AIG 2011 Annual Report Download - page 52

to the nature of the litigation, the lack of precise damage claims and the type of claims we are subject to, we
cannot currently quantify our ultimate or maximum liability for these actions. It is possible that developments in
these unresolved matters could have a material adverse effect on our consolidated financial condition or
consolidated results of operations for an individual reporting period. For a discussion of these unresolved matters,
see Note 16(a) to the Consolidated Financial Statements.
If actual experience differs from management’s estimates used in the preparation of financial statements, our
consolidated results of operations or financial condition could be adversely affected. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires the
application of accounting policies that often involve a significant degree of judgment. We consider our accounting
policies that are most dependent on the application of estimates and assumptions, and therefore viewed as critical
accounting estimates, are those described in Item 7. MD&A — Critical Accounting Estimates. These accounting
estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These
estimates, by their nature, are based on judgment and current facts and circumstances. Therefore, actual results
could differ from these estimates, possibly in the near term, and could have a material effect on the consolidated
financial statements.
Our aircraft leasing business depends on lease revenues and exposes us to the risk of lessee non-performance. Our
aircraft leasing business depends on the ability of our customers to meet their obligations to us under their leases;
if their ability materially decreases, it may negatively affect our business, results of operations and cash flows.
Our aircraft may become obsolete over time. Aircraft are long-lived assets requiring long lead times to develop
and manufacture. As a result, aircraft of a particular model and type may become obsolete and less in demand
over time, when newer, more advanced and efficient aircraft or aircraft engines are manufactured. This life cycle,
however, can be shortened by world events, government regulation or customer preferences. As aircraft in our
fleet approach obsolescence, demand for particular models and types may decrease. This may result in declining
lease rates, losses on sales, impairment charges or fair value adjustments and may adversely affect our business,
consolidated financial condition, results of operations and cash flows.
The residual value of our aircraft is subject to a number of risks and uncertainties. Technological developments,
macro-economic conditions, availability and cost of funding for aviation, and the overall health of the airline
industry impact the residual values of our aircraft. If challenging economic conditions persist for extended periods,
the residual values of our aircraft could be negatively impacted, which could result in future impairments.
If our internal sources of liquidity are insufficient to meet our needs, we may become dependent on third-party
financing, external capital markets or other sources of liquidity, which may not be available or could be prohibitively
expensive. We need liquidity to pay our operating expenses, interest on our debt, maturing debt obligations and
to meet any statutory capital requirements of our subsidiaries. If we have insufficient liquidity to meet our needs,
we may be required to raise additional capital or obtain other sources of commercial funding. The availability of
any additional financing depends on a variety of factors, including, but not limited to, general market conditions,
the volume of trading activities, the overall availability of credit, regulatory actions, our credit ratings and credit
capacity, as well as the possibility that customers, lenders or investors could develop a negative perception of our
long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial markets, to the
extent they persist or recur, may also limit our ability to access external capital markets at times and on terms
favorable to us and to meet our capital and liquidity needs. Furthermore, if our internal sources of liquidity prove
to be insufficient, we may be unable to obtain additional financing on favorable terms, if at all. For a further
discussion of liquidity, see Item 7. MD&A — Capital Resources and Liquidity.
38 AIG 2011 Form 10-K
USE OF ESTIMATES
AIRCRAFT LEASING BUSINESS
LIQUIDITY