Aircastle (AYR)

fares in a manner that fully compensates for the costs incurred. In addition, airlines may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations. If fuel prices increase due to future terrorist attacks, acts of war, armed hostilities, natural disasters or for any other reason, they are likely to cause our lessees to incur higher costs and/or generate lower revenues, resulting in an adverse impact on their financial condition and liquidity. Fuel cost volatility may contribute to the reluctance of airlines to make future commitments to lease aircraft and, accordingly, reduce the demand for lease aircraft. Consequently, these conditions may (i) affect our lessees’ ability to make rental and other lease payments, (ii) result in lease restructurings and/or aircraft repossessions, (iii) increase our costs of servicing and marketing our aircraft, (iv) impair our ability to re-lease the aircraft or re-lease or otherwise dispose of the aircraft on a timely basis at favorable rates or terms, or at all, and (v) reduce the proceeds received for the aircraft upon any disposition. These results could have an adverse effect on our financial results and growth prospects.

 

 

Fuel costs represent a major expense to companies operating
within the airline industry. Fuel prices fluctuate widely
depending primarily on international market conditions,
geopolitical and environmental events and currency/exchange
rates. As a result, fuel costs are not within the control of
lessees and significant changes would materially affect their
operating results.

 

Factors such as natural disasters can significantly affect fuel
availability and prices. In August and September 2005,
Hurricanes Katrina and Rita inflicted widespread damage along
the Gulf Coast of the United States, causing significant
disruptions to oil production, refinery operations and pipeline
capacity in the region and to oil production in the Gulf of
Mexico. These disruptions resulted in decreased fuel
availability and higher fuel prices.

 

Fuel prices currently remain extremely volatile. The high cost
of fuel in 2007 and early 2008 had a material adverse impact on
most airlines (including our lessees) profitability. Fuel
hedging contracts entered into during the recent high fuel price
environment resulted in significant losses
and/or
additional cash collateral required to be posted related to fuel
hedges for certain airlines in late 2008 as fuel prices fell
significantly. Due to the competitive nature of the airline
industry, airlines have been, and may continue to be, unable to
pass on increases in fuel prices to their customers by
increasing

fares in a manner that fully compensates for the costs incurred.
In addition, airlines may not be able to manage this risk by
appropriately hedging their exposure to fuel price fluctuations.
If fuel prices increase due to future terrorist attacks, acts of
war, armed hostilities, natural disasters or for any other
reason, they are likely to cause our lessees to incur higher
costs and/or
generate lower revenues, resulting in an adverse impact on their
financial condition and liquidity. Fuel cost volatility may
contribute to the reluctance of airlines to make future
commitments to lease aircraft and, accordingly, reduce the
demand for lease aircraft. Consequently, these conditions may
(i) affect our lessees’ ability to make rental and
other lease payments, (ii) result in lease restructurings
and/or
aircraft repossessions, (iii) increase our costs of
servicing and marketing our aircraft, (iv) impair our
ability to re-lease the aircraft or re-lease or otherwise
dispose of the aircraft on a timely basis at favorable rates or
terms, or at all, and (v) reduce the proceeds received for
the aircraft upon any disposition. These results could have an
adverse effect on our financial results and growth prospects.