What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-05-13 compared with 2019-11-06 · 235 added, 365 removed, 350 unchanged (63% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

September 30,

Cash and cash equivalents

2 unchanged sentences

Flight equipment held for lease, net of accumulated depreciation of $1,570,125 and $1,501,664, respectively

Net investment in direct financing and sales-type leases

Net investment in leases, net of allowance for credit losses of $9,865 and $0, respectively

Unconsolidated equity method investments

10 unchanged sentences

Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding

Common shares, $0.01 par value, 250,000,000 shares authorized, 74,635,330 shares issued and outstanding at September 30, 2019;

Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at March 31, 2020;

and 75,122,129 shares issued and outstanding at December 31, 2019

1 unchanged sentence

Retained earnings

Accumulated other comprehensive loss

Total shareholders’ equity

2 unchanged sentences

Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Dollars in thousands)

Three Months Ended March 31,

Lease rental revenue

8 unchanged sentences

Interest, net

Selling, general and administrative (including non-cash share-based payment expense of $3,300 and $2,798 for the three months ended and $9,203 and $8,252 for the nine months ended September 30, 2019 and 2018, respectively)

Selling, general and administrative (including non-cash share-based payment expense of $38,727 and $2,726 for the three months ended March 31, 2020 and 2019, respectively)

Impairment of flight equipment

1 unchanged sentence

Total operating expenses

Other income (expense):

Other expense:

Loss on extinguishment of debt

Total other income (expense)

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments

Merger expenses

Total other expense

Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments

Income tax provision

Earnings of unconsolidated equity method investments, net of tax

Earnings per common share — Basic:

Net income per share

Earnings per common share — Diluted:

Net income per share

Dividends declared per share

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income, net of tax:

Earnings (loss) of unconsolidated equity method investments, net of tax

Net income (loss)

Other comprehensive income (loss), net of tax:

Net derivative loss reclassified into earnings

Other comprehensive income

Total comprehensive income

Total comprehensive income (loss)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Adjustments to reconcile net income to net cash and restricted cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities:

Amortization of deferred financing costs

2 unchanged sentences

Non-cash share-based payment expense

Cash flow hedges reclassified into earnings

Collections on direct financing and sales-type leases

Collections on net investment in leases

Security deposits and maintenance payments included in earnings

2 unchanged sentences

Impairment of flight equipment

Provision for credit losses

Changes in certain assets and liabilities:

6 unchanged sentences

Proceeds from sale of flight equipment

Net investment in direct financing and sales-type leases

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits

Unconsolidated equity method investments and associated costs

Net cash and restricted cash used in investing activities

Net cash and restricted cash provided by (used in) investing activities

Cash flows from financing activities:

Repurchase of shares

Parent contribution at Merger

Proceeds from secured and unsecured debt financings

13 unchanged sentences

(Dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Reconciliation to Consolidated Balance Sheets:

3 unchanged sentences

Supplemental disclosures of cash flow information:

Cash paid for interest, net of capitalized interest

Cash (received) paid for income taxes

Cash paid for interest

Cash paid (received) for income taxes

Supplemental disclosures of non-cash investing activities:

1 unchanged sentence

Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment

Transfers from flight equipment held for lease to Net investment in direct financing and sales-type leases and Other assets

Transfers from flight equipment held for lease to Net investment in leases and Other assets

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Dollars in thousands, except share amounts)

Nine Month Period Ending September 30, 2019

Three Months Ended March 31, 2020

Comprehensive

8 unchanged sentences

Dividends declared

Net derivative loss reclassified into earnings

Adoption of accounting standard

Payment of unvested shares at Merger

Parent contribution at Merger

Share cancellation and re-issuance at Merger

Balance, March 31, 2020

Issuance of common shares to directors and employees

Repurchase of common shares from stockholders, directors and employees

Amortization of share-based payments

Dividends declared

Balance, June 30, 2019

Repurchase of common shares from stockholders, directors and employees

Amortization of share-based payments

Dividends declared

Balance, September 30, 2019

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (Continued)

(Dollars in thousands, except share amounts)

Nine Month Period Ending September 30, 2018

Three Months Ended March 31, 2019

Comprehensive

3 unchanged sentences

Balance, December 31, 2018

Issuance of common shares to stockholders, directors and employees

Issuance of common shares to directors and employees

Repurchase of common shares from stockholders, directors and employees

2 unchanged sentences

Dividends declared

Adoption of accounting standard

Net derivative loss reclassified into earnings

Balance, March 31, 2019

Repurchase of common shares from stockholders, directors and employees

Amortization of share-based payments

Reclassification of prior year director stock award liability

Dividends declared

Net derivative loss reclassified into earnings

Balance, June 30, 2018

Repurchase of common shares from stockholders, directors and employees

Amortization of share-based payments

Reclassification of prior year director stock award liability

Dividends declared

Net derivative loss reclassified into earnings

Balance, September 30, 2018

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Dollars in thousands, except per share amounts)

September 30, 2019

March 31, 2020

Summary of Significant Accounting Policies

2 unchanged sentences

Aircastle’s business is acquiring, leasing, managing and selling commercial jet aircraft.

On March 27, 2020, the Company successfully completed its merger (the “Merger”) with MM Air Merger Sub Limited, a Bermuda exempted company (“Merger Sub”), pursuant to the Agreement and Plan of Merger, dated as of November 5, 2019 (the “Merger Agreement”), by and among the Company, MM Air Limited, a Bermuda exempted company (“Parent”), and Merger Sub.

As a result of the Merger, Aircastle’s shareholders (other than Marubeni Corporation and its affiliates) received cash consideration of $ 32.00 per common share and the Company is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”).

Aircastle is a holding company that conducts its business through subsidiaries.

11 unchanged sentences

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 .

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) which, together with all subsequent amendments, replaced the existing guidance in ASC 840, Leases (“ASC 840”).

The accounting for leases by lessors remained largely unchanged from the concepts that existed in ASC 840.

The FASB decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct financing lease that does not transfer control of the underlying asset to the lessee.

This requirement aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective.

As a result of the Company’s adoption of ASC 842, we have recognized right-of-use assets and lease liabilities on our Consolidated Balance Sheet as of September 30, 2019 , for our office leases classified as operating leases under ASC 842, existing at, or entered into after, January 1, 2019.

We adopted the standard using the required “modified retrospective” approach and the available practical expedients.

The standard did not have a material impact on our consolidated financial statements and related disclosures.

As part of the Company’s adoption of ASC 842, we classified collections on direct financing and sales-type leases within operating activities on our Consolidated Statement of Cash Flows for the nine months ended September 30, 2019 .

This had previously been included within investing activities.

The presentation for the nine months ended September 30, 2018 , has also been reclassified to conform to the current period presentation:

Nine Months Ended September 30, 2018

Net cash and restricted cash provided by operating activities as previously reported

Collections on direct financing and sales-type leases

Net cash and restricted cash provided by operating activities

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of September 30, 2019 , through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (“ASC 326”).

The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash.

Net investment in leases comprised the Company’s financial asset principally affected by the standard.

Operating lease receivables are not within the scope of ASC 326.

Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses.

This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages.

The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts.

Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values.

We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to the opening balance of retained earnings.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company adopted, the FASB Accounting Standard Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement .

The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

March 31, 2020

Effective January 1, 2020, the Company adopted the FASB ASU No.

2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

The standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use-software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company adopted the FASB ASU No.

2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities .

The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance.

The standard is applied retrospectively with a cumulative- effect adjustment to retained earnings at the beginning of the earliest period presented.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of March 31, 2020 , through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

17 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

While Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

While Aircastle believes the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Lease Revenue Recognition

3 unchanged sentences

Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the lease term using the prevailing rate at lease commencement.

Changes to rate-based lease rentals are recognized in the statement of income in the period of change.

Flight Equipment Held for Lease and Depreciation

Estimated residual values are generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when new and 5% to 10% for freighter aircraft when new.

Management may make exceptions to this policy on a case-by-case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of value or when events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable.

Changes to rate-based lease rentals are recognized in the statements of income (loss) in the period of change.

Revenue is not recognized when collection is not probable.

When collectability is not probable, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.

In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals.

While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement.

We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

within Other assets in our consolidated balance sheet.

We continue to recognize lease rental revenue for such receivables to the extent collectability is probable.

The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular on the aviation sector.

There has been a dramatic slowdown in air traffic, with many markets in near complete shutdown.

According to IATA air travel is down to approximately 20 % of normal levels and a recovery to pre-pandemic levels is not expected for several years.

Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges.

While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of the COVID-19 virus’ economic shock are material;

the extent and duration of which cannot currently be determined.

Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors.

We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time.

As of May 7, 2020, we have agreed to defer approximately $ 70,000 in near-term lease payments with 35 airlines, including $ 18,545 that appear in our Consolidated Balance Sheet as components of Accounts receivable, Net investment in leases, or Other assets as of March 31, 2020 .

If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to extend further deferrals to some of our other customers or to extend the deferrals we have already made.

We may ultimately not be able to collect all the amounts we have deferred.

Net Investment in Leases

If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease.

The net investment in direct financing and sales- type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit.

For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment.

Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement.

Interest income on our net investment in leases is recognized as Direct financing and sales-type leases revenue over the lease term in a manner that produced a constant rate of return on the net investment in the lease.

The net investment in leases is recorded in the consolidated financial statements net of an allowance for credit losses.

The allowance for credit losses is recorded upon the initial recognition of the net investment in the lease based on the Company’s estimate of expected credit losses over the lease term.

The allowance reflects the Company’s estimate of lessee default probabilities and loss given default percentages.

When determining the credit loss allowance, we consider relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the net investment in the lease.

The allowance also considers potential losses due to non-credit risk related to unguaranteed residual values.

A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in the consolidated statement of income (loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments and related updates.

The standard affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The standard takes effect for annual periods beginning after December 15, 2019.

The Company’s net investments in direct financing and sales-type leases compose the financial assets principally affected by the standard.

Operating lease receivables are not within the scope of ASC 326.

Upon the Company’s adoption of ASC 326 in 2020, our net investments in direct finance and sales-type leases will be recorded in the consolidated financial statements net of an allowance for credit losses.

This allowance for credit losses will reflect the Company’s estimate of lessee default probabilities and loss given default percentages.

This estimate of expected credit losses will consider relevant information about past events, current conditions, and reasonable and supportable forecasts

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a reference rate affected by reference rate reform.

If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or remeasurements are required.

The standard is effective for all entities from March 12, 2020 through December 31, 2022, and does not apply to contract modifications made after December 31, 2022.

We have not adopted ASC 848 for this interim period and are currently evaluating the election available to us under the standard and the impact it may have on our financial statements.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

that affect the collectability of reported amounts.

Additional consideration will be given for potential non-credit losses to unguaranteed residual values.

We will adopt the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to the opening balance of retained earnings.

The Company does not anticipate that the adoption of the standard will have a material impact on the consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement .

The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project.

The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted.

The Company does not anticipate that the adoption of the standard will have a material impact on the consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period.

The Company does not anticipate that the adoption of the standard will have a material impact on the consolidated financial statements or related disclosures.

In October 2018, the FASB issued ASU No.

2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities .

The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance.

The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.

The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted.

The Company does not anticipate that the adoption of the standard will have a material impact on the consolidated financial statements or related disclosures.

March 31, 2020

In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic.

The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases”, for lease concessions provided by lessors as a result of the COVID-19 pandemic.

The Company has elected not to apply the lease modification guidance in ASC 842 for such lease concessions - see “Lease Revenue Recognition” above.

Fair Value Measurements

8 unchanged sentences

The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

September 30, 2019

The following tables set forth our financial assets as of September 30, 2019 and December 31, 2018 that we measured at fair value on a recurring basis by level within the fair value hierarchy.

The following tables set forth our financial assets as of March 31, 2020 and December 31, 2019 that we measured at fair value on a recurring basis by level within the fair value hierarchy.

Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

Fair Value Measurements at September 30, 2019

Fair Value Measurements at March 31, 2020

Using Fair Value Hierarchy

Fair Value as of September 30, 2019

Fair Value as of 3/31/2020

Quoted Prices

2 unchanged sentences

Derivative assets

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

Fair Value Measurements at December 31, 2019

Using Fair Value Hierarchy

Fair Value as of December 31, 2018

Fair Value as of 12/31/2019

Quoted Prices

4 unchanged sentences

These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

Our derivative assets included in Level 2 consist of United States dollar-denominated interest rate caps, and the fair value is based on market comparisons for similar instruments.

We also consider the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors.

For the three and nine months ended September 30, 2019 and the year ended December 31, 2018 , we had no transfers into or out of Level 3.

Our interest rate derivative included in Level 2 consists of United States dollar-denominated interest rate cap, and its fair value is based on the market comparisons for similar instruments.

We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors.

For the three months ended March 31, 2020 and the year ended December 31, 2019 , we had no transfers into or out of Level 3.

We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S.

GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable.

Assets subject to these measurements include our investments in unconsolidated joint ventures and aircraft.

We account for our investments in unconsolidated joint ventures under the equity method of accounting and record impairment when its fair value is less than its carrying value and the Company determines that the decline is other than temporary.

Assets subject to these measurements include our investment in unconsolidated joint ventures and aircraft.

We record aircraft at fair value when we determine the carrying value may not be recoverable.

Fair value measurements for aircraft in impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

September 30, 2019

Fair value measurements for aircraft in impairment tests are based on an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

We account for our investment in unconsolidated joint ventures under the equity method of accounting.

Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital.

These investments are also reviewed for impairment whenever events or circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.

Aircraft Valuation

Transactional Impairments

On April 10, 2019, the Company early terminated the leases for seven Boeing 737NG aircraft on lease to Jet Airways (India) Limited (“Jet Airways”) due to lessee default.

As a result of these lease terminations, the Company recognized net maintenance revenue of $ 17,554 and impairment charges of $ 7,404 in the second quarter of 2019.

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter this year.

We also performed aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations.

Other than the transactional impairment discussed above, no other impairments were recorded as a result of our annual recoverability assessment.

The recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows.

We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources.

Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.

Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our annual recoverability assessment.

However, if our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges.

While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates.

In February 2020, the Company initiated a process to accept the redelivery of four Airbus A330-200 aircraft on lease to South African Airways prior to their scheduled lease expirations due to lessee default (the “South African Airways Transaction”).

As a result, the Company recognized impairment charges of $ 62,657 and recorded $ 38,804 of maintenance revenue, $ 5,863 of lease rentals received in advance and $ 8,740 of security deposits into revenue during the first quarter of 2020.

Financial Instruments

3 unchanged sentences

The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of our financial instruments at September 30, 2019 and December 31, 2018 were as follows:

September 30, 2019

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

The carrying amounts and fair values of our financial instruments at March 31, 2020 and December 31, 2019 were as follows:

March 31, 2020

December 31, 2019

8 unchanged sentences

(Dollars in thousands, except per share amounts)

September 30, 2019

March 31, 2020

Lease Rental Revenues and Flight Equipment Held for Lease

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at September 30, 2019 were as follows:

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at March 31, 2020 were as follows:

Year Ending December 31,

1 unchanged sentence

Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Asia and Pacific

4 unchanged sentences

The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Number of Lessees

Combined % of Lease

Rental Revenue

Number of Lessees

Combined % of Lease

Rental Revenue

Three Months Ended March 31,

Number of Lessees

6 unchanged sentences

The following table sets forth revenue attributable to individual countries representing at least 10% of Total revenue (including maintenance revenue) based on each lessee’s principal place of business for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

% of Total Revenue

Three Months Ended March 31,

% of Total Revenue

_______________

For the nine months ended September 30, 2019 , total revenue attributable to India included maintenance revenue of $ 15,374 .

For the three and nine months ended September 30, 2018 , total revenue attributable to India was less than 10%.

Indonesia (1)

South Africa (2)

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in direct financing and sales-type leases, or “net book value”) was as follows:

September 30, 2019

March 31, 2020

_______________

For the three months ended March 31, 2020 , total revenue attributable to Indonesia includes $ 14,987 from gain on sale of flight equipment related to the sale of aircraft.

For the three months ended March 31, 2019 , total revenue attributable to Indonesia was less than 10%.

For the three months ended March 31, 2020 , total revenue attributable to South Africa included $ 38,804 of maintenance revenue, $ 5,863 of lease rentals received in advance and $ 8,740 of security deposits taken into revenue as a result of the South African Airways Transaction - see Note 2.

For the three months ended March 31, 2019 , total revenue attributable to South Africa was less than 10%.

Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) was as follows:

March 31, 2020

December 31, 2019

4 unchanged sentences

_______________

Consisted of one Airbus A320-200 aircraft, which is scheduled to be delivered to a lessee in Europe during the fourth quarter of 2019, and one Airbus A330-200 aircraft, which we are marketing for lease or sale.

Consisted of ten Airbus A320-200 aircraft, one Airbus A330-200 aircraft, one Boeing 737-800 aircraft and one Boeing 777-300ER aircraft, all of which delivered on lease to customers during the first nine months of 2019 , one Airbus A330-200 aircraft, which we are marketing for lease or sale and one Airbus A320-200 aircraft, which was sold during the first quarter of 2019.

The following table sets forth net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in direct financing leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of business as of:

September 30, 2019

Consisted of one Airbus A320-200 and one Airbus A330-200 aircraft, which are each scheduled to be delivered during the second quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A330-200 and two Boeing 737-800 aircraft, which we are marketing for lease or sale.

Consisted of one Airbus A320-200 aircraft, which was delivered on lease to a customer in Europe during the first quarter of 2020, one Airbus A330-200 aircraft, which is scheduled to be delivered to a customer in Europe in the second quarter of 2020, and one Boeing 737-800 aircraft, which was sold during the first quarter of 2020.

The following table sets forth net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of business as of:

March 31, 2020

December 31, 2019

At September 30, 2019 and December 31, 2018 , the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 11,562 and $ 15,636 , respectively.

Net Investment in Direct Financing and Sales-Type Leases

At September 30, 2019 , our net investment in direct financing and sales-type leases consisted of 31 aircraft.

The following table lists the components of our net investment in direct financing and sales-type leases at September 30, 2019 :

Total lease payments to be received

Unearned income

Estimated residual values of leased flight equipment (unguaranteed)

Net investment in direct financing and sales-type leases

At March 31, 2020 and December 31, 2019 , the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 10,688 and $ 9,176 , respectively.

Net Investment in Leases

At March 31, 2020 , and December 31, 2019 , our net investment in leases consisted of 30 and 29 aircraft, respectively.

The components o f our net investment in leases at March 31, 2020 , and December 31, 2019 , were as follows:

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

At September 30, 2019 , minimum future lease payments on direct financing and sales-type leases are as follows:

March 31, 2020

December 31, 2019

Lease receivable

Unguaranteed residual value of flight equipment

Net investment leases

Allowance for credit losses

Net investment in leases, net of allowance

The activity in the allowance for credit losses related to our net investment in leases for the three months ended March 31, 2020 is as follows:

Balance at December 31, 2019

Adoption of accounting standard

Provision for credit losses

Balance at March 31, 2020

At March 31, 2020 , future lease payments on net investment in leases are as follows:

Year Ending December 31,

1 unchanged sentence

Total lease payments to be received

Present value of lease payments - lease receivable

Difference between undiscounted lease payments and lease receivable

Unconsolidated Equity Method Investments

We have joint ventures with an affiliate of Ontario Teachers’ Pension Plan (“Teachers’”) and with Mizuho Leasing, the leasing arm of Mizuho Financial Group.

We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 324,456 at March 31, 2020 .

Investment in joint ventures at December 31, 2019

Investment in joint ventures

Earnings from joint ventures, net of tax

Guarantee liabilities

Investment in joint ventures at September 30, 2019

As of September 30, 2019 , the sale of all eight aircraft held by the joint venture with Teachers’ to a single buyer was completed.

Guarantee liabilities in Maintenance payments and Security deposits have been offset against the investment in joint venture, as we have no further obligations due to the sale of the joint venture’s aircraft.

Teachers’, as majority shareholder, has chosen to liquidate the joint venture.

In March of 2019, we sold two aircraft to IBJ Air, in which we hold a 25 % equity interest.

The Company sold an additional two aircraft to IBJ Air in August of 2019.

These transactions were approved by our Audit Committee as arm’s length transactions under our related party policy.

At September 30, 2019 , the net book value of the IBJ Air joint venture’s nine aircraft was $ 331,208 .

Earnings from joint venture, net of tax

Investment in joint venture at March 31, 2020

Variable Interest Entities

1 unchanged sentence

The operating activities of these VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the six aircraft discussed below.

ECA Financings

Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the “Air Knight VIEs”), has entered into six different twelve -year term loans, which are supported by guarantees from Compagnie Française d'Assurance pour le Commerce Extérieur, (“COFACE”), the French government sponsored export credit agency (“ECA”).

We refer to these COFACE-supported financings as “ECA Financings.”

Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through our net investment in direct financing and sales-type leases.

The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

for managing the relevant aircraft.

March 31, 2020

ECA Financings

Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the “Air Knight VIEs”), entered into six different twelve -year term loans supported by guarantees from Compagnie Française d'Assurance pour le Commerce Extérieur, (“COFACE”), which has subsequently been renamed “BPI France”, the French government sponsored export credit agency (“ECA”).

We refer to these BPI France-supported financings as “ECA Financings.”

The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft.

There is a cross collateralization guarantee between the Air Knight VIEs.

In addition, Aircastle guarantees the debt of the Air Knight VIEs.

The only assets that the Air Knight VIEs have on their books are net investments in direct financing and sales-type leases that are eliminated in the consolidated financial statements.

The related aircraft, with a net book value as of September 30, 2019 of $ 381,164 , were included in our flight equipment held for lease.

The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of September 30, 2019 is $ 156,816 .

The only assets that the Air Knight VIEs have on their books are net investments in leases that are eliminated in the consolidated financial statements.

The related aircraft, with a net book value as of March 31, 2020 of $ 309,763 , were included in our flight equipment held for lease.

During February 2020, for four of the six aircraft owned by the Air Knight VIEs, we repaid the principal and accrued interest amounts outstanding under our ECA financings of $ 95,128 and incurred early extinguishment costs of $ 3,955 .

The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of March 31, 2020 is $ 48,283 .

Secured and Unsecured Debt Financings

The outstanding amounts of our secured and unsecured term debt financings are as follows:

At September 30, 2019

December 31, 2018

The outstanding amounts of our secured and unsecured debt financings are as follows:

At March 31, 2020

Debt Obligation

18 unchanged sentences

Senior Notes due 2026

Unsecured Term Loans

6 unchanged sentences

Total secured and unsecured debt financings, net of debt issuance costs and discounts

The borrowings under these financings at September 30, 2019 have a weighted-average rate of interest of 3.57 % .

The borrowings under these financings at September 30, 2019 have a weighted-average fixed rate of interest of 3.89 % .

Repaid on July 15, 2019.

Secured Debt Financing:

Bank Financings

On May 1, 2019, we entered into a full recourse $ 320,000 secured bank financing with BNP Paribas and Société Générale in relation to eight Airbus A320-200neo aircraft on lease with a customer in Asia.

This financing bears interest at

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

a fixed rate of 3.61 % and matures in September 2024.

In addition, on May 1, 2019, we entered into a full recourse $ 120,000 secured bank financing with Crédit Agricole in relation to three Airbus A320-200neo aircraft on lease with a customer in Asia.

This financing bears interest at a fixed rate of 3.13 % and matures in March 2025.

On June 26, 2019, we amended and restated the original loan agreement, dated October 11, 2018, with National Bank of Australia to include an additional $ 40,000 in financing for two Boeing 737-800 aircraft on lease with a customer in North America.

The financing for these two aircraft bears interest at a fixed rate of 3.14 % and matures in December 2024.

Unsecured Debt Financings:

Senior Notes due 2026

On June 13, 2019, Aircastle issued $ 650,000 aggregate principal amount of Senior Notes due 2026 (the “Senior Notes due 2026”) at an issue price of 99.515 % .

The Senior Notes due 2026 will mature on June 15, 2026 and bear interest at the rate of 4.250 % per annum, payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2019.

Interest accrues on the Senior Notes due 2026 from June 13, 2019.

Prior to April 15, 2026, we may redeem all or part of the aggregate principal amount of the Senior Notes due 2026 at any time at a redemption price equal to the greater of (a) 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date and (b) the sum of the present values of 100 % of the principal amount of the notes redeemed and the remaining scheduled payments of interest on the notes from the redemption date through April 15, 2026 (computed using a discount rate equal to the Treasury Rate (as defined in the indenture governing the Senior Notes due 2026) as of such redemption date plus 0.35 % , plus accrued and unpaid interest thereon to, but not including, the redemption date).

In addition, on or after April 15, 2026, we may redeem all or part of the aggregate principal amount of the Senior Notes due 2026 at a redemption price equal to 100 % , plus accrued and unpaid interest thereon to, but not including, the redemption date.

If the Company undergoes a change of control (as defined in the indenture governing the Senior Notes due 2026) and, as a result of the change of control, the rating of the Senior Notes due 2026 is downgraded to below an investment grade rating by certain rating agencies in the manner specified in the indenture governing the Senior Notes due 2026, it must offer to repurchase the Senior Notes due 2026 at a price of 101 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the purchase date.

The Senior Notes due 2026 are not guaranteed by any of the Company's subsidiaries or any third-party.

The net proceeds from the issuance were used to repay amounts drawn under our existing revolving credit facility and to redeem the balance of our 6.25 % Senior Notes due 2019, including accrued interest of $ 3,733 and call premium of $ 7,183 , on July 15, 2019.

Unsecured Term Loan

On February 27, 2019, we entered into an aggregate $ 215,000 floating rate loan commitment with Development Bank of Japan Inc.

and certain other banks (the “Unsecured Term Loan”).

This loan is split into two tranches:

Tranche A for $ 60,000 with a three -year term;

and Tranche B for $ 155,000 with a five -year term.

The loan contains a $ 750,000 minimum net worth covenant, along with other customary provisions similar to our revolving credit facilities.

This loan was funded in March 2019.

The new Unsecured Term Loan replaced our existing term loan of $ 120,000 that matured on April 28, 2019.

Revolving Credit Facility

On December 27, 2018, we entered into a $ 250,000 three -year, unsecured revolving credit facility with a group of banks based in Asia.

This new facility can be increased to a maximum of $ 350,000 .

On January 25, 2019, we increased the facility by $ 30,000 to $ 280,000 .

On June 20, 2019, we further increased the facility by $ 20,000 to $ 300,000 .

The facility bears interest at a rate of LIBOR plus 1.50 % and matures in December 2021.

The facility contains provisions similar to our existing credit facility, including a $ 750,000 minimum net worth covenant.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

September 30, 2019

As a condition to this new facility, on January 9, 2019, we terminated our existing $ 135,000 revolving credit facility with a group of banks based in Asia.

At September 30, 2019 , we had $ 225,000 amounts outstanding under our revolving credit facilities and had $ 875,000 available for borrowing.

As of September 30, 2019 , we were in compliance with all applicable covenants in our financings.

Shareholders' Equity and Share-Based Payment

During the nine months ended September 30, 2019 , the Company granted 303,331 restricted common shares and granted 320,944 performance share units (“PSUs”).

These awards were made under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan.

We repurchased 157,576 shares totaling $ 2,915 from our employees and directors to settle tax obligations related to share vesting and canceled shares.

During the nine months ended September 30, 2019 , the Company incurred share-based compensation expense of $ 4,104 related to restricted common shares and $ 5,099 related to PSUs.

As of September 30, 2019 , there was $ 6,380 of unrecognized compensation cost related to unvested restricted common share-based payments and $ 7,942 of unrecognized compensation cost related to unvested PSU share-based payments that are expected to be recognized over a weighted-average remaining period of 1.78 years .

On May 21, 2019, our Board of Directors increased the authorization to repurchase the Company’s common shares to $ 100,000 from the $ 76,019 that was remaining under the previous authorization.

During the nine months ended September 30, 2019 , we repurchased 973,528 common shares at an aggregate cost of $ 18,382 , including commissions.

At September 30, 2019 , the remaining dollar value of common shares that may be purchased under the repurchase program is $ 90,351 .

The following table sets forth the quarterly dividends declared by our Board of Directors for the periods covered in this report:

Declaration Date

August 2, 2019

August 30, 2019

September 16, 2019

April 30, 2019

June 14, 2019

February 8, 2019

February 28, 2019

March 31, 2020

October 30, 2018

November 30, 2018

December 14, 2018

August 3, 2018

August 31, 2018

September 14, 2018

Earnings per Share

We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic earnings per share calculations using the two-class method.

All of our restricted common shares are currently participating securities.

Our PSUs are contingently issuable shares which are included in our diluted earnings per share calculations which do not include voting or dividend rights.

Under the two-class method, earnings per common share is computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period.

In applying the two-class method, distributed and undistributed

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

September 30, 2019

earnings are allocated to both common shares and restricted common shares based on the total weighted-average shares outstanding during the period.

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted-average shares:

Common shares outstanding

Restricted common shares

Total weighted-average shares

Percentage of weighted-average shares:

Common shares outstanding

Restricted common shares

Total percentage of weighted-average shares

The calculations of both basic and diluted earnings per share are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Earnings per share – Basic:

Distributed and undistributed earnings allocated to restricted common shares (1)

Earnings available to common shareholders – Basic

Weighted-average common shares outstanding – Basic

Earnings per common share – Basic

Earnings per share – Diluted:

Distributed and undistributed earnings allocated to restricted common shares (1)

Earnings available to common shareholders – Diluted

Weighted-average common shares outstanding – Basic

Effect of dilutive shares (2)

Weighted-average common shares outstanding – Diluted

Earnings per common share – Diluted

For the three months ended September 30, 2019 and 2018 , distributed and undistributed earnings to restricted shares were 0.69 % and 0.63 % , respectively, of net income.

For the nine months ended September 30, 2019 and 2018 , distributed and undistributed earnings to restricted shares were 0.66 % and 0.60 % , respectively, of net income.

The amount of restricted share forfeitures for all periods presented are immaterial to the allocation of distributed and undistributed earnings.

For all periods presented, dilutive shares represented contingently issuable shares.

Income taxes have been provided based on the tax laws and rates in countries in which our operations are conducted and income is earned.

The borrowings under these financings at March 31, 2020 have a weighted-average rate of interest of 3.61 % .

During February 2020, the Company repaid the principal amounts outstanding for four aircraft, which were not released as security for the loans as of March 31, 2020, due to the physical location of the aircraft - see Note 6.

The borrowings under these financings at March 31, 2020 have a weighted-average fixed rate of interest of 3.52 % .

Repaid on April 15, 20 20.

At March 31, 2020 , we had $ 650,000 outstanding under our revolving credit facilities and had $ 450,000 available for borrowing.

As of March 31, 2020 , we were in compliance with all applicable covenants in our financings.

Shareholders' Equity and Share-Based Payment

On March 27, 2020, (the “Merger Date”), the total authorized share capital of the Company was $ 3,000,000 , comprised of 250,000,000 common shares of $ 0.01 each and 50,000,000 preference shares of $ 0.01 each, and the issued share capital of the Company was $ 140.48 comprised of 14,048 common shares of $ 0.01 each.

In December 2019, the Company accelerated the vesting of certain restricted common share awards and the vesting and payment of certain Performance Share Units (“PSUs”) held by the Company’s executive officers, initially granted under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan.

Share-based compensation expense of $ 2,683 related to restricted common shares and $ 12,466 related to PSUs represents the cost of this accelerated vesting from January 1, 2020 through the Merger Date.

As per the Merger Agreement, on the Merger Date, the Company paid $ 4,063 and $ 21,473 representing the payment for 126,971 unvested restricted common shares and 671,030 unvested PSUs, respectively.

Concurrently, the Company received $ 25,536 from the Parent which was recorded as an additional paid-in-capital as of the Merger Date.

The Company also repurchased 73,903 shares totaling $ 2,370 from our employees and directors to settle tax obligations related to share vesting.

During the three months ended March 31, 2020 , the Company incurred share-based compensation expense of $ 4,197 and $ 19,381 related to remaining outstanding restricted common shares and remaining outstanding PSUs, respectively, that were accelerated and paid out (in the case of PSUs, at the maximum level of performance) in accordance with the Merger Agreement.

No new share-based awards were granted under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan during the three months ended March 31, 2020 .

Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned.

The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035.

Consequently, the provision for income taxes

Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

The sources of income (loss) from continuing operations before income taxes and earnings (loss) of our unconsolidated equity method investments for the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended March 31,

Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland and the United States.

The sources of income from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three and nine months ended September 30, 2019 and 2018 were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments

March 31, 2020

Our aircraft-owning subsidiaries that are recognized as corporations for U.S.

5 unchanged sentences

are subject to tax in those respective jurisdictions.

We have a U.S.

based subsidiary which provides management services to our subsidiaries and is subject to U.S.

We have a U.S.-based subsidiary which provides management services to our subsidiaries and is subject to U.S.

federal, state and local income taxes.

1 unchanged sentence

subsidiaries and are subject to tax in those respective jurisdictions.

The consolidated income tax expense for the three and nine months ended September 30, 2019 and 2018 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2019 and 2018, respectively.

The Company’s effective tax rate (“ETR”) for the three and nine months ended September 30, 2019 was 11.6 % and 12.1 % , respectively, compared to 3.5 % and 2.5 % , respectively, for the three and nine months ended September 30, 2018 .

The second quarter of 2019 included a non-cash tax expense of $ 2,845 related to a fair value adjustment on an intercompany asset transfer, which was treated as a discrete item.

The first quarter of 2018 included a $ 2,779 tax benefit related to the Singapore rate reduction from 10 % to 8 % , which was treated as a discrete item.

Excluding these discrete items, the ETR for the nine months ended September 30, 2019 would have been 9.8 % compared to 4.5 % for the nine months ended September 30, 2018 .

The consolidated income tax expense for the three months ended March 31, 2020 and 2019 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2020 and 2019, respectively.

The Company’s effective tax rate (“ETR”) for the three months ended March 31, 2020 was ( 0.4 )% , compared to 8.1 % , for the three months ended March 31, 2019 .

The first quarter of 2020 included discrete items totaling $ 3,023 in tax expense.

Excluding these discrete tax items, the ETR would have been 8.3 % for the three months ended March 31, 2020 .

Movements in the ETR are generally caused by changes in the proportion of the Company’s pre-tax earnings in taxable and non-tax jurisdictions.

During the three and nine months ended September 30, 2019 , we reported a significant decrease in Bermuda income primarily relating to Avianca Brazil and an increase in Ireland income primarily related to Jet Airways.

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income from continuing operations consisted of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

During the three months ended March 31, 2020 , we incurred net impairment charges of $ 9,250 in a low-tax jurisdiction and a significant decrease in Bermuda income primarily related to Merger expenses of $ 32,210 .

During the three months ended March 31, 2019 , we reported a significant decrease in Bermuda income primarily relating to Avianca Brazil .

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income (loss) from continuing operations consisted of the following:

Three Months Ended March 31,

Notional U.S.

federal income tax expense at the statutory rate

federal income tax expense (benefit) at the statutory rate

state and local income tax, net

2 unchanged sentences

Income tax provision

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020.

The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property.

While we continue to evaluate the potential application of the CARES Act provisions, the CARES Act did not materially impact the Company’s effective tax rate for the three months ended March 31, 2020 .

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

March 31, 2020

Interest, Net

The following table shows the components of interest, net:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Interest on borrowings and other liabilities

3 unchanged sentences

Interest income

Capitalized interest

Interest, net

Includes a loan termination gain of $ 838 related to the sale of aircraft during both the three and nine months ended September 30, 2018 .

Includes $ 300 in deferred financing fees written off related to the sale of aircraft during both the three and nine months ended September 30, 2018 .

Commitments and Contingencies

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 420 and $ 570 for the three months ended and $ 1,190 and $ 1,700 for the nine months ended September 30, 2019 and 2018 , respectively.

As of September 30, 2019 , Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut;

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 416 and $ 356 for the three months ended March 31, 2020 and 2019 , respectively.

As of March 31, 2020 , Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut;

Dublin, Ireland;

2 unchanged sentences

Remainder of 2020

At September 30, 2019 , we had commitments to acquire 32 aircraft for $ 1,147,244 , including 25 Embraer E-Jet E2 aircraft.

Commitments, including $ 133,955 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at September 30, 2019 , net of amounts already paid, are as follows:

At March 31, 2020 , we had commitments to acquire 27 aircraft for $ 1,019,710 , including 25 Embraer E-Jet E2 aircraft.

Commitments, including $ 112,272 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at March 31, 2020 , net of amounts already paid, are as follows:

Year Ending December 31,

Remainder of 2020

As of November 1, 2019 , we had commitments to acquire 28 aircraft for $ 1,033,344 .

As of May 8, 2020 , we had commitments to acquire 27 aircraft for $ 1,019,710 .

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

September 30, 2019

March 31, 2020

The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:

September 30,

Deferred income tax asset

1 unchanged sentence

Flight equipment held for sale

Aircraft purchase deposits and progress payments (1)

Fair value of interest rate cap

Note receivable (2)

Aircraft purchase deposits and Embraer E-2 progress payments

Right-of-use asset (1)

Deferred rent receivable

Total other assets

______________

Includes progress payments for Embraer E2 aircraft order.

Related to the sale of aircraft during the year ended December 31, 2017.

Net of lease incentives and tenant allowances.

1 unchanged sentence

The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of:

September 30,

Accounts payable, accrued expenses and other liabilities

4 unchanged sentences

Total accounts payable, accrued expenses and other liabilities

Subsequent Event

Subsequent to March 31, 2020, two of our customers entered judicial insolvency proceedings.

We lease two aircraft to each of these customers, comprising an aggregate of $ 127,713 of our flight equipment held for lease as of March 31, 2020.

As of the date of this filing, our aircraft leases have been neither terminated nor rejected by the airlines.

Accounts receivable from these customers as of March 31, 2020, is not material.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements