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Item 2. Management’s Discussion and Analysis

2021-01-14 compared with 2020-08-03 · 211 added, 186 removed, 349 unchanged (53% of the section changed)

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

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

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, as amended, and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

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

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

These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the 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.

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, as amended, and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

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

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

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

As of November 30, 2020, we owned and managed on behalf of our joint ventures 269 aircraft leased to 80 lessees located in 45 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.

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

As of November 30, 2020, the net book value of our flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) was $6.98 billion compared to $7.57 billion at February 29, 2020.

Our total revenues and net loss for the three and nine months ended November 30, 2020 were $180.9 million and $2.7 million and $634.8 million and $237.3 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.

The Merger has not resulted 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.

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 ended 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.

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

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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.

As a result of COVID-19, 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 November 2020, air travel is still down to approximately 34% 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 $510 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.

According to IATA, total net losses for the airline industry will reach $118 billion in 2020 and $39 billion in 2021.

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.

the extent and duration of those impacts 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.

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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.

As of January 8, 2021, we have agreed to defer approximately $101.0 million in near-term lease payments, including $76.5 million 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 customers, for an average deferral of five 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.

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,

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

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, or “net book value”) 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 up to twelve to eighteen months to be resolved.

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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 we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of December 31, 2020, have $2.21 billion of liquidity from cash on hand, working capital and/or available credit lines.

As of November 30, 2020, we have commitments to acquire 25 aircraft for $1.01 billion, excluding manufacturer credits, between 2020-2026.

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.

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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.

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 Sheets.

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.

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

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

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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:

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 our Consolidated Balance Sheets and continues to amortize over the remaining life of the lease.

Fiscal Year 2020 Lease Expirations and Lease Placements

At November 30, 2020, the Company had sixteen off-lease aircraft and thirteen aircraft with scheduled lease expirations in fiscal 2020.

As of January 8, 2021, of these 29 aircraft, we have sixteen aircraft, which account for 6% of our net book value at November 30, 2020, still to be placed or sold.

Fiscal Year 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 fiscal 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 November 30, 2020, specified below:

12 aircraft, representing 4%;

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

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

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.

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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 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.

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

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.

During the nine months ended November 30, 2020, we acquired five aircraft for $154.3 million.

As of January 8, 2021, we have not acquired any additional aircraft.

At November 30, 2020, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer for $1.01 billion, excluding manufacturer credits.

Of this amount, approximately $9.0 million represents commitments for the remainder of 2020.

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

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

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

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

During the nine months ended November 30, 2020, we sold six aircraft for net proceeds of $113.6 million, and recognized net gains on sales of $24.2 million.

As of January 8, 2021, we have sold four additional aircraft.

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

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

Owned Aircraft

Owned Aircraft As of

Net Book Value of Flight Equipment $ 6,979 $ 7,717

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Weighted Average Remaining Lease Term (years) (2)

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

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

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

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

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

94.0 % 99.3 %

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

94.8 % 96.7 %

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

Portfolio Yield for the nine months ended November 30, 2020 and 2019 (4)

Managed Aircraft on behalf of Joint Venture

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(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.

The decrease from our historical utilization rate for the three and nine months ended November 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;

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Owned Aircraft as of

June 30, 2020

Owned Aircraft as of

June 30, 2019

November 30, 2020 Owned Aircraft as of

November 30, 2019

Aircraft % of Net

Book Value (1)

Aircraft % of Net

Book Value (1)

Aircraft Type

Narrow-body 233 77 % 241 74 %

Wide-body 23 19 % 25 22 %

Total Passenger 256 96 % 266 96 %

Freighter 4 4 % 4 4 %

Total 260 100 % 270 100 %

Airbus 176 65 % 175 62 %

Boeing 79 33 % 90 37 %

Embraer 5 2 % 5 1 %

Total 260 100 % 270 100 %

Regional Diversification

Asia and Pacific 80 37 % 96 39 %

Europe 99 28 % 90 25 %

Middle East and Africa 11 4 % 16 7 %

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South America 26 13 % 26 15 %

Off-lease 16 (2)

Total 260 100 % 270 100 %

(1) Calculated using net book value at period end.

Consisted of one Airbus A320-200 and one Airbus A330-20 aircraft, each of which are scheduled to be delivered during the third quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A319-100, eleven Airbus A320-200 and five Airbus A330-200 and three Boeing 737-800 aircraft, which we are marketing for lease or sale.

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

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

Percent of Net Book Value

United Kingdom

Aerolineas Argentinas

American Airlines

United States

(2) 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.

(3) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2019 to a lessee in Europe, and one Airbus A330-200 aircraft, which delivered during the second quarter of 2020 to a lessee in Europe.

Our top ten customers with respect to aircraft we owned as of November 30, 2020, representing 105 aircraft and 42.4% 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

IndiGo 8.3% India 14

7.4% Chile 13

easyJet 5.2% United Kingdom 30

Iberia 3.8% Spain 15

Air Canada 3.7% Canada 5

Lion Air 3.4% Indonesia 7

Aerolineas Argentinas 2.9% Argentina 5

American Airlines 2.7% United States 7

AirBridgeCargo (2)

2.5% Russia 2

Jeju Air 2.5% South Korea 7

Total top ten customers 42.4% 105

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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,

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

Three Months Ended November 30,

(Dollars in thousands)

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Maintenance revenue

24,843 15,360

Total lease revenue 163,791 217,148

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Operating expenses:

Depreciation 86,845 90,737

Interest, net 59,945 63,204

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Merger expenses (450) (3,044)

Other — (198)

Total other expense (493) (3,242)

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

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments 4,409 66,607

Income tax provision 2,269 7,659

Earnings of unconsolidated equity method investments, net of tax 572 601

Net income (loss)

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

Net income $ 2,712 $ 59,549

Total revenues decreased by $68.0 million for the three months ended November 30, 2020, as compared to the three months ended November 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;

The decrease in lease rental revenue of $60.4 million for the three months ended November 30, 2020, as compared to the same period in 2019, was primarily the result of:

• a $52.5 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.

• a $9.6 million decrease due to the sale of 22 aircraft since September 1, 2019.

This decrease was partially offset by a $6.9 million increase in revenue, reflecting the impact of twenty aircraft purchased since September 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.

For the three months ended November 30, 2020, $4.8 million of interest income from direct financing and sales-type leases was recognized, as compared to $7.8 million recorded for the same period in 2019, primarily attributable to the early lease terminations of eight aircraft during 2020 and sales of two aircraft subject to direct financing and sales-type leases.

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

Three Months Ended June 30,

Three Months Ended November 30,

(Dollars in thousands)

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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.

For the three months ended November 30, 2020, we recorded $24.8 million of maintenance revenue, of which $18.2 million related to the scheduled lease expirations of six narrow-body aircraft.

The remaining activity primarily related to the early lease terminations of two narrow-body aircraft.

For the same period in 2019, we recorded $15.4 million maintenance revenue, of which $11.5 million related to the scheduled lease expirations of two wide-body aircraft.

Gain on sale of flight equipment.

We recorded gains on sale of $13.0 million for the three months ended November 30, 2020, as compared to $26.5 million for the same period in 2019.

During the three months ended of 2020, we sold three aircraft, as compared to the sale of ten aircraft during the three months ended of 2019.

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.

Total operating expenses decreased by $3.0 million for the three months ended November 30, 2020, as compared to the three months ended November 30, 2019.

Depreciation expense decreased by $3.9 million for the three months ended November 30, 2020 as compared to the same period in 2019, primarily due to a decrease of $8.6 million resulting from 22 aircraft sold since September 1, 2019 and lower depreciation on aircraft subject to impairment charges recorded during 2020.

This is partially offset by higher depreciation of $3.1 million due to 23 aircraft acquired since September 1, 2019.

Interest, net consisted of the following:

Three Months Ended June 30,

Three Months Ended November 30,

(Dollars in thousands)

Interest on borrowings and other liabilities $ 56,087 $ 59,959

Amortization of deferred losses related to interest rate derivatives

Amortization of deferred financing fees and debt discount 3,929 3,810

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Interest, net $ 59,945 $ 63,204

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.

Interest, net decreased by $3.3 million as compared to the three months ended November 30, 2019, primarily as a result of lower weighted average interest rates and lower weighted average debt outstanding.

Selling, general and administrative expenses for the three months ended November 30, 2020 decreased $3.2 million as compared to the same period in 2019, due to lower share-based compensation expense of $3.2 million.

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.

We recorded impairment charges of $9.9 million, primarily related to the scheduled lease expiration of two narrow-body aircraft during the three months ended November 30, 2020.

The Company recognized $15.2 million of maintenance revenue related to these two aircraft during the three months ended November 30, 2020.

During the three months ended November 30, 2019, we did not record any impairment charges.

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

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

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

Maintenance and other costs were $4.2 million for the three months ended November 30, 2020, a decrease of $2.5 million compared to the same period in 2019, The three months ended November 30, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases.

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.

Total other expense decreased by $2.7 million for the three months ended November 30, 2020, as compared to the three months ended November 30, 2019.

The three months ended November 30, 2019 included $3.0 million of legal and banking expenses related to the Merger.

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.

Our provision for income taxes for the three months ended November 30, 2020 and 2019 was $2.3 million and $7.7 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 the United States and Ireland.

The decrease in our income tax provision of $5.4 million for the three months ended November 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.

During the three months ended November 30, 2020, we had net maintenance revenue of $5.0 million in low tax jurisdictions and a significant decrease in Bermuda income, offset by aircraft sales and increased leasing activity in the U.S.

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,

Comparison of the nine months ended November 30, 2020 to the nine months ended November 30, 2019:

Nine Months Ended November 30,

(Dollars in thousands)

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Operating expenses:

Depreciation 262,806 269,689

Interest, net 173,996 194,952

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Merger expenses (32,492) (3,044)

Other (191) (3,987)

Total other expense (32,791) (14,608)

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Net income (loss) $ (237,340) $ 124,326

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 .

Total revenues decreased by $65.0 million for the nine months ended November 30, 2020, as compared to the nine months ended November 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;

The decrease in lease rental revenue of $114.6 million for the nine months ended November 30, 2020, as compared to the same period in 2019, was primarily the result of:

• a $90.8 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.

• a $40.5 million decrease due to the sale of 27 aircraft since March 1, 2019.

This decrease was partially offset by a $37.5 million increase in revenue, reflecting the impact of 46 aircraft purchased since March 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

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.

For the nine months ended November 30, 2020, $14.9 million of interest income from direct financing and sales-type leases was recognized, as compared to $24.4 million recorded for the

same period in 2019, primarily attributable to the early lease terminations of eight aircraft during 2020 and sales of two aircraft subject to direct financing and sales-type leases.

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

Six Months Ended June 30,

Nine Months Ended November 30,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (17,360) $ (17,077)

The decrease in amortization of lease discounts of $2.5 million for the nine months ended November 30, 2020, as compared to the same period in 2019 was primarily due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.

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.

For the nine months ended November 30, 2020, we recorded $121.5 million of maintenance revenue, comprised primarily of $66.3 million related to the early lease terminations of fifteen narrow-body aircraft, as well as $54.5 million related to the scheduled lease expirations of nine narrow-body aircraft and one wide-body aircraft.

For the same period in 2019, we recorded $55.8 million maintenance revenue, comprised of $35.2 million related to the scheduled lease expirations of five narrow-body aircraft and four wide-body aircraft and $17.1 million related to the early lease terminations of eight narrow-body aircraft.

Gain on sale of flight equipment decreased by $15.0 million to $24.2 million for the nine months ended November 30, 2020, as compared to gains of $39.1 million for the same period in 2019.

During the nine months ended of 2020, we sold six aircraft, as compared to the sale of 25 aircraft during the nine months ended of 2019.

Gain on sale for each of these periods includes the receipt of insurance proceeds for which one aircraft was disposed.

Other revenue increased by $8.6 million to $18.0 million for the nine months ended November 30, 2020, as compared to $9.4 million for the same period in 2019, primarily due to $13.0 million of security deposits recognized into revenue related to the early lease termination of eight narrow-body aircraft.

This was partially offset by lower service fees of $8.6 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.

Total operating expenses increased by $280.7 million for the nine months ended November 30, 2020, as compared to the nine months ended November 30, 2019.

Depreciation expense decreased by $6.9 million for the nine months ended November 30, 2020 as compared to the same period in 2019.

The decrease is primarily the result of lower depreciation of $26.7 million resulting from 28 aircraft sold since March 1, 2019 and lower depreciation related to aircraft subject to aircraft impairments recorded during 2020.

This was partially offset by higher depreciation of $16.9 million due to 51 aircraft acquired since March 1, 2019.

Interest, net consisted of the following:

Six Months Ended June 30,

Nine Months Ended November 30,

(Dollars in thousands)

Interest on borrowings and other liabilities $ 163,821 $ 186,012

Amortization of deferred losses related to interest rate derivatives

Amortization of deferred financing fees and debt discount 10,642 11,105

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Interest, net $ 173,996 $ 194,952

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.

Interest, net decreased by $21.0 million as compared to the nine months ended November 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 nine months ended November 30, 2020 increased $21.1 million as compared to the same period in 2019, primarily attributable to an increase in share-based compensation expense of $18.3 million as a result of the Merger and a provision for credit losses of $5.3 million related to the change in our allowance for credit losses.

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.

During the nine months ended November 30, 2020, we recorded impairment charges of $299.6 million, of which $256.5 million were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company recognized $107.4 million of maintenance revenue and security deposits into revenue related to these eighteen aircraft during the nine months ended November 30, 2020.

During the nine months ended November 30, 2019, the Company recorded impairment charges of $7.4 million related to two narrow-body 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.

Maintenance and other costs were $14.0 million for the nine months ended November 30, 2020, a decrease of $4.7 million compared to the same period in 2019.

The nine months ended November 30, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases, as well as higher costs for unscheduled transitions.

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.

Total other expense increased by $18.2 million to $32.8 million for the nine months ended November 30, 2020, as compared to $14.6 million for the nine months ended November 30, 2019.

During the nine months ended November 30, 2020, we incurred $32.5 million of legal and banking expenses related to the Merger.

During the nine months ended November 30, 2019, we incurred a loss on extinguishment of debt of $7.6 million due to the early repayment of our Senior Notes due 2019, unfavorable mark-to-market adjustments on our interest rate caps of $4.3 million, and $3.0 million of legal and banking expenses related to the Merger.

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 .

Our provision for income taxes for the nine months ended November 30, 2020 and 2019 was $14.7 million and $17.3 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 the United States and Ireland.

The decrease in our income tax provision of $2.5 million for the nine months ended November 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.

During the nine months ended November 30, 2020, we incurred net impairment charges of $191.7 million in low tax jurisdictions and a significant decrease in Bermuda income, offset by aircraft sales, increased leasing activity and the limitation on deductibility of officers compensation in the U.S.

Summary of Recoverability Assessment and Other Impairments

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

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

The Company recorded impairment charges totaling $342.7 million and recognized

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

Please refer to the sections below for additional details.

Transactional Impairments

In February 2020, the Company initiated a process to accept the redelivery of four 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.

Impairment of Flight Equipment

For the two months ended August 31, 2020, the Company recorded transactional impairment charges of $9.6 million, which primarily related to one narrow-body aircraft for which the customer rejected the lease due to judicial insolvency proceedings.

We also recognized $9.4 million 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 $9.9 million, which primarily related to the scheduled lease expirations of two narrow-body aircraft.

The Company also recognized $15.2 million of maintenance revenue related to these two aircraft.

During the nine months ended November 30, 2020, the Company recorded impairment charges totaling $299.6 million, of which $256.5 million were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company also recognized $107.4 million 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.

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.

Of the $299.6 million impairment charges recorded for the nine months ended November 30, 2020, we recorded $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.

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• unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;

• asset sales;

• 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.

During the nine months ended November 30, 2020, we met our liquidity and capital resource needs with $124.4 million of cash flow from operations, $1.19 billion from our revolving credit facilities and Senior Notes due 2025 and $113.6 million of cash from aircraft sales.

As of November 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.

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.

As of January 8, 2021, we have agreed to defer approximately $101.0 million in near-term lease payments with 37 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.

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.

Six Months Ended June 30,

Nine Months Ended November 30,

(Dollars in thousands)

Net cash flow provided by operating activities $ 124,380 $ 410,979

Net cash flow provided by (used in) investing activities

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

Net cash flow provided by financing activities 151,497 297,154

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.

Cash flow provided by operations was $124.4 million and $411.0 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow provided by operations of $286.6 million for the nine months ended November 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.

In addition, as compared to the nine months ended November 30, 2019, the nine months ended November 30, 2020 includes lower lease rental revenues due to 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 nine months ended November 30, 2020 also includes $32.5 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.

Cash flow used investing activities was $25.4 million and $629.1 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow used in investing activities of $603.7 million was primarily a result of a $818.9 million decrease in the acquisition and improvement of flight equipment and a $9.0 million decrease in aircraft purchase deposits and progress payments, net of returned deposits.

These inflows were offset by a $231.7 million decrease in aircraft proceeds from the sale of flight equipment.

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.

Cash flow provided by financing activities was $151.5 million and $297.2 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow provided by financing activities of $145.7 million was primarily a result of a $160.5 million decrease in proceeds from secured and unsecured financings, net of repayments.

Debt Obligations

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

Total contractual obligations 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 contractual obligations increased slightly to $6.85 billion at November 30, 2020 from $6.80 billion at February 29, 2020, primarily due to an increase in principal payments for senior notes, partially offset by an decrease in principal payments for secured financings and borrowings under our revolving credit facilities.

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

Payments Due by Period as of November 30, 2020

Contractual Obligations Total 1 year

or less 2-3 years 4-5 years More than

(Dollars in thousands)

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Interest payments on debt obligations (1)

717,083 211,190 326,573 151,640 27,680

Office leases (2)

13,492 1,915 3,556 3,510 4,511

Purchase obligations (3)

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

1,008,096 188,726 603,518 94,264 121,588

Total $ 6,848,945 $ 1,006,865 $ 2,997,493 $ 2,023,351 $ 821,236

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

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

Dublin, Ireland and Singapore.

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.

(3) At November 30, 2020, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer S.A for $1.01 billion, excluding manufacturer credits.

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 .

Capital Expenditures

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

For the 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.

For the nine months ended November 30, 2020 and 2019, we incurred a total of $15.1 million and $20.4 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of November 30, 2020, the weighted average age by net book value of our aircraft was approximately 10.5 years.

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

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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.

In certain cases, we are also

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

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

“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

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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 .

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of November 30, 2020, the net book value of its nine aircraft was $315.4 million.

Foreign Currency Risk and Foreign Operations

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

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

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

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

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

dollar aggregated approximately $15.5 million in U.S.

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

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

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

Management’s Use of EBITDA and Adjusted EBITDA

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Adjusted EBITDA is a material component of these covenants.

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

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019

(Dollars in thousands)

Net income (loss) $ 2,712 $ 59,549 $ (237,340) $ 124,326

Depreciation 86,845 90,737 262,806 269,689

Amortization of lease premiums, discounts and incentives 5,384 5,819 17,360 17,077

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Income tax provision 2,269 7,659 14,738 17,280

EBITDA 157,155 226,968 231,560 623,324

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

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Merger related expenses (1)

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

437 3,043 35,039 3,043

Loss on mark-to-market of interest rate derivative contracts — 394 19 4,267

Adjusted EBITDA $ 167,502 $ 233,614 $ 594,498 $ 658,132

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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.

You should not rely on these non-U.S.

You should not rely

on these non-U.S.

GAAP measures as a substitute for any such U.S.

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

GAAP and are susceptible to varying

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis