2.	Aircraft Lease Assets

As discussed in Note 1, the Company adopted Topic 842 on January 1, 2019, and elected to use certain practical expedients that resulted in continuing the classification and capitalized indirect cost associated with its operating and finance leases. As such, there was no adjustment to its accounts related to the carrying value of its sales-type and finance leases or capitalized initial direct costs, and its leases continue to be accounted for the same as they had been before adoption of the new accounting standard.

The Company’s leases are normally “triple net leases” under which the lessee is obligated to bear all costs, including tax, maintenance and insurance, on the leased assets during the term of the lease. In most cases, the lessee is obligated to provide a security deposit or letter of credit to secure its performance obligations under the lease, and in some cases is required to pay maintenance reserves based on utilization of the aircraft, which reserves are available for qualified maintenance costs during the lease term and may or may not be refundable at the end of the lease. Typically, the leases also contain minimum return conditions, as well as one form or another of economic adjustment payable by the lessee (and in some instances by the lessor) for amounts by which the various aircraft or engine components are worse or better than a targeted condition set forth in the lease. Some leases contain renewal or purchase options, although the Company’s sales-type and finance leases all contain a bargain purchase option at lease end which the Company expects the lessees to exercise.

Because all of the Company’s aircraft or engine leases transfer use and possession of the aircraft or engine to the lessee and contain no other substantial undertakings by the Company, the Company has concluded that all of its lease contracts qualify for lease accounting under Topic 842. Certain lessee payments of what would otherwise be lessor costs (such as insurance and property taxes) are excluded from both revenue and expense.

The Company evaluates the expected return on its leased assets by considering both the rents receivable over the lease term, any expected additional consideration at lease end, and the residual value of the asset at the end of the lease. In some cases, the Company depreciates the asset to the expected residual value because it expects to sell the asset at lease end; in other cases, it may expect to re-lease the asset to the same or another lessee and the depreciation term and related residual value will differ from the initial lease term and residual value. Residual value is estimated by considering future estimates provided by independent appraisers, although it may be adjusted by the Company based on expected return conditions or location, specific lessee considerations, or other market information.

Two of the Company’s operating lease assets are subject to manufacturer residual value guarantees at the end of their lease terms in the fourth quarter of 2020 and totaling approximately $20 million. Three additional aircraft are subject to residual value guarantees, but the Company expects to retain the aircraft after the date of such guarantees and re-lease them to the current or other lessees. The Company considers the best market for managing and/or selling its assets at the end of its leases, although it does not expect to retain ownership of the assets under finance leases given the lessees’ bargain purchase options.

(a)	Assets Held for Lease

At March 31, 2019 and December 31, 2018, the Company’s aircraft and aircraft engines held for lease consisted of the following:

	March 31, 2019					December 31, 2018
Type	Number Owned		% of net book value			Number owned		% of net book value
Regional jet aircraft		13		85	%		13		81	%
Turboprop aircraft		3		15	%		4		18	%
Engines		-		-	%		1		1	%

The Company purchased no aircraft during the first quarter of 2019.

During the first quarter of 2019, the Company sold one aircraft held for lease for cash and recorded a net gain of $151,600. The Company also reclassified an engine from held for lease to held for sale.

None of the Company’s aircraft and engines held for lease were off lease at March 31, 2019. As discussed below, the Company has three off-lease aircraft that were reclassified in 2018 as held for sale and an engine that was reclassified in the first quarter of 2019 as held for sale.

As of March 31, 2019, minimum future lease revenue payments receivable under noncancelable operating leases were as follows:

Years ending December 31

Remainder of 2019	$	20,493,300
2020		25,701,400
2021		18,600,000
2022		16,642,400
2023		12,959,600
Thereafter		21,547,500
	$	115,944,200

(b)	Sales-Type and Finance Leases

At March 31, 2019 and December 31, 2018, the net investment included in sales-type finance leases and direct financing leases receivable were as follows:

	March 31, 2019			December 31, 2018
Gross minimum lease payments receivable	$	15,869,400		$	17,107,100
Less unearned interest		(1,620,100	)		(1,856,200	)
Finance leases receivable	$	14,249,300		$	15,250,900

As of March 31, 2019, minimum future payments receivable under finance leases were as follows:

Years ending December 31

Remainder of 2019	$	3,647,800
2020		4,208,600
2021		4,805,000
2022		3,208,000
	$	15,869,400