Derivatives

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

The objective of our hedging policy is to adopt a risk averse position with respect to changes in interest rates. Accordingly, we have entered into a number of interest rate derivatives to hedge the current and expected future interest rate payments on our variable rate debt. Interest rate derivatives are agreements in which a series of interest rate cash flows are exchanged with a third party over a prescribed period. The notional amount on an interest rate derivative is not exchanged. Our interest rate derivatives typically provide that we make fixed rate payments and receive floating rate payments to convert our floating rate borrowings to fixed rate obligations to better match the largely fixed rate cash flows from our investments in flight equipment.

We held the following interest rate derivatives as of June 30, 2012:

	Derivative Liabilities
Hedged Item	Current Notional Amount		Effective Date	Maturity Date	Future Maximum Notional Amount		Floating Rate	Fixed Rate	Balance Sheet Location	Fair Value
Interest rate derivatives designated as cash flow hedges:
Securitization No. 1	$	353,470	Jun-06	Jun-16	$	353,470	1M LIBOR + 0.27%	5.78%	Fair value of derivative liabilities	$	56,257
Securitization No. 2	645,543		Jun-12	Jun-17	645,543		1M LIBOR	1.26% to 1.28%	Fair value of derivative liabilities	11,682
Total interest rate derivatives designated as cash flow hedges	$	999,013			$	999,013				$	67,939

Four interest rate derivatives hedging Securitization No. 2 matured on June 8, 2012. The two interest rate derivatives hedging Term Financing No. 1 were terminated on April 4, 2012 resulting in a net deferred loss of $50,429 which is being amortized into interest expense using the interest rate method.

The weighted average interest pay rates of these derivatives at December 31, 2011 and June 30, 2012 were 5.04% and 2.87%, respectively.

For the six months endedJune 30, 2012, the amount of loss reclassified from accumulated other comprehensive income (“OCI”) into interest expense related to net interest settlements on active interest rate derivatives was $34,455. The amount of loss expected to be reclassified from OCI into interest expense over the next 12 months related to net interest settlements on active interest rate derivatives is $22,130.

Our interest rate derivatives involve counterparty credit risk. As of June 30, 2012, our interest rate derivatives are held with the following counterparties: JP Morgan Chase Bank NA, Citibank Canada NA, and Wells Fargo Bank NA. All of our counterparties or guarantors of these counterparties are considered investment grade (senior unsecured ratings of Baa2 or above) by Moody’s Investors Service. All are also considered investment grade (long-term foreign issuer ratings of A- or above) by Standard and Poor’s. We do not anticipate that any of these counterparties will fail to meet their obligations.

In addition to the derivative liability above, another component of the fair value of our interest rate derivatives is accrued interest. As of June 30, 2012, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $345 related to interest rate derivatives designated as cash flow hedges.

Following is the effect of interest rate derivatives on the statement of financial performance for the six months endedJune 30, 2012: 

Effective Portion				Ineffective Portion
Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (a)	Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (b)	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative (c)
Interest rate derivatives	$(11,505)	Interest expense	$(46,724)	Interest expense	$(2,041)

(a) This represents the change in fair market value of our interest rate derivatives since year end, net of taxes, offset by the amount of actual cash paid related to the net settlements of the interest rate derivatives for each of the six months endedJune 30, 2012.

(b) This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate derivatives for each of the six months endedJune 30, 2012 plus any effective amortization of net deferred interest rate derivative losses.

(c) This represents both realized and unrealized ineffectiveness incurred during the six months endedJune 30, 2012.

Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Gain or (Loss) Recognized in Income On Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest rate derivatives	Other income (expense)	$	599

On an ongoing basis, terminated interest rate derivative notionals are evaluated against debt forecasts. To the extent that interest payments are deemed remote to occur, deferred gains or losses are accelerated into interest expense as applicable.

For the six months endedJune 30, 2012, the amount of deferred net loss reclassified from OCI into interest expense related to our terminated interest rate derivatives was $12,937. The amount of deferred net loss expected to be reclassified from OCI into interest expense over the next 12 months related to our terminated interest rate derivatives is $33,009 of which $23,470 relates to Term Financing No. 1 and $9,303 relates to ECA Term Financings for New A330 Aircraft.

The following table summarizes amounts charged directly to the consolidated statement of income for the three and six months ended June 30, 2011 and 2012, respectively, related to our interest rate derivatives:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2012		2011			2012
Interest Expense:
Hedge ineffectiveness (gains) losses	$	(123	)	$	1,885	$	(598	)	$	366
Amortization:
Accelerated amortization of deferred losses(a)	1,847			—		1,847			—
Amortization of deferred losses	3,544			8,866		6,379			12,937
Total Amortization	5,391			8,866		8,226			12,937
Total charged to interest expense	$	5,268		$	10,751	$	7,628		$	13,303
Other Income (Expense):
Mark to market (losses) gains on undesignated interest rate derivatives	$	(257	)	$	712	$	(616	)	$	599
Total charged to other income (expense)	$	(257	)	$	712	$	(616	)	$	599

(a) For the three and six months endedJune 30, 2011, includes accelerated amortization of deferred hedge losses in the amount of $1,839 related to an aircraft sold in June 2011.