What changed in this filing

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Item 1. Financial Statements

2020-08-03 compared with 2020-05-13 · 219 added, 153 removed, 432 unchanged (46% of the section changed)

20 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, 14,048 shares issued and outstanding at March 31, 2020;

Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at June 30, 2020;

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

7 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Lease rental revenue

3 unchanged sentences

Total lease revenue

Gain on sale of flight equipment

Gain (loss) on sale of flight equipment

Other revenue

2 unchanged sentences

Interest, net

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)

Selling, general and administrative (including non-cash share-based payment expense of $0 and $3,177 for the three months ended, and $38,727 and $5,903 for the six months ended June 30, 2020 and 2019, respectively)

Impairment of flight equipment

5 unchanged sentences

Total other expense

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

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

Income tax provision

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

Earnings of unconsolidated equity method investments, net of tax

Net income (loss)

7 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

40 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Reconciliation to Consolidated Balance Sheets:

4 unchanged sentences

Cash paid for interest

Cash paid (received) for income taxes

Cash paid for income taxes

Supplemental disclosures of non-cash investing activities:

6 unchanged sentences

(Dollars in thousands, except share amounts)

Three Months Ended March 31, 2020

Comprehensive

13 unchanged sentences

Balance, March 31, 2020

Three Months Ended March 31, 2019

Balance, June 30, 2020

Comprehensive

10 unchanged sentences

Balance, March 31, 2019

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

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

2 unchanged sentences

(Dollars in thousands, except per share amounts)

March 31, 2020

June 30, 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”).

On March 27, 2020, the Company successfully completed its merger (the “Merger”) and 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.

26 unchanged sentences

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

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

1 unchanged sentence

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.

The adoption of the standard did not have a material impact on our consolidated financial

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

statements or related disclosures.

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

3 unchanged sentences

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.

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 June 30, 2020 , through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries.

Aircastle consolidates four Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary.

The consolidated financial statements include the accounts of Aircastle and all its subsidiaries.

Aircastle consolidates two Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary.

All intercompany transactions and balances have been eliminated in consolidation.

21 unchanged sentences

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

We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within Other assets in our consolidated balance sheet.

If we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we recognize lease rental revenue using a cash basis of accounting rather than an accrual method.

In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(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.

June 30, 2020

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.

According to the International Air Transport Association (“IATA”), as of mid-June 2020, air travel is down to approximately 30 % of normal levels and a full recovery to pre-pandemic levels is not expected for several years.

Substantially all 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;

2 unchanged sentences

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.

As of August 1, 2020 , we have agreed to defer approximately $ 99,000 in near-term lease payments, including $ 61,209 that appear in our Consolidated Balance Sheet as components of Accounts receivable, Net investment in leases, or Other assets as of June 30, 2020 .

This represents approximately 12 % of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended June 30, 2020.

Deferrals have been agreed to with 40 airlines, representing 50 % of our customer base, and for an average deferral of four months of lease rentals.

In a limited number of situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions.

I f 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 grant additional deferrals to our customers or extend the periods of repayment for deferrals we have already made.

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

As of August 1, 2020 , six of our customers entered judicial insolvency proceedings.

We lease 21 aircraft to these customers, which comprise 12 % of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases, or “net book value”) and 11 % of our Lease rental revenue as of and for the twelve months ended June 30, 2020.

One of these is LATAM, our second largest customer, which represents 7 % of our net book value of flight equipment and 7 % of our Lease rental revenue as of and for the twelve months ended June 30, 2020 .

As of August 1, 2020 , only one aircraft lease has been rejected in the various proceedings, but that number may increase as the judicial processes advance.

Based on historic experience, the judicial process can take anywhere from twelve months up to eighteen months to be resolved.

We are actively engaged in the various judicial procedures to protect our economic interests.

As a result of these proceedings, the recognition of lease rental revenue for certain customers may be done on a cash basis of accounting rather than the accrual method depending on the customers lease security arrangements.

Impairment of Flight Equipment

We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the second quarter.

In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable.

Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued.

When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value.

The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates, transition costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors.

In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge.

See Note 2 – Fair Value Measurements.

Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources.

The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

We are closely monitoring the impact of the COVID-19 virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft.

We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.

Net Investment in Leases

3 unchanged sentences

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.

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 produces 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.

3 unchanged sentences

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.

A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

Recent Accounting Pronouncements

3 unchanged sentences

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.

If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or re-measurements 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

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

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.

6 unchanged sentences

Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

3 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).

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.

The following tables set forth our financial assets as of June 30, 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 March 31, 2020

Fair Value Measurements at June 30, 2020

Using Fair Value Hierarchy

Fair Value as of 3/31/2020

Fair Value as of June 30, 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 12/31/2019

Fair Value as of December 31, 2019

Quoted Prices

2 unchanged sentences

Derivative assets

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable.

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are highly liquid and easily tradable.

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 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.

Our interest rate derivative included in Level 2 consists of a 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.

For the three and six months ended June 30, 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.

GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

not be recoverable.

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 that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and 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 discounted using the Company’s weighted average cost of capital.

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

2 unchanged sentences

Aircraft Valuation

During the six months ended June 30, 2020, the Company recorded impairment charges related to twenty aircraft due to scheduled lease expirations, early lease terminations, lessee defaults and/or protective filings, or as a result of our annual recoverability assessment conducted during the second quarter of 2020.

These twenty aircraft were comprised of eleven narrow-body and nine wide-body aircraft.

The Company recorded impairment charges totaling $ 342,745 and recognized $ 136,236 of maintenance reserves, security deposits and lease rentals received in advance into revenue during the six months ended June 30, 2020 – refer to the sections below for additional details.

Transactional Impairments

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.

In February 2020, the Company initiated a process to accept the redelivery of four wide-body aircraft prior to their scheduled lease expirations due to a lessee default.

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

During the second quarter, the Company recorded impairment charges totaling $ 77,298 related to eleven aircraft due to the scheduled lease expirations of one narrow-body aircraft and one wide-body aircraft, as well as the early terminations of nine narrow-body aircraft.

The Company recognized $ 69,995 of maintenance revenue and $ 12,834 of security deposits into revenue related to these eleven aircraft during the second quarter of 2020.

During the second quarter, six of our customers filed for bankruptcy protection.

As a result, the Company reviewed the related aircraft for recoverability and recorded impairment charges of $ 159,750 during the second quarter of 2020 related to three wide-body aircraft.

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter of 2020.

In addition to the transactional impairments discussed above, we recorded impairment charges totaling $ 43,040 related to one narrow-body and one wide-body aircraft as a result of our annual recoverability assessment.

Although we have completed our annual recoverability assessment, we will continue to monitor the developments of the COVID-19 virus throughout the remainder of the year.

We will closely monitor the impact of the virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft.

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.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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.

Financial Instruments

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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.

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

The carrying amounts and fair values of our financial instruments at June 30, 2020 and December 31, 2019 were as follows:

June 30, 2020

December 31, 2019

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Bank Financings

All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

All our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

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 March 31, 2020 were as follows:

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at June 30, 2020 were as follows:

Year Ending December 31,

Remainder of 2020

_______________

Reflects impact of lessee lease rental deferrals.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Asia and Pacific

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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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Number of Lessees

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Rental Revenue

Number of Lessees

Combined % of Lease

Rental Revenue

Number of Lessees

Combined % of Lease

Rental Revenue

Largest lessees by lease rental revenue

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 March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

% of Total Revenue

Indonesia (1)

% of Total Revenue

South Africa (3)

_______________

For both the three and six months ended June 30, 2019 , total revenue attributable to India included $ 17,554 of maintenance revenue recognized into revenue.

For the three and six months ended June 30, 2020 , total revenue attributable to India was less than 10%.

For the three and six months ended June 30, 2020 , total revenue attributable to Mexico included $ 54,436 of maintenance revenue and $ 12,834 of security deposits recognized into revenue.

For the three and six months ended June 30, 2019 , total revenue attributable to Mexico was less than 10%.

For the three and six months ended June 30, 2020 , total revenue attributable to South Africa included $ 263 and $ 39,067 of maintenance revenue, respectively, $ 8,740 of lease rentals received in advance and $ 5,863 of security deposits recognized into revenue.

For the three and six months ended June 30, 2019 , total revenue attributable to South Africa was less than 10%.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

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%.

June 30, 2020

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

June 30, 2020

December 31, 2019

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_______________

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.

Consisted of one Airbus A320-200 and one Airbus A330-200 aircraft, each of which are scheduled to be delivered during the third quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A319-100, eleven Airbus A320-200, five Airbus A330-200 and three 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 during the third 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

June 30, 2020

December 31, 2019

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.

At June 30, 2020 and December 31, 2019 , the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 11,184 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

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

At June 30, 2020 and December 31, 2019 , our net investment in leases consisted of 24 and 29 aircraft, respectively.

The components o f our net investment in leases at June 30, 2020 , and December 31, 2019 , were as follows:

June 30, 2020

December 31, 2019

4 unchanged sentences

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:

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

The activity in the allowance for credit losses related to our net investment in leases for the six months ended June 30, 2020 is as follows:

Balance at December 31, 2019

2 unchanged sentences

Balance at March 31, 2020

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

Provision for credit losses

Balance at June 30, 2020

During the six months ended June 30, 2020 , we wrote off $ 8,099 of lease rentals against the allowance for credit losses due to the early lease termination of seven Airbus A320-200 aircraft which had been classified as Net investment in leases.

At June 30, 2020 , future lease payments on net investment in leases are as follows:

Year Ending December 31,

4 unchanged sentences

Unconsolidated Equity Method Investments

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

We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 321,067 at June 30, 2020 .

Investment in joint ventures at December 31, 2019

Earnings from joint venture, net of tax

Investment in joint venture at March 31, 2020

Investment in joint venture at June 30, 2020

In April 2020, we sold two engines to Magellan, an affiliate of Marubeni, for $ 5,355 .

This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy.

Variable Interest Entities

Aircastle consolidates four VIEs of which it is the primary beneficiary.

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

Aircastle consolidates two VIEs (the “Air Knight VIEs”) of which it is the primary beneficiary.

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

During February 2020, we repaid the export credit agency (the “ECA Financings”) for four of the six aircraft owned by the Air Knight VIEs, which included principal and accrued interest amounts outstanding of $ 95,128 and incurred early extinguishment costs of $ 4,020 .

In June 2020, the leases of the four aircraft subject to the ECA Financings were formally

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

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.”

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 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 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.

June 30, 2020

terminated and the aircraft were released as security under such financings.

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 .

The related aircraft, with a net book value as of June 30, 2020 of $ 124,432 , 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 June 30, 2020 is $ 44,860 .

Secured and Unsecured Debt Financings

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

At March 31, 2020

At June 30, 2020

Debt Obligation

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

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 % .

The borrowings under these financings at June 30, 2020 have a weighted-average rate of interest of 3.60 % .

During February 2020, the Company repaid the ECA Financings for four aircraft owned by the Air Knight VIEs, which were released as security for such financings during the second quarter of 2020 – see Note 6.

The borrowings under these financings at June 30, 2020 have a weighted-average fixed rate of interest of 3.21 % .

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.

At June 30, 2020 , we had $ 650,000 outstanding under our revolving credit facilities and had $ 450,000 available for borrowing.

As of June 30, 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 , 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 comprised of 14,048 common shares of $ 0.01 each.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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.

As per the Agreement and Plan of Merger, dated as of November 5, 2019, (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 MM Air Limited, 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 .

Included in share-based compensation expense for the six months ended June 30, 2020 is $ 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.

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.

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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,

The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

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

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subsidiaries and are subject to tax in those respective jurisdictions.

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 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 .

The consolidated income tax expense for the three and six months ended June 30, 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 rates (“ETRs”) for the three and six months ended June 30, 2020 and 2019 were ( 2.5 )% and ( 2.2 )% , and 17.3 % and 12.5 % , respectively.

The three and six months ended June 30, 2020 , included discrete items totaling $ 3,973 and $ 950 in tax benefits, respectively.

The second quarter of 2019 included a discrete item of $ 2,845 related to a fair value adjustment on an intercompany asset transfer.

Excluding these discrete tax items, the ETR would have been ( 4.6 )% and ( 2.6 )% for the three and six months ended June 30, 2020 , respectively, and for the three and six months ended June 30, 2019 , 9.1 % and 8.6 % , respectively.

Movements in the ETR are generally caused by changes in the proportion of

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

the Company’s pre-tax earnings in taxable and non-tax jurisdictions.

During the six months ended June 30, 2020 , we incurred net impairment charges of $ 206,744 in low tax jurisdictions and a significant decrease in Bermuda income primarily related to Merger expenses of $ 32,385 .

During the six months ended June 30, 2019 , we reported a significant decrease in Bermuda income primarily related to Avianca Brazil and an increase in Irish income related to Jet Airways.

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,

Three Months Ended June 30,

Six Months Ended June 30,

Notional U.S.

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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

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

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 six months ended June 30, 2020 .

Interest, Net

The following table shows the components of interest, net:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest on borrowings and other liabilities

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Interest, net

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Commitments and Contingencies

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;

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 398 and $ 796 for the three and six months ended June 30, 2020 , and $ 414 and $ 770 for the three and six months ended June 30, 2019 , respectively.

As of June 30, 2020 , Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut;

Dublin, Ireland;

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Remainder of 2020

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:

At June 30, 2020 , we had commitments to acquire 27 aircraft for $ 1,022,422 , including 25 Embraer E-Jet E2 aircraft.

Commitments, including $ 109,855 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at June 30, 2020 , net of amounts already paid, are as follows:

Year Ending December 31,

Remainder of 2020

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2020

_______________

We are in the process of deferring some of our E Jet E-2 deliveries scheduled to be delivered over the next twelve months to a later date which would reduce our commitments due within one year by approximately $ 111,302 .

As of August 1, 2020 , we had commitments to acquire 25 aircraft for $ 983,922 .

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

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Net of lease incentives and tenant allowances.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Accounts Payable, Accrued Expenses and Other Liabilities

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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.

On July 30, 2020, the Company successfully executed a $ 150,000 revolving credit facility at LIBOR plus 2 % with Mizuho Bank Ltd, a related party.

The agreement has a one -year term with an one -year extension option.

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