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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINDEX TO CONSOLIDATED
PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

         Securities registered pursuant to Section 12(b) of the Act:

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         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 the 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). Yeso              Noý

         The aggregate market value of registrant's voting stock held by non-affiliates was approximately $1,371,557,913$2,127,913,320 on June 30, 2012,2013, based upon the last reported sales price on the New York Stock Exchange. As of February 22, 2013,27, 2014, there were 99,417,998101,822,676 shares of Class A Common Stock and 1,829,339 shares of Class B Non-Voting Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Designated portions of the Proxy Statement relating to registrant's 20132014 Annual Meeting of Shareholders have been incorporated by reference into Part III of this report

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Form 10-K
For the Fiscal Year Ended December 31, 20122013
INDEX

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FORWARD LOOKING STATEMENTS

        This Annual Report on Form 10-K and other publicly available documents may contain or incorporate statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Form 10-K and include statements regarding, among other matters, the state of the airline industry, our access to the capital markets, our ability to restructure leases and repossess aircraft, the structure of our leases, regulatory matters pertaining to compliance with governmental regulations and other factors affecting our financial condition or results of operations. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should," and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results to vary materially from our future results, performance or achievements, or those of our industry, expressed or implied in such forward-looking statements. Such factors include, among others, general commercial aviation industry, economic and business conditions, which will, among other things, affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rates, availability and cost of financing and operating expenses, governmental actions and initiatives, and environmental and safety requirements, as well as the factors discussed under "Item 1A. Risk Factors," in this Annual Report on Form 10-K. We do not intend and undertake no obligation to update any forward-looking information to reflect actual results or future events or circumstances.

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PART I

ITEM 1.    BUSINESS

Overview

        Air Lease Corporation a Delaware corporation (the "Company", "ALC", "we", "our" or "us"), is ana leading aircraft leasing company that was launched in February 2010founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy.Udvár-Hazy. We are principally engaged in purchasing new commercial jet transport aircraft which we, in turn, leasedirectly from the manufacturers, such as The Boeing Company ("Boeing") and Airbus S.A.S. ("Airbus"), and leasing those aircraft to airlines aroundthroughout the world to generate attractive returns on equity. As of December 31, 2012,In addition to our leasing activities, we owned 155sell aircraft of which 82 were new aircraftfrom our operating lease portfolio to third parties, including other leasing companies, financial services companies and 73 were used aircraftairlines. We also provide fleet management services to investors and we managed four aircraft. Our fleet is principally comprised of the highest demand and most widely distributed modern technology, fuel efficient single-aisle jet aircraft, twin-aisle widebody aircraft and turboprop aircraft. We manage lease revenues and take advantage of changes in market conditions by acquiring a balanced mixowners of aircraft types. Our used aircraft are generally less than five years old. All of the aircraft we own were leased as of February 28, 2013. Additionally, as of December 31, 2012 and through February 28, 2013, we had entered into binding purchase commitments to acquire an additional 325 new aircraft through 2023.portfolios for a management fee.

        Through careful management and diversification of our leases and lessees by geography, lease term, and aircraft age and type, we mitigate the risks of owning and leasing aircraft. We believe that diversification of our leases and lessees reduces the risks associatedcurrently have relationships with individual lessee defaults and adverse geopolitical and regional economic events. We manage lease expirations in our fleet portfolio over varying time periods in order to minimize periods of concentrated lease expirations and mitigate the risks associated with cyclical variations in the airline industry. As of December 31, 2012, the weighted average lease term remaining on our current leases was 6.8 years, and we leased the aircraft in our portfolio to 69200 airlines in 40across 70 countries. As of December 31, 2011, the weighted average lease term remaining on our current leases was 6.6 years, and we leased the 102 aircraft in our portfolio to 55 airlines in 33 countries.

We operate our business on a global basis, providing aircraft to airline customers in every major geographical region, including emerging and high-growth markets such as Asia, the Pacific Rim, Latin America, the Middle East and Eastern Europe. According to AVITAS, Inc. ("AVITAS"), a leading advisor to the aviation industry, manyMany of these emerging markets are experiencing increased demand for passenger airline travel and have lower market saturation than more mature markets such as North America and Western Europe. In addition,We expect that these markets will also present significant replacement opportunities in upcoming years as some airlines in these markets look to replace aging aircraft with new, modern technology, fuel efficient jet aircraft. An important focus of our strategy is meeting the needs of this replacement market. Airlines in some of these emerging markets have fewer financing alternatives, enabling us to command relatively higher lease rates compared to those in more mature markets. With

        We mitigate the risks of owning and leasing aircraft through careful management and diversification of our well-establishedleases and lessees by geography, lease term, and aircraft age and type. We believe that diversification of our operating lease portfolio reduces the risks associated with individual lessee defaults and adverse geopolitical and regional economic events. We mitigate the risks associated with cyclical variations in the airline industry contactsby managing customer concentrations and accesslease maturities in our operating lease portfolio to capital, we believe we will be ableminimize periods of concentrated lease expirations. In order to continue successfully implementingmaximize residual values and minimize the risk of obsolescence, our business strategy worldwide.

        While our primary business is to own an aircraft during the first third of its 25 year useful life.

        As of December 31, 2013, we owned 193 aircraft in our operating lease portfolio and we leased the aircraft to a globally diversified customer base comprised of 79 airlines in 47 countries. The weighted average lease term remaining of our operating lease portfolio was 7.1 years and the weighted average age of our fleet was 3.7 years. During 2013 we entered into commitments to purchase up to 73 additional aircraft from Airbus and Boeing. From Airbus, we agreed to purchase up to 30 A350 XWB family aircraft, five of which are subject to reconfirmation. From Boeing, we agreed to purchase an additional 10 Boeing 777-300ER aircraft, 30 787-10 aircraft and three additional 787-9 aircraft. At December 31, 2013, we had, in the aggregate, 327 aircraft on order with Boeing, Airbus and Avions de Transport Régional ("ATR") for delivery through 2023, with an estimated aggregate purchase price of $27.3 billion, making us one of the largest customers of Boeing and Airbus.

        As of December 31, 2013, all of our 193 aircraft were leased and our airline customers are obligated to make $6.2 billion in minimum future rental payments over the non-cancellable lease term. In addition, we have signed lease agreements for 98 aircraft that we ordered from the manufacturers for delivery through 2023, and our airline customers are contractually obligated to make $7.2 billion in minimum future rental payments over the non-cancellable lease term. In the aggregate, between aircraft we also plan to continue growingown in our fleet management services to third parties for a fee. These services are similar tooperating lease portfolio and those that we perform with respect to our fleet, including leasing, re-leasing, lease management and sales services. In addition to our leasing activities and management services, and depending on market conditions, we sell aircrafthave leased from our fleetorderbook, our customers are contractually obligated to other leasing companies, financial services companies and airlines.

        Air Lease Corporation is led by a highly experienced management team that includes Mr. Udvar-Házy, our Chairman and Chief Executive Officer, John L. Plueger, our President and Chief Operating Officer, Grant A. Levy, our Executive Vice President, Carol H. Forsyte, our Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer, Marc H. Baer, our Executive Vice President, Marketing, Alex A. Khatibi, our Executive Vice President, Jie Chen, our Executive Vice President and Managing Director of Asia, Gregory B. Willis, our Senior Vice President and Chief Financial Officer, and John D. Poerschke, our Senior Vice President of Aircraft Procurementmake $13.4 billion in minimum future rental payments.

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        We finance the purchase of aircraft and Specifications. On average, our senior management team has approximately 22 years of experiencebusiness with available cash balances, internally generated funds, including aircraft sales and trading activity, and debt financings. Our debt financing strategy is focused on raising unsecured debt in the aviation industry.global bank and capital markets, with a limited utilization of export credit financing. In 2013, the Company received two corporate credit ratings lowering our cost of funds and broadening our access to attractively priced capital. Since our inception in 2010, we have developed a 43 member, globally diversified banking group, which has provided us in excess of $4.4 billion in financing, and we have raised $3.3 billion in financing in the capital markets. We ended 2013 with total debt outstanding of $5.9 billion, of which 62.0% was at a fixed rate and 73.5% of which was unsecured, with a composite cost of funds of 3.60%.

        In 2013, we had total revenues of $858.7 million, representing an increase of $202.9 million or 30.9% compared to 2012. This is comprised of rental revenues on our operating lease portfolio of $836.5 million and aircraft sales, trading and other revenue of $22.2 million. Our composite cost of funds as of December 31, 2013 decreased by 0.34% compared to the prior year. We recorded earnings before income taxes of $293.4 million in 2013, an increase of $89.5 million or 43.9% compared to 2012, for a pretax profit margin of 34.2%. Our operating performance is principally driven by the growth of our fleet, the terms of our leases and the interest rates on our indebtedness, supplemented by the gains of our aircraft sales and trading activities.

Operations to Date

Current Fleet

        Our fleet is principally comprised of fuel-efficient and newer technology aircraft, consisting of narrowbody aircraft, such as the Boeing 737-700/800, the Airbus A320/321 and the Embraer E190, select widebody aircraft, such as the Boeing 777-300ER and the Airbus A330-200/300, and the ATR 72-600 turboprop aircraft. As of December 31, 2013, we owned 193 aircraft, comprised of 146 narrowbody jet aircraft, 31 widebody jet aircraft and 16 turboprop aircraft, with a weighted average age of 3.7 years. As of December 31, 2012, our fleet consisted ofwe owned 155 aircraft, comprised of 118 single-aisle narrowbody jet aircraft, 27 twin-aisle widebody jet aircraft and 10 turboprop aircraft, with a weighted average age of 3.5 years. As of December 31, 2011, our fleet consisted of 102 aircraft, comprised of 81 single-aisle narrowbody jet aircraft, 19 twin-aisle widebody jet aircraft and two turboprop aircraft, with a weighted average age of 3.6 years. As of December 31, 2010, our fleet consisted of 40 aircraft, comprised of 36 single-aisle narrowbody jet aircraft and four twin-aisle widebody jet aircraft, with a weighted average age of 3.8 years.

Geographic Diversification

        Over 90% of our aircraft are operated internationally based on net book value. 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 December 31, 2012 and 2011:

        At December 31, 2012 and 2011, we leased aircraft to customers in the following regions:

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internationally. The following table sets forth the dollar amount and percentage of our rental of flight equipment revenues attributable to the indicatedrespective geographical regions based on each airline's principal place of business:

        As our aircraft portfolio grows, we anticipate that a growing percentageTable of our aircraft will be located in the Asia/Pacific, the Central America, South America and Mexico, and the Middle East and Africa regions.Contents

        The following table sets forth the revenue attributable to individual countries representing at least 10%regional concentration of our rentalaircraft portfolio based on net book value as of flight equipment revenue for the years ended December 31, 2013, 2012 and 2011 and the period from inception to December 31, 2010, based on each airline's principal place of business.2011:

        The following table sets forth the revenue attributable to individual airlines representing at least 10% of our rental of flight equipment revenue for the years endedAt December 31, 2013, 2012 and 2011, andwe leased aircraft to customers in the period from inception to December 31, 2010, based on each airline's principal place of business.following regions:

        In 2013, one country represented at least 10% of our fleet throughrental of flight equipment revenue. For the year ended December 31, 2013, we anticipate that Alitalia will not representChina attributed for $129.8 million or 15.5% of our rental of flight equipment revenue. In 2012, three countries represented at least 10% of our rental of flight equipment revenue. For the year ended December 31, 2012, China attributed for $75.5 million or more11.7% of our rental of flight equipment revenue, Italy attributed for $71.0 million or 11.0% of our rental of flight equipment revenue and France attributed for $67.4 million or 10.4% of our rental of flight equipment revenue. In 2011, two countries represented at least 10% of our rental of flight equipment revenue. For the year ended December 31, 2013.2011 China attributed for $39.6 million or 11.9% of our rental of flight equipment revenue and France attributed for $62.2 million or 18.7% of our rental of flight equipment revenue.

        In 2013, no individual airline represented at least 10% of our rental of flight equipment revenue. In 2012, one airline represented at least 10% of our rental of flight equipment revenue. For the year ended December 31, 2012, Alitalia attributed for $71.0 million or 11.0% of our rental of flight equipment revenue. In 2011, one airline represented at least 10% of our rental of flight equipment revenue. For the year ended December 31, 2011 Air France attributed for $45.4 million or 13.7% of our rental of flight equipment revenue.

Aircraft Acquisition Strategy

        We operate our business on a global basis, leasing aircraft to airline customers in every major geographical region of the world. Our primary strategy is to order new aircraft in bulk directly from the

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Aircraft Acquisition Strategy

        Our long term aircraft assetmanufacturers to minimize the acquisition strategy is focused on acquiringprice. We seek to acquire the highestmost highly in demand and most widely distributed, modern technology, fuel efficient single-aisle narrowbody and widebody commercial jet transport aircraft. When placing new aircraft twin-aisle widebody jetorders with the manufacturers, we strategically target the replacement of aging aircraft and turbopropwith modern technology aircraft. Our business model is based on ordering these or similar typesAdditionally, we look to supplement our order pipeline with opportunistic purchases of aircraft directly fromin the manufacturers and directly leasing these new aircraft to our customers. We will opportunistically supplement our fleet with secondary purchases from other owners of aircraftmarket and participate in sale-leaseback transactions with airlines; however, our primary strategy isairlines.

        Prior to acquire newordering aircraft, from the manufacturers.

        In determining the needs of our lessees or prospective airline customers, we evaluate each potential newthe market for specific types of aircraft. We consider the overall demand for the aircraft in the marketplace based on our deep knowledge of the aviation industry and usedour customer relationships. It is important to assess the airplane's economic viability, the operating performance characteristics, engine variant options, intended utilization by our customers, and which aircraft acquisitiontypes it will replace or compete with in the global market. Additionally, we study the effects of global airline passenger traffic growth in order to determine if it supportsthe likely demand for our primary objective of generating profits while maintaining desired fleet characteristics. Our due diligence process takes into account:

•

the needs of our airline customers at the time of acquisition and their anticipated needs at the end of typical leasing cycles;



•

an aircraft's fit within our focused fleet based on its type, price, age, market value, specifications and configuration, condition and maintenance history, operating efficiency and potential for future redeployment; and



•

an aircraft model's reliability, long-term utility for airline customers, and appeal to a large segment of the industry.

        For used aircraft, we perform detailed technical reviews of both the physical aircraft and its maintenance history to minimize our risk of acquiring an aircraft with defects or other service issues. In the case of new aircraft, we work directly with the manufacturers to outfit and configure the aircraft with our airline customers' needs in mind. Our inspection of new aircraft is focused on ensuring that our customers' required specifications and modifications have been met.aircraft.

        We pursue acquisitions of additional aircraft through our relationships with aircraft operators, manufacturers, financial institutions, private investors and third-party lessors. We may also acquire aircraft for lease directly from manufacturers in the secondary market or pursuant to sale-leaseback transactions with aircraft operators.        For new aircraft deliveries, we will often separately source many components includingseparately, which include seats, safety equipment, avionics, galleys, cabin finishes, engines and other equipment, fromequipment. Often times we are able to achieve lower pricing through direct bulk purchase contracts with the same providers used by aircraftcomponent manufacturers at a lower cost.than would be achievable if the airframe manufacturers sourced the components for the airplane. Manufacturers such as The Boeing Company ("Boeing") and Airbus S.A.S. ("Airbus") will install this buyer furnished equipment in our aircraft during the final assembly process at their facilities. ThroughWith this use of our purchasing strategy, we are better able to modify the aircraft to meet our customer'sspecific customer configuration requirements and enhancelower the total acquisition cost of the aircraft.

Aircraft Leasing Strategy

        The airline industry is a complex industry with constantly evolving competition, code shares (where two or more airlines share the same flight), alliances and passenger traffic patterns. This requires frequent updating and flexibility within an airline's fleet. The operating lease allows airlines to effectively adapt and manage their fleets through varying market conditions without bearing the full financial risk associated with these capital intensive assets with a 25 year useful life. This fleet flexibility enables airlines to more effectively compete in their respective markets. We work closely with our airline customers throughout the world to help optimize their long-term aircraft fleet strategies.

        We work to mitigate the risks of owning and leasing aircraft through careful management of our fleet, including managing customer concentrations by geography and region, staggering lease maturities, balancing aircraft type exposures, and maintaining a young fleet age. We believe that diversification of our operating lease portfolio reduces the risks associated with individual customer defaults and the impact of adverse geopolitical and regional economic events. We work to mitigate the risks associated with cyclical variations in the airline industry by entering into long term leases and staggering our lease maturities. In order to maximize residual values.

Leasing Processvalues and minimize the risk of obsolescence, our strategy is to own aircraft for the first third of its 25 year useful life.

        Our management team identifies prospective lesseescustomers based upon industry knowledge and long-standing industry relationships. Prior to leasing an aircraft, we evaluate the competitive positioning of the airline, the strength and quality of the management team, and the financial performance of the airline. Management obtains and reviews relevant business materials from all prospective customers before entering into a lease agreement. Under certain circumstances, the customer may be required to obtain guarantees or other financial support from a financial institution. We seek to meet the specific needs of our airline customers by workingwork closely with our existing customers and potential lessees and, where appropriate, developing innovativeto develop customized lease structures specifically tailoredthat address their specific needs. We typically enter into a lease agreement 18 to address those needs. While36 months in advance of the delivery of a new aircraft from our order pipeline. Once the aircraft has been delivered and operated by the airline, we structure aircraft leases with our airline customers' needs in mind, we, nevertheless, anticipate that most of our leases will share some common characteristics, including the following:look to

•

most of our leases will be for fixed terms, although, where mutually beneficial, we may provide for purchase options or termination or extension rights;



•

most of our leases will require advance monthly payments;



•

most of our leases will generally provide that the lessee's payment obligations are absolute and unconditional;

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remarket the aircraft and sign a follow-on lease six to 12 months ahead of the scheduled expiry of the initial lease term. Our leases typically contain the following key provisions:

•

our lessees will typically be required to make lease payments without deducting any amounts thatleases are primarily structured as operating leases, whereby we may oweretain the residual rights to the lessee or any claims that the lessee may have against us;aircraft;



•

most of our leases will alsoare triple net leases, whereby the lessee is responsible for all operating costs including taxes, insurance, and aircraft maintenance;



•

our leases typically require lessees to gross up leaseall payments to cover tax withholdings or other tax obligations, other than withholdings that arise out of transfers of the aircraft to or by us or due to be made in U.S. dollars;



•

our corporate structure;leases are typically for fixed rates and terms;



•

our leases typically require cash security deposits and maintenance reserve payments; and



•

our leases will also generallycontain provisions which require that our lessees indemnify us for certain other tax liabilities relating to the leases andpayment whether or not the aircraft including, in most cases, value-added tax and stamp duties.

        We may, in connection with the lease of used aircraft, agree to contribute specific additional amounts to the cost of certain first major overhauls or modifications, which usually reflect the usageis operated, irrespective of the aircraft prior to the commencement of the lease, and which are covered by the prior operator's usage fees. We may be obligated under the leases to make reimbursements of maintenance reserves previously received to lessees for expenses incurred for certain planned major maintenance. We also, on occasion, may contribute towards aircraft modifications (e.g., winglets and new interiors) and recover any such costs over the life of the lease.

        The lessee is responsible for compliance with applicable laws and regulations with respect to the aircraft. We require our lessees to comply with the standards of either the U.S. Federal Aviation Administration ("FAA") or its equivalent in foreign jurisdictions. As a function of these laws and the provisions in our lease contracts, the lessees are responsible to perform all maintenance of the aircraft and return the aircraft and its components in a specified return condition. Generally, we receive a cash deposit and maintenance reserves as security for the lessee's performance of obligations under the lease and the condition of the aircraft upon return. In addition, most leases contain extensive provisions regarding our remedies and rights in the event of a default by a lessee. The lessee generally is required to continue to make lease payments under all circumstances, including periods during which the aircraft is not in operation due to maintenance or grounding.

        Some foreign countries have currency and exchange laws regulating the international transfer of currencies. When necessary, we may require, as a condition to any foreign transaction, that the lessee or purchaser in a foreign country obtainsobtain the necessary approvals of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed in U.S. dollars. We attempt to minimize our currency and exchange risks by negotiating the designated payment currency in our leases to be U.S. dollars; although, where appropriate, we may agree to leases with payments denominated in other currencies. All guarantees obtained to support various lease agreements are denominated for payment in the same currency as the lease.dollars. To meet the needs of certain of our airline customers, a relatively small numberwe have agreed to accept certain of our leases may designate the payment currency to be Euros. As the Euro to U.S. dollar exchange rate fluctuates, airlines' interestlease payments in entering into Euro-denominated lease agreements will change.a foreign currency. After we agree to the rental payment currency with an airline, the negotiated currency typically remains for the term of the lease. We occasionally may enter into contracts to mitigate our foreign currency risk, but we expect that the economic risk arising from foreign currency denominated leases will be immaterialinsignificant to us.

        Management obtainsWe may, in connection with the lease of used aircraft, agree to contribute specific additional amounts to the cost of certain first major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease, and reviewswhich are covered by the prior operator's usage fees. We may be obligated under the leases to make reimbursements of maintenance reserves previously received to lessees for expenses incurred for certain planned major maintenance. We also, on occasion, may contribute towards aircraft modifications and recover any such costs over the life of the lease.

Monitoring

        During the lease term we closely follow the operating and financial performance of our lessees. We maintain a high level of communication with the lessee and frequently evaluate the state of the market in which the lessee operates, including the impact of changes in passenger air travel and preferences, emerging competition, new government regulations, regional catastrophes and other unforeseen shocks that are relevant business materials from all prospectiveto the airline's market. This enables us to identify lessees that may be experiencing operating and purchasers before entering into afinancial difficulties. This identification assists us in assessing the lessee's ability to fulfill

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its obligations under the lease. This monitoring also identifies candidates, where appropriate, to restructure the lease prior to the lessee's insolvency or the initiation of bankruptcy or similar proceedings. Once an insolvency or bankruptcy occurs we typically have less control over, and would most likely incur greater costs in connection with, the restructuring of the lease or extending credit. Under certain circumstances, the lessee may be required to obtain guarantees or other financial support from an acceptable financial institution or other third parties.repossession of the aircraft.

        During the life of the lease, situations may lead us to restructure leases with our lessees. When we repossess an aircraft leased in a foreign country, we generally expect to export the aircraft from the lessee's jurisdiction. In some very limited situations, the lessees may not fully cooperate in returning the aircraft. In those cases, we will take legal action in the appropriate jurisdictions, a process that we expect wouldcould ultimately delay the return and export of the aircraft. In addition, in connection with the repossession of an aircraft, we may be required to pay outstanding mechanics' liens, airport charges, and navigation fees and other amounts secured by liens on the repossessed aircraft. These charges could relate to other aircraft that we do not own but were operated by the lessee.

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Monitoring

        During the term of a lease, we monitor the operating performance and the financial health of the lessee. Our net operating leases generally require the lessee to pay for maintenance, insurance, taxes and all other aircraft operating expenses during the lease term.

        We also closely follow the operating and financial performance of our lessees so that we can identify early on those lessees that may be experiencing operating and financial difficulties. This assists us in assessing the lessee's ability to fulfill its obligations under the lease for the remainder of the term and, where appropriate, restructure the lease prior to the lessee's insolvency or the initiation of bankruptcy or similar proceedings, at which time we would have less control over, and would most likely incur greater costs in connection with, the restructuring of the lease or the repossession of the aircraft. To accomplish this objective, we maintain a high level of communication with the lessee and frequently evaluate the state of the market in which the lessee operates, including the impact of changes in passenger air travel and preferences, new government regulations, regional catastrophes and other unforeseen shocks to the relevant market.

Re-leasing or Disposition of AircraftRemarketing

        Our lease agreements are generally structured to require lessees to notify us nine to 12 months in advance of the lease's expiration if a lessee desires to renew or extend the lease. Requiring lessees to provide us with such advance notice provides our management team with an extended period of time to consider a broad set of alternatives with respect to the aircraft, including assessing general market and competitive conditions and preparing to re-leaseremarket or sell the aircraft. If a lessee fails to provide us with notice, the lease will automatically expire at the end of the term, and the lessee will be required to return the aircraft pursuant to the conditions in the lease. Our leases contain detailed provisions regarding the required condition of the aircraft and its components upon redelivery at the end of the lease term.

Aircraft Sales & Trading Strategy

        Our strategy is to maintain a portfolio of young aircraft with a widely diversified customer base. In order to achieve this profile, we primarily order new planes directly from the manufacturers, place them on long term leases, and sell the aircraft when they near the end of the first third of their 25 year economic useful lives. We typically sell aircraft that are currently operated by an airline with multiple years of lease term remaining on the contract, in order to achieve the maximum disposition value of the aircraft. Buyers of the aircraft may include leasing companies, financial institutions and airlines. We also buy and sell aircraft on an opportunistic basis for trading profits. Additionally, we may provide management services of the aircraft asset to the buyer for a fee.

Financing Strategy

        We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activity, and debt financings. From our inception in 2010, we have structured the Company to be an investment grade company and our debt financing strategy has focused on funding our business on an unsecured basis. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. We may, to a limited extent, utilize export credit financing in support of our new aircraft deliveries.

        The Company received a corporate credit rating of A- from Kroll Bond Ratings in May 2013, followed by a second investment grade corporate credit rating of BBB- from S&P in August 2013. Our investment grade credit ratings further lowered our cost of funds and broadened our access to attractively priced capital. It also strengthened our ability to achieve our long-term debt financing strategy of continuing to raise unsecured debt in the global bank and capital markets to further increase our unsecured debt as a percentage of total debt.

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Insurance

        We require our lessees to carry those types of insurance that are customary in the air transportation industry, including comprehensive liability insurance, aircraft all-risk hull insurance and war-risk insurance covering risks such as hijacking, terrorism (but excluding coverage for weapons of mass destruction and nuclear events), confiscation, expropriation, seizure and nationalization. We generally require a certificate of insurance from the lessee's insurance broker prior to delivery of an aircraft. Generally, all certificates of insurance contain a breach of warranty endorsement so that our interests are not prejudiced by any act or omission of the lessee. Lease agreements generally require hull and liability limits to be in U.S. dollars, which are shown on the certificate of insurance.

        Insurance premiums are to be paid by the lessee, with coverage acknowledged by the broker or carrier. The territorial coverage, in each case, should be suitable for the lessee's area of operations. We generally require that the certificates of insurance contain, among other provisions, a provision prohibiting cancellation or material change without at least 30 days' advance written notice to the insurance broker (who would be obligated to give us prompt notice), except in the case of hull war insurance policies, which customarily only provide seven days' advance written notice for cancellation and may be subject to shorter notice under certain market conditions. Furthermore, the insurance is primary and not contributory, and we require that all insurance carriers be required to waive rights of subrogation against us.

        The stipulated loss value schedule under aircraft hull insurance policies is on an agreed-value basis acceptable to us and usually exceeds the book value of the aircraft. In cases where we believe that the agreed value stated in the lease is not sufficient, we make arrangements to cover such deficiency, which would include the purchase of additional "Total Loss Only" coverage for the deficiency.

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        Aircraft hull policies generally contain standard clauses covering aircraft engines. The lessee is required to pay all deductibles. Furthermore, the hull war policies generally contain full war risk endorsements, including, but not limited to, confiscation (where available), seizure, hijacking and similar forms of retention or terrorist acts.

        The comprehensive liability insurance listed on certificates of insurance generally include provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations. We expect that such certificates of insurance list combined comprehensive single liability limits of not less than $500.0 million for Airbus and Boeing aircraft and $200.0 million for Embraer S.A. ("Embraer") and Avions de Transport Régional ("ATR")ATR aircraft. As a standard in the industry, airline operator's policies contain a sublimit for third-party war risk liability in the amount of $50.0 million. We require each lessee to purchase higher limits of third-party war risk liability or obtain an indemnity from its respective government.

        In late 2005, the international aviation insurance market unilaterally introduced exclusions for physical damage to aircraft hulls caused by dirty bombs, bio-hazardous materials and electromagnetic pulsing. Exclusions for the same type of perils could be introduced into liability policies.

        Separately, we purchase contingent liability insurance and contingent hull insurance on all aircraft in our fleet and maintain other insurance covering the specific needs of our business operations. We believe our insurance is adequate both as to coverages and amounts.

        We cannot assure stockholdersinvestors that our lessees will be adequately insured against all risks, that lessees will at all times comply with their obligations to maintain insurance, that any particular claim will be paid, or that lessees will be able to obtain adequate insurance coverage at commercially reasonable rates in the future.

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        We maintain key man life insurance policies on our Chairman and CEO and our President and Chief Operating Officer. Each policy is in the amount of $2.0 million, with the proceeds payable to us and permitted to be used for general corporate purposes.

Competition

        The leasing, remarketing and sale of aircraft is highly competitive. We face competition from aircraft manufacturers, banks, financial institutions, other leasing companies, aircraft brokers and airlines. Some of our competitors may have greater operating and financial resources and access to lower capital costs than we have. Competition for leasing transactions is based on a number of factors, including delivery dates, lease rates, lease terms, of lease, other lease provisions, aircraft condition and the availability in the marketplace of the types of aircraft required to meet the needs of airline customers. We believe we are a strong competitorCompetition in allthe purchase and sale of these areas.used aircraft is based principally on the availability of used aircraft, price, the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee, if any.

Government Regulation

        The air transportation industry is highly regulated. We do not operate commercial aircraft, and thus may not be directly subject to many industry laws and regulations, such as regulations of the U.S. Department of State (the "DOS"), the U.S. Department of Transportation, or their counterpart organizations in foreign countries regarding the operation of aircraft for public transportation of passengers and property. As discussed below, however, we are subject to government regulation in a number of respects. In addition, our lessees are subject to extensive regulation under the laws of the jurisdictions in which they are registered or operate. These laws govern, among other things, the registration, operation, maintenance and condition of the aircraft.

        We are required to register and have registered, theour aircraft which we acquire and lease to U.S. carriers and to a number of foreign carriers where, by agreement, the aircraft are to be registered in the United States, with the FAA, or in other countries,an aviation authority mutually agreed upon with such countries' aviation authorities as

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applicable.our lessee. Each aircraft registered to fly must have a Certificate of Airworthiness, which is a certificate demonstrating the aircraft's compliance with applicable government rules and regulations and that the aircraft is considered airworthy, orairworthy. Each airline we lease to must have a ferry flight permit, which is an authorizationvalid operation certificate to operate an aircraft on a specific route.our aircraft. Our lessees are obligated to maintain the Certificates of Airworthiness for the aircraft they lease and, to our knowledge, all of our lessees have complied with this requirement. When an aircraft is not on lease, we maintain the certificate or obtain a certificate in a new jurisdiction.lease.

        Our involvement with the civil aviation authorities of foreign jurisdictions consists largely of requests to register and deregister our aircraft on those countries' registries.

        We are also subject to the regulatory authority of the DOS and the U.S. Department of Commerce (the "DOC") to the extent such authority relates to the export of aircraft for lease and sale to foreign entities and the export of parts to be installed on our aircraft. In some cases, we areWe may be required to obtain export licenses for parts installed in aircraft exported to foreign countries.

The DOC and the U.S. Department of the Treasury (through its Office of Foreign Assets Control) impose restrictions on the operation of U.S.-made goods, such as aircraft and engines, in sanctioned countries, as well as on the ability of U.S. companies to conduct business with entities in those countries.

The U.S. Patriot Act of 2001 (the "Patriot Act") prohibits financial transactions by U.S. persons, including U.S. individuals, entities and charitable organizations, with individuals and organizations designated as terrorists and terrorist supporters by the U.S. Secretary of State or the U.S. Secretary of the Treasury. We comply with the provisions of the Patriot Act and closely monitor our activities with foreign entities.

The U.S. Customs and Border Protection, a law enforcement agency of the U.S. Department of Homeland Security, enforces regulations related to the import of aircraft into the United States for maintenance or lease and the importation of parts into the U.S. for installation. We monitor our imports for compliance with U.S. Customs and Border Protection regulations.

        The U.S. Bureau of Export Enforcement enforces regulations related to the export of aircraft to other jurisdictions and the export of parts for installation in other jurisdictions. We monitor our exports for compliance with the U.S. Bureau of Export Enforcement regulations.

        Jurisdictions in which aircraft are registered as well as jurisdictions in which they operate may impose regulations relating to noise and emission standards. In addition, most countries' aviation laws require aircraft to be maintained under an approved maintenance program with defined procedures

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and intervals for inspection, maintenance and repair. To the extent that aircraft are not subject to a lease or a lessee is not in compliance, we are required to comply with such requirements, possibly at our own expense.

        We believe we are in compliance in all material respects with all applicable governmental regulations.

Employees

        As of December 31, 2012,2013, we had 5263 full-time employees. On average, our senior management team has approximately 23 years of experience in the aviation industry. None of our employees are represented by a union or collective bargaining agreements. We believe our relationship with our employees to be positive, which is a key component of our operating strategy. We strive to maintain excellent employee relations. We provide certain employee benefits, including retirement, health, life, disability and accident insurance plans.

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Access to Our Information

        We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). We make our public SEC filings available, at no cost, through our website at www.airleasecorp.com as soon as reasonably practicable after the report is electronically filed with, or furnished to, the SEC. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC. We will also provide these reports in electronic or paper format free of charge upon written request made to Investor Relations at 2000 Avenue of the Stars, Suite 1000N, Los Angeles, California 90067. Our SEC filings are also available free of charge on the SEC's website at www.sec.gov. The public may also read and copy any document we file with the SEC at the SEC's public reference room located at 100 F Street NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.

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Executive Officers of the Company

        Set forth below is certain information concerning each of our executive officers as of February 28, 2013,27, 2014, including his/her age, current position with the Company and business experience during the past five years.

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ITEM 1A.    RISK FACTORS

Risks Relating to Our Business

We cannot assure you that we will be able to enter into profitable leases for any aircraft acquired.acquired, which would negatively affect our financial condition, cash flow and results of operations.

        We cannot assure you that we will be able to enter into profitable leases upon the acquisition of the aircraft we purchase in the future. If we experience significant delays in the implementation of our business strategies, including delays in the acquisition and leasing of aircraft, our growth strategy and long-term results of operations could be adversely affected.

You must rely upon our management team's judgment and ability to evaluate the ability of lessees and other counterparties to perform their obligations to us and to negotiate transaction documents. We cannot assure you that our management team will be able to perform such functions in a manner that will achieve our investment objectives.objectives, which would negatively affect our financial condition, cash flow and results of operations.

Our business model depends on the continual leasing and re-leasingremarketing of our aircraft, and we may not be able to do so on favorable terms.terms, which would negatively affect our financial condition, cash flow and results of operations.

        Our business model depends on the continual leasing and re-leasingremarketing of our aircraft in order to generate sufficient revenues to finance our growth and operations, pay our debt service obligations and generate positive cash flows from operations. Our ability to lease and re-leaseremarket our aircraft will depend on general market and competitive conditions at the time the initial leases are entered into and expire. If we are not able to lease or re-leaseremarket an aircraft or to do so on favorable terms, we may be required to attempt to sell the aircraft to provide funds for our debt service obligations or operating expenses. Our ability to lease, re-leaseremarket or sell the aircraft on favorable terms or without significant off-lease time and costs could be adverselynegatively affected by depressed conditions in the airline and aircraft industries,aviation industry, airline bankruptcies, the effects of terrorism, and war, natural disasters and/or epidemic diseases on airline passenger traffic trends, declines in the salevalues of other aircraft, by financial institutions, and various other general market and competitive conditions and factors which are outside of our control. If we are unable to lease and remarket our aircraft, on favorable terms, our financial condition, cash flow and results of operations would be negatively affected.

Incurring significant costs resulting from lease defaults could adverselynegatively affect our financial condition, cash flow and results and growth prospects.of operations.

        If we are required to repossess an aircraft after a lessee default, we may be required to incur significant costs. Those costs likely would include legal and other expenses ofassociated with court or other governmental proceedings, including the cost of posting surety bonds or letters of credit necessary to effect repossession of an aircraft, particularly if the lessee is contesting the proceedings or is in bankruptcy. In addition, during theseany such proceedings the relevant aircraft would likely not be generating revenue. We could also incur substantial maintenance, refurbishment or repair costs if a defaulting lessee fails to pay such costs and where such maintenance, refurbishment or repairs are necessary to put the aircraft in suitable condition for re-leaseremarketing or sale. We may also incur storage costs associated with any aircraft that we repossess and are unable to place immediately with another lessee. It may also be necessary to pay off liens, taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the aircraft effectively, including, in some cases, liens that the lessor might have incurred in connection with the operation of its other aircraft. We could also incur other costs in connection with the physical possession of the aircraft.

        We may suffer other adversenegative consequences as a result of a lessee default, the related termination of the lease and the repossession of the related aircraft. It is likely that our rights upon a lessee default will vary significantly depending upon the jurisdiction and the applicable law, including the need to obtain a court order for repossession of the aircraft and/or consents for deregistration or re-exportexport of the aircraft. We anticipate that when a defaulting lessee is in bankruptcy, protective administration,

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insolvency or similar proceedings, additional limitations may apply. Certain jurisdictions give rights to

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the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or entitle the lessee or another third party to retain possession of the aircraft without paying lease rentals or performing all or some of the obligations under the relevant lease. In addition, certain of our lessees are owned, in whole or in part, by government-related entities, which could complicate our efforts to repossess our aircraft in that lessee's domicile. Accordingly, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasingremarketing the affected aircraft.

        If we repossess an aircraft, we may not necessarily be able to export or deregister and profitably redeploy the aircraft. For instance, where a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist deregistration. We may also incur significant costs in retrieving or recreating aircraft records required for registration of the aircraft, and in obtaining the Certificate of Airworthiness for an aircraft. If, upon a lessee default, we incur significant costs in connection with repossessing our aircraft, are delayed in repossessing our aircraft or are unable to obtain possession of our aircraft as a result of lessee defaults, our financial condition, cash flow and results and growth prospects mayof operations would be materially adverselynegatively affected.

If our lessees fail to discharge aircraft liens, we may be obligated to pay the aircraft liens, which could adverselywould negatively affect our financial condition, cash flow and results and growth prospects.of operations.

        In the normal course of their business, our lessees are likely to incur aircraft liens that secure the payment of airport fees and taxes, customs duties, air navigation charges, including charges imposed by Eurocontrol, the European Organization for the Safety of Air Navigation, landing charges, salvage or other liens that may attach to our aircraft. These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens, particularly liens on entire fleets of aircraft, exceed the value of the particular aircraft to which the liens have attached. Aircraft may also be subject to mechanics' liens as a result of routine maintenance performed by third parties on behalf of our lessees. Although we anticipate that the financial obligations relating to these liens will be the responsibility of our lessees, if they fail to fulfill such obligations, the liens may attach to our aircraft and ultimately become our responsibility. In some jurisdictions, aircraft liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft.

        Until they are discharged, these liens could impair our ability to repossess, re-leaseremarket or sell our aircraft. Our lessees may not comply with the anticipated obligations under their leases to discharge aircraft liens arising during the terms of the leases. If they do not, we may find it necessary to pay the claims secured by such aircraft liens in order to repossess the aircraft. Such payments could materially adverselywould negatively affect our financial condition, cash flow and results and growth prospects.of operations.

If our lessees fail to perform as expected and we decide to restructure or reschedule our leases, the restructuring and rescheduling would likely result in less favorable leases, which could have an adverse effect onwould negatively affect our financial condition, cash flow and results and growth prospects.of operations.

        A lessee's ability to perform its obligations under its lease will depend primarily on the lessee's financial condition and cash flow, which may be affected by factors outside our control, including:

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competition;



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fare levels;



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passenger and air cargo rates;



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passenger and air cargo demand;



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geopolitical and other events, including war, acts of terrorism, outbreaks of epidemic diseases and natural disasters;

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increases in operating costs, including the price and availability of jet fuel and labor costs;



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labor difficulties;



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economic conditions and currency fluctuations in the countries and regions in which the lessee operates; and



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governmental regulation and associated fees affecting the air transportation business.

        Many airlines, including some of our customers, are not backed by sovereign credit and do not have investment grade credit profiles. We anticipate that some of our lessees maywill experience a weakened financial condition or suffer liquidity problems, which mayproblems. This could lead to lease paymenta lessee experiencing difficulties or breachesin performing under the terms of our operating leases. We expect thatlease agreement. This could result in the lessee seeking relief under some of these lessees encountering financial difficulties may seek a reductionthe terms of our lease agreement, or it could result in their lease rates or other concessions, such as a decrease in their contribution toward maintenance obligations.us electing to repossess the aircraft.

        Any future downturns in the airline industry could greatly exacerbate the weakened financial condition and liquidity problems of some of these lessees and further increase the risk of delayed, missed or reduced rental payments. We may not correctly assess the credit risk of a lessee, or may not charge lease rates which correctly reflect the related risks, and as a result, lessees may not be able to satisfy their financial and other obligations under their leases. A delayed, missed or reduced rental payment from a lessee would decrease our revenues and cash flow. If we, in the exercise of our remedies under a lease, repossess an aircraft, we may not be able to re-leaseremarket the aircraft promptly or at favorable rates.

        It is likely that restructurings and/or repossessions with some of our lessees will occur in the future. The terms and conditions of possible lease restructurings or reschedulings may result in a significant reduction of lease revenue, which may adverselynegatively affect our financial results and growth prospects. If any request for payment restructuring or rescheduling is made and granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the lease, although thelease. The terms of any revised payment schedules may be unfavorable and such payments may not be made. Our default levels would likely increase over time if economic conditions deteriorate. If lessees of a significant number of our aircraft defaulted on their leases, it would negatively affect our financial condition, cash flow and results and growth prospects would be adversely affected.of operations.

Failure to obtain certain required licenses and approvals could negatively affect our ability to re-leaseremarket or sell aircraft, which would negatively affect our financial condition, cash flow and results of operations.

        Lessees are subject to extensive regulation under the laws of the jurisdictions in which they are registered and in which they operate. As a result, we expect that certain aspects of our leases will require licenses, consents or approvals, including consents from governmental or regulatory authorities for certain payments under our leases and for the import, export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase such requirements and governmental consent, once given, could be withdrawn. Furthermore, consents needed in connection with the future re-leasingremarketing or sale of an aircraft may not be forthcoming. Any of these events could adverselynegatively affect our ability to re-leaseremarket or sell aircraft, which would negatively affect our financial condition, cash flow and results of operations.

Our aircraft require routine maintenance, and if they are not properly maintained, their value may decline and we may not be able to lease or re-leaseremarket such aircraft at favorable rates, if at all, which would adverselynegatively affect our financial condition, cash flow and results asset values and growth prospects.of operations .

        We may be exposed to increased maintenance costs for our aircraft associated with a lessee's failure to properly maintain the aircraft or pay supplemental maintenance rent. If an aircraft is not properly maintained, its market value may decline, which would result in lower revenues from its lease or sale. We enter into leases pursuant to which the lessees are primarily responsible for many

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obligations, which include maintaining the aircraft and complying with all governmental requirements applicable to the lessee and the aircraft, including operational, maintenance, government agency

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oversight, registration requirements and airworthiness directives. Failure of a lessee to perform required maintenance during the term of a lease could result in a decrease in value of an aircraft, an inability to re-leaseremarket an aircraft at favorable rates, if at all, or a potential grounding of an aircraft. Maintenance failures by a lessee would also likely require us to incur maintenance and modification costs upon the termination of the applicable lease, which could be substantial, to restore the aircraft to an acceptable condition prior to re-leasingremarketing or sale. Any failure by our lessees to meet their obligations to perform required scheduled maintenance or our inability to maintain our aircraft may materially adverselywould negatively affect our financial condition, cash flow and results asset values and growth prospects.of operations.

If we experience abnormally high maintenance or obsolescence issues with any commercial aircraft that we acquire, it would negatively affect our financial condition, cash flow and results and growth prospects could be materially and adversely affected.of operations.

        Unlike new aircraft, used aircraft typically do not carry warranties as to their condition. As a result, we may not be able to claim any warranty-related expenses on used aircraft. Although we may inspect an existing aircraft and its documented maintenance, usage, lease and other records prior to acquisition, we may not discover every defect during an inspection. Repairs and maintenance costs for existing aircraft are difficult to predict and generally increase as aircraft age, and an aircraft's condition can be adversely affected by prior operations. These repair costs could decrease our cash flow and reduce our liquidity.

        In addition, aircraftAircraft are long-lived assets, requiring long lead times to develop and manufacture, with particular types and models becoming obsolete andor less in demand over time when newer, more advanced aircraft are manufactured. By acquiringOur existing fleet, as well as, the aircraft that we have greaterordered has exposure to more rapid obsolescence, of our fleet, particularly if there are unanticipated events shorteningoccur which shorten the life cycle of such aircraft such astypes. These events include but are not limited to government regulation or changes in our airline customers' preferences. ThisThese events may result in a shortershorten the life cycle for aircraft types in our fleet and, accordingly, decliningmay negatively impact lease rates, trigger impairment charges, increased depreciation expense or result in losses related to aircraft asset value guarantees, if we were to provide such guarantees.

        Further, variable expenses like fuel, crew size or aging aircraft corrosion control or modification programs and airworthiness directives could make the operation of older aircraft more costly to our lessees and may result in increased lessee defaults. We may also incur some of these increased maintenance expenses and regulatory costs upon acquisition or re-leasingremarketing of our aircraft. Any of these expenses or costs will have a negative impact onwould negatively affect our financial results.condition, cash flow and results of operations.

If we acquire a high concentration of a particular model of aircraft, our businessfinancial condition, cash flow and financial results couldof operations would be adverselynegatively affected by changes in market demand or problems specific to that aircraft model.

        If we acquire a high concentration of a particular model of aircraft, our business and financial results could be adverselynegatively affected if the market demand for that model of aircraft declines, if it is redesigned or replaced by its manufacturer or if this type of aircraft experiences design or technical problems. If we acquire a high concentration of a particular aircraft model and such model encounters technical or other problems, the value and lease rates of such aircraft will likely decline, and we may be unable to lease such aircraft on favorable terms, if at all. A significant technical problem with a specific type of aircraft could result in the grounding of the aircraft. Any decrease in the value and lease rates of our aircraft may have a material adverse effect onwould negatively affect our financial condition, cash flow and results and growth prospects.of operations.

The adventintroduction of superior aircraft technology or the introduction of a new line of aircraft could cause the aircraft that we acquire to become outdated or obsolete or oversupplied and therefore less desirable, which could adverselywould negatively affect our financial condition, cash flow and results and growth prospects.of operations.

        As manufacturers introduce technological innovations and new types of aircraft, some of the aircraft in our fleet could become less desirable to potential lessees. Such technological innovations

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may increase the rate of obsolescence of existing aircraft faster than currently anticipated by our management or accounted for in our accounting policy.management. New aircraft manufacturers such as Mitsubishi Aircraft Corporation in Japan, Sukhoi Company (JSC) in Russia and Commercial Aircraft Corporation of China Ltd. in China, could somedayemerge to produce aircraft that compete with current offerings from Airbus, ATR, Boeing and Embraer.the

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aircraft we own. The introduction of new technologies or introduction of a new type of aircraft may negatively affect the value of the aircraft in Japan, Sukhoi Company (JSC) in Russia and Aviation Industries of China and Commercial Aircraft Corporation of China Ltd. in China will most likely be producing regional jets in the future that compete with existing equipment from Embraer, and it is unclear how these offerings could adversely impact the demand and liquidity for the current offerings.



•

Additionally, manufacturers in China may develop a narrowbody aircraft that competes with established aircraft types from Boeing and Airbus, and the new Chinese product could put downward price pressure on and decrease the liquidity for aircraft from Boeing and Airbus.



•

New aircraft types that are introduced into the market could be more attractive for the target lessees of our aircraft.

        In addition, the imposition of increased regulation regarding stringent noise or emissions restrictions may make some of our aircraft less desirable and accordingly less valuable in the marketplace. The development of new aircraft and engine options could decrease the desirability of certain aircraft in our fleet and/or aircraft that we have ordered. This could, in turn, reduce both future residual values and lease rates for certain types of aircraft in our portfolio. Any of these risks may adverselynegatively affect our ability to lease or sell our aircraft on favorable terms, if at all, which could have a material adverse effect onwould negatively affect our financial condition, cash flow and results and growth prospects. The advent of new technologies or introduction of a new type of aircraft may materially adversely affect the value of the aircraft in our fleet.operations.

We may beare indirectly subject to many of the economic and political risks associated with emerging markets, which could adverselynegatively affect our financial condition, cash flow and results and growth prospects.of operations.

        Our business strategy emphasizes leasing aircraft to lessees outside of the United States, including to airlines in emerging market countries. Emerging market countries have less developed economies and infrastructure and are often more vulnerable to economic and geopolitical challenges and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. The occurrence of any of these events in markets served by our lessees and the resulting economic instability that may arise, particularly if combined with high fuel prices, could adverselynegatively affect the value of our aircraft subject to lease in such countries, or the ability of our lessees, which operate in these markets, to meet their lease obligations. As a result, lessees that operate in emerging market countries may be more likely to default than lessees that operate in developed countries. In addition, legal systems in emerging market countries may be less developed, which could make it more difficult for us to enforce our legal rights in such countries.

        Further, demand for aircraft is dependent on passenger and cargo traffic, which in turn is dependent on general business and economic conditions. As a result, weak or negative economic growth in emerging markets may have an indirect effect on the value of the assets that we acquire if airlines and other potential lessees are adverselynegatively affected. We cannot assure you thatEconomic downturns can affect the recent global economic downturn will not continue or worsen or that anyvalues of the assets we purchase, will not decline in value, which may have an adversea negative effect on our financial condition, cash flow and results of operations or our financial condition. For these and other reasons, our financial results and growth prospects may be negatively impacted by adverse economic and political developments in emerging market countries.

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A significant discounting of prices on new aircraft by manufacturers or increase in the rate of new aircraft production may indirectly affect demand for used aircraft we purchase for leasing and our financial results and growth prospects.

        The recent financial crisis has had a significant impact on the values of new aircraft as some buyers lost some or all of the funding for orders they had placed. As a result, some orders for new aircraft were cancelled or deferred. Ex-Im Bank and the European Export Credit Agencies ("ECAs") supported debt financing for many new deliveries during the recent financial crisis but equity was still needed for these financings, which limited buyers' access to these agencies. Consequently, to secure sales of new aircraft and maintain revenues, manufacturers sold many of these aircraft at significant discounts. If there is another downturn in the financial markets or economy and manufacturers again drive down the price of new aircraft, this may have an adverse effect on the value of any aircraft we own and our ability to lease them at attractive rates. We intend for used aircraft to make up a part of our target assets and our ability to extend leases or create new leases may be adversely affected by a surplus in the availability of new aircraft. Further, if manufacturers discount the prices of new aircraft, it may require us to mark down the value of aircraft we carry on our balance sheet or depreciate our aircraft portfolio at a faster rate. Thus, a significant decrease in the prices of new aircraft could adversely affect our results of operations and financial condition.

The introduction of new aircraft models could increase the supply of other aircraft types, which could in turn decrease the value and lease rates of aircraft in our portfolio.

        As manufacturers introduce new types of aircraft, certain aircraft in the marketplace may become less desirable to potential lessees. The development of new aircraft and engine options could decrease the desirability of certain Airbus and Boeing aircraft and thereby increase the supply of those types of aircraft in the marketplace. These increases in supply could, in turn, reduce both future residual values and lease rates for certain types of aircraft in our portfolio.operation.

From time to time, the aircraft industry has experienced periods of oversupply during which lease rates and aircraft values have declined, and any future oversupply could materially adverselynegatively affect our financial condition, cash flow and results and growth prospects.of operations.

        Historically, the aircraft leasing business has experienced periods of aircraft oversupply. The oversupply of a specific type of aircraft is likely to depress the lease rates for and the value of that type of aircraft. The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are outside of our control, including:

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passenger and air cargo demand;



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fuel costs and general economic conditions;



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geopolitical events, including war, prolonged armed conflict and acts of terrorism;



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outbreaks of communicable diseases and natural disasters;



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governmental regulation;



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interest rates;