What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-13 · 253 added, 141 removed, 282 unchanged (58% of the section changed)

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You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report.

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, 2019 , and in this report filed with the Securities and Exchange Commission (the “SEC”).

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, 2019 , and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S.

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Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.

These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the SEC and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s 2019 Annual Report on Form 10-K and elsewhere in this report.

These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the Securities and Exchange Commission (the “SEC”) and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s 2019 Annual Report on Form 10-K and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements.

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Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world.

As of March 31, 2020 , we owned and managed on behalf of our joint ventures 283 aircraft leased to 84 lessees located in 46 countries.

As of June 30, 2020 , we owned and managed on behalf of our joint ventures 283 aircraft leased to 80 lessees located in 44 countries.

Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore.

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In many cases we are, however, obligated to pay a specified portion of maintenance or modification costs.

As of March 31, 2020 , the net book value (including flight equipment held for lease and net investment in leases, or “net book value”) was $7.56 billion compared to $7.79 billion at December 31, 2019 .

Our revenues and net loss for the three months ended March 31, 2020 were $282.5 million and $34.2 million , respectively.

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”).

As of June 30, 2020 , the net book value (including flight equipment held for lease and net investment in leases, or “net book value”) was $7.19 billion compared to $7.79 billion at December 31, 2019 .

Our revenues and net loss for the three and six months ended June 30, 2020 were $255.5 million and $191.0 million and $538.0 million and $225.2 million , respectively.

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”).

The Merger is not expected to result in any change of the Company’s business strategy, and we believe the Company will benefit by having stable investors with a long-term investment horizon.

We also may benefit by being affiliated with Mizuho Leasing, part of the Mizuho Financial Group, one of the largest Japanese financial institutions.

Growth in commercial air traffic is broadly correlated with world economic activity.

In recent years commercial air traffic growth has expanded at a rate 1.5 to 2 times that of global GDP growth.

Historically, growth in commercial air traffic has been correlated with world economic activity.

In recent years commercial air traffic growth expanded at a rate 1.5 to 2 times that of global GDP growth.

The expansion of air travel has driven the growth in the world aircraft fleet;

There are currently approximately 22,000 commercial mainline passenger and freighter aircraft globally.

In a normal economic environment, we would expect this fleet to continue expanding at a three to four percent average annual rate.

Aircraft leasing companies currently own approximately 45% of the world’s commercial jet aircraft.

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

there are approximately 22,000 commercial mainline passenger and freighter aircraft in the world fleet today.

Aircraft leasing companies own approximately 45% of the world’s commercial jet aircraft.

Under normal circumstances, we would expect the global fleet to continue expanding at a three to four percent average annual rate.

The COVID-19 crisis 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 $70.0 million in near-term lease payments with 35 airlines, including $18.5 million 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.

While there have been some limited improvements in certain markets recently, according to 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.

IATA estimates this situation will cost the airline industry over $350 billion of lost revenue, a number which may be revised upwards.

Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges, including certain of our customers, and this could adversely affect our lessees’ ability to fulfill their lease payment obligations to us.

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

the extent and duration of those mpacts cannot currently be determined.

Airlines have been seeking to preserve liquidity by obtaining support from their respective governments, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, and requesting concessions from lessors.

Some have sought judicial protection.

We have agreed to defer lease payments with numerous airline customers, which they are obligated to repay over time.

As of August 1, 2020 , we have agreed to defer approximately $99.0 million in near-term lease payments, including $61.2 million 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 customers, 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.

If air traffic continues to remain 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 period of repayment for deferrals we have already made.

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

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 $127.7 million 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.

We believe we have sufficient liquidity to meet all of our contractual obligations over the next twelve months.

We have $1.1 billion of liquidity from cash on hand, working capital and/or available credit lines.

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 customers 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 up to twelve to eighteen months to be resolved.

We are actively engaged in these judicial proceedings to protect our economic interests.

However, the outcome of these proceedings is uncertain and could result in these customers grounding our aircraft, negotiating reductions in aircraft lease rentals, rejecting their leases or taking other actions that could adversely impact us or the value of our aircraft.

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.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of August 1, 2020 , have $971 million of liquidity from cash on hand, working capital and/or available credit lines.

As of August 1, 2020 , we have commitments to acquire 25 aircraft for $983.9 million .

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 $111.3 million .

We believe that our long-standing business strategy of maintaining conservative leverage, limiting long-term financial commitments and focusing our portfolio on more liquid narrow-body aircraft will enable us to manage through the COVID-19 crisis.

Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital

costs in an environment of tight airline margins and low fuel prices.

We believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will able us to take advantage of new investment opportunities when they arise.

Our Company employs a team of experienced senior professional with extensive industry and financial experience.

Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.

We also believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will enable us to take advantage of new investment opportunities when they arise.

Our Company employs a team of experienced senior professionals with extensive industry and financial experience.

Our leadership team members have an average of more than 30 years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 global financial crisis and the September 11, 2001 terror attacks.

Our business approach will be to remain differentiated from those of other large leasing companies.

Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so the volume and types of assets we buy will vary over time with market conditions.

We plan to grow our business and profits over the long-term while maintaining a conservative, flexible capital structure.

We prefer to have capital resources available to capture investment opportunities that arise in the context of changing market circumstances.

As such, we limit large, long-term capital commitments and are less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments than many of our competitors.

Our business approach will remain differentiated from those of other large leasing companies.

We have intentionally limited large, long-term capital commitments and are less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments than many of our competitors.

While our current posture is defensive given the macro situation, over the long-term we plan to grow our business and profits while maintaining a conservative, flexible capital structure.

Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from maintenance payments related to lease expirations, lease termination payments, interest recognized from direct financing and sales-type leases and gains on the sale of flight equipment.

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Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed.

The amount of rent we receive will depend on a number of factors, including the creditworthiness of our lessees and the occurrence of restructurings and defaults.

The amount of rent we receive will depend on several factors, including the creditworthiness of our lessees and the occurrence of restructurings and defaults.

Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time.

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An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

As a result of the COVID-19 pandemic, the Company has provided lease concessions to certain customers in the form of lease rental deferrals.

As a result of the COVID-19 pandemic, the Company has provided lease concessions to certain customers, primarily 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 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 within Other assets in our consolidated balance sheet.

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

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

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.

Under a lease, the lessee is responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft.

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Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement.

The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.

The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon several factors, including the timing of lease expirations, including scheduled and unscheduled expirations, the timing of maintenance events and the utilization of the aircraft by the lessee.

Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components.

We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease.

We estimate the amount of our portion for such

costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.

We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease.

We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments on the balance sheet.

The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

2020 Lease Expirations and Lease Placements

At March 31, 2020 , the Company had five off-lease aircraft and twenty aircraft with scheduled lease expirations in 2020.

As of May 8, 2020 , of these 25 aircraft, we have thirteen aircraft, which account for less than 5% of our net book value at March 31, 2020 , still to be placed or sold.

At June 30, 2020 , the Company had 22 off-lease aircraft and sixteen aircraft with scheduled lease expirations in 2020.

As of August 1, 2020 , of these 38 aircraft, we have 28 aircraft, which account for 8% of our net book value at June 30, 2020 , still to be placed or sold.

2021-2024 Lease Expirations and Lease Placements

Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period 2021-2024, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in leases) at March 31, 2020 , specified below:

16 aircraft, representing 5%;

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Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, SG&A expenses, aircraft impairment charges and maintenance and other costs.

Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for unscheduled lease terminations.

Income Tax Provision

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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.

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 June 30, 2020.

Acquisitions and Sales

During the first three months of 2020 , we acquired four aircraft for $82.3 million .

As of May 8, 2020 , we have not acquired any additional aircraft.

At March 31, 2020 , we had commitments to acquire 27 additional aircraft for $1.02 billion , including the acquisition of 25 new E-Jet E2 aircraft from Embraer, and we are in the process of documenting deferring our first E Jet E-2 delivery scheduled for the third quarter of 2020.

During the first six months of 2020 , we acquired four aircraft for $82.3 million .

As of August 1, 2020 , we have not acquired any additional aircraft.

At June 30, 2020 , we had commitments to acquire 27 additional aircraft for $1.02 billion , including the acquisition of 25 new E-Jet E2 aircraft from Embraer.

Of this amount, approximately $104.6 million represents commitments for the remainder of 2020 .

As of May 8, 2020 , we have commitments to acquire 27 aircraft for $1.02 billion .

During the first three months of 2020 , we sold eight aircraft for net proceeds of $150.0 million , and recognized net gains on sales of $27.0 million .

As of May 8, 2020 , we have not sold any additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of March 31, 2020 :

As of August 1, 2020 , we have commitments to acquire 25 aircraft for $983.9 million .

During the first six months of 2020 , we sold eight aircraft for net proceeds of $155.6 million , and recognized net gains on sales of $26.8 million .

As of August 1, 2020 , we have not sold any additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of June 30, 2020 :

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

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Weighted Average Remaining Lease Term (years) (2)

Weighted Average Fleet Utilization during the three months ended March 31, 2020 and 2019 (3)

Weighted Average Fleet Utilization during the three months ended June 30, 2020 and 2019 (3)

Weighted Average Fleet Utilization during the six months ended June 30, 2020 and 2019 (3)

Portfolio Yield for the three months ended June 30, 2020 and 2019 (4)

Portfolio Yield for the six months ended June 30, 2020 and 2019 (4)

Managed Aircraft on behalf of Joint Venture

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Aircraft on-lease days as a percent of total days in period weighted by net book value.

The decrease from our historical utilization rate for the three months ended March 31, 2019, was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.

The decrease from our historical utilization rate for the three and six months ended June 30, 2020 and 2019, was primarily due to early lease terminations.

Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percent of the average net book value for the period;

quarterly information is annualized.

The decrease from our historical portfolio yield for the three months ended March 31, 2019, was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.

The calculation of portfolio yield includes our net investment in leases in the average net book value, and the interest income and cash collections from our net investment in lease rentals.

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Owned Aircraft as of

March 31, 2020

June 30, 2020

Owned Aircraft as of

March 31, 2019

June 30, 2019

Book Value (1)

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Calculated using net book value at period end.

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 ten Airbus A320-200 aircraft, which were delivered on lease to a customer in South America during the second and third quarters of 2019, and two Airbus A330-200 aircraft, one of which was delivered on lease to a customer in South America during the third quarter of 2019 and one of which will be delivered to a customer in Europe during the second quarter of 2020.

Our top ten customers with respect to aircraft we owned as of March 31, 2020 , representing 112 aircraft and 42.4% of the net book value, are as follows:

Consisted of one Airbus A320-200 and one Airbus A330-20 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 and five Airbus A330-200 and three Boeing 737-800 aircraft, which we are marketing for lease or sale.

Consisted of three Airbus A320-200 aircraft and one Airbus A330-200 aircraft, which were delivered on lease to two customers in South America during the third quarter of 2019, and one Airbus A330-200 aircraft, which is scheduled to be delivered on lease to a customer in Europe in the third quarter of 2020.

Our top ten customers with respect to aircraft we owned as of June 30, 2020 , representing 109 aircraft and 41.7% of our net book value of flight equipment (includes Flight equipment held for lease and Net investment in leases), are as follows:

Percent of Net Book Value

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Total all customers

LATAM filed for Chapter 11 in May 2020.

(2) Guaranteed by Volga-Dnepr Airlines.

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The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales.

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured and unsecured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales.

We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales.

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RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019 :

Three Months Ended March 31,

Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019 :

Three Months Ended June 30,

(Dollars in thousands)

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Total lease revenue

Gain (loss) on sale of flight equipment

Other revenue

Total revenues

Operating expenses:

Interest, net

Selling, general and administrative

Impairment of flight equipment

Maintenance and other costs

Total operating expenses

Other expense:

Loss on extinguishment of debt

Merger expenses

Total other expense

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

Income tax provision

Earnings of unconsolidated equity method investments, net of tax

Net income (loss)

Total revenues increased by $32.0 million for the three months ended June 30, 2020 , as compared to the three months ended June 30, 2019 .

Lease rental revenue .

The decrease in lease rental revenue of $20.4 million for the three months ended June 30, 2020 , as compared to the same period in 2019 , was primarily the result of:

a $15.6 million decrease due to the sale of 22 aircraft since April 1, 2019;

a $21.9 million decrease due to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

This decrease was partially offset by a $19.7 million increase in revenue, reflecting the impact of 39 aircraft purchased since April 1, 2019.

Direct financing and sales-type lease revenue.

For the three months ended June 30, 2020 , $4.5 million of interest income from direct financing and sales-type leases was recognized, as compared to $8.3 million recorded for the same period in 2019 , primarily attributable to the early lease terminations of seven aircraft during the second quarter of 2020.

Additionally, we sold two aircraft subject to direct financing and sales-type leases during the fourth quarter of 2019.

Amortization of lease premiums, discounts and lease incentives consisted of the following:

Three Months Ended June 30,

(Dollars in thousands)

Amortization of lease premiums

Amortization of lease discounts

Amortization of lease incentives

Amortization of lease premiums, discounts and incentives

Maintenance revenue.

For the three months ended June 30, 2020 , we recorded $72.2 million of maintenance revenue, of which $38.8 million related to the early lease terminations of eleven narrow-body aircraft and $31.7 million related to the scheduled lease expirations of one narrow-body aircraft and one wide-body aircraft – see “Summary of Recoverability Assessment and Other Impairments” below.

For the same period in 2019 , we recorded $26.6 million maintenance revenue, primarily due to the transition of ten narrow-body and one wide-body aircraft, including $17.6 million related to the early lease terminations with one lessee in Asia.

Other revenue increased by $12.3 million to $13.1 million for the three months ended June 30, 2020 , as compared to $0.7 million for the same period in 2019 , primarily due to $12.8 million of security deposits recognized into revenue related to the early lease terminations of eleven narrow-body aircraft.

Operating expenses

Total operating expenses increased by $255.3 million for the three months ended June 30, 2020 , as compared to the three months ended June 30, 2019 .

Depreciation expense decreased by $1.5 million for the three months ended June 30, 2020 as compared to the same period in 2019 , primarily due a decrease of $9.6 million resulting from 22 aircraft sold since April 1, 2019 and lower depreciation on aircraft subject to impairment charges recorded during 2020.

This is partially offset by higher depreciation of $7.2 million due to 39 aircraft acquired since April 1, 2019.

Interest, net consisted of the following:

Three Months Ended June 30,

(Dollars in thousands)

Interest on borrowings and other liabilities

Amortization of deferred losses related to interest rate derivatives

Amortization of deferred financing fees and debt discount

Interest expense

Interest income

Interest, net

Interest, net decreased by $10.2 million as compared to the three months ended June 30, 2019 , primarily as a result of lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expenses for the three months ended June 30, 2020 decreased $4.8 million as compared to the same period in 2019, primarily attributable to lower share-based compensation expense of $3.2 million and lower personnel and travel costs of $2.1 million, partially offset by a provision for credit losses of $1.2 million related to the change in our allowance for credit losses since the adoption of ASC 326 on January 1, 2020.

Impairment of aircraft.

We recorded impairment charges of $280.1 million related to sixteen aircraft during the three months ended June 30, 2020 compared to impairment charges of $7.4 million related to seven aircraft during the three months ended June 30, 2019.

See “Summary of Recoverability Assessment and Other Impairments” below for a detailed discussion of impairment charges related to certain aircraft.

Maintenance and other costs were $4.2 million for the three months ended June 30, 2020 , a decrease of $1.0 million compared to the same period in 2019 .

The three months ended June 30, 2019, included higher maintenance costs for eighteen unscheduled transitions due to early lease terminations related to two lessees.

Other expense

Total other expense decreased by $1.6 million for the three months ended June 30, 2020 , as compared to the three months ended June 30, 2019 .

The decrease was primarily attributable to favorable mark-to-market adjustments on our interest rate caps of $1.9 million.

Income tax provision

Our provision for income taxes for the three months ended June 30, 2020 and 2019 was $4.7 million and $6.0 million , respectively.

Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.

The decrease in our income tax provision of $1.3 million for the three months ended June 30, 2020 , as compared to the same period in 2019 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

The three months ended June 30, 2020, included net impairment charges of $197.6 million in a low-tax jurisdiction.

The three months ended June 30, 2020, also included discrete items totaling $4.0 million in tax benefits.

The second quarter of 2019 included a discrete item of $2.8 million related to a fair value adjustment on an intercompany asset transfer.

RESULTS OF OPERATIONS

Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019 :

Six Months Ended June 30,

(Dollars in thousands)

Lease rental revenue

Direct financing and sales-type lease revenue

Amortization of lease premiums, discounts and incentives

Maintenance revenue

Total lease revenue

Gain on sale of flight equipment

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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)

Total revenues increased by $68.6 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .

Total revenues increased by $100.6 million for the six months ended June 30, 2020 , as compared to the six months ended June 30, 2019 .

Lease rental revenue .

The increase in lease rental revenue of $17.7 million for the three months ended March 31, 2020 , as compared to the same period in 2019 , was primarily the result of:

a $29.7 million increase in revenue, reflecting the impact of 52 aircraft purchased since January 1, 2019;

a $2.6 million increase due to lease extensions, amendments, transitions and other changes.

This increase was partially offset by a $14.6 million decrease due to the sale of 22 aircraft since January 1, 2019.

The decrease in lease rental revenue of $2.8 million for the six months ended June 30, 2020 , as compared to the same period in 2019 , was primarily the result of:

a $30.1 million decrease due to the sale of 23 aircraft since January 1, 2019;

a $21.3 million decrease due to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

This decrease was partially offset by a $48.9 million increase in revenue, reflecting the impact of 52 aircraft purchased since January 1, 2019.

Direct financing and sales-type lease revenue.

For the three months ended March 31, 2020 , $6.8 million of interest income from direct financing and sales-type leases was recognized, as compared to $8.4 million recorded for the same period in 2019 , primarily attributable to the sale of two aircraft subject to direct financing and sales-type leases during the fourth quarter of 2019.

For the six months ended June 30, 2020 , $11.3 million of interest income from direct financing and sales-type leases was recognized, as compared to $16.8 million recorded for the same period in

2019 , primarily attributable to the sale of two aircraft subject to direct financing and sales-type leases during the fourth quarter of 2019 and early lease terminations of seven aircraft during the second quarter of 2020.

Amortization of lease premiums, discounts and lease incentives consisted of the following:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

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Maintenance revenue.

For the three months ended March 31, 2020 , we recorded $46.6 million of maintenance revenue, of which $38.8 million related to four Airbus A330-200 aircraft on lease with South African Airways for which the Company initiated a process to accept early redelivery of the aircraft due to lessee default - see “Summary of Recoverability Assessment and Other Impairments” below.

We also recorded maintenance revenue related to the scheduled lease expirations of three narrow-body aircraft during the three months ended March 31, 2020.

For the same period in 2019 , we recorded $16.4 million maintenance revenue, primarily due to the transition of one narrow-body aircraft and two wide-body aircraft, in addition to cash maintenance revenue received for ten narrow-body aircraft.

Gain on sale of flight equipment increased by $15.0 million to $27.0 million for the three months ended March 31, 2020 , as compared to gains of $12.0 million for the same period in 2019 .

During the first quarter of 2020 , we sold eight aircraft, including the receipt of insurance proceeds for one aircraft, as compared to the sale four aircraft during the first quarter of 2019 .

Other revenue increased by $7.3 million to $8.9 million for the three months ended March 31, 2020 , as compared to $1.6 million for the same period in 2019 , primarily due to $8.7 million of security deposits recognized into revenue related to the South African Airways Transaction, partially offset by lower service fees of $1.3 million primarily related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.

For the six months ended June 30, 2020 , we recorded $118.7 million of maintenance revenue, primarily comprised of $79.3 million related to the early lease terminations of eleven narrow-body aircraft and four wide-body aircraft, as well as $39.2 million related to the scheduled lease expirations of four narrow-body aircraft and one wide-body aircraft - see “Summary of Recoverability Assessment and Other Impairments” below.

For the same period in 2019 , we recorded $43.0 million maintenance revenue, primarily due to the transition of 21 narrow-body aircraft and three wide-body aircraft, including cash maintenance revenue received for ten narrow-body aircraft from one lessee South America and $17.6 million related to the early lease terminations with one lessee in Asia.

Gain on sale of flight equipment increased by $14.4 million to $26.8 million for the six months ended June 30, 2020 , as compared to gains of $12.3 million for the same period in 2019 .

During the six months ended of 2020 , we sold eight aircraft, including the receipt of insurance proceeds for one aircraft, as compared to the sale of four aircraft during the six months ended of 2019 .

We also recognized gains totaling $3.7 million resulting from the transition of two aircraft from operating to net investment in direct financing and sales-type leases during the six months ended June 30, 2019.

Other revenue increased by $19.7 million to $22.0 million for the six months ended June 30, 2020 , as compared to $2.3 million for the same period in 2019 , primarily due to $21.6 million of security deposits recognized into revenue related to the early lease terminations of four wide-body aircraft and eleven narrow-body aircraft.

This was partially offset by lower service fees of $1.6 million related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.

Operating expenses

Total operating expenses increased by $107.4 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .

Depreciation expense increased by $5.0 million for the three months ended March 31, 2020 as compared to the same period in 2019 .

The increase is primarily the result of higher depreciation of $11.4 million due to 52 aircraft acquired since January 1, 2019, partially offset by a decrease of $6.6 million resulting from 24 aircraft sold since January 1, 2019.

Total operating expenses increased by $362.8 million for the six months ended June 30, 2020 , as compared to the six months ended June 30, 2019 .

Depreciation expense increased by $3.5 million for the six months ended June 30, 2020 as compared to the same period in 2019 .

The increase is primarily the result of higher depreciation of $18.5 million due to 52 aircraft acquired since January 1, 2019, partially offset by a decrease of $16.1 million resulting from 24 aircraft sold since January 1, 2019 and lower depreciation related to aircraft subject to aircraft impairments recorded during 2020.

Interest, net consisted of the following:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

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Interest, net

Interest, net decreased by $2.0 million as compared to the three months ended March 31, 2019 , primarily as a result of lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expenses for the three months ended March 31, 2020 increased $44.4 million as compared to the same period in 2019, primarily attributable to share-based compensation expense of $38.7 million recognized

as a result of the Merger and a provision for credit losses of $3.6 million related to the change in our allowance for credit losses since the adoption of ASC 326 on January 1, 2020.

Interest, net decreased by $12.1 million as compared to the six months ended June 30, 2019 , primarily as a result of lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expenses for the six months ended June 30, 2020 increased $39.6 million as compared to the same period in 2019, primarily attributable to net share-based compensation expense of $38.7 million recognized as a result of the Merger and a provision for credit losses of $4.8 million related to the change in our allowance for credit losses since the adoption of ASC 326 on January 1, 2020.

Impairment of aircraft.

We recorded impairment charges of $62.7 million during the three months ended March 31, 2020 related to four Airbus A330-200 aircraft on lease to South African Airways.

We recorded impairment charges of $342.7 million during the six months ended June 30, 2020 related to 20 aircraft.

During the six months ended June 30, 2019, the Company recorded impairment charges of $7.4 million related to seven aircraft.

See “Summary of Recoverability Assessment and Other Impairments” below for a detailed discussion of impairment charges related to certain aircraft.

No impairments were recorded during the three months ended March 31, 2019.

Maintenance and other costs were $4.8 million for the three months ended March 31, 2020 , a decrease of $2.6 million compared to the same period in 2019 .

The three months ended March 31, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases and costs for scheduled transitions.

Maintenance and other costs were $9.0 million for the six months ended June 30, 2020 , a decrease of $3.6 million compared to the same period in 2019 .

The six months ended June 30, 2019 included higher costs for scheduled transitions and higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases.

Other expense

Total other expense increased by $34.2 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .

The increase was primarily attributable to $32.2 million of legal and banking expenses related to the Merger and a $4.0 million loss on extinguishment of debt due to the early repayment of secured debt for five aircraft, partially offset by favorable mark-to-market adjustments on our interest rate caps of $2.0 million.

Total other expense increased by $32.6 million to $36.6 million for the six months ended June 30, 2020 , as compared to $4.0 million for the six months ended June 30, 2019 .

The increase was attributable to $32.4 million of legal and banking expenses related to the Merger and a $4.0 million loss on extinguishment of debt due to the early repayment of secured debt for five aircraft, partially offset by favorable mark-to-market adjustments on our interest rate caps of $3.9 million.

Income tax provision

Our provision for income taxes for the three months ended March 31, 2020 and 2019 was $0.1 million and $3.1 million , respectively.

Our provision for income taxes for the six months ended June 30, 2020 and 2019 was $4.8 million and $9.1 million , respectively.

Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.

The decrease in our income tax provision of $2.9 million for the three months ended March 31, 2020 , as compared to the same period in 2019 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

The three months ended March 31, 2020, included net impairment charges of $9.3 million in a low-tax jurisdiction and a significant decrease in Bermuda income, primarily related to Merger expenses of $32.2 million.

The three months ended March 31, 2020, also included discrete items totaling $3.0 million in tax expense.

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

The decrease in our income tax provision of $4.3 million for the six months ended June 30, 2020 , as compared to the same period in 2019 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

The six months ended June 30, 2020 , included discrete items totaling $1.0 million in tax benefits.

The six months ended June 30, 2019 included a discrete item of $2.8 million related to a fair value adjustment on an intercompany asset transfer.

During the six months ended June 30, 2020 , we incurred net impairment charges of $206.7 million and a significant decrease in Bermuda income primarily related to Merger expenses of $32.4 million .

Summary of Recoverability Assessment and Other Impairments

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 $342.7 million and recognized

$136.2 million of maintenance reserves, security deposits and lease rentals received in advance into revenue during the six months ended June 30, 2020.

Please 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.

As a result, the Company recognized impairment charges of $62.7 million and recorded $38.8 million of maintenance revenue, $5.9 million of lease rentals received in advance and $8.7 million of security deposits into revenue during the first quarter of 2020.

Aircraft Monitoring List

We monitor our fleet for aircraft that are more susceptible to failing our recoverability assessments within one year due to their sensitivity to changes in contractual cash flows, future cash flow estimates, and aircraft residual or scrap values.

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

The extent and duration of the impact of the virus on air traffic, lease rental rates, and aircraft valuations is currently indeterminable.

We will perform our annual recoverability assessment of our aircraft in the second quarter of 2020, and will have a particular focus on aircraft with near-term lease expirations and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.

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 $62.7 million and recognized $38.8 million of maintenance revenue, $8.7 million of security deposits, and $5.9 million of lease rentals received in advance into revenue during the first quarter of 2020.

During the second quarter, the Company recorded impairment charges totaling $77.3 million 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 $70.0 million of maintenance revenue and $12.8 million 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 $159.8 million during the second quarter of 2020 related to three wide-body aircraft which we lease to the airline.

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 $43.0 million 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.

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.

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.

If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, 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.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.

During the first three months of 2020 , we met our liquidity and capital resource needs with $69.2 million of cash flow from operations, $650.0 million from our revolving credit facilities and $150.0 million of cash from aircraft sales.

As of March 31, 2020 , the weighted-average maturity of our secured and unsecured debt financings was 3.1 years and we were in compliance with all applicable covenants.

During the first six months of 2020 , we met our liquidity and capital resource needs with $63.3 million of cash flow from operations, $650.0 million from our revolving credit facilities and $155.6 million of cash from aircraft sales.

As of June 30, 2020 , the weighted-average maturity of our secured and unsecured debt financings was 3.1 years and we were in compliance with all applicable covenants.

Depending upon our actual results for the remainder of our fiscal year, we may fail our EBITDA to Cash Interest covenant ratio for our ACS 2016 secured financing at the end of the fourth quarter.

We are in discussions with the ACS 2016 banks to modify the definition of our EBITDA to Cash Interest ratio to Adjusted EBITDA to Cash Interest, to be consistent with our other debt covenants.

If we fail to modify the EBITDA to Cash Interest covenant ratio and our EBITDA for the full year declines, we may be required to repay the outstanding loan balance, which was $235.8 million as of June 30, 2020.

We have sufficient liquidity to repay the outstanding loan plus interest.

We have agreed to defer some near-term lease payments with certain of our airline customers.

As of May 7, 2020, we have agreed to defer approximately $70.0 million in near-term lease payments with 35 airlines, which these airline customers have agreed to repay over time.

As of August 1, 2020 , we have agreed to defer approximately $99.0 million in near-term lease payments with 40 airlines, which these airline customers have agreed to repay over time.

If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, government 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 be unable to collect all the amounts we have deferred.

We believe we have sufficient liquidity to meet all of our contractual obligations over the next twelve months and have $1.1 billion of liquidity from cash on hand, working capital and/or available credit lines.

In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.

Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

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Operating Activities:

Cash flow provided by operations was $69.2 million and $106.4 million for the three months ended March 31, 2020 and 2019 , respectively.

The decrease in cash flow provided by operations of $37.1 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of $35.6 million of cash paid for Merger expenses and an $8.4 million increase in cash paid for selling, general and administrative expenses.

These outflows were offset by a $6.1 million increase in cash received from maintenance revenue.

Cash flow provided by operations was $63.3 million and $245.6 million for the six months ended June 30, 2020 and 2019 , respectively.

The decrease in cash flow provided by operations of $182.3 million for the six months ended June 30, 2020 was primarily attributable to a decrease in cash from working capital.

The COVID-19 pandemic has severely and negatively impacted air travel and our customers’ financial performance as a result of a variety of factors.

The impact of COVID-19, together with lease concessions given to certain of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the six months ended June 30, 2020.

Lease rental receivables, including deferred lease rentals, on our consolidated balance sheet have increased $85.1 million during the six months ended June 30, 2020.

In addition, as compared to the six months ended June 30, 2019, the six months ended June 30, 2020 includes lower lease rental revenues of $21.3 million due to fifteen early lease terminations and the recognition of revenue for certain customers using a cash basis of accounting rather than an accrual method - see Note 1 regarding our lease revenue recognition policy.

Cash flow provided by operations for the six months ended June 30, 2020 also includes $36.3 million of cash paid for Merger expenses.

Investing Activities:

Cash flow provided by investing activities was $92.4 million and cash flow used in investing activities was $286.2 million for the three months ended March 31, 2020 and 2019 , respectively.

The increase in cash flow provided by investing activities of $378.7 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of a $306.7 million decrease in the acquisition and improvement of flight equipment and a $93.7 million increase in aircraft proceeds from the sale of flight equipment.

Cash flow provided by investing activities was $92.4 million and cash flow used in investing activities was $591.1 million for the six months ended June 30, 2020 and 2019 , respectively.

The increase in cash flow provided by investing activities of $683.5 million for the six months ended June 30, 2020 versus the same period in 2019 was primarily a result of a $608.3 million decrease in the acquisition and improvement of flight equipment and a $98.6 million increase in aircraft proceeds from the sale of flight equipment.

These inflows were offset by a $28.3 million increase in aircraft purchase deposits and progress payments, net of returned deposits.

Financing Activities:

Cash flow provided by financing activities was $356.1 million and $120.2 million for the three months ended March 31, 2020 and 2019 , respectively.

The increase in cash flow provided by financing activities of $235.9 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of a $435.0 million increase in proceeds from secured and unsecured financings.

These inflows were offset by a $206.3 million increase in secured and unsecured debt financing repayments.

Cash flow provided by financing activities was $13.2 million and $692.7 million for the six months ended June 30, 2020 and 2019 , respectively.

The decrease in cash flow provided by financing activities of $679.5 million for the six months ended June 30, 2020 versus the same period in 2019 was primarily a result of a $694.7 million decrease in proceeds from secured and unsecured financings, net of repayments.

Debt Obligations

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Our contractual obligations consist of principal and interest payments on debt financings, aircraft acquisitions and rent payments related to our office leases.

Total contractual obligations increased to $7.25 billion at March 31, 2020 from $7.03 billion at December 31, 2019 , primarily due to an increase in borrowings under our revolving credit facilities, partially offset by a decrease in aircraft purchase obligations.

The following table presents our actual contractual obligations and their payment due dates as of March 31, 2020 :

Payments Due by Period as of March 31, 2020

Total contractual obligations decreased to $6.83 billion at June 30, 2020 from $7.03 billion at December 31, 2019 , primarily due to a decrease in principal payments for senior notes and secured financings, as well as purchase obligations, partially offset by an increase in borrowings under our revolving credit facilities.

The following table presents our actual contractual obligations and their payment due dates as of June 30, 2020 :

Payments Due by Period as of June 30, 2020

Contractual Obligations

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Purchase obligations (3)

Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at March 31, 2020 .

Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at June 30, 2020 .

Represents contractual payment obligations for our office leases in Stamford, Connecticut;

Dublin, Ireland and Singapore.

At March 31, 2020 , we had commitments to acquire 27 aircraft for $1.02 billion , including 25 new E-Jet E2 aircraft from Embraer S.A.

At June 30, 2020 , we had commitments to acquire 27 aircraft for $1.02 billion , including 25 new E-Jet E2 aircraft from Embraer S.A.

These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments.

As of May 8, 2020 , we have commitments to acquire 27 aircraft for $1.02 billion .

As of August 1, 2020 , we have commitments to acquire 25 aircraft for $983.9 million .

Capital Expenditures

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These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees.

For the three months ended March 31, 2020 and 2019 , we incurred a total of $10.1 million and $7.9 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of March 31, 2020 , the weighted average age by net book value of our aircraft was approximately 10.1 years.

For the six months ended June 30, 2020 and 2019 , we incurred a total of $13.4 million and $17.6 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of June 30, 2020 , the weighted average age by net book value of our aircraft was approximately 10.3 years.

In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft.

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In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of several factors, including defaults by the lessees.

Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age.

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This joint venture does not qualify for consolidated accounting treatment.

The assets and liabilities of this entity is not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.

The assets and liabilities of this entity are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.

See Note 5 – “Unconsolidated Equity Method Investments” in the Notes to Unaudited Consolidated Financial Statements above.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of March 31, 2020 , the net book value of its nine aircraft was $324.5 million .

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of June 30, 2020 , the net book value of its nine aircraft was $321.1 million .

Foreign Currency Risk and Foreign Operations

At March 31, 2020 , all of our leases are payable to us in U.S.

At June 30, 2020 , all our leases are payable to us in U.S.

However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore.

For the three months ended March 31, 2020 , expenses, such as payroll and office costs, denominated in currencies other than the U.S.

For the six months ended June 30, 2020 , expenses, such as payroll and office costs, denominated in currencies other than the U.S.

dollar aggregated approximately $11.5 million in U.S.

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Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk.

For the three months ended March 31, 2020 and 2019 , we incurred insignificant net gains and losses on foreign currency transactions.

For the six months ended June 30, 2020 and 2019 , we incurred insignificant net gains and losses on foreign currency transactions.

Management’s Use of EBITDA and Adjusted EBITDA

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Adjusted EBITDA is a material component of these covenants.

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

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Merger related expenses (1)

Loss on mark-to-market of interest rate derivative contracts

(Gain) loss on mark-to-market of interest rate derivative contracts

Adjusted EBITDA

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elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;

hedge loss amortization charges;

adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.

adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes which may not be comparable to similarly titled measures used by other companies.

EBITDA and Adjusted EBITDA are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S.

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In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S.

GAAP and are susceptible to varying calculations, EBITDA and Adjusted EBITDA as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

GAAP and are susceptible to varying

calculations, EBITDA and Adjusted EBITDA as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

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 2. Management’s Discussion and Analysis