Air Lease Corporation - 10-Q quarterly report FY2012 Q1

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

OR

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 001-35121

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (310) 553-0555

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 x  No 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 to submit and post such files).  Yes x  No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

At May 14, 2012, there were 98,925,089 shares of Air Lease Corporation’s Class A Common Stock outstanding and 1,829,339 shares of Air Lease Corporation’s Class B Non-Voting Common Stock outstanding.

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

Statements in this quarter report on Form 10-Q that are not historical facts are hereby identified as “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance that are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

·                                          our status as a recently organized corporation with a limited operating history;

·                                          our inability to make acquisitions of, or lease, aircraft on favorable terms;

·                                          our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

·                                          our inability to obtain refinancing prior to the time our debt matures;

·                                          impaired financial condition and liquidity of our lessees;

·                                          deterioration of economic conditions in the commercial aviation industry generally;

·                                          increased maintenance, operating or other expenses or changes in the timing thereof;

·                                          changes in the regulatory environment;

·                                          our inability to effectively deploy the net proceeds from our capital raising activities; and

·                                          potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto; and

·                                          the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission (“SEC”) on March 9, 2012.

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

See accompanying notes.

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

See accompanying notes.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.                                  Company Background and Overview

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is incorporated in the State of Delaware and licensed to operate in the State of California. We commenced operations in February 2010 and elected a fiscal year end of December 31. The Company is principally engaged in the leasing of commercial aircraft to airlines throughout the world. We supplement our leasing revenues by providing fleet management and remarketing services to third parties. We typically provide many of the same services that we perform for our fleet, including leasing, releasing, lease management and sales services for which we charge a fee, with the objective of assisting our clients to maximize lease or sale revenues.

Note 2.                                  Basis of Preparation

The Company consolidates financial statements of all entities in which we have a controlling financial interest, including the accounts of any Variable Interest Entity in which we have a controlling financial interest and for which we are determined to be the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with 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 GAAP for complete financial statements.

The accompanying unaudited consolidated financial statements include all adjustments, including normally recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2012, and for all periods presented. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the operating results expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on March 9, 2012.

Note 3.          Debt Financing

The Company’s consolidated debt as of March 31, 2012 and December 31, 2011 are summarized below (in thousands):

At March 31, 2012, we were in compliance in all material respects with the covenants in our debt agreements, including our financial covenants concerning debt-to-equity, tangible net equity, unencumbered assets and interest coverage ratios.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company’s secured obligations as of March 31, 2012 and December 31, 2011 are summarized below (in thousands, except number of aircraft which are reflected in units):

Secured term financings

The Company did not enter into any additional secured term facilities during the first quarter of 2012. The outstanding balance on our secured term facilities was $715.3 million and $735.3 million at March 31, 2012 and December 31, 2011, respectively.

Warehouse facilities

In March 2012, a wholly-owned subsidiary of the Company entered into a senior secured warehouse facility (the “2012 Warehouse Facility”) to refinance a pool of eight aircraft previously financed under the Company’s non-recourse, revolving $1.25 billion credit facility (the “2010 Warehouse Facility”). The 2012 Warehouse Facility is non-recourse to the Company and provides the Company with $192.8 million of availability. Amounts drawn under the 2012 Warehouse Facility amortize over a 15 year term and accrue interest based on a floating rate plus a margin of 2.25% for the initial two years and a margin of 5.25% thereafter. The Company is required to pay a commitment fee in respect of unutilized commitments under the 2012 Warehouse Facility at a rate of 1.125%.

During the first quarter of 2012, the Company drew $136.0 million under the 2012 Warehouse Facility refinancing six aircraft previously financed under the 2010 Warehouse Facility creating additional availability under our 2010 Warehouse Facility. The Company must borrow the remaining $56.8 million under the 2012 Warehouse Facility and refinance the last two aircraft on or before September 2012, which is the end of the availability period. In addition, the Company drew $64.1 million under the 2010 Warehouse Facility and incrementally pledged $93.2 million in aircraft collateral.

As of March 31, 2012, the Company had borrowed $1.1 billion under our Warehouse Facilities and pledged 39 aircraft as collateral with a net book value of $1.6 billion. As of December 31, 2011, the Company had borrowed $1.0 billion under the 2010 Warehouse Facility and pledged 38 aircraft as collateral with a net book value of $1.6 billion. The Company had pledged cash collateral and lessee deposits of $94.3 million and $86.9 million at March 31, 2012 and December 31, 2011, respectively.

Unsecured term financings

In March 2012, the Company issued $1.0 billion in aggregate principal amount of senior unsecured notes due 2017 to Qualified Institutional Buyers in reliance upon Rule 144A under the Securities Act. The notes are senior unsecured obligations of the Company and bear interest at a rate of 5.625% per annum.

In January 2012, the Company issued $155.0 million in senior unsecured notes in a private placement to Qualified Institutional Buyers in reliance upon Rule 144A under the Securities Act. The notes have a seven-year term and a coupon of 7.375% per annum.

During the first quarter of 2012 the Company entered into five additional unsecured term facilities aggregating $127.5 million with terms ranging from one to four years. Four of the facilities bear interest at fixed rates ranging from 3.17% to 4.25% and one facility bears interest at a floating rate of LIBOR plus 2.00%.

Unsecured revolving credit facilities

In February 2012, the Company entered into two separate short-term unsecured revolving credit facilities aggregating $200.0 million, each with a borrowing rate of LIBOR plus 2.00%. These facilities were provided as short-term bridge financing from two members of our banking group in connection with the closing of four European Export Credit Agency (“ECA”) supported aircraft deliveries.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company ended the first quarter of 2012 with a total of 15 unsecured revolving credit facilities aggregating $558.0 million, each with a borrowing rate of LIBOR plus 2.00%. The total amount outstanding under our unsecured revolving credit facilities was $112.5 million and $358.0 million as of March 31, 2012 and December 31, 2011, respectively.

Maturities

Maturities of debt outstanding as of March 31, 2012 are as follows (in thousands):

(1)          As of March 31, 2012, the Company had $964.1 million of debt outstanding under the 2010 Warehouse Facility which matures in June 2013. The outstanding drawn balance at the end of the availability period may be converted at the Company’s option to an amortizing, four-year term loan and has been presented as such in the maturity schedule above.

(2)          As of March 31, 2012, the Company had $112.5 million of debt outstanding under our revolving unsecured credit facilities. The outstanding drawn balances may be rolled until the maturity date of each respective facility and have been presented as such in the maturity schedule above.

Note 4.          Commitments and Contingencies

Aircraft Acquisition

As of March 31, 2012, we had commitments to acquire a total of 205 new and one used aircraft for delivery as follows:

(1)          Of the 35 aircraft that we committed to acquire in the remainder of 2012, one Boeing 777-300ER will be a used aircraft.

(2)          As of March 31, 2012, the Airbus A320/321 NEO aircraft were subject to non-binding memoranda of understanding for the purchase of these aircraft.

(3)          We have cancellation rights with respect to 14 of the Airbus A320/321 NEO aircraft.

Commitments for the acquisition of these aircraft and other equipment at an estimated aggregate purchase price (including adjustments for inflation) of approximately $10.6 billion at March 31, 2012 are as follows (in thousands):

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We have made non-refundable deposits on the aircraft for which we have commitments to purchase of $441.0 million and $405.5 million as of March 31, 2012 and December 31, 2011, respectively, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may forfeit our deposits. Further, we would be subject to breach of contract claims by our lessees and manufacturers.

Note 5.         Net Earnings Per Share

Basic net earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s two classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock.

Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method. For the three months ended March 31, 2012, the Company excluded 3,365,908 shares related to stock options which are potentially dilutive securities from the computation of diluted earnings per share because including these shares would be anti-dilutive. For the three months ended March 31, 2011, the Company excluded 3,225,908 shares related to stock options which are potentially dilutive securities from the computation of diluted earnings per share because they were anti-dilutive. In addition, the Company excluded 2,970,643 and 3,225,907 shares related to restricted stock units for which the performance metric had yet to be achieved as of March 31, 2012 and 2011, respectively.

The following table sets forth the reconciliation of basic and diluted net income per share (in thousands, except share amounts):

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6.          Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

The Company had no assets or liabilities which are measured at fair value on a recurring or non-recurring basis as of March 31, 2012 or December 31, 2011.

Fair Value of Financial Instruments

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as Level 2. The estimated fair value of debt financing as of March 31, 2012 was $3,686.9 million compared to a book value of $3,657.6 million. The estimated fair value of debt financing as of December 31, 2011 was $2,591.0 million compared to a book value of $2,602.8 million.

Other Financial Instruments Not Measured at Fair Value

The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet at March 31, 2012, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at March 31, 2012 approximates their carrying value as reported on the consolidated balance sheet.

The fair value of all these instruments would be categorized as Level 1 of the fair value hierarchy.

Note 7.          Stock-based Compensation

In accordance with the Amended and Restated Air Lease Corporation 2010 Equity Incentive Plan (“Plan”), the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) authorized under the Plan is approximately 8,193,088 as of March 31, 2012. Options are generally granted for a term of 10 years and generally vest over a three-year period. There are two kinds of RSUs: those that vest based on the attainment of book-value goals and those that vest based on the attainment of Total Shareholder Return (“TSR”) goals. The book-value RSUs generally vest ratably over three to four years, if the performance condition has been met. Book-value RSUs for which the performance metric has not been met are forfeited.  The TSR RSUs vest at the end of a three year period.  The TSR RSUs will ultimately vest based upon the percentile ranking of the Company’s TSR among a peer group. To the extent to which the TSR metric is achieved the number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted.  As of March 31, 2012, the Company granted 3,375,908 Stock Options and 3,830,846 RSUs of which 186,438 are TSR RSUs.

The Company recorded $8.2 million and $10.9 million of stock-based compensation expense for the three months ended March 31, 2012 and 2011, respectively.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Stock Options

A summary of stock option activity in accordance with the Company’s stock option plan as of March 31, 2012 and December 31, 2011, and changes for the three months ended March 31, 2012, are as follows:

(1)  The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $24.07 of our Class A Common Stock on March 30, 2012.

(2)  Options expected to vest reflect an estimated forfeiture rate.

Stock-based compensation expense related to employee stock options for the three months ended March 31, 2012 and 2011 totaled $2.8 million.

The following table summarizes additional information regarding outstanding and exercisable and vested options at March 31, 2012:

As of March 31, 2012, there was $14.2 million of unrecognized compensation cost related to outstanding employee stock options. This amount is expected to be recognized over a weighted-average period of 1.2 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Restricted Stock Unit Plan

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period.  The fair value of book-value RSUs is determined based on the closing market price of the Company’s Class A Common Stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period. Due to our limited stock history since the completion of our initial public offering on April 25, 2011, historical volatility was estimated based on all available information. The expected dividend distributions were estimated using the pattern of dividend distributions before the valuation date.

During the three months ended March 31, 2012, the Company granted 372,882 RSUs of which 186,438 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2012:

(1)  RSUs expected to vest reflect an estimated forfeiture rate.

At March 31, 2012, the outstanding RSUs are expected to vest as follows: 2012—887,049; 2013—932,778; 2014—902,230 ; 2015—248,586.  The Company recorded $5.4 million and $8.1 million of stock-based compensation expense related to RSUs for the year three months ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, there was $29.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted-average remaining period of 2.2 years.

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8.          Subsequent Events

On April 9, 2012, the Company entered into a purchase agreement novation and related amendment (collectively, the “Novation Agreement”) with Vietnam Aircraft Leasing Joint Stock Company (“VALC”), whereby VALC assigned to the Company its purchase agreement with The Boeing Company (“Boeing”) for the purchase of eight 787-9 aircraft.  Deliveries of these aircraft are scheduled to commence in 2017 and continue through 2018.  Boeing has consented and agreed to the Novation Agreement.

On April 24, 2012, the Company was named as a defendant in a complaint filed in Superior Court of the State of California for the County of Los Angeles by American International Group, Inc. and International Lease Finance Corporation.  The complaint also names as defendants certain executive officers and employees of the Company.  Among other things, the suit alleges breach of fiduciary duty and misappropriation of trade secrets.  The complaint seeks an unspecified amount of damages.  The Company believes that it has meritorious defenses to these claims and intends to defend this matter vigorously. As of the date of this filing, the Company is unable to estimate a range of possible loss, if any, related to this matter.

On May 4, 2012, the Company entered into a three-year senior unsecured revolving credit facility in excess of $850 million (the “Syndicated Unsecured Revolving Credit Facility”). The Syndicated Unsecured Revolving Credit Facility will mature on May 4, 2015 and contains an uncommitted accordion feature under which its aggregate principal amount can be increased by up to $500 million under certain circumstances.

Borrowings under the Syndicated Unsecured Revolving Credit Facility generally will bear interest at either (a) LIBOR plus a margin of 1.75% or (b) an alternative base rate plus a margin of 0.75%.  The Company is required to pay a commitment fee in respect of unutilized commitments under the Credit Facility at a rate of 0.375%.  Borrowings under the Credit Facility will be used to finance the working capital needs of the Company and its subsidiaries in the ordinary course of business and for other general corporate purposes.

The Syndicated Unsecured Revolving Credit Facility replaces certain of the Company’s senior unsecured revolving credit facilities totaling $273 million in the aggregate.  The lenders under the replaced credit facilities or their affiliates are lenders under the Syndicated Unsecured Revolving Credit Facility.

As of March 12, 2012, Commonwealth Bank of Australia, a lender under the Syndicated Unsecured Revolving Credit Facility, held 7.35% of our Class A Common Stock.  Certain of the lenders under the Syndicated Unsecured Revolving Credit Facility have other lending relationships with the Company and its subsidiaries, including under our 2010 Warehouse Facility.  In addition, certain lenders under the Syndicated Unsecured Revolving Credit Facility have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, or commercial banking services for the Company and its subsidiaries, for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.

On May 10, 2012, the Company entered into a definitive purchase agreement and related letter agreements (collectively, the “Purchase Agreement”) with Airbus S.A.S. (“Airbus”). The Company agreed to purchase 50 Airbus A320/321 NEO aircraft which were previously subject to a non-binding memorandum of understanding. We have cancellation rights with respect to 14 of the 50 A320/321 NEO aircraft. Deliveries of these aircraft are scheduled to commence in 2016 and continue through 2020.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Our primary business is to acquire new and used popular and fuel-efficient commercial aircraft from aircraft manufacturers and other parties and to lease those aircraft to airlines around the world. We supplement our leasing revenues by providing management services to investors and/or owners of aircraft portfolios, for which we will receive fee-based revenue. These services include leasing, re-leasing, and lease management and sales services, with the goal of helping our clients maximize lease and sale revenues. In addition to our leasing activities and management services, and depending on market conditions, we expect to sell aircraft from our fleet to other leasing companies, financial services companies and airlines.

During the first quarter of 2012, we have continued to build one of the world’s youngest, most fuel-efficient aircraft operating lease portfolios. During the three months ended March 31, 2012, we acquired an additional 12 aircraft from our pipeline ending the quarter with a total of 114 aircraft (of which 48 were new aircraft and 66 were used aircraft), growing our fleet by 11.8% based on units.  The acquisition of additional new aircraft resulted in a further decrease in the weighted-average age of our fleet to 3.4 years as of March 31, 2012 compared to 3.6 years as of December 31, 2011. We also managed two aircraft as of March 31, 2012.

The Company recorded $131.7 million in rental revenue for the first quarter of 2012, an increase of $77.1 million or 141% compared to the first quarter of 2011. This increase is a result of the full impact on rental revenue of the fleet of 102 aircraft acquired as of December 31, 2011 in addition to rental revenue for the 12 aircraft acquired during the quarter for which the full impact will be reflected in subsequent periods.

During the first quarter of 2012, the Company raised an incremental $1.7 billion in debt financing. Of this amount $1.5 billion, or 88.5%, is unsecured, including $1.2 billion in senior unsecured notes. We ended the quarter with total unsecured debt outstanding of $1.9 billion. The Company’s unsecured debt as a percentage of total debt increased to 50.5% as of March 31, 2012 from 31.7% as of December 31, 2011. The Company’s fixed debt as a percentage of total debt increased to 51.5% as of March 31, 2012 from 24.3% as of December 31, 2011. We ended the first quarter of 2012 with a conservative balance sheet with low leverage and ample available liquidity of $1.6 billion. As part of our 2012 financing strategy the Company will continue to focus on raising unsecured financing.

Our fleet

Portfolio metrics of our fleet as of March 31, 2012 and December 31, 2011 are as follows (dollars in thousands):

(1)               We acquired our existing fleet of 114 aircraft from 24 separate owners and operators of aircraft, 51 of which were subject to existing operating leases originated by 12 different aircraft lessors. The individual transactions ranged in size from one to eight aircraft, and from $22.3 million to $330.2 million, respectively. The 51 existing operating leases were with 39 different airline customers. Of the 51 aircraft that we acquired from other aircraft lessors, none of the aircraft represented an entire portfolio (i.e., a group of aircraft characterized by risk, geography or other common features) of the respective seller lessor, and none of the seller lessors sold their aircraft as part of a plan to exit their respective aircraft leasing businesses. With respect to these transactions, we did not acquire any information technology systems, infrastructure, employees, other assets, services, financing or any other activities indicative of a business.

(2)                Weighted-average fleet age and remaining lease term calculated based on net book value.

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The following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of March 31, 2012 and December 31, 2011 (dollars in thousands):

The following table sets forth the number of aircraft we leased by aircraft type as of March 31, 2012 and December 31, 2011:

As of March 31, 2012, we had commitments to acquire a total of 205 new and one used aircraft for delivery as follows:

(1)                    Of the 35 aircraft that we committed to acquire in the remainder of 2012, one Boeing 777-300ER will be a used aircraft.

(2)                    As of March 31, 2012, the Airbus A320/321 NEO aircraft were subject to non-binding memoranda of understanding for the purchase of these aircraft.

(3)                    We have cancellation rights with respect to 14 of the Airbus A320/321 NEO aircraft.

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Debt

Our debt financing was comprised of the following at March 31, 2012 and December 31, 2011 (in thousands):

(1)                This rate does not include the effect of upfront fees, undrawn fees or issuance cost amortization.

Secured term financings

The Company did not enter into any additional secured term facilities during the first quarter of 2012. The outstanding balance on our secured term facilities was $715.3 million and $735.3 million at March 31, 2012 and December 31, 2011, respectively.

Warehouse facilities

In March 2012, a wholly-owned subsidiary of the Company entered into a senior secured warehouse facility (the “2012 Warehouse Facility”) to refinance a pool of eight aircraft previously financed under the Company’s non-recourse, revolving $1.25 billion credit facility (the “2010 Warehouse Facility”). The 2012 Warehouse Facility is non-recourse to the Company and provides the Company with $192.8 million of availability. Amounts drawn under the 2012 Warehouse Facility amortize over a 15 year term and accrue interest based on a floating rate plus a margin of 2.25% for the initial two years and a margin of 5.25% thereafter. The Company is required to pay a commitment fee in respect of unutilized commitments under the 2012 Warehouse Facility at a rate of 1.125%.

During the first quarter of 2012, the Company drew $136.0 million under the 2012 Warehouse Facility refinancing six aircraft previously financed under the 2010 Warehouse Facility creating additional availability under our 2010 Warehouse Facility. The Company must borrow the remaining $56.8 million under the 2012 Warehouse Facility and refinance the last two aircraft on or before September 2012, which is the end of the availability period. In addition, the Company drew $64.1 million under the 2010 Warehouse Facility and incrementally pledged $93.2 million in aircraft collateral.

As of March 31, 2012, the Company had borrowed $1.1 billion under our Warehouse Facilities and pledged 39 aircraft as collateral with a net book value of $1.6 billion. As of December 31, 2011, the Company had borrowed $1.0 billion under the 2010 Warehouse Facility and pledged 38 aircraft as collateral with a net book value of $1.6 billion. The Company had pledged cash collateral and lessee deposits of $94.3 million and $86.9 million at March 31, 2012 and December 31, 2011, respectively.

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Results of Operations

The following table presents our historical operating results for the three months ended March 31, 2012 and 2011 (in thousands):

(1)          Adjusted net income (defined as net income before stock-based compensation expense and non-cash interest expense, which includes the amortization of discounts and debt issuance costs, extinguishment of debt and convertible debt discounts) is a measure of both operating performance and liquidity that is not defined by GAAP and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted net income is presented as a supplemental disclosure because management believes that it may be a useful performance measure that is used within our industry. We believe adjusted net income provides useful information on our earnings from ongoing operations, our ability to service our long-term debt and other fixed obligations, and our ability to fund our expected growth with internally generated funds. Set forth below is additional detail as to how we use adjusted net income as a measure of both operating performance and liquidity, as well as a discussion of the limitations of adjusted net income as an analytical tool and a reconciliation of adjusted net income to our GAAP net income and cash flow from operating activities.

Operating Performance:  Management and our board of directors use adjusted net income in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful in identifying trends in our performance. We use adjusted net income as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted net income assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure and stock-based compensation expense from our operating results. In addition, adjusted net income helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that we can influence in the short term, namely the cost structure and expenses of the organization.

Liquidity:  In addition to the uses described above, management and our board of directors use adjusted net income as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors.

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Limitations:  Adjusted net income has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are as follows:

·  adjusted net income does not reflect (i) our cash expenditures or future requirements for capital expenditures or contractual commitments, or (ii) changes in or cash requirements for our working capital needs; and

·  our calculation of adjusted net income may differ from the adjusted net income or analogous calculations of other companies in our industry, limiting its usefulness as a comparative measure.

The following tables show the reconciliation of net income and cash flows from operating activities, the most directly comparable GAAP measures of performance and liquidity, to adjusted net income (in thousands):

(2)          Adjusted EBITDA (defined as net income before net interest expense, stock-based compensation expense, income tax expense, and depreciation and amortization expense) is a measure of both operating performance and liquidity that is not defined by GAAP and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA is presented as a supplemental disclosure because management believes that it may be a useful performance measure that is used within our industry. We believe adjusted EBITDA provides useful information on our earnings from ongoing operations, our ability to service our long-term debt and other fixed obligations, and our ability to fund our expected growth with internally generated funds. Set forth below is additional detail as to how we use adjusted EBITDA as a measure of both operating performance and liquidity, as well as a discussion of the limitations of adjusted EBITDA as an analytical tool and a reconciliation of adjusted EBITDA to our GAAP net income and cash flow from operating activities.

Operating Performance:  Management and our board of directors use adjusted EBITDA in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful in identifying trends in our performance. We use adjusted EBITDA as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted EBITDA assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure and stock-based compensation expense from our operating results. In addition, adjusted EBITDA helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that we can influence in the short term, namely the cost structure and expenses of the organization.

Liquidity: In addition to the uses described above, management and our board of directors use adjusted EBITDA as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors.

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Limitations:  Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are as follows:

·  adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

·  adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs;

·  adjusted EBITDA does not reflect interest expense or cash requirements necessary to service interest or principal payments on our debt; and

·  other companies in our industry may calculate these measures differently from how we calculate these measures, limiting their usefulness as comparative measures.

The following tables show the reconciliation of net income and cash flows from operating activities, the most directly comparable GAAP measures of performance and liquidity, to adjusted EBITDA (in thousands):

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Contractual Obligations

Our contractual obligations as of March 31, 2012 are as follows (in thousands):

(1)          As of March 31, 2012, the Company had $964.1 million of debt outstanding under the 2010 Warehouse Facility which matures in June 2013. The outstanding drawn balance at the end of the availability period may be converted at the Company’s option to an amortizing, four-year term loan and has been presented as such in the contractual obligations schedule above.

(2)          As of March 31, 2012, the Company had $112.5 million of debt outstanding under our revolving unsecured credit facilities. The outstanding drawn balances may be rolled until the maturity date of each respective facility and have been presented as such in the contractual obligations schedule above.

(3)          Future interest payments on floating rate debt are estimated using floating rates in effect at March 31, 2012.

Off-Balance Sheet Arrangements

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements.

Critical Accounting Policies

The Company’s critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on March 9, 2012. There have been no changes to critical accounting policies in the three months ended March 31, 2012.

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