Aircastle LTD 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. 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 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. GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars. All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “report”), other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA and Adjusted EBITDA and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. 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 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. Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances. WEBSITE AND ACCESS TO THE COMPANY’S REPORTS Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S. taxpayers are available free of charge through our website at www.aircastle.com under “Investors — Tax Information (PFIC).” The information on the Company’s Internet website is not part of, nor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC. 23 OVERVIEW Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. 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. Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs. In many cases we are, however, obligated to pay a specified portion of maintenance or modification costs. 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. 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 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. 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. 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, 24 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 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 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. Revenues 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. Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. 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 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. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. 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, 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. 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 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 25 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. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we typically do not recognize maintenance revenue during the lease. 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 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. 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 in our consolidated 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 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 June 30, 2020 , specified below: • 2021: 16 aircraft, representing 5%; • 2022: 33 aircraft, representing 10%; • 2023: 37 aircraft, representing 11%; and • 2024: 56 aircraft, representing 21%. Operating Expenses 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 early lease terminations. 26 Income Tax Provision We obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland and the United States. 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 non-U.S. 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 Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property. While we continue to evaluate the potential application of the CARES Act provisions, the CARES Act did not materially impact the Company’s effective tax rate for the three months ended June 30, 2020. 27 Acquisitions and Sales 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 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 . 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) Owned Aircraft As of June 30, 2020 (1) As of June 30, 2019 (1) Net Book Value of Flight Equipment $ 7,186 $ 7,842 Net Book Value of Unencumbered Flight Equipment $ 5,687 $ 5,957 Number of Aircraft 274 268 Number of Unencumbered Aircraft 238 226 Number of Lessees 80 89 Number of Countries 44 47 Weighted Average Age (years) (2) 10.3 9.5 Weighted Average Remaining Lease Term (years) (2) 4.3 4.6 Weighted Average Fleet Utilization during the three months ended June 30, 2020 and 2019 (3) 95.1 % 94.0 % Weighted Average Fleet Utilization during the six months ended June 30, 2020 and 2019 (3) 97.0 % 93.9 % Portfolio Yield for the three months ended June 30, 2020 and 2019 (4) 9.7 % 10.7 % Portfolio Yield for the six months ended June 30, 2020 and 2019 (4) 10.5 % 10.6 % Managed Aircraft on behalf of Joint Venture Net Book Value of Flight Equipment $ 321 $ 678 Number of Aircraft 9 15 (1) Calculated using net book value at period end. (2) Weighted by net book value. (3) 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 and six months ended June 30, 2020 and 2019, was primarily due to early lease terminations. (4) 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 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. 28 PORTFOLIO DIVERSIFICATION Owned Aircraft as of June 30, 2020 Owned Aircraft as of June 30, 2019 Number of Aircraft % of Net Book Value (1) Number of Aircraft % of Net Book Value (1) Aircraft Type Passenger: Narrow-body 246 78 % 238 74 % Wide-body 24 18 % 26 22 % Total Passenger 270 96 % 264 96 % Freighter 4 4 % 4 4 % Total 274 100 % 268 100 % Manufacturer Airbus 186 64 % 167 60 % Boeing 83 34 % 96 38 % Embraer 5 2 % 5 2 % Total 274 100 % 268 100 % Regional Diversification Asia and Pacific 89 39 % 91 38 % Europe 98 27 % 95 27 % Middle East and Africa 11 4 % 17 8 % North America 28 10 % 37 11 % South America 26 13 % 23 13 % Off-lease 22 (2) 7 % 5 (3) 3 % Total 274 100 % 268 100 % (1) Calculated using net book value at period end. (2) 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. (3) 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. 29 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: Customer Percent of Net Book Value Country Number of Aircraft IndiGo 8.8% India 16 LATAM (1) 7.3% Chile 13 easyJet 5.2% United Kingdom 30 Air Canada 3.8% Canada 6 Iberia 3.8% Spain 15 Aerolineas Argentinas 2.9% Argentina 5 American Airlines 2.7% United States 7 AirBridgeCargo (2) 2.5% Russia 2 Jeju Air 2.4% South Korea 7 SpiceJet 2.3% India 8 Total top ten customers 41.7% 109 All other customers 58.3% 165 Total all customers 100.0% 274 (1) LATAM filed for Chapter 11 in May 2020. (2) Guaranteed by Volga-Dnepr Airlines. We have one additional aircraft on lease with an affiliate. Finance We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital over the last fifteen years. Since our inception in late 2004, we have raised $1.69 billion in equity capital from private and public investors. We also raised $17.55 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. 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 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. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive. See “Liquidity and Capital Resources — Secured Debt Financings” and “Liquidity and Capital Resources — Unsecured Debt Financings” below. 30 RESULTS OF OPERATIONS Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019 : Three Months Ended June 30, 2020 2019 (Dollars in thousands) Revenues: Lease rental revenue $ 172,380 $ 192,823 Direct financing and sales-type lease revenue 4,537 8,321 Amortization of lease premiums, discounts and incentives (6,404 ) (5,345 ) Maintenance revenue 72,168 26,567 Total lease revenue 242,681 222,366 Gain (loss) on sale of flight equipment (279 ) 346 Other revenue 13,050 704 Total revenues 255,452 223,416 Operating expenses: Depreciation 88,117 89,578 Interest, net 56,226 66,377 Selling, general and administrative 13,564 18,317 Impairment of flight equipment 280,088 7,404 Maintenance and other costs 4,241 5,213 Total operating expenses 442,236 186,889 Other expense: Loss on extinguishment of debt (65 ) — Merger expenses (220 ) — Other 1 (1,910 ) Total other expense (284 ) (1,910 ) Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments (187,068 ) 34,617 Income tax provision 4,671 5,992 Earnings of unconsolidated equity method investments, net of tax 762 2,487 Net income (loss) $ (190,977 ) $ 31,112 Revenues 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; and • 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. 31 Amortization of lease premiums, discounts and lease incentives consisted of the following: Three Months Ended June 30, 2020 2019 (Dollars in thousands) Amortization of lease premiums $ (5,070 ) $ (4,261 ) Amortization of lease discounts 270 1,407 Amortization of lease incentives (1,604 ) (2,491 ) Amortization of lease premiums, discounts and incentives $ (6,404 ) $ (5,345 ) 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, 2020 2019 (Dollars in thousands) Interest on borrowings and other liabilities $ 53,136 $ 63,639 Amortization of deferred losses related to interest rate derivatives — — Amortization of deferred financing fees and debt discount 3,259 3,594 Interest expense 56,395 67,233 Less: Interest income (169 ) (856 ) Interest, net $ 56,226 $ 66,377 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. 32 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. 33 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, 2020 2019 (Dollars in thousands) Revenues: Lease rental revenue $ 371,300 $ 374,057 Direct financing and sales-type lease revenue 11,303 16,764 Amortization of lease premiums, discounts and incentives (12,100 ) (11,056 ) Maintenance revenue 118,720 42,968 Total lease revenue 489,223 422,733 Gain on sale of flight equipment 26,770 12,348 Other revenue 21,957 2,262 Total revenues 537,950 437,343 Operating expenses: Depreciation 177,822 174,313 Interest, net 117,733 129,840 Selling, general and administrative 75,946 36,317 Impairment of flight equipment 342,745 7,404 Maintenance and other costs 8,997 12,617 Total operating expenses 723,243 360,491 Other expense: Loss on extinguishment of debt (4,020 ) — Merger expenses (32,430 ) — Other (111 ) (3,971 ) Total other expense (36,561 ) (3,971 ) Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments (221,854 ) 72,881 Income tax provision 4,820 9,090 Earnings of unconsolidated equity method investments, net of tax 1,476 2,131 Net income (loss) $ (225,198 ) $ 65,922 Revenues 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 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; and • 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 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 34 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: Six Months Ended June 30, 2020 2019 (Dollars in thousands) Amortization of lease premiums $ (8,599 ) $ (8,298 ) Amortization of lease discounts 646 2,833 Amortization of lease incentives (4,147 ) (5,591 ) Amortization of lease premiums, discounts and incentives $ (12,100 ) $ (11,056 ) Maintenance revenue. 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 $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: Six Months Ended June 30, 2020 2019 (Dollars in thousands) Interest on borrowings and other liabilities $ 111,562 $ 123,918 Amortization of deferred losses related to interest rate derivatives — 184 Amortization of deferred financing fees and debt discount 6,840 6,958 Interest expense 118,402 131,060 Less: Interest income (669 ) (1,220 ) Interest, net $ 117,733 $ 129,840 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 $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. 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 $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 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 $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 35 $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 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. 36 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS See Note 1 – “Summary of Significant Accounting Policies – Organization and Basis of Presentation” in the Notes to Unaudited Consolidated Financial Statements above. RECENT UNADOPTED ACCOUNTING PRONOUNCEMENTS See Note 1 – “Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the Notes to Unaudited Consolidated Financial Statements above. LIQUIDITY AND CAPITAL RESOURCES Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio. Our operations generate a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including: • various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions; • unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes; • asset sales; and • contributions from our shareholders. 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 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 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 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. 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. 37 Cash Flows Six Months Ended June 30, 2020 2019 (Dollars in thousands) Net cash flow provided by operating activities $ 63,339 $ 245,612 Net cash flow provided by (used in) investing activities 92,421 (591,055 ) Net cash flow provided by financing activities 13,183 692,714 Operating Activities: 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 $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 $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. 38 Debt Obligations For complete information on our debt obligations, please refer to Note 7 - “Secured and Unsecured Debt Financings” in the Notes to Unaudited Consolidated Financial Statements above. Contractual Obligations 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 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 Total 1 year or less 2-3 years 4-5 years More than 5 years (Dollars in thousands) Principal payments: Senior Notes due 2021 - 2026 $ 3,300,000 $ 500,000 $ 1,000,000 $ 1,150,000 $ 650,000 DBJ Term Loan 215,000 — 60,000 155,000 — Revolving Credit Facilities 650,000 — 650,000 — — ECA Financings 45,443 14,529 18,930 11,984 — Bank Financings 937,605 89,537 341,555 470,769 35,744 Total principal payments 5,148,048 604,066 2,070,485 1,787,753 685,744 Interest payments on debt obligations (1) 645,263 200,898 299,226 117,260 27,879 Office leases (2) 14,158 1,877 3,588 3,455 5,238 Purchase obligations (3) 1,022,423 269,660 602,595 150,168 — Total $ 6,829,892 $ 1,076,501 $ 2,975,894 $ 2,058,636 $ 718,861 (1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at June 30, 2020 . (2) Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore. (3) 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 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 . Capital Expenditures From time to time, we make capital expenditures to maintain or improve our aircraft. 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 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. Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, such as lessee default, or a lessee fails to meet its maintenance obligations under the lease agreement. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. 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. 39 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. See Item 1A. “Risk Factors - Risks Related to Our Business - Risks related to our leases - If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease” in our 2019 Annual Report on Form 10-K. Off-Balance Sheet Arrangements We entered into a joint venture arrangement in order to help expand our base of new business opportunities. This joint venture does not qualify for consolidated accounting treatment. 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 June 30, 2020 , the net book value of its nine aircraft was $321.1 million . Foreign Currency Risk and Foreign Operations At June 30, 2020 , all our leases are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. 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. dollar equivalents and represented approximately 15.1% of total selling, general and administrative expenses (or 22.0% when excluding share-based compensation expense, of which a large portion relates to employees domiciled in the U.S.). Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, our international operations and our exposure to foreign currency risk will likely increase over time. 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 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 We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed. EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business. We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants. 40 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, 2020 2019 2020 2019 (Dollars in thousands) Net income (loss) $ (190,977 ) $ 31,112 $ (225,198 ) $ 65,922 Depreciation 88,117 89,578 177,822 174,313 Amortization of lease premiums, discounts and incentives 6,404 5,345 12,100 11,056 Interest, net 56,226 66,377 117,733 129,840 Income tax provision 4,671 5,992 4,820 9,090 EBITDA (35,559 ) 198,404 87,277 390,221 Adjustments: Impairment of flight equipment 280,088 7,404 342,745 7,404 Equity share of joint venture impairment — — — 2,724 Loss on extinguishment of debt 65 — 4,020 — Non-cash share-based payment expense — 3,177 38,727 5,903 Merger related expenses (1) 220 — 34,990 — (Gain) loss on mark-to-market of interest rate derivative contracts (1 ) 1,915 113 3,995 Adjusted EBITDA $ 244,813 $ 210,900 $ 507,872 $ 410,247 ______________ (1) Included $32.4 million in Other expense and $2.6 million in Selling, general and administrative expenses. Limitations of EBITDA and Adjusted EBITDA An investor or potential investor may find EBITDA and Adjusted EBITDA important measures in evaluating our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of earnings (loss). Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA and Adjusted EBITDA, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include: • depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures; • the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results; • elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy; and • 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. GAAP. You should not rely on these non-U.S. GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations to U.S. GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP and are susceptible to varying 41 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.