.  The effect of these increases was partially offset by the effect of assets that were on lease in the 2013 period but off lease in the 2014 period and the effect of asset sales during 2013.

Maintenance reserves revenue decreased 74% from $6.5 million in the quarter ended March 31, 2013 to $1.7 million in the quarter ended March 31, 2014.  The amount recorded in the 2013 period was received from the prior lessee of two of the Company’s aircraft when the leases were assigned to a new lessee in 2012 and recognized as maintenance reserves revenue upon termination of those leases in the first quarter of 2013.  The 2014 amount represents maintenance reserves retained at lease end when an aircraft was returned to the Company.

The average net book value of assets held for lease during the first quarters of 2014 and 2013 was approximately $182.1 million and $143.9 million, respectively, representing an increase of 27%.  The average portfolio utilization during the quarters ended March 31, 2014 and 2013 was 81% and 78%, respectively.

During the first quarter of 2014, the Company recorded net gains totaling $0.4 million related to the sale of two aircraft.   During the first quarter of 2013, the Company recorded a gain of $0.2 million related to the sale of one aircraft.  

The Company’s maintenance expense increased 10% to $2.3 million in the first quarter of 2014 from $2.1 million in the same period of 2013, as a result of increases in maintenance performed by the Company on off-lease aircraft.  During the first quarters of 2014 and 2013, retained maintenance reserves funded $0.1 million and $0.7 million, respectively, of the Company’s maintenance expense in those periods.

During the first quarters of 2014 and 2013, the Company added equipment to the lease portfolio of approximately $31.2 million and $1.8 million, respectively.  The Company sold equipment with a book value of approximately $2.6 million and $1.4 millionduring the first quarters of 2014 and 2013, respectively.  Depreciation and management fees in the first quarter of 2014 increased by 6% and 21%, respectively, over the previous year, primarily as a result of acquisitions and changes in residual assumptions from year to year.

The Company’s interest expense increased by 23% from $1.1 million in the first quarter of 2013 to $1.3 million in the first quarter of 2014, primarily as a result of a higher average Credit Facility balance, the effect of which was offset by lower amortization of Credit Facility fees in 2014.

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Liquidity and Capital Resources

The Company is currently financing its assets primarily through debt financing and excess cash flows.  

(a)Credit Facility

The Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, expires on September 30, 2015. The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a lessee concentration covenant under its Credit Facility agreement at the September 30, 2013 and December 31, 2013 calculation dates. The Company was in compliance with all other covenants under the Credit Facility agreement at December 31, 2013, and was in compliance with all covenants at March 31, 2014.

There can be no assurance that the Company will be in compliance with any of the covenants under the Credit Facility through its term, and in the event of any failure to be in compliance, the Company will need to seek additional waivers or amendment of applicable covenants from its lenders if such compliance failure is not timely cured.  Any default under the Credit Facility, if not cured within the time permitted under the facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company. 

The Company’s interest expense generally increases and decreases with prevailing interest rates. The Company has the ability to enter into interest rate swaps to economically hedge against interest rate increases in its floating rate debt under the Credit Facility and has done so in the past.  

For additional information regarding the Company’s credit facility, refer to Note 5 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.

(b)Cash flow

The Company’s primary sources of cash are (i) rent payments due under the Company’s operating and finance leases and (ii) maintenance reserves billed monthly to lessees based on asset usage.

The Company’s primary uses of cash are for purchase of aircraft and engines, maintenance expense and reimbursement to lessees from collected maintenance reserves, management fees, professional fees, insurance, and Credit Facility interest and principal payments.  The amount of interest paid by the Company depends on the outstanding balance of its Credit Facility, which carries a floating interest rate as well as an interest rate margin, and is therefore also dependent on changes in prevailing interest rates.

The timing and amount of the Company’s payments for maintenance vary, depending on the timing of lessee-performed maintenance that is eligible for reimbursement, the aggregate amount of such claims and the timing and amount of maintenance incurred in connection with preparation of off-lease assets for re-lease to new customers.  The Company’s maintenance payments typically constitute a large portion of its cash needs, and the Company may from time to time borrow additional funds under the Credit Facility to provide funding for such payments.

Management believes that the Company will have adequate cash flow to meet its ongoing operational needs, including any required repayments under the Credit Facility due to borrowing base limitations, based upon its estimates of future revenues and expenditures, which include assumptions regarding (i) revenues for assets to be re-leased, (ii) required debt payments, (iii) interest rates, (iv) the cost and anticipated timing of maintenance to be performed and (v) timely use of proceeds of unused debt capacity toward additional acquisitions of income producing assets.

Although the Company believes that the assumptions it has made in forecasting its cash flow are reasonable in light of experience, actual results could deviate from such assumptions.  Among the more significant factors that could have an impact on the accuracy of cash flow assumptions are (i) lessee non-compliance with lease obligations, (ii) inability to locate new lessees for returned equipment within a reasonable remarketing period, or at a rent level consistent with projected rates for the asset, (iii) lessee performance of maintenance, and payment of related maintenance claims, earlier than anticipated, (iv) inability to locate and acquire a sufficient volume of additional assets at prices that will produce acceptable net returns, (v) increases in interest rates, (vi) inability to timely dispose of off-lease assets at prices commensurate with their market value,  and (vii) any one or a combination of the above factors that causes the Company to violate covenants under the Credit Facility agreement, which may in turn require repayment of some or all of the amounts outstanding.

(i)Operating activities

The Company’s cash flow from operations increased by $1.5 million in the first quarter of 2014 compared to the same period in 2013.  As discussed below, the change in cash flow was primarily a result of increases in payments received for operating lease revenue and security deposits as well as a decrease in payments for aircraft insurance, the effects of which were partially offset by increases in payments for maintenance, interest and management fees.

Payments for operating lease revenue and maintenance reserves

Payments received from lessees for rent increased by $2.5 million in the first quarter of 2014 compared to the first quarter of 2013, primarily due to rent from assets purchased during late 2013 and early 2014.  Payments received for maintenance reserves decreased by $0.3 million in the first quarter of 2014 compared to the same period in 2013, primarily as a result of payment delinquencies and lower utilization of some assets for which the Company collects maintenance reserves.

The Company is receiving no lease revenue for its assets that are currently off lease, which assets are comprised of three Fokker 50 aircraft, one Saab 340B aircraft, six Fokker 100 aircraft, two General Electric CF34-8E engines, and one Tay 650-15 engine.  The Tay 650-15 engine, which was acquired during the first quarter of 2013, is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

Payments for maintenance

Payments for maintenance increased by $1.3 million in the first quarter of 2014 compared to the first quarter of 2013, primarily as a result of an increase in maintenance costs for off-lease aircraft.  The amount of payments for maintenance in future periods will depend on the amount and timing of maintenance paid as reimbursement to lessees for maintenance reserves claims, which are dependent upon utilization and required maintenance intervals, and maintenance paid for off-lease assets.

Payment for interest and management fees

Payments for interest and management fees increased by $0.4 million and $0.6 million, respectively, in the first quarter of 2014 compared to the same period of 2013 as a result of a higher Credit Facility balance and asset purchases.

(ii)Investing activities

During the three months ended March 31, 2014 and 2013, the Company received cash of $3.0 million and $1.7 million, respectively, from the sale of assets.  During the same time periods, the Company used cash of $32.2 million and $1.8 million, respectively, for purchases and capital improvement of aircraft.

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(iii)Financing activities

The Company borrowed $30.6 million and $0 under the Credit Facility during the first quarters of 2014 and 2013, respectively.  In these same time periods, the Company repaid $3.2 million and $0.3 million, respectively, of its total outstanding debt under the Credit Facility.  Such repayments were funded by excess cash flow.  During the first quarters of 2014 and 2013, the Company paid $0.1 million and $2.1 million of fees related to the extension and administration of the Company’s Credit Facility.  Such fees are amortized over the term of the Credit Facility.

Outlook  

(a)General

The slow recovery from the global downturn has resulted in a significant reduction in airline passenger volume and, in reaction to that, a reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly all geographic areas, especially Europe. This presents a challenging environment for the Company in three respects:

•There remains heightened risk of an unanticipated lessee default, as evidenced by the bankruptcies of two of the Company’s customers in each of 2012 and 2013.  A lessee’s default and the unscheduled return of an asset to the Company for remarketing could result not only in reduced operating lease revenue but also in unanticipated, unrecoverable expenses arising from the lessee’s default on its maintenance and return condition obligations. The Company monitors the performance of all of its customers and has noted that several of the Company’s customers have experienced weakened operating results and have not yet achieved financial stability.

•      There is also a greater possibility that the Company’s current lessees will choose to return leased assets at lease expiration rather than renew the existing leases, notwithstanding that any such lessee may incur significant expenses to satisfy return conditions.  Due to decreased demand for aircraft capacity, it is likely that the Company will experience lower on-lease utilization rates and longer lead times for remarketing of returned assets, as well as lower rental rates for remarketed assets, as was the case with several lease extensions and re-leases since 2011. This trend is expected to continue to affect the Company’s operating revenue through 2014.

•      Finally, due to the slow growth in demand for air travel and capacity by carriers, there is likely to be a lack of significant growth in the pool of customers requiring aircraft.  A slow-growing pool of customers requiring aircraft could increase the Company’s reliance on a small number of lessees, which increases the Company’s risk of financial covenant compliance (see “Factors That May Affect Future Results – Concentration of Lessees and Aircraft Type,” below).

(b)Operating Segments

The Company operates in one business segment, the leasing of regional aircraft to foreign and domestic regional airlines, and therefore does not present separate segment information for lines of business.

At April 30, 2014, the dominant types of aircraft in the Company’s portfolio were as follows:

Model	Number owned		% of net book value
Bombardier Dash-8-300		9		20	%
Bombardier CRJ-700		3		17	%
Fokker 100		7		16	%
Bombardier Dash-8-Q400		3		14	%
Bombardier CRJ-705		1		10	%

For the month ended April 30, 2014, the Company’s sources of operating lease revenue were from the following regions:

Region	Number of lessees	% of operating lease revenue
North America	2	31%
Africa	2	25%
Asia	4	18%
Caribbean	1	13%
Europe	3	12%
South America	1	1%

(c)Remarketing Efforts

In April 2014, the Company sold a Saab 340B aircraft.  The Company has a 100% deposit for the sale of a second Saab 340B aircraft.  The Company has a signed purchase agreement and deposit for the sale of an off-lease Fokker 50 aircraft.  The Company is seeking remarketing opportunities for a Dash-8-300 aircraft, two Fokker 50 aircraft and two General Electric CF34-8E5 engines.

Six of the Company’s Fokker 100 aircraft are off lease.  The Company has signed letters of intent for the lease of three of the aircraft, has received initial deposits and expects to deliver the aircraft during the second quarter of 2014.  The Company is seeking remarketing opportunities for its other off-lease Fokker 100 aircraft.

Leases for nine of the Company’s assets will expire during the remainder of 2014.  The Company has received indications that the lessees for three of the assets will extend the applicable leases.  In addition, the Company believes a fourth lease expiring in 2014 will be extended.  The lessee for one asset is considering the purchase option contained in the lease.  The Company believes that is likely that the remaining four assets will be returned at lease end.

The Company is considering selling some or all of its off-lease aircraft.  The Company is analyzing the amount and timing of maintenance required to remarket the aircraft, the amount of which may differ significantly if the aircraft are sold rather than re-leased.

(d)Credit Facility

The Company believes that available borrowings under the Credit Facility, considering possible lessee arrearages or off-lease periods, will be sufficient to meet its continuing obligations and to fund anticipated acquisitions.  However, there can be no assurance the Company's beliefs will prove to be correct and that the Company will have sufficient cash to make any required Credit Facility repayments.  Although the Company believes it will continue to be in compliance with all of the Credit Facility covenants through the term of the Credit Facility, there can be no assurance of such compliance, and in the event of any non-compliance, the Company will need to seek waivers or amendment of applicable covenants from its lenders if such compliance failure is not timely cured.  Any default under the Credit Facility, if not cured in the time permitted under the facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company. 

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Factors that May Affect Future Results

Ownership Risks.  The Company’s leases are typically less than the entire anticipated remaining useful life of the leased assets.  The Company’s ability to recover its investment in an asset subject to such a lease is dependent upon the Company’s ability to profitably re-lease or sell the asset after the expiration of the lease term.  Some of the factors that have an impact on the Company’s ability to re-lease or sell the asset include worldwide economic conditions, general aircraft market conditions, regulatory changes that may make an asset’s use more expensive or preclude use due to the age of the aircraft or unless the asset is modified, changes in the supply or cost of aircraft equipment and technological developments that cause the asset to become obsolete. If the Company is unable to remarket its assets on favorable terms when the leases for such assets expire, the Company’s financial condition, cash flow, ability to service debt and results of operations could be adversely affected.  

The Company acquires used aircraft equipment.  The market for used aircraft equipment has been cyclical, and generally reflects economic conditions and the strength of the travel and transportation industry.  The demand for and value of many types of used aircraft in the recent past has been depressed by such factors as airline financial difficulties, the number of new aircraft on order and the number of aircraft coming off lease, as well as introduction of new aircraft models and types that may be more technologically advanced, more fuel efficient and/or less costly to maintain and operate.  Values may also increase for certain aircraft types that become desirable based on market conditions and changing airline capacity.

In addition, a successful investment in an asset subject to a lease depends in part upon having the asset returned by the lessee in the condition as required under the lease.  Each lease typically obligates a customer to return an asset to the Company in a specified condition, which generally requires it be returned in equal or better condition than at delivery to the lessee.  If the lessee becomes insolvent during the term of its lease and the Company has to repossess the asset, it is unlikely that the lessee will have the financial ability to meet these return obligations and it is likely that the Company would be required to expend funds in excess of any maintenance reserves collected to return the asset to a remarketable condition.  If the lessee files for bankruptcy and rejects the aircraft lease, although the lessee is required to return the aircraft, the lessee is relieved from all further obligations under the lease, including the obligation to return the aircraft in the condition required under the lease.  In that case, it is also likely that the Company would be required to expend funds in excess of any maintenance reserves collected to return the asset to a remarketable condition.

Several of the Company’s leases do not require payment of monthly maintenance reserves, which serve as the lessee’s advance payment for its future repair and maintenance obligations.  If repossession due to lessee default or bankruptcy occurs under such a lease, the Company will be left with the costs of unperformed repair and maintenance under the applicable lease and the Company may incur an unanticipated expense in order to re-lease or sell the asset.

Furthermore, the occurrence of unexpected adverse changes that impact the Company’s estimates of expected cash flows generated from an asset may result in an asset impairment charge against the Company’s earnings. The Company periodically reviews long-term assets for impairment, in particular, when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of an asset is estimated to be not recoverable and exceeds its fair value. The Company may be required to recognize asset impairment charges in the future as a result of a prolonged weak economic environment, challenging market conditions in the airline industry or events related to particular lessees, assets or asset types.

Lessee Credit Risk. The Company carefully evaluates the credit risk of each customer and attempts to obtain a third party guaranty, letters of credit or other credit enhancements, if it deems them necessary in addition to customary security deposits.  There can be no assurance, however, that such enhancements will be available, or that, if obtained, will fully protect the Company from losses resulting from a lessee default or bankruptcy.

If a lessee that is a certified U.S. airline were in default under a lease and sought protection under Chapter 11 of the United States Bankruptcy Code, Section 1110 of the Bankruptcy Code would automatically prevent the Company from exercising any remedies against such lessee for a period of 60 days.  After the 60-day period had passed, the lessee would have to agree to perform the lease obligations and cure any defaults, or the Company would have the right to repossess the equipment.  However, this procedure under the Bankruptcy Code has been subject to significant litigation, and it is possible that the Company’s enforcement rights may be further adversely affected by a bankruptcy filing by a defaulting lessee.

Several of the Company’s customers have experienced significant financial difficulties, become insolvent, or have been declared or have filed for bankruptcy.  Such an insolvency or bankruptcy usually discharges all unpaid obligations of the customer existing at the time of the filing, resulting in a total loss of those receivables.  The Company closely monitors the performance of all of its lessees and its risk exposure to any lessee that may be facing financial difficulties, in order to guide decisions with respect to such lessee that would mitigate losses in the event the lessee is unable to meet or rejects its lease obligations.  There can be no assurance that additional customers will not become insolvent or file for bankruptcy or that the Company will be able to mitigate any of the resultant losses.

Risks of Debt Financing; Credit Facility Financial Covenants.  The Company’s use of debt as the primary form of acquisition financing subjects the Company to increased risks associated with leveraging.  In addition to payment obligations, the Credit Facility agreement includes financial covenants, including some requiring the company to have positive earnings, meet minimum net worth standards and be in compliance with certain financial ratios.  There can be no assurance that the Company will be in compliance with these covenants under the Credit Facility through its term, and in the event of any non-compliance, the Company would need to seek waivers or amendment of applicable covenants from its lenders if such compliance failure is not timely cured. The Company’s assets secure its debt financing, and any default in payment obligations or other covenants under the Credit Facility, if not cured in the time permitted under the facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company.

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Credit Facility Debt Limitations. Under the Credit Facility, the amount available to be borrowed is limited to the total amount of asset-specific advance rates (expressed as a percentage of each asset's net book or appraised value).  Lessee arrearages or asset off-lease periods may reduce the advance rate for the related assets and, therefore, the permitted borrowing under the facility.  Amounts subject to deferral agreements also reduce the borrowing base.  The Company believes it will have sufficient cash funds to make any required principal repayment that arises due to any such borrowing base limitations.

Availability of Financing. The Company’s continued growth will depend on its ability to continue to obtain capital, either through debt or equity financings. The financial markets have experienced significant setbacks that have continued to make access to capital and asset-based debt financing more costly and difficult to obtain. There can be no assurance that the Company’s belief regarding the availability of financing under the current Credit Facility will prove to be correct, or that the Company will succeed in finding additional funding, and if such financing is found, it may be on terms less favorable than the Company’s current debt financings.

General Economic Conditions and Lowered Demand for Travel. The Company’s business is dependent upon general economic conditions and the strength of the travel and transportation industry.  The industry is continuing to experience financial difficulty due to the slow recovery in the global economy. Passenger volume has fallen significantly for many carriers, and the loss of revenue has affected their financial condition.  The current lending environment has made it difficult or impossible for many regional carriers to find the additional debt financing on which they have traditionally relied.  The confluence of these economic factors increases the likelihood of failures among the Company’s customers.  The spread of a disease epidemic, the threat or execution of a terrorist attack against aviation, a worsening financial/bank crisis in Europe, a natural event that interrupts air traffic, political crises or other events that cause a prolonged spike in fuel prices, or other like events could exacerbate an already weakened condition and lead to widespread failures in the air carrier industry.  If lessees experience financial difficulties and are unable to meet lease obligations, this will, in turn, negatively affect the Company’s financial performance.  

Airline reductions in capacity in response to lower passenger loads have resulted in reduced demand for aircraft and aircraft engines and a corresponding decrease in market lease rental rates and aircraft values for many aircraft types.  This reduced market value could affect the Company’s results if the market value of an asset or assets in the Company’s portfolio falls below carrying value, and the Company determines that a write-down of the value on its balance sheet is appropriate. Furthermore, if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the Company’s existing portfolio is likely to decline, with the magnitude of the decline dependent on the length of the downturn and the depth of the decline in market rents.  

Economic downturns can affect certain regions of the world more than others.  As the Company’s portfolio is not entirely globally diversified, a localized downturn in one of the key regions in which the Company leases assets could have a significant adverse impact on the Company.  The Company’s significant sources of operating lease revenue by region are summarized in “Outlook - Operating Segments,” above.

Over the last few years, several of the Company’s customers have experienced financial difficulties arising from a combination of the weakened air carrier market and their own unique financial circumstances and have requested and been granted deferral of certain overdue and/or future rental or reserve payment obligations.  It is possible that the Company may enter into additional deferral agreements if the current weakened air carrier environment continues. When a customer requests a deferral of lease obligations, the Company evaluates the lessee’s financial plan, the likelihood that the lessee can remain a viable carrier, and whether the deferral will be repaid according to the agreed schedule.  The Company may elect to record the deferred rent and reserve payments from the lessee on a cash basis, which could have a material effect on the Company’s financial results in the applicable periods.

Risks Related to Regional Air Carriers.  The Company’s continued focus on its customer base of regional air carriers subjects the Company to additional risks.  Some of the lessees in the regional air carrier market are companies that are start-up, low-capital, and/or low-margin operators.  Often, the success of such carriers depends on contractual arrangements with major trunk carriers or franchises from governmental agencies that provide subsidies for operating essential air routes, both of which may be subject to termination or cancellation with short notice periods.  Regional carriers, even if financially strong, that are owned by, or are a sister corporation of, an established major carrier can also be swept into bankruptcy if the major carrier files for bankruptcy or becomes insolvent.  Two of the Company's regional air carrier customers, one located in the United States and the other in Sweden, filed for bankruptcy in 2012, and two customers, located in Germany and the Netherlands Antilles, filed for bankruptcy in 2013.

International Risks.  The Company leases assets primarily in overseas markets.  Leases with foreign lessees, however, may present different risks than those with domestic lessees.  Most of the Company’s expected growth is outside of the United States.

A lease with a foreign lessee is subject to risks related to the economy of the country or region in which such lessee is located, which may be weaker than the U.S. economy.  An economic downturn in a particular country or region may impact a foreign lessee’s ability to make lease payments, even if the U.S. and other foreign economies remain stable.

Foreign lessees are subject to risks related to currency conversion fluctuations.  Although the Company’s current leases are all payable in U.S. dollars, the Company may agree in the future to leases that permit payment in foreign currency, which would subject such lease revenue to monetary risk due to currency fluctuations.  In addition, if the Company undertakes certain obligations under a lease to contribute to a repair or improvement and if the work is performed in a foreign jurisdiction and paid for in foreign currency, currency fluctuations resulting in a weaker dollar between the time such agreement is made and the time payment for the work is made may result in an unanticipated increase in U.S. dollar-denominated cost for the Company.

Even with U.S. dollar-denominated lease payment provisions, the Company could still be affected by a devaluation of the lessee’s local currency that would make it more difficult for a lessee to meet its U.S. dollar-denominated payments, increasing the risk of default of that lessee, particularly if its revenue is primarily derived in the local currency.

Foreign lessees that operate internationally may also face restrictions on repatriating foreign revenue to their home country.  This could create a cash flow crisis for an otherwise profitable carrier, affecting its ability to meet its lease obligations.

Non-U.S. lessees are not subject to U.S. bankruptcy laws, although there may be debtor protection similar to U.S. bankruptcy laws available in some jurisdictions.  Certain countries do not have a central registration or recording system with which to locally establish the Company’s interest in equipment and related leases.  This could make it more difficult for the Company to recover an aircraft in the event of a default by a foreign lessee.  In any event, collection and enforcement may be more difficult and complicated in foreign countries.

Finally, ownership of a leased asset operating in a foreign country and/or by a foreign carrier may subject the Company to additional tax liabilities that are not present with aircraft operated in the United States.  Depending on the jurisdiction, laws governing such tax liabilities may be complex, not well formed or not uniformly enforced. In such jurisdictions, the Company may decide to take an uncertain tax position based on the best advice of the local tax experts it engages, which position may be challenged by the taxing authority.  If the taxing authority later assesses a liability, the Company may be required to pay penalties and interest on the assessed amount, which penalties and interest would not give rise to a corresponding foreign tax credit on the Company’s U.S. tax return.

Concentration of Lessees and Aircraft Type. For the month ended April 30, 2014, based on monthly operating lease revenue and interest income from finance leases, the Company’s four largest customers accounted for a total of approximately 64% of the Company’s monthly lease revenue.  A lease default by or collection problem with one or a combination of any of these significantcustomers could have a disproportionate negative impact on the Company’s financial results and borrowing base under the Credit Facility, and, therefore, the Company’s operating results are especially sensitive to any negative developments with respect to these customers in terms of lease compliance or collection.  In addition, if the Company’s revenues become overly concentrated in a small number of lessees, the Company could fail to comply with certain financial covenants in its Credit Facility related to customer concentration.  In the event of any such failure to be in compliance, the Company will need to seek waivers or amendment of the applicable covenants from its lenders if such compliance failure is not timely cured.  Any default under the Credit Facility, if not cured in the time permitted under the Credit Facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company.

The dominant types of aircraft in the Company’s portfolio are summarized in “Outlook - Operating Segments,” above.A change in the desirability and availability of any of these types of aircraft, which would in turn affect valuations of such aircraft, would have a disproportionately significant impact on the Company’s portfolio value. Such aircraft type concentration would diminish if the Company acquires additional assets of other types. Conversely, acquisition of these types of aircraft will increase the Company’s risks related to its concentration of those aircraft types.

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Investment in New Aircraft Types and Engines.  The Company intends to continue to focus solely on regional aircraft and engines. Although the Company has traditionally invested in a limited number of types of turboprop aircraft and engines, the Company has also acquired several types of regional jet aircraft, as well as regional jet aircraft engines, and may continue to seek acquisition opportunities for new types and models of aircraft and engines used in the Company’s targeted customer base of regional air carriers. Acquisition of aircraft types and engines not previously acquired by the Company entails greater ownership risk due to the Company's lack of experience managing those assets. The Company believes, however, that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage such new aircraft types and engines.  Further, the broadening of the asset types in the aircraft portfolio may have a benefit of diversifying the Company’s portfolio (see “Factors That May Affect Future Results – Concentration of Lessees and Aircraft Type,” above).

Engine Leasing Risk.  The Company currently has six engines in its portfolio, making up 6% of the Company’s total net book value of aircraft and aircraft engines held for lease. The Company may from time to time lease one or more of these engines under industry standard short-term engine leases, which place the risk of an engine failure not caused by lessee negligence or foreign object damage upon the lessor.  It is not economically practicable for an engine lessor to insure against that risk.  If an engine failure occurs and is not covered by a manufacturer’s warranty or is not otherwise caused by circumstances that the lessee is required to cover, the Company’s investment in the engine could be a significant loss or the Company might incur a significant maintenance expense.

Interest Rate Risk.  The Credit Facility carries a floating interest rate based upon short-term interest rate indices. Lease rates typically, but not always, move over time with interest rates, but market demand and numerous other asset-specific factors also affect lease rates. Because the Company’s typical lease rates are fixed at lease origination, interest rate changes during the lease term have no effect on existing lease rental payments.  Therefore, if interest rates rise significantly and there is relatively little lease origination by the Company following such rate increases, the Company could experience decreased net income as additional interest expense outpaces revenue growth.  Further, even if significant lease origination occurs following such rate increases, other contemporaneous aircraft market forces may result in lower or flat rental rates, thereby decreasing net income.

Reliance on JMC.  All management of the Company is performed by JMC under the twenty-year Management Agreement between the Company and JMC that expires in April of 2018 and provides for an asset-based management fee.  JMC is not a fiduciary of the Company or its stockholders. The Company’s Board of Directors (the “Board”) has ultimate control and supervisory responsibility over all aspects of the Company and owes fiduciary duties to the Company and its stockholders. The Board has no control over the internal operations of JMC, but the Board does have the ability and responsibility to manage the Company’s relationship with JMC and the performance of JMC's obligations to the Company under the Management Agreement, as it would have for any third party service provider to the Company.  While JMC may not owe any fiduciary duties to the Company by virtue of the Management Agreement, all of the officers of JMC are also officers of the Company, and in that capacity owe fiduciary duties to the Company and its stockholders.  In addition, certain officers of the Company hold significant ownership positions in the Company and JHC, the parent company of JMC.

The Management Agreement may be terminated if JMC defaults on its obligations to the Company.  However, the agreement provides for liquidated damages in the event of its wrongful termination by the Company.  Certain directors of the Company are also directors of JMC and, as discussed above, the officers of the Company are also officers of JMC and certain officers hold significant ownership positions in both the Company and JHC, the holding company for JMC.  Consequently, the directors and officers of JMC may have a conflict of interest in the event of a dispute between the Company and JMC.  Although the Company has taken steps to prevent conflicts of interest arising from such dual roles, such conflicts may still occur.

Management Fee Structure. All decisions regarding acquisitions and disposal of aircraft from the Company’s portfolio are made by JMC.  JMC is paid a management fee based on the net asset value of the Company’s portfolio.  It may also receive a one-time asset acquisition fee upon purchase of an asset by the Company, and a one-time remarketing fee in connection with the sale or re-lease of an asset.  Optimization of the results of the Company depends on timing of the acquisition, lease yield on the acquired assets, and re-lease or sale of its portfolio assets.  Under the current management fee structure, a larger volume of acquisitions generates acquisition fees and also increases the periodic management fee by increasing the size of the aircraft portfolio.  Since the Company’s current business strategy involves continued growth of its portfolio and a “buy and hold” strategy, a compensation structure that results in greater compensation with an increased portfolio size is consistent with that strategy.  The compensation structure does, nonetheless, create a situation where a decision by JMC for the Company to forego an asset transaction deemed to be an unacceptable business risk due to the lessee or the aircraft type is in conflict with JMC’s own pecuniary interest.  As a result, the compensation structure could act to incent greater risk-taking by JMC in asset acquisition decision-making.  The Company has established objective target guidelines for yields on acquired assets.  Further, the Company’s Board, including a majority of the outside independent directors, must approve any acquisition that involves a new asset type.  While the Company currently believes the foregoing are effective mitigating factors against undue compensation-incented risk-taking by JMC, there is no assurance that such mechanisms can entirely and effectively eliminate such risk.

Government Regulation.  There are a number of areas in which government regulation may result in costs to the Company.  These include aircraft registration safety requirements, required equipment modifications, maximum aircraft age, and aircraft noise requirements.  Although it is contemplated that the burden and cost of complying with such requirements will fall primarily upon lessees of equipment, there can be no assurance that the cost will not fall on the Company.  Furthermore, future government regulations could cause the value of any non-complying equipment owned by the Company to decline substantially.

Competition.  The aircraft leasing industry is highly competitive.  The Company competes with aircraft manufacturers, distributors, airlines and aircraft operators, equipment managers, leasing companies, equipment leasing programs, financial institutions and other parties engaged in leasing, managing or remarketing aircraft, many of which have significantly greater financial resources.  Nevertheless, the Company believes that it is competitive because of JMC’s experience and operational efficiency in identifying and obtaining financing for the transaction types desired by regional air carriers.  This market segment, which is characterized by transaction sizes of less than $10 million and in many cases customers that are private companies without well-established third party credit ratings, is not well served by the Company’s larger competitors.  JMC has developed a reputation as a global participant in this segment of the market, and the Company believes that JMC’s reputation benefits the Company.  There is, however, no assurance that competition from larger aircraft leasing companies will not increase significantly or that JMC’s reputation will continue to be strong in this market segment.

Casualties, Insurance Coverage.  The Company, as owner of transportation equipment, may be named in a suit claiming damages for injuries or damage to property caused by its assets.  As a triple-net lessor, the Company is generally protected against such claims, since the lessee would be responsible for, insure against and indemnify the Company for such claims.  A “triple net lease” is a lease under which, in addition to monthly rental payments, the lessee is generally responsible for the taxes, insurance and maintenance and repair of the aircraft arising from the use and operation of the aircraft during the term of the lease.  Although the United States Aviation Act may provide some protection with respect to the Company’s aircraft assets, it is unclear to what extent such statutory protection would be available to the Company with respect to most of the Company’s assets, which are operated in foreign countries where such provisions of the United States Aviation Act may not apply.   

The Company’s leases generally require a lessee to insure against likely risks of loss or damage to the leased asset, and liability to passengers and third parties pursuant to industry standard insurance policies and require lessees to provide insurance certificates documenting the policy periods and coverage amounts.  The Company tracks receipt of the certificates and calendars their expiration dates.  Prior to the expiration of an insurance certificate, if a replacement certificate has not been received, the Company reminds the lessee of its obligation to provide current insurance certificates to avoid a default under the lease.

Despite these requirements and procedures, there may be certain cases where the loss is not entirely covered by the lessee or its insurance.  The possibility of such an event is remote, but any such uninsured loss with respect to the equipment or insured loss for which insurance proceeds are inadequate might result in a loss of invested capital in and any profits anticipated from, such equipment, as well as a potential claim directly against the Company.

Compliance with Future Environmental Regulations.  Compliance with future environmental regulations may harm the Company’s business. Many aspects of aircraft operations are subject to increasingly stringent environmental regulations, and growing concerns about climate change may result in the imposition by the U.S and foreign governments of additional regulation of carbon emissions, aimed at either requiring adoption of technology to reduce the amount of carbon emissions or putting in place a fee or tax system on carbon emitters. It is likely that any such regulation will be directed at the Company’s customers, as operators of aircraft, or at the Company, as owners of aircraft.  Under the Company’s triple-net lease arrangements, the Company would likely shift responsibility for compliance to its lessees, but there might be some costs of regulation that the Company could not shift and would itself have to bear. Although it is not expected that the costs of complying with current environmental regulations will have a material adverse effect on the Company’s financial position, results of operations, or cash flows, no assurance can be given that the costs of complying with environmental regulations adopted in the future will not have such an effect.

- 20 -

Cyber-Security Risks.  The Company believes that it has sufficient cyber-security measures in place commensurate with the risks to the Company of a successful cyber-attack or breach of security.  The Company’s main vulnerability to a cyber-attack would be interruption of the Company’s email communications internally and with third parties, and loss of document sharing between the Company’s offices and remote workers.  Such an attack could temporarily impede the efficiency of the Company’s operations; however, the Company believes that sufficient replacement mechanisms exist in the event of such an interruption that there would not be a material adverse financial impact on the Company’s business.  

Warrants.  As part of a previous subordinated debt financing, which was fully repaid in December of 2011, the Company issued warrants to purchase up to 81,224 shares of the Company’s common stock that are currently exercisable (and expire on December 31, 2015) and represent approximately 5% of the post-exercise fully diluted capitalization of the Company.  The exercise price of the warrants is $8.75 per share.  If the warrants to purchase shares are exercised at a time when the exercise price is less than the market price of the Company’s common stock, there will be dilution to the existing holders of common stock.  This dilution of the Company’s common stock could depress its trading price.

Possible Volatility of Stock Price.  The market price of the Company’s common stock may be subject to fluctuations following developments relating to the Company’s operating results, changes in general conditions in the economy, the financial markets, the airline industry, changes in accounting principles or tax laws applicable to the Company or its lessees, or other developments affecting the Company, its customers or its competitors, or arising from other investor sentiment unknown to the Company.  Because the Company has a relatively small capitalization of approximately 1.5 million shares outstanding, there is a correspondingly limited amount of trading and float of the Company’s shares.  Consequently, the Company’s stock price is more sensitive to a single large trade or a small number of simultaneous trades along the same trend than a company with larger capitalization and higher trading volume and float.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

This report does not include information described under Item 305 of Regulation S-K pursuant to the rules of the Securities and Exchange Commission that permit “smaller reporting companies” to omit such information.

Item 4.Controls and Procedures.

CEO and CFO Certifications. Attached as exhibits to this Quarterly Report on Form 10-Q (the “Report”) are certifications of the Company’s Chief Executive Officer (the “CEO”) and the Company’s Chief Financial Officer (the “CFO”), which are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Report includes information concerning the evaluation of disclosure controls and procedures referred to in the Section 302 Certifications and this should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Evaluation of the Company’s Disclosure Controls and Procedures. Disclosure controls and procedures (“Disclosure Controls”) are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s Disclosure Controls and concluded that the Company’s Disclosure Controls were effective as of March 31, 2014.

Changes in Internal Control Over Financial Reporting.  No change in the Company’s internal control over financial reporting occurred during the fiscal quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 6.Exhibits

Exhibit Number	Description
18.1	Preferability Letter on Change in Accounting Principle
31.1	Certification of Neal D. Crispin, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Neal D. Crispin, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

* These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AEROCENTURY CORP.
Date: May 15, 2014	By:	/s/ Toni M. Perazzo
		Name: Toni M. Perazzo
		Title: Senior Vice President-Finance and
		Chief Financial Officer

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EX-18.1

May 15, 2014

Ms. Toni Perazzo

Senior Vice President - Finance

AeroCentury Corp.

1440 Chapin Avenue, Suite 310

Burlingame, CA 94010

Dear Ms. Perazzo:

As stated in Note 2 to the financial statements of AeroCentury Corp. for the three months ended March 31, 2014, the Company changed its method of accounting for non-refundable maintenance reserves and states that the newly adopted accounting principle is preferable in the circumstances because it will provide a better understanding of the underlying business terms of the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations and its lessor maintenance obligations.  At your request, we have reviewed and discussed with you the circumstances and the business judgment and planning that formulated your basis to make this change in accounting principle.

It should be understood that criteria have not been established by the Financial Accounting Standards Board for selecting from among the alternative accounting principles that exist in this area.  Further, the Public Company Accounting Oversight Board (United States) has not established the standards by which an auditor can evaluate the preferability of one accounting principle among a series of alternatives.  However, for purposes of the Company’s compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter.

Based on our review and discussion, we concur with management’s judgment that the newly adopted accounting principle described in Note 2 is preferable in the circumstances in conformity with Accounting Standards Codification 250, Accounting Changes and Error Corrections.  In formulating this position, we are relying on management’s business planning and judgment, which we do not find to be unreasonable.  Because we have not audited any financial statements of AeroCentury Corp. as of any date or for any period subsequent to December 31, 2013, we express no opinion on the financial statements for the three months ended March 31, 2014.

Very truly yours,

/s/ BDO USA, LLP

San Francisco, CA

EX-31.1

EXHIBIT 31.1

I, Neal D. Crispin, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of AeroCentury Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2014	/s/ Neal D. Crispin
	Neal D. Crispin
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Toni M. Perazzo, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of AeroCentury Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   May 15, 2014	/s/ Toni M. Perazzo
	Toni M. Perazzo
	Chief Financial Officer

EX-32.1

Exhibit 32.1

AEROCENTURY CORP.

CERTIFICATION

In connection with this quarterly report of AeroCentury Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Neal D. Crispin, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: May 15, 2014	/s/ Neal D. Crispin
	Neal D. Crispin
	President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

AEROCENTURY CORP.

CERTIFICATION

In connection with this quarterly report of AeroCentury Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Toni M. Perazzo, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: May 15, 2014	/s/ Toni M. Perazzo
	Toni M. Perazzo
	Chief Financial Officer

XML

Notes Payable and Accrued Interest (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Notes Payable and Accrued Interest [Abstract]
Notes payable and accrued interest	$ 104,980,800	$ 77,527,300
Credit Facility [Member]
Notes Payable and Accrued Interest [Abstract]
Credit Facility principal	104,900,000	77,500,000
Credit Facility accrued interest	80,800	27,300
Notes payable and accrued interest	104,980,800	77,527,300
Credit Facility [Abstract]
Credit facility maximum borrowing capacity	130,000,000
Expiration date	Sep. 30, 2015
Unused amount of the credit facility	$ 25,100,000	$ 52,500,000
Weighted average interest rate on credit facility (in hundredths)	3.94%	3.94%

XML

Aircraft and Aircraft Engines Held for Lease or Sale

3 Months Ended

Mar. 31, 2014

Aircraft and Aircraft Engines Held for Lease or Sale [Abstract]

Aircraft and Aircraft Engines Held for Lease or Sale

3. Aircraft and Aircraft Engines Held for Lease or Sale

(a)Assets Held for Lease

At March 31, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	March 31, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		20	%		9		23	%
Bombardier CRJ-700		3		17	%		-		-
Fokker 100		7		16	%		7		19	%
Bombardier Dash-8-Q400		3		14	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		7	%		10		10	%
General Electric CF34-8E5 engine		3		5	%		3		6	%
Saab 340B		3		2	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		-			2		-
Saab 340A		1		-			1		-

Net book value excludes the Company’s Saab 340A aircraft and the two General Electric CT7-9B engines, which are subject to finance leases.

During the first quarter of 2014, the Company purchased three Bombardier CRJ-700 aircraft on lease to a customer in the United States, and used cash of $32,225,000 for the purchase and capital improvement of aircraft.  During the first quarter of 2013, the Company used cash of $1,766,400 for the purchase and capital improvement of aircraft and engines.

During the first quarter of 2014, the Company recorded a net gain totaling $391,900 related to the sale of a Fokker 50 aircraft and a Saab 340B aircraft.  During the first quarter of 2013, the Company sold a Fokker 50 aircraft and recorded a gain of $218,200.

During the first quarter of 2014, the Company extended the leases for five of its assets.

At March 31, 2014, thirteen of the Company’s assets, comprised of three Fokker 50 aircraft, one Dash-8-311 aircraft, one Saab 340B aircraft, six Fokker 100 aircraft, one General Electric CF34-8E5 engine and one Tay 650-15 engine, which represented 20% of the net book value of the Company’s aircraft and engines, were off lease.

As discussed in Note 8, the Company sold a Saab 340B aircraft in April 2014.  The Company has a purchase agreement and 100% deposit for the sale of another Saab 340B aircraft.  The Company has a signed purchase agreement and non-refundable deposit for sale of one of its off-lease Fokker 50 aircraft.  The Company is seeking re-lease opportunities for the other off-lease assets, other than the Tay 650-15 engine that is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

(b)Assets Held for Sale

Assets held for sale include two airframes.  During the three months ended March 31, 2014 and 2013, the Company received $215,200 and $36,000, respectively, from the sale of parts belonging to the two airframes.  No adjustments to the carrying value of the Company’s assets held for sale were recorded during the three months ended March 31, 2014 and 2013.

XML

Subsequent Events (Details) (Subsequent Event [Member], Saab 340B [Member], USD $)	Apr. 30, 2014
Subsequent Event [Member] | Saab 340B [Member]
Subsequent Event [Line Items]
Gain on sale of asset	$ 83,000

XML

Adjustment of Previously Reported Financial Information

3 Months Ended

Mar. 31, 2014

Adjustment of Previously Reported Financial Information [Abstract]

Adjustment of Previously Reported Financial Information

2. Adjustment of Previously Reported Financial Information

The Company adopted the direct expensing method under Financial Accounting Standards Board (“FASB”) Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG AIR-1”) on January 1, 2007.  Under FSP AUG AIR-1, non-refundable maintenance reserves were recorded as maintenance reserves revenue (assuming cash was received or collections was reasonably assured), and associated maintenance work was recorded as maintenance expense when the work was performed.The Company has evaluated its method of accounting for maintenance reserves and lessor maintenance obligations and has elected to change its method of accounting, effective January 1, 2014, to:

(i)  Recognize non-refundable maintenance reserves as liabilities for deposits against future maintenance reimbursements of maintenance reserves received in the normal course of ongoing leases;

(ii) Recognize reimbursements from such collected reserves as disbursements against the liability when claims are submitted for payment against previously collected maintenance reserves;

(iii) Reflect as liabilities non-refundable reserves received by the prior lessor upon acquisition of an aircraft which are claimable by the lessee when maintenance is performed;

(iv) Recognize as income non-refundable reserves not refunded to lessees upon termination of the lease and return of the aircraft to the Company in accordance with all lease return requirements; and

(v) Record lessor maintenance obligations as liabilities upon acquisition of an aircraft subject to a lease under which the Company assumes the prior lessor’s obligation to pay a portion of a first-time maintenance event.

In management’s judgment, the change to this accounting method is preferable in that it will provide the user of the Company’s financial statements a better understanding of the underlying business termsof the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations, and its lessor maintenance obligations.  The change in accounting method resulted in a cumulative net decrease of $8,088,200 in stockholders’ equity as of January 1, 2013.

The effects on the Company’s December 31, 2013 balance sheet and statement of operations for the quarter ended March 31, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows: 

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

	For the Three Months Ended March 31, 2013
	As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	4,900,200	$	4,900,200	$	-
Maintenance reserves income, net		7,134,300		6,528,500		(605,800	)
Gain on disposal of assets		218,200		218,200		-
Other income		550,000		550,000		-
		12,802,700		12,196,900		(605,800	)
Maintenance		2,405,200		2,139,500		(265,700	)
Depreciation		1,746,000		1,757,200		11,200
Management fees		1,092,100		1,095,900		3,800
Interest		1,065,600		1,065,600		-
Professional fees, general and administrative and other		327,000		327,000		-
Insurance		253,700		253,700		-
Other taxes		22,600		22,600		-
		6,912,200		6,661,500		(250,700	)
Income before taxes		5,890,500		5,535,400		(355,100	)
Tax provision		1,838,200		1,717,500		(120,700	)
Net income	$	4,052,300	$	3,817,900	$	(234,400	)
Earnings per share:
Basic	$	2.63	$	2.47	$	(0.16	)
Diluted	$	2.56	$	2.41	$	(0.15	)

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Balance Sheets (Unaudited) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Assets:
Cash and cash equivalents	$ 4,929,200	$ 2,112,700
Accounts receivable, including deferred rent of $475,800 and $217,200 at March 31, 2014 and December 31, 2013, respectively	2,501,100	3,303,800
Finance leases receivable	1,867,300	1,895,200
Aircraft and aircraft engines held for lease, net of accumulated depreciation of $51,796,400 and $50,679,300 at March 31, 2014 and December 31, 2013, respectively	179,709,800	152,954,600
Assets held for sale	519,800	735,000
Prepaid expenses and other	3,553,800	3,633,000
Total assets	193,081,000	164,634,300
Liabilities:
Accounts payable and accrued expenses	1,043,900	1,202,700
Notes payable and accrued interest	104,980,800	77,527,300
Maintenance reserves	14,946,800	16,671,800
Accrued maintenance costs	1,547,300	1,612,100
Security deposits	7,379,200	6,265,000
Unearned revenues	1,950,000	646,700
Deferred income taxes	14,727,600	14,573,800
Income taxes payable	800	0
Total liabilities	146,576,400	118,499,400
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.001 par value, 10,000,000 shares authorized, 1,606,557 shares issued and outstanding	1,600	1,600
Paid-in capital	14,780,100	14,780,100
Retained earnings	32,227,000	31,857,300
Shareholders equity before treasury stock	47,008,700	46,639,000
Treasury stock at cost, 63,300 shares	(504,100)	(504,100)
Total stockholders' equity	46,504,600	46,134,900
Total liabilities and stockholders' equity	$ 193,081,000	$ 164,634,300

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Statements of Cash Flows (Unaudited) (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statements of Cash Flows (Unaudited) [Abstract]
Interest paid	$ 1,024,800	$ 715,900
Income taxes paid	$ 0	$ 0

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Organization and Summary of Significant Accounting Policies (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 Recurring [Member]	Dec. 31, 2013 Recurring [Member]	Mar. 31, 2014 Level 1 [Member] Recurring [Member]	Dec. 31, 2013 Level 1 [Member] Recurring [Member]	Mar. 31, 2014 Level 2 [Member] Recurring [Member]	Dec. 31, 2013 Level 2 [Member] Recurring [Member]	Mar. 31, 2014 Level 3 [Member] Recurring [Member]	Dec. 31, 2013 Level 3 [Member] Recurring [Member]
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis [Abstract]
Money market funds included in cash and cash equivalents			$ 4,642,500	$ 1,842,000	$ 4,642,500	$ 1,842,000	$ 0	$ 0	$ 0	$ 0
Total			4,642,500	1,842,000	4,642,500	1,842,000	0	0	0	0
Liabilities recorded at fair value			0	0
Write down of long-lived assets	0	0
Finance Leases [Abstract]
Interest earned on finance lease	$ 83,700	$ 30,400

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Aircraft and Aircraft Engines Held for Lease or Sale (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 Aircraft	Mar. 31, 2013	Dec. 31, 2013 Aircraft
Aircraft and aircraft engines held for lease or sale [Abstract]
Number of assets lease term extended	5
Number of entity aircraft off lease	13
Re-lease opportunities for the off-lease aircraft (in hundredths)	20.00%
Held-for-sale [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Proceeds from the sale of airframe parts	$ 215,200	$ 36,000
Bombardier Dash-8-300 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	9		9
Percentage of net book value (in hundredths)	20.00%		23.00%
Bombardier CRJ-700 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	3		0
Percentage of net book value (in hundredths)	17.00%		0.00%
Number of aircrafts purchased	3
Payment for equipment and acquisition costs related to aircraft purchased	32,225,000	1,766,400
Fokker 100 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	7		7
Percentage of net book value (in hundredths)	16.00%		19.00%
Number of entity aircraft off lease	6
Bombardier Dash-8-Q400 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	3		3
Percentage of net book value (in hundredths)	14.00%		17.00%
Bombardier CRJ-705 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	1		1
Percentage of net book value (in hundredths)	10.00%		12.00%
Saab 340B [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	3		4
Percentage of net book value (in hundredths)	2.00%		4.00%
Number of aircraft or engines subject to lease	1
Number of aircraft sold	1
Fokker 50 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	9		10
Percentage of net book value (in hundredths)	7.00%		10.00%
Number of entity aircraft off lease	3
General Electric CF34-8E5 engine [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	3		3
Percentage of net book value (in hundredths)	5.00%		6.00%
Number of entity aircraft off lease	1
Saab 340B Plus [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	6		6
Percentage of net book value (in hundredths)	8.00%		8.00%
Tay 650-15 engine [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	1		1
Percentage of net book value (in hundredths)	1.00%		1.00%
Number of entity aircraft off lease	1
General Electric CT7-9B engine [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	2		2
Percentage of net book value (in hundredths)	0.00%		0.00%
Number of aircraft or engines subject to lease	2
Saab 340 A [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned	1		1
Percentage of net book value (in hundredths)	0.00%		0.00%
Fokker 50 & Saab 340B [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Gain on sale of aircraft and parts from an engine	$ 391,900	$ 218,200
Number of entity aircraft off lease	1
Dash-8-311 [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number of entity aircraft off lease	1

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Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, 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 generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	March 31, 2014												December 31, 2013
	Total			Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3
Money market funds included in cash and cash equivalents		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-
Total		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-

As of March 31, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value. During the three months ended March31, 2014 and 2013, there were no recorded impairments of long-lived assets.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

(d)Finance Leases

The leases for one of the Company’s aircraft and two engines contain lessee purchase options at prices substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase options to be “bargain purchase options” and has classified such leases as finance leases for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance leases receivable based on the interest rate inherent in the applicable lease.  The Company recognized interest earned on finance leases as “other income” in the amount of $83,700 and $30,400 in the three months ended March 31, 2014 and 2013, respectively.

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Balance Sheets (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Assets:
Accounts receivable, deferred rent	$ 475,800	$ 217,200
Aircraft and aircraft engines held for lease, accumulated depreciation	$ 51,796,400	$ 50,679,300
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	2,000,000	2,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	1,606,557	1,606,557
Common stock, outstanding (in shares)	1,606,557	1,606,557
Treasury stock (in shares)	63,300	63,300

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Adjustment of Previously Reported Financial Information (Tables)

3 Months Ended

Mar. 31, 2014

Adjustment of Previously Reported Financial Information [Abstract]

Schedule of Error Corrections and Prior Period Adjustments

The effects on the Company’s December 31, 2013 balance sheet and statement of operations for the quarter ended March 31, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows: 

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

	For the Three Months Ended March 31, 2013
	As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	4,900,200	$	4,900,200	$	-
Maintenance reserves income, net		7,134,300		6,528,500		(605,800	)
Gain on disposal of assets		218,200		218,200		-
Other income		550,000		550,000		-
		12,802,700		12,196,900		(605,800	)
Maintenance		2,405,200		2,139,500		(265,700	)
Depreciation		1,746,000		1,757,200		11,200
Management fees		1,092,100		1,095,900		3,800
Interest		1,065,600		1,065,600		-
Professional fees, general and administrative and other		327,000		327,000		-
Insurance		253,700		253,700		-
Other taxes		22,600		22,600		-
		6,912,200		6,661,500		(250,700	)
Income before taxes		5,890,500		5,535,400		(355,100	)
Tax provision		1,838,200		1,717,500		(120,700	)
Net income	$	4,052,300	$	3,817,900	$	(234,400	)
Earnings per share:
Basic	$	2.63	$	2.47	$	(0.16	)
Diluted	$	2.56	$	2.41	$	(0.15	)

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 15, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	AEROCENTURY CORP
Entity Central Index Key	0001036848
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,606,557
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014

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Aircraft and Aircraft Engines Held for Lease or Sale (Tables)

3 Months Ended

Mar. 31, 2014

Aircraft and Aircraft Engines Held for Lease or Sale [Abstract]

Aircraft and aircraft engines held for lease

At March 31, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	March 31, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		20	%		9		23	%
Bombardier CRJ-700		3		17	%		-		-
Fokker 100		7		16	%		7		19	%
Bombardier Dash-8-Q400		3		14	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		7	%		10		10	%
General Electric CF34-8E5 engine		3		5	%		3		6	%
Saab 340B		3		2	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		-			2		-
Saab 340A		1		-			1		-

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Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues and other income:
Operating lease revenue, net	$ 5,850,800	$ 4,900,200
Maintenance reserves revenue, net	1,675,800	6,528,500
Net gain on disposal of assets	391,900	218,200
Other income	84,400	550,000
Total Income	8,002,900	12,196,900
Expenses:
Maintenance	2,344,300	2,139,500
Depreciation	1,865,800	1,757,200
Management fees	1,327,300	1,095,900
Interest	1,307,000	1,065,600
Insurance	307,200	253,700
Professional fees, general and administrative and other	304,500	327,000
Other taxes	22,600	22,600
Total expenses	7,478,700	6,661,500
Income before income tax provision	524,200	5,535,400
Income tax provision	154,500	1,717,500
Net income	$ 369,700	$ 3,817,900
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 2.47
Diluted (in dollars per share)	$ 0.23	$ 2.41
Weighted average shares used in earnings per share computations:
Basic (in shares)	1,543,257	1,543,257
Diluted (in shares)	1,583,064	1,582,327

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Computation of Earnings Per Share

3 Months Ended

Mar. 31, 2014

Computation of Earnings Per Share [Abstract]

Computation of Earnings Per Share

6. Computation of Earnings Per Share

Basic and diluted earnings per share are calculated as follows:

	For the Three Months Ended March 31,
	2014		2013
Net income	$	369,700	$	3,817,900
Weighted average shares outstanding for the period		1,543,257		1,543,257
Dilutive effect of warrants		39,807		39,070
Weighted average diluted shares used in calculation of diluted earnings per share		1,583,064		1,582,327
Basic earnings per share	$	0.24	$	2.47
Diluted earnings per share	$	0.23	$	2.41

Basic earnings per common share is computed using net income and the weighted average number of common shares outstanding during the period.  Diluted earnings per common share are computed using net income and the weighted average number of common shares outstanding, assuming dilution.  Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method.  

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Notes Payable and Accrued Interest

3 Months Ended

Mar. 31, 2014

Notes Payable and Accrued Interest [Abstract]

Notes Payable and Accrued Interest

5. Notes Payable and Accrued Interest

At March 31, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	March 31, 2014		December 31, 2013
Credit Facility principal	$	104,900,000	$	77,500,000
Credit Facility accrued interest		80,800		27,300
	$	104,980,800	$	77,527,300

The Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, expires on September 30, 2015. The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a customer concentration covenant under its Credit Facility agreement at the September 30, 2013 and December 31, 2013 calculation dates.  The Company was in compliance with all other covenants under the Credit Facility agreement at December 31, 2013, and was in compliance with all covenants at March 31, 2014.

The unused amount of the Credit Facility was $25,100,000 and $52,500,000 as of March 31, 2014 and December 31, 2013, respectively.

The weighted average interest rate on the Credit Facility was 3.94% at March 31, 2014 and December 31, 2013.

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Adjustment of Previously Reported Financial Information (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Dec. 31, 2012
Balance Sheets [Abstract]
Cash and cash equivalents	$ 4,929,200	$ 2,403,300	$ 2,112,700	$ 1,596,800
Accounts receivable, net	2,501,100		3,303,800
Finance leases receivable	1,867,300		1,895,200
Aircraft and aircraft engines held for lease, net	179,709,800		152,954,600
Assets held for sale	519,800		735,000
Prepaid expenses and other	3,553,800		3,633,000
Total assets	193,081,000		164,634,300
Accounts payable and accrued expenses	1,043,900		1,202,700
Notes payable and accrued interest	104,980,800		77,527,300
Security deposits	7,379,200		6,265,000
Unearned revenues	1,950,000		646,700
Deferred income taxes	14,727,600		14,573,800
Income taxes payable	800		0
Total liabilities	146,576,400		118,499,400
Preferred stock	0		0
Common stock	1,600		1,600
Paid-in capital	14,780,100		14,780,100
Retained earnings	32,227,000		31,857,300
Treasury stock	(504,100)		(504,100)
Total stockholders' equity	46,504,600		46,134,900
Total liabilities and stockholders' equity	193,081,000		164,634,300
Statement of Operations [Abstract]
Operating lease revenue, net	5,850,800	4,900,200
Maintenance reserves income, net	1,675,800	6,528,500
Gain on disposal of assets	391,900	218,200
Other income	84,400	550,000
Total Income	8,002,900	12,196,900
Maintenance	2,344,300	2,139,500
Depreciation	1,865,800	1,757,200
Management fees	1,327,300	1,095,900
Interest	1,307,000	1,065,600
Professional fees, general and administrative and other	304,500	327,000
Insurance	307,200	253,700
Other taxes	22,600	22,600
Total expenses	7,478,700	6,661,500
Income before taxes	524,200	5,535,400
Tax provision	154,500	1,717,500
Net income	369,700	3,817,900
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 2.47
Diluted (in dollars per share)	$ 0.23	$ 2.41
Cumulative net decrease of in stockholders' equity				8,088,200
As Reported Previously [Member]
Balance Sheets [Abstract]
Cash and cash equivalents			2,112,700
Accounts receivable, net			3,313,700
Finance leases receivable			1,895,200
Aircraft and aircraft engines held for lease, net			152,375,200
Assets held for sale			735,000
Prepaid expenses and other			3,633,000
Total assets			164,064,800
Accounts payable and accrued expenses			1,175,300
Notes payable and accrued interest			77,527,300
Maintenance reserves and accrued maintenance costs			13,254,100
Security deposits			6,265,000
Unearned revenues			646,700
Deferred income taxes			16,099,700
Total liabilities			114,968,100
Preferred stock			0
Common stock			1,600
Paid-in capital			14,780,100
Retained earnings			34,819,100
Treasury stock			(504,100)
Total stockholders' equity			49,096,700
Total liabilities and stockholders' equity			164,064,800
Statement of Operations [Abstract]
Operating lease revenue, net		4,900,200
Maintenance reserves income, net		7,134,300
Gain on disposal of assets		218,200
Other income		550,000
Total Income		12,802,700
Maintenance		2,405,200
Depreciation		1,746,000
Management fees		1,092,100
Interest		1,065,600
Professional fees, general and administrative and other		327,000
Insurance		253,700
Other taxes		22,600
Total expenses		6,912,200
Income before taxes		5,890,500
Tax provision		1,838,200
Net income		4,052,300
Earnings per share:
Basic (in dollars per share)		$ 2.63
Diluted (in dollars per share)		$ 2.56
As Adjusted [Member]
Balance Sheets [Abstract]
Cash and cash equivalents			2,112,700
Accounts receivable, net			3,303,800
Finance leases receivable			1,895,200
Aircraft and aircraft engines held for lease, net			152,954,600
Assets held for sale			735,000
Prepaid expenses and other			3,633,000
Total assets			164,634,300
Accounts payable and accrued expenses			1,202,700
Notes payable and accrued interest			77,527,300
Maintenance reserves and accrued maintenance costs			18,283,900
Security deposits			6,265,000
Unearned revenues			646,700
Deferred income taxes			14,573,800
Total liabilities			118,499,400
Preferred stock			0
Common stock			1,600
Paid-in capital			14,780,100
Retained earnings			31,857,300
Treasury stock			(504,100)
Total stockholders' equity			46,134,900
Total liabilities and stockholders' equity			164,634,300
Statement of Operations [Abstract]
Operating lease revenue, net		4,900,200
Maintenance reserves income, net		6,528,500
Gain on disposal of assets		218,200
Other income		550,000
Total Income		12,196,900
Maintenance		2,139,500
Depreciation		1,757,200
Management fees		1,095,900
Interest		1,065,600
Professional fees, general and administrative and other		327,000
Insurance		253,700
Other taxes		22,600
Total expenses		6,661,500
Income before taxes		5,535,400
Tax provision		1,717,500
Net income		3,817,900
Earnings per share:
Basic (in dollars per share)		$ 2.47
Diluted (in dollars per share)		$ 2.41
Effect of Change [Member]
Balance Sheets [Abstract]
Cash and cash equivalents			0
Accounts receivable, net			(9,900)
Finance leases receivable			0
Aircraft and aircraft engines held for lease, net			579,400
Assets held for sale			0
Prepaid expenses and other			0
Total assets			569,500
Accounts payable and accrued expenses			27,400
Notes payable and accrued interest			0
Maintenance reserves and accrued maintenance costs			5,029,800
Security deposits			0
Unearned revenues			0
Deferred income taxes			(1,525,900)
Total liabilities			3,531,300
Preferred stock			0
Common stock			0
Paid-in capital			0
Retained earnings			(2,961,800)
Treasury stock			0
Total stockholders' equity			(2,961,800)
Total liabilities and stockholders' equity			569,500
Statement of Operations [Abstract]
Operating lease revenue, net		0
Maintenance reserves income, net		(605,800)
Gain on disposal of assets		0
Other income		0
Total Income		(605,800)
Maintenance		(265,700)
Depreciation		11,200
Management fees		3,800
Interest		0
Professional fees, general and administrative and other		0
Insurance		0
Other taxes		0
Total expenses		(250,700)
Income before taxes		(355,100)
Tax provision		(120,700)
Net income		$ (234,400)
Earnings per share:
Basic (in dollars per share)		$ (0.16)
Diluted (in dollars per share)		$ (0.15)

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Notes Payable and Accrued Interest (Tables)

3 Months Ended

Mar. 31, 2014

Notes Payable and Accrued Interest [Abstract]

Notes payable and accrued interest

At March 31, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	March 31, 2014		December 31, 2013
Credit Facility principal	$	104,900,000	$	77,500,000
Credit Facility accrued interest		80,800		27,300
	$	104,980,800	$	77,527,300

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Organization and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

The Company and Basis of Presentation

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, 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 generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

Fair Value Measurements

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	March 31, 2014												December 31, 2013
	Total			Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3
Money market funds included in cash and cash equivalents		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-
Total		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-

As of March 31, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value. During the three months ended March31, 2014 and 2013, there were no recorded impairments of long-lived assets.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

Finance Leases

(d)Finance Leases

The leases for one of the Company’s aircraft and two engines contain lessee purchase options at prices substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase options to be “bargain purchase options” and has classified such leases as finance leases for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance leases receivable based on the interest rate inherent in the applicable lease.  The Company recognized interest earned on finance leases as “other income” in the amount of $83,700 and $30,400 in the three months ended March 31, 2014 and 2013, respectively.

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Related Party Transactions

3 Months Ended

Mar. 31, 2014

Related Party Transactions [Abstract]

Related Party Transactions

7.Related Party Transactions

The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").  Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company.

Under the management agreement, JMC receives a monthly management fee based on the net asset value of the assets under management. JMC also receives an acquisition fee for locating assets for the Company.  Acquisition fees are included in the cost basis of the asset purchased.  JMC may receive a remarketing fee in connection with the re-lease or sale of the Company’s assets. Remarketing fees are amortized over the applicable lease term or included in the gain or loss on sale recognized upon sale of the applicable asset.

Fees incurred during the quarters ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
	2014			2013
Management fees		$	1,327,300		$	1,095,900
Acquisition fees			980,000			60,000
Remarketing fees			64,000			68,000

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Subsequent Events

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

8.Subsequent Events

In April 2014, the Company sold a Saab 340B aircraft and recorded a gain of approximately $83,000.

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Organization and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

Assets measured at fair value on recurring basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	March 31, 2014												December 31, 2013
	Total			Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3
Money market funds included in cash and cash equivalents		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-
Total		$	4,642,500		$	4,642,500		$	-		$	-		$	1,842,000		$	1,842,000		$	-		$	-

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Related Party Transactions (Tables)

3 Months Ended

Mar. 31, 2014

Related Party Transactions [Abstract]

Related Party Fees

Fees incurred during the quarters ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
	2014			2013
Management fees		$	1,327,300		$	1,095,900
Acquisition fees			980,000			60,000
Remarketing fees			64,000			68,000

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Computation of Earnings Per Share (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Basic and diluted earning/loss per share [Abstract]
Net income	$ 369,700	$ 3,817,900
Weighted average shares outstanding for the period (in shares)	1,543,257	1,543,257
Dilutive effect of warrants (in shares)	39,807	39,070
Weighted average diluted shares used in calculation of diluted earnings per share	1,583,064	1,582,327
Basic earnings/(loss) per share (in dollars per share)	$ 0.24	$ 2.47
Diluted earnings/(loss) per share (in dollars per share)	$ 0.23	$ 2.41

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Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statements of Cash Flows (Unaudited) [Abstract]
Net cash provided by operating activities	$ 4,783,300	$ 3,241,900
Investing activities:
Proceeds from sale of aircraft and aircraft engines held for lease, net of re-sale fees	2,738,000	1,650,000
Proceeds from sale of assets held for sale, net of re-sale fees	215,200	36,000
Purchases of aircraft and aircraft engines	(32,225,000)	(1,766,400)
Net cash used in investing activities	(29,271,800)	(80,400)
Financing activities:
Borrowings under Credit Facility	30,600,000	0
Repayments of Credit Facility	(3,200,000)	(300,000)
Debt issuance costs	(95,000)	(2,055,000)
Net cash provided by/(used in) financing activities	27,305,000	(2,355,000)
Net increase in cash and cash equivalents	2,816,500	806,500
Cash and cash equivalents, beginning of period	2,112,700	1,596,800
Cash and cash equivalents, end of period	$ 4,929,200	$ 2,403,300

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Maintenance Reserves and Accrued Maintenance Costs

3 Months Ended

Mar. 31, 2014

Maintenance Reserves and Accrued Maintenance Costs [Abstract]

Maintenance Reserves and Accrued Maintenance Costs

4. 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 and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease end.  Non-refundable maintenance reserves are retained by the Company at lease end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances.

Maintenance reserves in the accompanying balance sheets include refundable and non-refundable maintenance reserves payments billed to lessees, which are paid out as related maintenance is performed or, in the case of refundable reserves, at the end of the lease.  Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of reserves received from lessees and (ii) lessor maintenance obligations assumed upon acquisition of aircraft subject to a lease with such provisions.

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.  Any reserves retained by the Company at lease end are recorded as revenue at that time.

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Related Party Transactions (Details) (Jet Fleet Management Corp. [Member], USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Jet Fleet Management Corp. [Member]
Related Party Transaction [Line Items]
Management fees	$ 1,327,300	$ 1,095,900
Acquisition fees	980,000	60,000
Remarketing fees	$ 64,000	$ 68,000

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Computation of Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Computation of Earnings Per Share [Abstract]

Computation of earnings per share

Basic and diluted earnings per share are calculated as follows:

	For the Three Months Ended March 31,
	2014		2013
Net income	$	369,700	$	3,817,900
Weighted average shares outstanding for the period		1,543,257		1,543,257
Dilutive effect of warrants		39,807		39,070
Weighted average diluted shares used in calculation of diluted earnings per share		1,583,064		1,582,327
Basic earnings per share	$	0.24	$	2.47
Diluted earnings per share	$	0.23	$	2.41