What changed in this filing

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Item 1. Financial Statements

2021-01-14 compared with 2020-08-03 · 316 added, 243 removed, 408 unchanged (58% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

2020 August 31,

2020 February 29,

Cash and cash equivalents $ 416,621 $ 514,917 $ 166,083

4 unchanged sentences

Unconsolidated equity method investments 35,448 34,876 33,470

Other assets 271,237 247,472 206,617

Total assets $ 7,792,400 $ 7,992,498 $ 8,008,032

LIABILITIES AND SHAREHOLDERS’ EQUITY

9 unchanged sentences

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

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

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

Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at November 30 and August 31, 2020;

and 75,076,794 shares issued and outstanding at February 29, 2020 — — 751

Additional paid-in capital 1,485,777 1,485,777 1,456,977

6 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Lease rental revenue $ 93,891 $ 136,156 $ 139,493 $ 199,847 $ 473,566 $ 588,141

7 unchanged sentences

Operating expenses:

Depreciation 57,993 60,703 86,845 90,737 262,806 269,689

Interest, net 37,355 44,071 59,945 63,204 173,996 194,952

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)

Selling, general and administrative (including non-cash share-based payment expense of $0 and $2,283 for the two months ended August 31, 2020 and 2019, $0 and $3,209 for the three months ended November 30, 2020 and 2019, and $28,049 and $9,793 for the nine months ended November 30, 2020 and 2019, respectively) 8,249 11,999 15,145 18,389 76,152 55,060

Impairment of flight equipment 9,596 — 9,867 — 299,551 7,404

4 unchanged sentences

Merger expenses 67 — ( 450 ) ( 3,044 ) ( 32,492 ) ( 3,044 )

Other ( 173 ) ( 193 ) — ( 198 ) ( 191 ) ( 3,987 )

Total other expense ( 106 ) ( 7,770 ) ( 493 ) ( 3,242 ) ( 32,791 ) ( 14,608 )

3 unchanged sentences

Net income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326

Other comprehensive income (loss), net of tax:

Net derivative loss reclassified into earnings

Other comprehensive income

Total comprehensive income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326

3 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended November 30,

Cash flows from operating activities:

1 unchanged sentence

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

Depreciation 262,806 269,689

Amortization of deferred financing costs 10,642 11,105

8 unchanged sentences

Provision for credit losses 5,255 —

Other ( 1,991 ) 219

Changes in certain assets and liabilities:

Accounts receivable ( 55,946 ) ( 6,516 )

Other assets ( 40,780 ) 6,689

Accounts payable, accrued expenses and other liabilities ( 1,875 ) ( 2,951 )

6 unchanged sentences

Unconsolidated equity method investments and associated costs — ( 11,681 )

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

Other ( 594 ) 3,572

Net cash and restricted cash used in investing activities ( 25,352 ) ( 629,054 )

Cash flows from financing activities:

10 unchanged sentences

Net increase in cash and restricted cash:

250,525 79,079

Cash and restricted cash at beginning of period 171,437 133,299

4 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended November 30,

Reconciliation to Consolidated Balance Sheets:

9 unchanged sentences

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

$ 6,584 $ 62,129

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

2 unchanged sentences

(Dollars in thousands, except share amounts)

Comprehensive

Income (Loss)

Capital Retained

Earnings Total

Shareholders’

Common Shares

Balance, December 31, 2019

Issuance of common shares to directors and employees

Repurchase of common shares from stockholders, directors and employees

Shares Amount

Balance, February 29, 2020 75,076,794 $ 751 $ 1,456,977 $ 578,461 $ 2,036,189

Amortization of share-based payments — — 28,049 — 28,049

Reclassification of prior year director stock award liability

Dividends declared

Adoption of accounting standard

Net loss — — — ( 228,857 ) ( 228,857 )

Payment of unvested shares at Merger ( 101,809 ) ( 1 ) ( 25,535 ) — ( 25,536 )

1 unchanged sentence

Share cancellation and re-issuance at Merger ( 74,960,937 ) ( 750 ) 750 — —

Balance, March 31, 2020

Balance, June 30, 2020 14,048 — 1,485,777 349,604 1,835,381

Comprehensive

Income (Loss)

Net loss — — — ( 11,195 ) ( 11,195 )

Balance, August 31, 2020 14,048 — 1,485,777 338,409 1,824,186

Net income — — — 2,712 2,712

Balance, November 30, 2020 14,048 $ — $ 1,485,777 $ 341,121 $ 1,826,898

Capital Retained

(Deficit) Total

Shareholders’

Common Shares

Balance, December 31, 2018

Shares Amount

Balance, February 28, 2019 75,066,346 $ 751 $ 1,458,783 $ 534,333 $ 1,993,867

Issuance of common shares to directors and employees 56,043 — — — —

3 unchanged sentences

Dividends declared — — — ( 22,543 ) ( 22,543 )

Net derivative loss reclassified into earnings

Balance, March 31, 2019

Issuance of common shares to directors and employees

Net income — — — 48,410 48,410

Balance, June 30, 2019 74,983,114 750 1,460,534 560,200 2,021,484

Repurchase of common shares from stockholders, directors and employees ( 347,784 ) ( 4 ) ( 7,005 ) — ( 7,009 )

1 unchanged sentence

Dividends declared — — — ( 22,485 ) ( 22,485 )

Balance, June 30, 2019

Net income — — — 16,367 16,367

Balance, August 31, 2019 74,635,330 746 1,455,629 554,082 2,010,457

Amortization of share-based payments — — 2,821 — 2,821

Dividends declared — — — ( 23,789 ) ( 23,789 )

Net income — — — 59,549 59,549

Balance, November 30, 2019 74,635,330 $ 746 $ 1,458,450 $ 589,842 $ 2,049,038

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

2 unchanged sentences

(Dollars in thousands, except per share amounts)

June 30, 2020

November 30, 2020

Summary of Significant Accounting Policies

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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”).

As previously disclosed, on September 30, 2020, the Company’s Board of Directors unanimously agreed to change the Company’s fiscal year end to the twelve-month period ending on the last day in February.

This change better aligns the Company’s financial reporting period with the financial reporting cycle of its shareholders, Marubeni Corporation and 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.

Aircastle directly or indirectly owns all outstanding common shares of its subsidiaries.

The consolidated financial statements presented are prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment:

The Company manages, analyzes and reports on its business and results of operations based on one operating segment:

leasing, financing, selling and managing commercial flight equipment.

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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, as amended, and the Company’s Transition Report on Form 10-Q for the two months ended February 29, 2020.

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

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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.

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

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

2 unchanged sentences

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

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

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

June 30, 2020

statements or related disclosures.

November 30, 2020

or related disclosures.

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

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

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

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

2 unchanged sentences

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

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of June 30, 2020 , through the date on which the consolidated financial statements included in this Form 10-Q were issued.

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of November 30, 2020, through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

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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.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

June 30, 2020

November 30, 2020

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 Sheets.

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.

As a result of COVID-19, 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 November 2020, air travel was down to approximately 34 % 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.

3 unchanged sentences

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

As of 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.

As of January 8, 2021, we have agreed to defer approximately $ 101,000 in near-term lease payments, including $ 76,460 that appear in our Consolidated Balance Sheets as components of Accounts receivable, Net investment in leases, or Other assets as of November 30, 2020.

This represents approximately 15 % of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended November 30, 2020.

Deferrals have been agreed to with 37 airlines, representing 46 % of our customer base, and for an average deferral of five months of lease rentals.

In certain 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 of January 8, 2021, seven of our customers are subject to judicial insolvency proceedings or similar protection.

We lease 22 aircraft to these customers, which comprise 13 % of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases) and 11 % of our Lease rental and direct financing and sales-type lease revenue as of and for the twelve months ended November 30, 2020.

One of these customers is LATAM, our second largest customer, which represents 7 % of our net book value of flight equipment and 6 % of our Lease rental revenue as of and for the twelve months ended November 30, 2020.

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

We are actively engaged in the various judicial proceedings 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.

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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.

The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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.

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

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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 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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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.

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

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• 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.

The following tables set forth our financial assets as of November 30, 2020, August 31, 2020 and February 29, 2020 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

Fair Value Measurements at November 30, 2020

Using Fair Value Hierarchy

Fair Value as of June 30, 2020

Quoted Prices

Cash and cash equivalents

Restricted cash and cash equivalents

Derivative assets

Fair Value Measurements at December 31, 2019

Fair Value as of November 30, 2020 Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Valuation

Cash and cash equivalents $ 416,621 $ 416,621 $ — $ — Market

Restricted cash and cash equivalents 5,341 5,341 — — Market

Total $ 421,962 $ 421,962 $ — $ —

Fair Value Measurements at August 31, 2020

Using Fair Value Hierarchy

Fair Value as of December 31, 2019

Quoted Prices

Cash and cash equivalents

Restricted cash and cash equivalents

Derivative assets

Fair Value as of August 31, 2020 Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Valuation

Cash and cash equivalents $ 514,917 $ 514,917 $ — $ — Market

Restricted cash and cash equivalents 5,353 5,353 — — Market

Total $ 520,270 $ 520,270 $ — $ —

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Fair Value Measurements at February 29, 2020

Using Fair Value Hierarchy

Fair Value as of February 29, 2020 Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Valuation

Cash and cash equivalents $ 166,083 $ 166,083 $ — $ — Market

Restricted cash and cash equivalents 5,354 5,354 — — Market

Derivative assets 19 — 19 — Market

Total $ 171,456 $ 171,437 $ 19 $ —

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.

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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.

For the two months ended August 31, 2020 and 2019, and the three and nine months ended November 30, 2020, 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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

not be recoverable.

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

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

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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.

These investments are also reviewed for impairment whenever events or changes in 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.

Impairment of Flight Equipment

For the two months ended August 31, 2020, the Company recorded transactional impairment charges of $ 9,596 , which primarily related to one narrow-body aircraft for which the customer rejected the lease due to judicial insolvency proceedings.

We also recognized $ 9,367 of maintenance reserves and security deposits into revenue for this one aircraft.

For the three months ended November 30, 2020, the Company recorded transactional impairment charges totaling $ 9,867 , which primarily related to the scheduled lease expirations of two narrow-body aircraft.

The Company also recognized $ 15,200 of maintenance revenue related to these two aircraft.

During the nine months ended November 30, 2020, the Company recorded impairment charges totaling $ 299,551 , of which $ 256,510 were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company also recognized $ 107,448 of maintenance reserves and security deposits into revenue for these eighteen aircraft.

The impairment charges were attributable to early lease terminations, scheduled lease expirations, lessee defaults and/or judicial insolvency proceedings, or as a result of our annual recoverability assessment – refer to the section below for additional details.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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.

Of the $ 299,551 impairment charges recorded for the nine months ended November 30, 2020, we recorded $ 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.

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

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

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

The carrying amounts and fair values of our financial instruments at November 30, 2020, August 31, 2020 and February 29, 2020 were as follows:

November 30, 2020 August 31, 2020 February 29, 2020

Carrying Amount

of Liability Fair Value

of Liability Carrying Amount

of Liability Fair Value

of Liability Carrying

of Liability Fair Value

Credit Facilities $ — $ — $ 150,000 $ 148,737 $ 100,000 $ 100,000

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Bank Financings 905,219 903,111 927,385 925,683 971,693 1,002,620

Senior Notes 3,950,000 4,088,771 3,950,000 3,901,958 3,600,000 3,807,956

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Lease Rental Revenues and Flight Equipment Held for Lease

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

Year Ending December 31,

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

Year Ending February 28/29, Amount (1)

Remainder of 2020 $ 175,301

Thereafter 508,869

Total $ 2,790,654

_______________

(1) Reflects impact of lessee lease rental deferrals.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

Three Months Ended June 30,

Six Months Ended June 30,

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

Region 2020 2019 2020 2019 2020 2019

Asia and Pacific 40 % 44 % 37 % 44 % 40 % 44 %

Europe 34 % 26 % 34 % 25 % 31 % 27 %

Middle East and Africa 5 % 9 % 6 % 8 % 7 % 9 %

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South America 9 % 12 % 11 % 13 % 11 % 11 %

Total 100 % 100 % 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,

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

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Number of Lessees Combined % of Lease

Rental Revenue Number of Lessees Combined % of Lease

Rental Revenue

Largest lessees by lease rental revenue 5 40 % 3 22 % 4 31 % 3 21 % 4 29 % 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,

% of Total Revenue

South Africa (3)

_______________

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

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

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

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

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

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

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

June 30, 2020

November 30, 2020

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Country Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue

$ — — % $ — — % $ 24,338 13 % $ — — % $ — — % $ — — %

22,606 20 % 19,592 14 % 22,455 12 % 27,673 11 % 75,951 12 % 96,117 14 %

— — % — — % — — % — — % 85,711 14 % — — %

_______________

(1) For the three months ended November 30, 2020, total revenue attributable to Canada included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 19,260 .

For the two months ended August 31, 2020 and 2019, and for the nine months ended November 30, 2020, and the three and nine months ended November 30, 2019, total revenue attributable to Canada was less than 10%.

(2) For the two months ended August 31, 2020, total revenue attributable to India included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 10,171 .

For the two months ended August 31, 2019, total revenue attributable to India included maintenance revenue of $( 716 ).

For the three and nine months ended November 30, 2020, total revenue attributable to India included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 6,080 and $ 16,251 , respectively.

For the three and nine months ended November 30, 2019, total revenue attributable to India included $( 803 ) and $ 16,035 of maintenance revenue, respectively.

(3) For the nine months ended November 30, 2020, total revenue attributable to Mexico included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 79,912 .

For the two months ended August 31, 2020 and 2019, and for the three months ended November 30, 2020, and the three and nine months ended November 30, 2019, total revenue attributable to Mexico was less than 10%.

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

June 30, 2020

December 31, 2019

November 30, 2020 August 31, 2020 February 29, 2020

Region Number

Aircraft Net Book

Value % Number

Aircraft Net Book

Value % Number

Aircraft Net Book

Asia and Pacific 80 37 % 89 39 % 90 38 %

Europe 99 28 % 99 27 % 99 27 %

Middle East and Africa 11 4 % 11 4 % 15 6 %

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South America 26 13 % 26 13 % 26 15 %

Off-lease 16 (1)

Total 260 100 % 273 100 % 272 100 %

_______________

Consisted of one Airbus A320-200 and one Airbus A330-200 aircraft, each of which are scheduled to be delivered during the third quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A319-100, eleven Airbus A320-200, five Airbus A330-200 and three Boeing 737-800 aircraft, which we are marketing for lease or sale.

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

(1) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2020 to a lessee in North America, one Airbus A320-200 aircraft and two Boeing 737-800 aircraft, which are subject to executed leases with airlines in Europe, one Airbus A330-200 aircraft, which is subject to a confirmed letter of intent to lease with an airline in Europe, and one Airbus A319-100, three Airbus A320-200 aircraft, three Airbus A330-200 aircraft, and four Boeing 737-800 aircraft, which we are marketing for lease or sale.

(2) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2020 to a lessee in North America, one Airbus A330-200 aircraft, which is subject to a confirmed letter of intent to lease with an airline in Europe, eleven Airbus A320-200, four Airbus A330-200 and three Boeing 737-800 aircraft, which we are marketing for lease or sale.

(3) Consisted of one Airbus A330-200 aircraft, which delivered during the second quarter of 2020 to a lessee in Europe, and one Boeing 737-800 aircraft, which we are marketing for lease or sale.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 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

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.

November 30, 2020 August 31, 2020 February 29, 2020

Country Net Book

Value Net Book

Value % Number

Lessees Net Book

Value Net Book

Value % Number

Lessees Net Book

Value Net Book

Value % Number

India $ 779,560 11 % 4 $ 897,384 13 % 4 $ 917,793 12 % 4

At November 30, 2020, August 31, 2020 and February 29, 2020, the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 13,731 , $ 12,173 and $ 10,076 , respectively.

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

At November 30, 2020, August 31, 2020 and February 29, 2020, our net investment in leases consisted of 24 , 24 and 30 aircraft, respectively.

The components of our net investment in leases at November 30, 2020, August 31, 2020 and February 29, 2020, were as follows:

November 30, 2020 August 31, 2020 February 29, 2020

Lease receivable $ 111,392 $ 117,847 $ 166,060

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Net investment in leases, net of allowance $ 312,038 $ 317,064 $ 426,252

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

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

Balance at December 31, 2019

Adoption of accounting standard

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

Balance at February 29, 2020 $ 6,558

Provision for credit losses 4,513

Balance at March 31, 2020

Write-offs ( 8,099 )

Balance at August 31, 2020 2,972

Provision for credit losses 742

Balance at June 30, 2020

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

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

Year Ending December 31,

Balance at November 30, 2020 $ 3,714

During the nine months ended November 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 November 30, 2020, future lease payments on net investment in leases are as follows:

Year Ending February 28/29, Amount

Remainder of 2020 $ 13,449

Thereafter 31,130

Total lease payments to be received 130,358

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Difference between undiscounted lease payments and lease receivable $ 18,966

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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 .

Investment in joint ventures at December 31, 2019

We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 315,418 at November 30, 2020.

Investment in joint ventures at February 29, 2020 $ 33,470

Earnings from joint venture, net of tax 1,406

Investment in joint venture at June 30, 2020

Investment in joint ventures at August 31, 2020 34,876

Earnings from joint venture, net of tax 572

Investment in joint venture at November 30, 2020 $ 35,448

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

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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.

The operating activities of these Air Knight 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

In June 2020, the leases of the four aircraft subject to the ECA Financings were formally 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 November 30, 2020 of $ 121,878 , 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 November 30, 2020 is $ 39,634 .

Aircastle Limited and Subsidiaries

1 unchanged sentence

(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 .

November 30, 2020

Secured and Unsecured Debt Financings

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

At June 30, 2020

Debt Obligation

Number of Aircraft

Interest Rate

At November 30, 2020 At

Debt Obligation Outstanding

Borrowings Number of Aircraft Interest Rate Final Stated

Maturity Outstanding

Borrowings Outstanding

Secured Debt Financings:

ECA Financings (1)

3.49% to 3.96%

12/03/21 to 11/30/24

$ 40,055 2 3.49% to 3.96% 12/03/21 to 11/30/24 $ 43,649 $ 50,745

Bank Financings (2)

2.18% to 4.55%

06/17/23 to 01/19/26

905,219 34 2.15% to 4.55% 06/17/23 to 01/19/26 927,385 971,693

Debt issuance costs and discounts ( 7,671 ) — ( 8,375 ) ( 9,920 )

2 unchanged sentences

Senior Notes due 2020 (3)

— 7.625 % 04/15/20 — 300,000

Senior Notes due 2021 500,000 5.125 % 03/15/21 500,000 500,000

4 unchanged sentences

Senior Notes due 2025 650,000 5.250 % 08/11/25 650,000 —

Unsecured Term Loans

03/07/22 to 03/07/24

Revolving Credit Facilities

1.56% to 1.57%

12/27/21 to 06/27/22

Senior Notes due 2026 650,000 4.250 % 06/15/26 650,000 650,000

Unsecured Term Loans 215,000 1.72 % 03/07/22 to 03/07/24 215,000 215,000

Revolving Credit Facilities — 1.25% to 2.00% 07/30/21 to 06/27/22 150,000 100,000

Debt issuance costs and discounts ( 34,859 ) ( 37,234 ) ( 30,765 )

1 unchanged sentence

Total secured and unsecured debt financings, net of debt issuance costs and discounts $ 5,067,744 $ 5,240,425 $ 4,896,753

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

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

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

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

Repaid on April 15, 20 20.

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

As of June 30, 2020 , we were in compliance with all applicable covenants in our financings.

Shareholders' Equity and Share-Based Payment

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

(2) The borrowings under these financings at November 30, 2020 have a weighted-average fixed rate of interest of 3.09 %.

On April 15, 2020, the Company repaid $ 300,000 aggregate principal amount of 7.625 % Senior Notes due 2020 due at their final stated maturity date.

On July 30, 2020, the Company entered into a $ 150,000 unsecured revolving credit facility with Mizuho Bank Ltd., a related party.

The facility bears interest at a rate of LIBOR plus 2 %, or a base rate plus 1 %, matures on July 31, 2021 and includes a one -year extension option.

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

On August 11, 2020, the Company issued $ 650,000 aggregate principal amount of Senior Notes due 2025 (the “Senior Notes due 2025”) at an issue price of 99.057 %.

The Senior Notes due 2025 will mature on August 11, 2025 and

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

June 30, 2020

November 30, 2020

bear interest at a rate of 5.25 % per annum, payable semi-annually on February 11 and August 11 of each year, commencing on February 11, 2021.

Interest accrues on the Senior Notes due 2025 from August 11, 2020.

As of November 30, 2020, we had no borrowings outstanding under our revolving credit facilities and had $ 1,250,000 available for borrowing.

As of November 30, 2020, we were in compliance with all applicable covenants in our financings.

Shareholders' Equity and Share-Based Payment

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.

Share-based compensation expense of $ 914 related to restricted common shares and $ 4,247 related to PSUs represents the cost of this accelerated vesting from March 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.

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

Included in share-based compensation expense for the nine months ended November 30, 2020 is $ 3,921 and $ 18,967 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.

On February 13, 2020, the Company declared a dividend of $ 0.32 per share and paid $ 24,025 on March 6, 2020 for all shareholders of record as of February 28, 2020.

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

1 unchanged sentence

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,

The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the two months ended August 31, 2020 and 2019, and the three and nine months ended November 30, 2020 and 2019 were as follows:

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

operations $ 5,161 $ 3,655 $ 15,291 $ 80 $ 28,188 $ 6,381

operations ( 7,457 ) 12,835 ( 10,882 ) 66,527 ( 252,768 ) 132,944

Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments $ ( 2,296 ) $ 16,490 $ 4,409 $ 66,607 $ ( 224,580 ) $ 139,325

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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

9 unchanged sentences

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

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.

The consolidated income tax expense for the two months ended August 31, 2020, and the three and nine months ended November 30, 2020 was determined based upon estimates of the Company’s consolidated effective income tax rates for the fiscal year ending February 28, 2021.

The consolidated income tax expense for the two months ended August 31, 2019, and the three and nine months ended November 30, 2019 was based upon estimates of the Company’s consolidated effective income tax rate for the calendar year ended December 31, 2019.

The Company’s effective tax rates (“ETRs”) for two months ended August 31, 2020 and 2019 were ( 406.1 )% and 7.8 %, respectively.

The Company’s ETRs for the three and nine months ended November 30, 2020 and 2019 were 51.5 % and ( 6.6 )%, and 11.5 % and 12.4 %, respectively.

The two months ended August 31, 2020 includes an adjustment to change from calendar year to fiscal year ETR for the six months ended June 30, 2020.

Excluding this adjustment, the two months August 2020 ETR would have been ( 55.5 )%.

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

During the nine months ended November 30, 2020, we incurred net impairment charges of $ 191,697 in low tax jurisdictions and a significant decrease in Bermuda income.

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,

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Notional U.S.

1 unchanged sentence

state and local income tax, net 492 229 917 221 2,998 611

Bermuda 7,853 1,503 ( 1,719 ) ( 8,037 ) 56,572 ( 10,562 )

Ireland 781 ( 1,422 ) ( 287 ) 147 1,470 ( 1,055 )

Singapore ( 10 ) ( 16 ) ( 1 ) ( 3 ) 80 ( 18 )

Other low tax jurisdictions 30 ( 1,372 ) 25 578 ( 412 ) ( 1,779 )

Non-deductible expenses in the U.S.

661 45 38 766 3,385 825

Other — ( 1,147 ) 2,371 — ( 2,193 ) —

Income tax provision $ 9,325 $ 1,283 $ 2,269 $ 7,659 $ 14,738 $ 17,280

1 unchanged sentence

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 .

The CARES Act did not materially impact the Company’s effective tax rate for the nine months ended November 30, 2020.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Interest, Net

The following table shows the components of interest, net:

Three Months Ended June 30,

Six Months Ended June 30,

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Interest on borrowings and other liabilities $ 35,088 $ 41,975 $ 56,087 $ 59,959 $ 163,821 $ 186,012

Amortization of deferred losses related to interest rate derivatives

Amortization of deferred financing fees and debt discount 2,319 2,589 3,929 3,810 10,642 11,105

2 unchanged sentences

Interest, net $ 37,355 $ 44,071 $ 59,945 $ 63,204 $ 173,996 $ 194,952

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Commitments and Contingencies

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 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;

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 252 for the two months ended August 31, 2020, and $ 413 and $ 1,213 for the three and nine months ended November 30, 2020, respectively, and $ 276 for the two months ended August 31, 2019, and $ 415 and $ 1,216 for the three and nine months ended November 30, 2019, respectively.

As of November 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,

Year Ending February 28/29, Amount

Remainder of 2020 $ 483

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,

Thereafter 5,840

Total $ 13,492

At November 30, 2020, we had commitments to acquire 25 Embraer E-Jet E2 aircraft for $ 1,008,096 , excluding manufacturer credits.

Commitments, including $ 110,946 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at November 30, 2020, net of amounts already paid, are as follows:

Year Ending February 28/29, Amount

Remainder of 2020 $ 9,015

_______________

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 .

Thereafter 127,115

Total $ 1,008,096

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

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

2020 August 31,

2020 February 29,

Deferred income tax asset $ 1,135 $ 1,531 $ 636

3 unchanged sentences

Right-of-use asset (1)

8,341 8,620 9,148

Deferred rent receivable 47,237 59,354 4,494

Other assets 36,596 36,112 37,057

Total other assets $ 271,237 $ 247,472 $ 206,617

1 unchanged sentence

(1) Net of lease incentives and tenant allowances.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Accounts Payable, Accrued Expenses and Other Liabilities

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

2020 August 31,

2020 February 29,

Accounts payable, accrued expenses and other liabilities $ 49,151 $ 43,210 $ 64,034

4 unchanged sentences

Total accounts payable, accrued expenses and other liabilities $ 191,437 $ 182,609 $ 207,114

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.

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

What changed 10-Q

Item 1. Financial Statements