COMMITMENTS AND CONTINGENCIES

Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase additional aircraft. As of June 30, 2015, we had 46 aircraft on order and options to acquire an additional 21 aircraft. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order will provide incremental fleet capacity in terms of revenue and operating income. As discussed in the fiscal year 2015 Financial Statements, we were awarded a contract to provide civilian SAR services for all of the U.K. The SAR configured aircraft on order in the table below are intended to service this contract and other SAR contracts.



	Nine Months Ending March 31, 2016		Fiscal Year Ending March 31,
	Nine Months Ending March 31, 2016		2017		2018		2019		2020 and thereafter		Total
Commitments as of June 30, 2015: ⁽¹⁾
Number of aircraft:
Medium	10		—		—		—		—		10
Large⁽²⁾	7		6		8		4		3		28
SAR configured	4		4		—		—		—		8
	21		10		8		4		3		46
Related expenditures (in thousands)⁽³⁾
Medium and large	$	244,379	$	112,547	$	108,094	$	58,946	$	31,550	$	555,516
SAR configured	56,778		58,428		—		—		—		115,206
	$	301,157	$	170,975	$	108,094	$	58,946	$	31,550	$	670,722
Options as of June 30, 2015:⁽²⁾
Number of aircraft:
Medium	—		2		7		—		—		9
Large ⁽²⁾	—		5		7		—		—		12
	—		7		14		—		—		21

Related expenditures (in thousands)⁽³⁾	$	46,180	$	202,279	$	184,692	$	—	$	—	$	433,151

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⁽¹⁾	Signed client contracts are currently in place that will utilize 11 of these aircraft.


⁽²⁾	Seventeen large aircraft on order expected to enter service between fiscal years 2017 and 2020 are subject to the successful development and certification of the aircraft.


⁽³⁾	Includes progress payments on aircraft scheduled to be delivered in future periods.

The following chart presents an analysis of our aircraft orders and options during the three months ended June 30, 2015:



	Orders		Options
Beginning of period	45		30
Aircraft delivered	(2	)	—
Exercised options	3		(3	)
Expired options	—		(6	)
End of period	46		21

We periodically purchase aircraft for which we have no orders.

Operating Leases — We have non-cancelable operating leases in connection with the lease of certain equipment, land and facilities, including leases for aircraft. Rental expense incurred under all operating leases was $53.9 million and $33.1 million for the three months ended June 30, 2015 and 2014, respectively, which includes rental expense incurred under operating leases for aircraft of $46.6 million and $26.4 million, respectively.

We did not enter into any sale leasebacks during the three months ended June 30, 2015 and 2014.

The aircraft leases range from base terms of up to 180 months with renewal options of up to 240 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and require us to pay a stipulated amount if we default on our obligations under the agreements. The following is a summary of the terms related to aircraft leased under operating leases with original or remaining terms in excess of one year as of June 30, 2015:



End of Lease Term	Number of Aircraft	Monthly Lease Payments (in thousands)
Nine months ending March 31, 2016 to fiscal year 2017	12	$	1,680
Fiscal year 2018 to fiscal year 2020	48	9,294
Fiscal year 2021 to fiscal year 2024	24	2,703
	84	$	13,677

Employee Agreements — Approximately 47% of our employees are represented by collective bargaining agreements and/or unions with 20% of these employees being represented by collective bargaining agreements and/or unions that have expired or will expire in one year. These agreements generally include annual escalations of up to 6%. Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement. We also have employment agreements with members of senior management.

Separation Programs — In March 2015, we offered a voluntary separation program (“VSP”) to certain employees as part of our ongoing efforts to improve efficiencies and reduce costs. The VSP was offered to approximately 2,888 employees and 137 employees accepted prior to the expiration of the offers, the date of which varied by region. We will recognize the expense related to their termination benefits over their remaining service period, which we estimate will be $7.2 million through May 2017. During the three months ended June 30, 2015, we recognized $6.4 million in severance expense as a result of the VSP, $5.8 million of which is included in direct cost and $0.6 million in general administrative expense. Additionally, beginning in March 2015, we initiated involuntary separation programs (“ISPs”) in certain regions. During the three months ended June 30, 2015, we recognized $1.6 million in severance expense as a result of the ISPs, $0.5 million of which is included in direct cost and $1.1 million in general administrative expense. In July 2015, we took further action in response to weakened market conditions, initiating an ISP in the Europe Caspian region. We expect to incur approximately $5.0 million in severance expense related to this plan over the remainder of fiscal year 2016.

Environmental Contingencies — The U.S. Environmental Protection Agency, also referred to as the EPA, has in the past notified us that we are a potential responsible party, or PRP, at three former waste disposal facilities that are on the National Priorities List of contaminated sites. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund law, persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites. Although we have not yet obtained a formal release of liability from the EPA with respect to any of the sites, we believe that our potential liability in connection with the sites is not likely to have a material adverse effect on our business, financial condition or results of operations.

Other Purchase Obligations — As of June 30, 2015, we had $325.8 million of other purchase obligations representing unfilled purchase orders for aircraft parts, commitments associated with upgrading facilities at our bases and non-cancelable power-by-the-hour maintenance commitments.

Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to deductible, self-insured retention and loss sensitive factors.

We operate in jurisdictions internationally where we are subject to risks that include government action to obtain additional tax revenue. In a number of these jurisdictions, political unrest, the lack of well-developed legal systems and legislation that is not clear enough in its wording to determine the ultimate application, can make it difficult to determine whether legislation may impact our earnings until such time as a clear court or other ruling exists. We operate in jurisdictions currently where amounts may be due to governmental bodies that we are not currently recording liabilities for as it is unclear how broad or narrow legislation may ultimately be interpreted. We believe that payment of amounts in these instances is not probable at this time, but is reasonably possible.

A loss contingency is reasonably possible if the contingency has a more than remote but less than probable chance of occurring. Although management believes that there is no clear requirement to pay amounts at this time and that positions exist suggesting that no further amounts are currently due, it is reasonably possible that a loss could occur for which we have estimated a maximum loss at June 30, 2015 to be approximately $6 million to $9 million.

We are a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.