Aircastle LTD 10-Q

ITEM 1. FINANCIAL STATEMENTS Aircastle Limited and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) June 30, 2020 December 31, 2019 (Unaudited) ASSETS Cash and cash equivalents $ 319,032 $ 140,882 Restricted cash and cash equivalents 5,354 14,561 Accounts receivable 76,255 18,006 Flight equipment held for lease, net of accumulated depreciation of $1,803,936 and $1,501,664, respectively 6,866,811 7,375,018 Net investment in leases, net of allowance for credit losses of $2,972 and $0, respectively 319,531 419,396 Unconsolidated equity method investments 34,450 32,974 Other assets 257,047 201,209 Total assets $ 7,878,480 $ 8,202,046 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Borrowings from secured financings, net of debt issuance costs and discounts $ 974,167 $ 1,129,345 Borrowings from unsecured financings, net of debt issuance costs and discounts 4,137,590 3,932,491 Accounts payable, accrued expenses and other liabilities 158,785 172,114 Lease rentals received in advance 77,444 108,060 Security deposits 91,649 124,954 Maintenance payments 603,232 682,398 Total liabilities 6,042,867 6,149,362 Commitments and Contingencies SHAREHOLDERS’ EQUITY 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 June 30, 2020; and 75,122,129 shares issued and outstanding at December 31, 2019 — 751 Additional paid-in capital 1,485,777 1,446,664 Retained earnings 349,836 605,269 Total shareholders’ equity 1,835,613 2,052,684 Total liabilities and shareholders’ equity $ 7,878,480 $ 8,202,046 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Aircastle Limited and Subsidiaries Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Dollars in thousands) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues: Lease rental revenue $ 172,380 $ 192,823 $ 371,300 $ 374,057 Direct financing and sales-type lease revenue 4,537 8,321 11,303 16,764 Amortization of lease premiums, discounts and incentives ( 6,404 ) ( 5,345 ) ( 12,100 ) ( 11,056 ) Maintenance revenue 72,168 26,567 118,720 42,968 Total lease revenue 242,681 222,366 489,223 422,733 Gain (loss) on sale of flight equipment ( 279 ) 346 26,770 12,348 Other revenue 13,050 704 21,957 2,262 Total revenues 255,452 223,416 537,950 437,343 Operating expenses: Depreciation 88,117 89,578 177,822 174,313 Interest, net 56,226 66,377 117,733 129,840 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) 13,564 18,317 75,946 36,317 Impairment of flight equipment 280,088 7,404 342,745 7,404 Maintenance and other costs 4,241 5,213 8,997 12,617 Total operating expenses 442,236 186,889 723,243 360,491 Other expense: Loss on extinguishment of debt ( 65 ) — ( 4,020 ) — Merger expenses ( 220 ) — ( 32,430 ) — Other 1 ( 1,910 ) ( 111 ) ( 3,971 ) Total other expense ( 284 ) ( 1,910 ) ( 36,561 ) ( 3,971 ) Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments ( 187,068 ) 34,617 ( 221,854 ) 72,881 Income tax provision 4,671 5,992 4,820 9,090 Earnings of unconsolidated equity method investments, net of tax 762 2,487 1,476 2,131 Net income (loss) $ ( 190,977 ) $ 31,112 $ ( 225,198 ) $ 65,922 Other comprehensive income (loss), net of tax: Net derivative loss reclassified into earnings — — — 184 Other comprehensive income — — — 184 Total comprehensive income (loss) $ ( 190,977 ) $ 31,112 $ ( 225,198 ) $ 66,106 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 225,198 ) $ 65,922 Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities: Depreciation 177,822 174,313 Amortization of deferred financing costs 6,840 6,958 Amortization of lease premiums, discounts and incentives 12,100 11,056 Deferred income taxes 1,479 7,957 Non-cash share-based payment expense 38,727 5,903 Collections on net investment in leases 11,861 10,971 Security deposits and maintenance payments included in earnings ( 129,349 ) ( 24,162 ) Gain on sale of flight equipment ( 26,770 ) ( 12,348 ) Loss on extinguishment of debt 4,020 — Impairment of flight equipment 342,745 7,404 Provision for credit losses 4,801 — Other ( 1,300 ) 393 Changes in certain assets and liabilities: Accounts receivable ( 54,404 ) ( 7,899 ) Other assets ( 52,990 ) 3,582 Accounts payable, accrued expenses and other liabilities ( 13,981 ) ( 11,619 ) Lease rentals received in advance ( 33,064 ) 7,181 Net cash and restricted cash provided by operating activities 63,339 245,612 Cash flows from investing activities: Acquisition and improvement of flight equipment ( 52,419 ) ( 660,723 ) Proceeds from sale of flight equipment 155,560 56,924 Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits ( 10,212 ) 18,054 Unconsolidated equity method investments and associated costs — ( 7,551 ) Other ( 508 ) 2,241 Net cash and restricted cash provided by (used in) investing activities 92,421 ( 591,055 ) Cash flows from financing activities: Repurchase of shares ( 27,906 ) ( 14,288 ) Parent contribution at Merger 25,536 — Proceeds from secured and unsecured debt financings 650,000 1,841,848 Repayments of secured and unsecured debt financings ( 608,189 ) ( 1,105,353 ) Debt extinguishment costs ( 2,750 ) — Deferred financing costs — ( 12,165 ) Security deposits and maintenance payments received 49,824 92,514 Security deposits and maintenance payments returned ( 49,307 ) ( 64,788 ) Dividends paid ( 24,025 ) ( 45,054 ) Net cash and restricted cash provided by financing activities 13,183 692,714 Net increase in cash and restricted cash: 168,943 347,271 Cash and restricted cash at beginning of period 155,443 167,853 Cash and restricted cash at end of period $ 324,386 $ 515,124 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2020 2019 Reconciliation to Consolidated Balance Sheets: Cash and cash equivalents $ 319,032 $ 500,373 Restricted cash and cash equivalents 5,354 14,751 Unrestricted and restricted cash and cash equivalents $ 324,386 $ 515,124 Supplemental disclosures of cash flow information: Cash paid for interest $ 116,546 $ 121,523 Cash paid for income taxes $ 144 $ 115 Supplemental disclosures of non-cash investing activities: Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions $ 37,742 $ 35,889 Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment $ 16,480 $ 10,938 Transfers from flight equipment held for lease to Net investment in leases and Other assets $ 28,916 $ 59,185 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Aircastle Limited and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (Dollars in thousands, except share amounts) (Unaudited) Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Common Shares Shares Amount Balance, December 31, 2019 75,122,129 $ 751 $ 1,446,664 $ 605,269 $ — $ 2,052,684 Issuance of common shares to directors and employees 28,568 1 ( 1 ) — — — Repurchase of common shares from stockholders, directors and employees ( 73,903 ) ( 1 ) ( 2,369 ) — — ( 2,370 ) Amortization of share-based payments — — 38,727 — — 38,727 Reclassification of prior year director stock award liability — — 2,005 — — 2,005 Dividends declared — — — ( 24,025 ) — ( 24,025 ) Net loss — — — ( 34,221 ) — ( 34,221 ) Adoption of accounting standard — — — ( 6,210 ) — ( 6,210 ) Payment of unvested shares at Merger ( 101,809 ) ( 1 ) ( 25,535 ) — — ( 25,536 ) Parent contribution at Merger — — 25,536 — — 25,536 Share cancellation and re-issuance at Merger ( 74,960,937 ) ( 750 ) 750 — — — Balance, March 31, 2020 14,048 $ — $ 1,485,777 $ 540,813 $ — $ 2,026,590 Net loss — — — ( 190,977 ) — ( 190,977 ) Balance, June 30, 2020 14,048 $ — $ 1,485,777 $ 349,836 $ — $ 1,835,613 Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Common Shares Shares Amount Balance, December 31, 2018 75,454,511 $ 754 $ 1,468,779 $ 539,332 $ ( 184 ) $ 2,008,681 Issuance of common shares to directors and employees 276,923 3 ( 3 ) — — — Repurchase of common shares from stockholders, directors and employees ( 653,796 ) ( 6 ) ( 11,418 ) — — ( 11,424 ) Amortization of share-based payments — — 2,410 — — 2,410 Reclassification of prior year director stock award liability — — 796 — — 796 Dividends declared — — — ( 22,518 ) — ( 22,518 ) Net income — — — 34,810 — 34,810 Net derivative loss reclassified into earnings — — — — 184 184 Balance, March 31, 2019 75,077,638 $ 751 $ 1,460,564 $ 551,624 $ — $ 2,012,939 Issuance of common shares to directors and employees 35,000 — — — — — Repurchase of common shares from stockholders, directors and employees ( 129,524 ) ( 1 ) ( 2,863 ) — — ( 2,864 ) Amortization of share-based payments — — 2,833 — — 2,833 Dividends declared — — — ( 22,536 ) — ( 22,536 ) Net income — — — 31,112 — 31,112 Balance, June 30, 2019 74,983,114 $ 750 $ 1,460,534 $ 560,200 $ — $ 2,021,484 The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) June 30, 2020 Note 1. Summary of Significant Accounting Policies Organization and Basis of Presentation Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is acquiring, leasing, managing and selling commercial jet aircraft. 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. Aircastle directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment: leasing, financing, selling and managing commercial flight equipment. Our Chief Executive Officer is the chief operating decision maker. The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 . Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (“ASC 326”). The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash. Net investment in leases comprised the Company’s financial asset principally affected by the standard. Operating lease receivables are not within the scope of ASC 326. Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses. This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages. The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts. Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values. We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to the opening balance of retained earnings. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted, the FASB Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement . The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted the FASB ASU No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use-software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The adoption of the standard did not have a material impact on our consolidated financial 8 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. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities . The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance. The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of 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 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. We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding: (a) whether an entity is subject to consolidation as a VIE; (b) who the variable interest holders are; (c) the potential expected losses and residual returns of the variable interest holders; and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider: (1) the entity’s purpose and design; (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance; and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. Lease Revenue Recognition We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals. Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the lease term using the prevailing rate at lease commencement. Changes to rate-based lease rentals are recognized in the statements of income (loss) in the period of change. 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 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. 9 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) 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 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; 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 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. 10 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 If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease. The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit. For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment. Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement. Interest income on our net investment in leases is recognized as Direct financing and sales-type leases revenue over the lease term in a manner that 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. The allowance for credit losses is recorded upon the initial recognition of the net investment in the lease based on the Company’s estimate of expected credit losses over the lease term. The allowance reflects the Company’s estimate of lessee default probabilities and loss given default percentages. When determining the credit loss allowance, we consider relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the net investment in the lease. The allowance also considers potential losses due to non-credit risk related to unguaranteed residual values. A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses. Recent Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a reference rate affected by reference rate reform. If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or 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. In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic. The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases”, for lease concessions provided by lessors as a result of the COVID-19 pandemic. The Company has elected not to apply the lease modification guidance in ASC 842 for such lease concessions – see “Lease Revenue Recognition” above. Note 2. Fair Value Measurements Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: • Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. • Level 2: 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. 11 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) June 30, 2020 • Level 3: 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. The valuation techniques that may be used to measure fair value are as follows: • The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. • The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts. • 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 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 June 30, 2020 Using Fair Value Hierarchy Fair Value as of June 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique Assets: Cash and cash equivalents $ 319,032 $ 319,032 $ — $ — Market Restricted cash and cash equivalents 5,354 5,354 — — Market Derivative assets 2 — 2 — Market Total $ 324,388 $ 324,386 $ 2 $ — Fair Value Measurements at December 31, 2019 Using Fair Value Hierarchy Fair Value as of December 31, 2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique Assets: Cash and cash equivalents $ 140,882 $ 140,882 $ — $ — Market Restricted cash and cash equivalents 14,561 14,561 — — Market Derivative assets 115 — 115 — Market Total $ 155,558 $ 155,443 $ 115 $ — 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 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 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 12 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 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. Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital. These investments are also reviewed for impairment whenever events or circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary. Aircraft Valuation 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 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. 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. 13 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 Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature. The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and fair values of our financial instruments at June 30, 2020 and December 31, 2019 were as follows: June 30, 2020 December 31, 2019 Carrying Amount of Liability Fair Value of Liability Carrying Amount of Liability Fair Value of Liability Credit Facilities $ 650,000 $ 636,118 $ 150,000 $ 150,000 Unsecured Term Loan 215,000 208,985 215,000 215,000 ECA Financings 45,443 47,660 147,644 150,805 Bank Financings 937,605 935,547 993,593 1,010,482 Senior Notes 3,300,000 3,193,612 3,600,000 3,787,268 All our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1. Note 3. 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 June 30, 2020 were as follows: Year Ending December 31, Amount (1) Remainder of 2020 $ 391,123 2021 665,509 2022 582,359 2023 502,207 2024 390,977 Thereafter 460,916 Total $ 2,993,091 _______________ (1) Reflects impact of lessee lease rental deferrals. 14 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 June 30, Six Months Ended June 30, Region 2020 2019 2020 2019 Asia and Pacific 44 % 44 % 43 % 43 % Europe 29 % 28 % 27 % 28 % Middle East and Africa 5 % 10 % 7 % 11 % North America 10 % 8 % 11 % 8 % South America 12 % 10 % 12 % 10 % Total 100 % 100 % 100 % 100 % The classification of regions in the table above and in the tables and discussion below is determined based on the principal location of the lessee of each aircraft. 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 June 30, Six Months Ended June 30, 2020 2019 2020 2019 Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Largest lessees by lease rental revenue 4 29 % 3 21 % 4 27 % 3 21 % 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, 2020 2019 2020 2019 Country Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue India (1) $ — — % $ 42,312 19 % $ — — % $ 61,638 14 % Mexico (2) 67,922 27 % — — % 74,954 14 % — — % South Africa (3) — — % — — % 57,920 11 % — — % _______________ (1) 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%. (2) 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%. (3) 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%. 15 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) 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: June 30, 2020 December 31, 2019 Region Number of Aircraft Net Book Value % Number of Aircraft Net Book Value % Asia and Pacific 89 39 % 94 38 % Europe 98 27 % 99 26 % Middle East and Africa 11 4 % 16 7 % North America 28 10 % 40 13 % South America 26 13 % 26 15 % Off-lease 22 (1) 7 % 3 (2) 1 % Total 274 100 % 278 100 % _______________ (1) 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. (2) 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: June 30, 2020 December 31, 2019 Country Net Book Value Net Book Value % Number of Lessees Net Book Value Net Book Value % Number of Lessees India $ 901,093 13 % 4 $ 924,190 12 % 4 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. Note 4. Net Investment in Leases 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 Lease receivable $ 122,460 $ 164,816 Unguaranteed residual value of flight equipment 200,043 254,580 Net investment leases 322,503 419,396 Allowance for credit losses ( 2,972 ) — Net investment in leases, net of allowance $ 319,531 $ 419,396 16 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: Amount Balance at December 31, 2019 $ — Adoption of accounting standard 6,270 Provision for credit losses 3,595 Balance at March 31, 2020 9,865 Provision for credit losses 1,206 Write-offs ( 8,099 ) Balance at June 30, 2020 $ 2,972 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, Amount Remainder of 2020 $ 20,936 2021 34,793 2022 23,960 2023 23,234 2024 8,950 Thereafter 32,406 Total lease payments to be received 144,279 Present value of lease payments - lease receivable ( 122,460 ) Difference between undiscounted lease payments and lease receivable $ 21,819 Note 5. Unconsolidated Equity Method Investments We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 321,067 at June 30, 2020 . Amount Investment in joint ventures at December 31, 2019 $ 32,974 Earnings from joint venture, net of tax 1,476 Investment in joint venture at June 30, 2020 $ 34,450 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. Note 6. Variable Interest Entities 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 17 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) 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 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 . Note 7. Secured and Unsecured Debt Financings The outstanding amounts of our secured and unsecured debt financings are as follows: At June 30, 2020 At December 31, 2019 Debt Obligation Outstanding Borrowings Number of Aircraft Interest Rate Final Stated Maturity Outstanding Borrowings Secured Debt Financings: ECA Financings (1) $ 45,443 2 3.49% to 3.96% 12/03/21 to 11/30/24 $ 147,644 Bank Financings (2) 937,605 34 2.18% to 4.55% 06/17/23 to 01/19/26 993,593 Less: Debt issuance costs and discounts ( 8,881 ) — ( 11,892 ) Total secured debt financings, net of debt issuance costs and discounts 974,167 36 1,129,345 Unsecured Debt Financings: Senior Notes due 2020 (3) — 7.625 % 04/15/20 300,000 Senior Notes due 2021 500,000 5.125 % 03/15/21 500,000 Senior Notes due 2022 500,000 5.50 % 02/15/22 500,000 Senior 5.00% Notes due 2023 500,000 5.00 % 04/01/23 500,000 Senior 4.40% Notes due 2023 650,000 4.40 % 09/25/23 650,000 Senior Notes due 2024 500,000 4.125 % 05/01/24 500,000 Senior Notes due 2026 650,000 4.250 % 06/15/26 650,000 Unsecured Term Loans 215,000 1.78 % 03/07/22 to 03/07/24 215,000 Revolving Credit Facilities 650,000 1.56% to 1.57% 12/27/21 to 06/27/22 150,000 Less: Debt issuance costs and discounts ( 27,410 ) ( 32,509 ) Total unsecured debt financings, net of debt issuance costs and discounts 4,137,590 3,932,491 Total secured and unsecured debt financings, net of debt issuance costs and discounts $ 5,111,757 $ 5,061,836 (1) 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. (2) The borrowings under these financings at June 30, 2020 have a weighted-average fixed rate of interest of 3.21 % . (3) Repaid on April 15, 20 20. 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. Note 8. 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. 18 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 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. 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. Note 9. Income Taxes Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes 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 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, 2020 2019 2020 2019 U.S. operations $ 5,915 $ 1,959 $ 10,820 $ 3,875 Non-U.S. operations ( 192,983 ) 32,658 ( 232,674 ) 69,006 Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments $ ( 187,068 ) $ 34,617 $ ( 221,854 ) $ 72,881 Our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are primarily non-U.S. corporations. These subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and the U.S. are subject to tax in those respective jurisdictions. We have a U.S.-based subsidiary which provides management services to our subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions. 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 19 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 June 30, Six Months Ended June 30, 2020 2019 2020 2019 Notional U.S. federal income tax expense (benefit) at the statutory rate $ ( 39,284 ) $ 7,270 $ ( 46,589 ) $ 15,305 U.S. state and local income tax, net 390 181 1,979 390 Non-U.S. operations: Bermuda 46,088 ( 2,910 ) 48,594 ( 8,048 ) Ireland 1,017 2,093 ( 171 ) 2,602 Singapore 59 ( 2 ) 85 ( 4 ) Other low tax jurisdictions 412 ( 872 ) 2,066 ( 1,724 ) Non-deductible expenses in the U.S. 140 232 3,420 569 Other ( 4,151 ) — ( 4,564 ) — Income tax provision $ 4,671 $ 5,992 $ 4,820 $ 9,090 The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property. While we continue to evaluate the potential application of the CARES Act provisions, the CARES Act did not materially impact the Company’s effective tax rate for the six months ended June 30, 2020 . Note 10. Interest, Net The following table shows the components of interest, net: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Interest on borrowings and other liabilities $ 53,136 $ 63,639 $ 111,562 $ 123,918 Amortization of deferred losses related to interest rate derivatives — — — 184 Amortization of deferred financing fees and debt discount 3,259 3,594 6,840 6,958 Interest expense 56,395 67,233 118,402 131,060 Less: Interest income ( 169 ) ( 856 ) ( 669 ) ( 1,220 ) Interest, net $ 56,226 $ 66,377 $ 117,733 $ 129,840 20 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) June 30, 2020 Note 11. Commitments and Contingencies 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; and Singapore for future minimum lease payments as follows: Year Ending December 31, Amount Remainder of 2020 $ 924 2021 1,892 2022 1,806 2023 1,696 2024 1,727 Thereafter 6,113 Total $ 14,158 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, Amount (1) Remainder of 2020 $ 104,611 2021 352,453 2022 336,473 2023 155,037 2024 73,848 Total $ 1,022,422 _______________ (1) 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 . Note 12. Other Assets The following table describes the principal components of other assets on our Consolidated Balance Sheets as of: June 30, 2020 December 31, 2019 Deferred income tax asset $ 3,159 $ 1,007 Lease incentives and lease premiums, net of amortization of $67,500 and $71,851, respectively 95,976 112,923 Flight equipment held for sale 326 333 Aircraft purchase deposits and Embraer E-2 progress payments 43,286 33,754 Right-of-use asset (1) 8,783 9,329 Deferred rent receivable 41,847 5,255 Other assets 63,670 38,608 Total other assets $ 257,047 $ 201,209 ______________ (1) Net of lease incentives and tenant allowances. 21 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) June 30, 2020 Note 13. Accounts Payable, Accrued Expenses and Other Liabilities The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of: June 30, 2020 December 31, 2019 Accounts payable, accrued expenses and other liabilities $ 36,409 $ 47,228 Deferred income tax liability 68,340 64,674 Accrued interest payable 39,947 44,694 Lease liability 12,017 12,800 Lease discounts, net of amortization of $45,184 and $44,696, respectively 2,072 2,718 Total accounts payable, accrued expenses and other liabilities $ 158,785 $ 172,114 Note 14. Subsequent Event 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. 22