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.

 

If the effects of terrorist attacks and geopolitical conditions adversely impact the financial condition of the airlines, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and growth prospects.

 

As a result of the September 11, 2001 terrorist attacks in the United States and subsequent terrorist attacks abroad, notably in the Middle East, Southeast Asia and Europe, increased security restrictions were implemented on air travel, airline costs for aircraft insurance and enhanced security measures have increased, and airlines in certain countries continue to rely on government-sponsored programs to acquire war risk insurance. In addition, war or armed hostilities in the Middle East, North Korea or elsewhere, or the fear of such events, could further exacerbate many of the problems experienced as a result of terrorist attacks. The situation in Iraq continues to be uncertain, tension over Iran’s nuclear program continues, fighting in the Gaza Strip between Hamas and the Israeli army significantly raised tension in the Middle East in early 2009, and any or all of these may lead to further instability in the Middle East. The recent attacks in Mumbai have also raised tensions in South Asia. Future terrorist attacks, war or armed hostilities, or the fear of such events, could further negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results and growth prospects.

 

Terrorist attacks and geopolitical conditions have negatively affected the airline industry and concerns about geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees) for the foreseeable future depending upon various factors, including: (i) higher costs to the airlines due to the increased security measures; (ii) decreased passenger demand and revenue due to the inconvenience of additional security measures; (iii) the price and availability of jet fuel and the cost and practicability of obtaining fuel hedges under current market conditions; (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all; (v) the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available; (vi) the ability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the grounding of aircraft as a result of terrorist attacks, the economic slowdown and airline reorganizations.

 

Future terrorist attacks, acts of war or armed hostilities may further increase airline costs, depress air travel demand, depress aircraft values and rental rates or cause certain aviation insurance to become available only at significantly increased premiums (which may be for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage currently required by aircraft lenders and lessors or by applicable government regulations) or not be available at all.

Although the United States and the governments of some other countries provide for limited government coverage for certain aviation insurance, these programs may not continue nor is there any guarantee such government will pay under these programs in a timely fashion.

 

If the current industry conditions should continue or become exacerbated due to future terrorist attacks, acts of war or armed hostilities, they are likely to cause our lessees to incur higher costs and to generate lower revenues, resulting in an adverse effect on their financial condition and liquidity. Consequently, these conditions may affect their ability to make rental and other lease payments to us or obtain the types and amounts of insurance required by the applicable leases (which may in turn lead to aircraft groundings), may result in additional lease restructurings and aircraft repossessions, may increase our cost of re-leasing or selling the aircraft and may impair our ability to re-lease or otherwise dispose of the aircraft on a timely basis, at favorable rates or on favorable terms, or at all, and may reduce the proceeds received for the aircraft upon any disposition. These results could have an adverse effect on our financial results and growth prospects.

 

The effects of epidemic diseases may negatively impact the airline industry in the future, which might cause our lessees to not be able to meet their lease payment obligations to us, which would have an adverse effect on our financial results and growth prospects.

 

The spread of SARS in 2003 was linked to air travel early in its development and negatively impacted passenger demand for air travel at that time. While the World Health Organization’s travel bans related to SARS have been lifted, SARS had a severe impact on the aviation industry, which was evidenced by a sharp reduction in passenger bookings and cancellation of many flights and employee layoffs. While these effects were felt most acutely in Asia, SARS did spread to other areas, including North America. Since 2003, there have been several outbreaks of avian influenza, beginning in Asia and, most recently, spreading to certain parts of Africa and Europe. Although human cases of avian influenza so far have been limited in number, the World Health Organization has expressed serious concern that a human influenza pandemic could develop from the avian influenza virus. In such an event, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease. Additional outbreaks of SARS or other epidemic diseases such as avian influenza, or the fear of such events, could negatively impact passenger demand for air travel and the aviation industry, which could result in our lessees’ inability to satisfy their lease payment obligations to us, which in turn would have an adverse effect on our financial results and growth prospects.

 

If recent industry economic losses and airline reorganizations continue, our lessees might not be able to meet their lease payment obligations to us, which would have an adverse effect on our financial results and growth prospects.

 

As a result of international economic conditions, significant volatility in oil prices and financial markets distress, airlines may be forced to reorganize. Historically, airlines involved in reorganizations have undertaken substantial fare discounting to maintain cash flows and to encourage continued customer loyalty. Such fare discounting has in the past led to lower profitability for all airlines, including certain of our lessees. Bankruptcies and reduced demand may lead to the grounding of significant numbers of aircraft and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values. Additional reorganizations by airlines under Chapter 11 or liquidations under Chapter 7 of the U.S. Bankruptcy Code or other bankruptcy or reorganization laws in other countries or further rejection of aircraft leases or abandonment of aircraft by airlines in a Chapter 11 proceeding under the U.S. Bankruptcy Code or equivalent laws in other countries may have already exacerbated, and would be expected to further exacerbate, such depressed aircraft values and lease rates. Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms, or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively would have an adverse effect on our financial results and growth prospects.

 

High
fuel prices impact the profitability of the airline industry. If
fuel prices rise, our lessees might not be able to meet their
lease payment obligations, which would 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.

 

If the
effects of terrorist attacks and geopolitical conditions
adversely impact the financial condition of the airlines, our
lessees might not be able to meet their lease payment
obligations, which would have an adverse effect on our financial
results and growth prospects.

 

As a result of the September 11, 2001 terrorist attacks in
the United States and subsequent terrorist attacks abroad,
notably in the Middle East, Southeast Asia and Europe, increased
security restrictions were implemented on air travel, airline
costs for aircraft insurance and enhanced security measures have
increased, and airlines in certain countries continue to rely on
government-sponsored programs to acquire war risk insurance. In
addition, war or armed hostilities in the Middle East, North
Korea or elsewhere, or the fear of such events, could further
exacerbate many of the problems experienced as a result of
terrorist attacks. The situation in Iraq continues to be
uncertain, tension over Iran’s nuclear program continues,
fighting in the Gaza Strip between Hamas and the Israeli army
significantly raised tension in the Middle East in early 2009,
and any or all of these may lead to further instability in the
Middle East. The recent attacks in Mumbai have also raised
tensions in South Asia. Future terrorist attacks, war or armed
hostilities, or the fear of such events, could further
negatively impact the airline industry and may have an adverse
effect on the financial condition and liquidity of our lessees,
aircraft values and rental rates and may lead to lease
restructurings or aircraft repossessions, all of which could
adversely affect our financial results and growth prospects.

 

Terrorist attacks and geopolitical conditions have negatively
affected the airline industry and concerns about geopolitical
conditions and further terrorist attacks could continue to
negatively affect airlines (including our lessees) for the
foreseeable future depending upon various factors, including:
(i) higher costs to the airlines due to the increased
security measures; (ii) decreased passenger demand and
revenue due to the inconvenience of additional security
measures; (iii) the price and availability of jet fuel and
the cost and practicability of obtaining fuel hedges under
current market conditions; (iv) higher financing costs and
difficulty in raising the desired amount of proceeds on
favorable terms, or at all; (v) the significantly higher
costs of aircraft insurance coverage for future claims caused by
acts of war, terrorism, sabotage, hijacking and other similar
perils, and the extent to which such insurance has been or will
continue to be available; (vi) the ability of airlines to
reduce their operating costs and conserve financial resources,
taking into account the increased costs incurred as a
consequence of terrorist attacks and geopolitical conditions,
including those referred to above; and (vii) special
charges recognized by some airlines, such as those related to
the impairment of aircraft and other long lived assets stemming
from the grounding of aircraft as a result of terrorist attacks,
the economic slowdown and airline reorganizations.

 

Future terrorist attacks, acts of war or armed hostilities may
further increase airline costs, depress air travel demand,
depress aircraft values and rental rates or cause certain
aviation insurance to become available only at significantly
increased premiums (which may be for reduced amounts of coverage
that are insufficient to comply with the levels of insurance
coverage currently required by aircraft lenders and lessors or
by applicable government regulations) or not be available at all.

Although the United States and the governments of some other
countries provide for limited government coverage for certain
aviation insurance, these programs may not continue nor is there
any guarantee such government will pay under these programs in a
timely fashion.

 

If the current industry conditions should continue or become
exacerbated due to future terrorist attacks, acts of war or
armed hostilities, they are likely to cause our lessees to incur
higher costs and to generate lower revenues, resulting in an
adverse effect on their financial condition and liquidity.
Consequently, these conditions may affect their ability to make
rental and other lease payments to us or obtain the types and
amounts of insurance required by the applicable leases (which
may in turn lead to aircraft groundings), may result in
additional lease restructurings and aircraft repossessions, may
increase our cost of re-leasing or selling the aircraft and may
impair our ability to re-lease or otherwise dispose of the
aircraft on a timely basis, at favorable rates or on favorable
terms, or at all, and may reduce the proceeds received for the
aircraft upon any disposition. These results could have an
adverse effect on our financial results and growth prospects.

 

The
effects of epidemic diseases may negatively impact the airline
industry in the future, which might cause our lessees to not be
able to meet their lease payment obligations to us, which would
have an adverse effect on our financial results and growth
prospects.

 

The spread of SARS in 2003 was linked to air travel early in its
development and negatively impacted passenger demand for air
travel at that time. While the World Health Organization’s
travel bans related to SARS have been lifted, SARS had a severe
impact on the aviation industry, which was evidenced by a sharp
reduction in passenger bookings and cancellation of many flights
and employee layoffs. While these effects were felt most acutely
in Asia, SARS did spread to other areas, including North
America. Since 2003, there have been several outbreaks of avian
influenza, beginning in Asia and, most recently, spreading to
certain parts of Africa and Europe. Although human cases of
avian influenza so far have been limited in number, the World
Health Organization has expressed serious concern that a human
influenza pandemic could develop from the avian influenza virus.
In such an event, numerous responses, including travel
restrictions, might be necessary to combat the spread of the
disease. Additional outbreaks of SARS or other epidemic diseases
such as avian influenza, or the fear of such events, could
negatively impact passenger demand for air travel and the
aviation industry, which could result in our lessees’
inability to satisfy their lease payment obligations to us,
which in turn would have an adverse effect on our financial
results and growth prospects.

 

If
recent industry economic losses and airline reorganizations
continue, our lessees might not be able to meet their lease
payment obligations to us, which would have an adverse effect on
our financial results and growth prospects.

 

As a result of international economic conditions, significant
volatility in oil prices and financial markets distress,
airlines may be forced to reorganize. Historically, airlines
involved in reorganizations have undertaken substantial fare
discounting to maintain cash flows and to encourage continued
customer loyalty. Such fare discounting has in the past led to
lower profitability for all airlines, including certain of our
lessees. Bankruptcies and reduced demand may lead to the
grounding of significant numbers of aircraft and negotiated
reductions in aircraft lease rental rates, with the effect of
depressing aircraft market values. Additional reorganizations by
airlines under Chapter 11 or liquidations under
Chapter 7 of the U.S. Bankruptcy Code or other
bankruptcy or reorganization laws in other countries or further
rejection of aircraft leases or abandonment of aircraft by
airlines in a Chapter 11 proceeding under the
U.S. Bankruptcy Code or equivalent laws in other countries
may have already exacerbated, and would be expected to further
exacerbate, such depressed aircraft values and lease rates.
Additional grounded aircraft and lower market values would
adversely affect our ability to sell certain of our aircraft on
favorable terms, or at all, or re-lease other aircraft at
favorable rates comparable to the then current market
conditions, which collectively would have an adverse effect on
our financial results and growth prospects.

over Iran’s nuclear program continues, and either or both may lead to further instability in the Middle East. Future terrorist attacks, war or armed hostilities, or the fear of such events, could further negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results and growth prospects.

 

Terrorist attacks and geopolitical conditions have negatively affected the airline industry and concerns about geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees) for the foreseeable future depending upon various factors, including: (i) higher costs to the airlines due to the increased security measures; (ii) decreased passenger demand and revenue due to the inconvenience of additional security measures; (iii) the price and availability of jet fuel and the cost and practicability of obtaining fuel hedges under current market conditions; (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all; (v) the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available; (vi) the ability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the grounding of aircraft as a result of terrorist attacks, the economic slowdown and airline reorganizations.

 

Future terrorist attacks, acts of war or armed hostilities may further increase airline costs, depress air travel demand, depress aircraft values and rental rates or cause certain aviation insurance to become available only at significantly increased premiums (which may be for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage currently required by aircraft lenders and lessors or by applicable government regulations) or not be available at all.

 

Although the United States and the governments of some other countries provide for limited government coverage for certain aviation insurance, these programs may not continue nor is there any guarantee such government will pay under these programs in a timely fashion.

 

If the current industry conditions should continue or become exacerbated due to future terrorist attacks, acts of war or armed hostilities, they are likely to cause our lessees to incur higher costs and to generate lower revenues, resulting in an adverse effect on their financial condition and liquidity. Consequently, these conditions may affect their ability to make rental and other lease payments to us or obtain the types and amounts of insurance required by the applicable leases (which may in turn lead to aircraft groundings), may result in additional lease restructurings and aircraft repossessions, may increase our cost of re-leasing or selling the aircraft and may impair our ability to re-lease or otherwise dispose of the aircraft on a timely basis, at favorable rates or on favorable terms, or at all, and may reduce the proceeds received for the aircraft upon any disposition. These results could have an adverse effect on our financial results and growth prospects.

 

The effects of epidemic diseases may negatively impact the airline industry in the future, which might cause our lessees to not be able to meet their lease payment obligations to us, which would have an adverse effect on our financial results and growth prospects.

 

The spread of SARS in 2003 was linked to air travel early in its development and negatively impacted passenger demand for air travel at that time. While the World Heath Organization’s travel bans related to SARS have been lifted, SARS had a severe impact on the aviation industry, which was evidenced by a sharp reduction in passenger bookings and cancellation of many flights and employee layoffs. While these effects were felt most acutely in Asia, SARS did spread to other areas, including North America. Since 2003, there have been several outbreaks of avian influenza, beginning in Asia and, most recently, spreading to certain parts of Africa and Europe. Although human cases of avian influenza so far have been limited in number, the World Health Organization has expressed serious

concern that a human influenza pandemic could develop from the avian influenza virus. In such an event, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease. Additional outbreaks of SARS or other epidemic diseases such as avian influenza, or the fear of such events, could negatively impact passenger demand for air travel and the aviation industry, which could result in our lessees’ inability to satisfy their lease payment obligations to us, which in turn would have an adverse effect on our financial results and growth prospects.

 

If recent industry economic losses and airline reorganizations continue, our lessees might not be able to meet their lease payment obligations to us, which would have an adverse effect on our financial results and growth prospects.

 

As a result of reduced fares, international economic conditions, a significant increase in oil prices, the September 11, 2001 terrorist attacks in the United States, the war and prolonged conflict in Iraq and outbreaks of epidemic diseases such as SARS and avian influenza, the aviation industry as a whole suffered significant losses since 2001 and such losses are expected to continue for the foreseeable future for certain parts of the industry. Many airlines, including a significant number of our lessees, have announced or implemented reductions in capacity, service and workforce in response to reductions in passenger demands and fares. In addition, since September 11, 2001, several U.S. airlines have sought to reorganize (and, in certain instances, have reorganized) under Chapter 11 of the U.S. Bankruptcy Code, including United Air Lines, Inc., Delta Air Lines Inc., Northwest Airlines Corp., US Airways, Inc. (one of our largest customers), Hawaiian Airlines, ATA Airlines, Inc., Atlas Air Worldwide Holdings, Inc., Aloha Airlines, Skybus Airways, EOS Lines, Frontier Airlines, Gemini Air Cargo, Tradewinds Airlines, and further U.S. airline reorganizations are possible. Certain European and Latin American airlines, including Sabena Air Lines, Swiss Air Transport Company Limited, Volare Airlines S.p.A., Varig Brazilian Airlines, Avianca, Futura International Airways, XL Airways, Alitalia Linee Aree Italiane S.p.A., Sterling Airlines A/S, and Far Eastern Air Transport, have also filed for protection under applicable bankruptcy laws. In addition, Air Canada (the largest Canadian airline) filed for protection under Canada’s Companies’ Creditors Arrangement Act. Historically, airlines involved in reorganizations have undertaken substantial fare discounting to maintain cash flows and to encourage continued customer loyalty. Such fare discounting has led to lower profitability for all airlines, including certain of our lessees. The bankruptcies and reduced demand generally have led to the grounding of significant numbers of aircraft and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values. In addition, requests for additional labor concessions may result in significant labor disputes which could lead to strikes or slowdowns or may otherwise adversely affect labor relations, thereby worsening the financial condition of the airline industry and placing downward pressure on lease rates and aircraft values. Additional reorganizations by airlines under Chapter 11 or liquidations under Chapter 7 of the U.S. Bankruptcy Code or other bankruptcy or reorganization laws in other countries or further rejection of aircraft leases or abandonment of aircraft by airlines in a Chapter 11 proceeding under the U.S. Bankruptcy Code or equivalent laws in other countries may have already exacerbated and would be expected to further exacerbate such depressed aircraft values and lease rates. Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms, or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively would have an adverse effect on our financial results and growth prospects.