Aircastle LTD 10-Q

ITEM 1. FINANCIAL STATEMENTS Aircastle Limited and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) (Unaudited) November 30, 2020 August 31, 2020 February 29, 2020 ASSETS Cash and cash equivalents $ 416,621 $ 514,917 $ 166,083 Restricted cash and cash equivalents 5,341 5,353 5,354 Accounts receivable 85,141 68,584 27,269 Flight equipment held for lease, net of accumulated depreciation of $1,939,501, $1,870,242 and $1,542,938, respectively 6,666,574 6,804,232 7,142,987 Net investment in leases, net of allowance for credit losses of $3,714, $2,972 and $6,558, respectively 312,038 317,064 426,252 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 LIABILITIES Borrowings from secured financings, net of debt issuance costs and discounts $ 937,603 $ 962,659 $ 1,012,518 Borrowings from unsecured financings, net of debt issuance costs and discounts 4,130,141 4,277,766 3,884,235 Accounts payable, accrued expenses and other liabilities 191,437 182,609 207,114 Lease rentals received in advance 55,480 68,341 107,944 Security deposits 82,706 90,102 109,663 Maintenance payments 568,135 586,835 650,369 Total liabilities 5,965,502 6,168,312 5,971,843 Commitments and Contingencies SHAREHOLDERS’ EQUITY Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding — — — Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at 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 Retained earnings 341,121 338,409 578,461 Total shareholders’ equity 1,826,898 1,824,186 2,036,189 Total liabilities and shareholders’ equity $ 7,792,400 $ 7,992,498 $ 8,008,032 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Aircastle Limited and Subsidiaries Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Dollars in thousands) (Unaudited) Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30, 2020 2019 2020 2019 2020 2019 Revenues: Lease rental revenue $ 93,891 $ 136,156 $ 139,493 $ 199,847 $ 473,566 $ 588,141 Direct financing and sales-type lease revenue 3,208 5,543 4,839 7,760 14,903 24,407 Amortization of lease premiums, discounts and incentives ( 3,544 ) ( 3,835 ) ( 5,384 ) ( 5,819 ) ( 17,360 ) ( 17,077 ) Maintenance revenue 19,158 ( 644 ) 24,843 15,360 121,508 55,807 Total lease revenue 112,713 137,220 163,791 217,148 592,617 651,278 Gain (loss) on sale of flight equipment ( 185 ) 4,448 12,951 26,512 24,181 39,134 Other revenue 1,019 2,276 4,169 5,215 17,962 9,370 Total revenues 113,547 143,944 180,911 248,875 634,760 699,782 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 $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 Maintenance and other costs 2,544 2,911 4,207 6,696 14,044 18,744 Total operating expenses 115,737 119,684 176,009 179,026 826,549 545,849 Other expense: Loss on extinguishment of debt — ( 7,577 ) ( 43 ) — ( 108 ) ( 7,577 ) 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 ) Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments ( 2,296 ) 16,490 4,409 66,607 ( 224,580 ) 139,325 Income tax provision 9,325 1,283 2,269 7,659 14,738 17,280 Earnings of unconsolidated equity method investments, net of tax 426 1,160 572 601 1,978 2,281 Net income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326 Total comprehensive income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Nine Months Ended November 30, 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 237,340 ) $ 124,326 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 Amortization of lease premiums, discounts and incentives 17,360 17,077 Deferred income taxes 12,109 10,512 Non-cash share-based payment expense 28,049 9,793 Collections on net investment in leases 12,953 19,081 Security deposits and maintenance payments included in earnings ( 107,732 ) ( 40,496 ) Gain on sale of flight equipment ( 24,181 ) ( 39,134 ) Loss on extinguishment of debt 108 7,577 Impairment of flight equipment 299,551 7,404 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 ) Lease rentals received in advance ( 54,608 ) 16,604 Net cash and restricted cash provided by operating activities 124,380 410,979 Cash flows from investing activities: Acquisition and improvement of flight equipment ( 134,263 ) ( 953,170 ) Proceeds from sale of flight equipment 113,588 345,318 Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits ( 4,083 ) ( 13,093 ) Unconsolidated equity method investments and associated costs — ( 11,681 ) Other ( 594 ) 3,572 Net cash and restricted cash used in investing activities ( 25,352 ) ( 629,054 ) Cash flows from financing activities: Repurchase of shares ( 25,536 ) ( 9,873 ) Parent contribution at Merger 25,536 — Proceeds from secured and unsecured debt financings 1,193,871 2,141,848 Repayments of secured and unsecured debt financings ( 1,027,164 ) ( 1,814,686 ) Debt extinguishment costs ( 108 ) ( 7,183 ) Deferred financing costs ( 6,358 ) ( 13,343 ) Security deposits and maintenance payments received 63,443 149,195 Security deposits and maintenance payments returned ( 48,162 ) ( 81,351 ) Dividends paid ( 24,025 ) ( 67,453 ) Net cash and restricted cash provided by financing activities 151,497 297,154 Net increase in cash and restricted cash: 250,525 79,079 Cash and restricted cash at beginning of period 171,437 133,299 Cash and restricted cash at end of period $ 421,962 $ 212,378 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) (Unaudited) Nine Months Ended November 30, 2020 2019 Reconciliation to Consolidated Balance Sheets: Cash and cash equivalents $ 416,621 $ 197,817 Restricted cash and cash equivalents 5,341 14,561 Unrestricted and restricted cash and cash equivalents $ 421,962 $ 212,378 Supplemental disclosures of cash flow information: Cash paid for interest $ 176,284 $ 204,951 Cash paid for income taxes $ 1,244 $ 995 Supplemental disclosures of non-cash investing activities: Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions $ 29,869 $ 28,862 Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment $ 45,443 $ 62,751 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. 5 Aircastle Limited and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (Dollars in thousands, except share amounts) (Unaudited) Additional Paid-In Capital Retained Earnings Total Shareholders’ Equity Common Shares 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 Net loss — — — ( 228,857 ) ( 228,857 ) Payment of unvested shares at Merger ( 101,809 ) ( 1 ) ( 25,535 ) — ( 25,536 ) Parent contribution at Merger — — 25,536 — 25,536 Share cancellation and re-issuance at Merger ( 74,960,937 ) ( 750 ) 750 — — Balance, June 30, 2020 14,048 — 1,485,777 349,604 1,835,381 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 Additional Paid-In Capital Retained Earnings (Deficit) Total Shareholders’ Equity Common Shares 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 — — — — Repurchase of common shares from stockholders, directors and employees ( 139,275 ) ( 1 ) ( 2,863 ) — ( 2,864 ) Amortization of share-based payments — — 3,818 — 3,818 Reclassification of prior year director stock award liability — — 796 — 796 Dividends declared — — — ( 22,543 ) ( 22,543 ) 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 ) Amortization of share-based payments — — 2,100 — 2,100 Dividends declared — — — ( 22,485 ) ( 22,485 ) 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. 6 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 1. Summary of Significant Accounting Policies Organization and Basis of Presentation Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is acquiring, leasing, managing and selling commercial jet aircraft. On March 27, 2020, the Company successfully completed its merger (the “Merger”) and is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”). 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 outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations based on one operating segment: leasing, financing, selling and managing commercial flight equipment. Our Chief Executive Officer is the chief operating decision maker. The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. However, we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, 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”). The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash. Net investment in leases comprised the Company’s financial asset principally affected by the standard. Operating lease receivables are not within the scope of ASC 326. Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses. This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages. The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts. Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values. We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to retained earnings. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted, the FASB Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement . The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The adoption of the standard did not have a material impact on our consolidated financial statements 7 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 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 statements or related disclosures. Effective January 1, 2020, the Company adopted the FASB ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities . The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance. The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of November 30, 2020, through the date on which the consolidated financial statements included in this Form 10-Q were issued. Principles of Consolidation The consolidated financial statements include the accounts of Aircastle and all its subsidiaries. Aircastle consolidates two Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding: (a) whether an entity is subject to consolidation as a VIE; (b) who the variable interest holders are; (c) the potential expected losses and residual returns of the variable interest holders; and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider: (1) the entity’s purpose and design; (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance; and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. Lease Revenue Recognition We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals. Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the lease term using the prevailing rate at lease commencement. Changes to rate-based lease rentals are recognized in the statements of income (loss) in the period of change. In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement. We 8 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) 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. 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. The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular on the aviation sector. 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. While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of the COVID-19 virus’ economic shock are material; the extent and duration of which cannot currently be determined. Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors. We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time. As of 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 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. Impairment of Flight Equipment We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the second quarter. In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance 9 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. See Note 2 – Fair Value Measurements. Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors. We are closely monitoring the impact of the COVID-19 virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations. Net Investment in Leases If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease. The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit. For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment. Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement. Interest income on our net investment in leases is recognized as Direct financing and sales-type leases revenue over the lease term in a manner that produces a constant rate of return on the net investment in the lease. The net investment in leases is recorded in the consolidated financial statements net of an allowance for credit losses. The allowance for credit losses is recorded upon the initial recognition of the net investment in the lease based on the Company’s estimate of expected credit losses over the lease term. The allowance reflects the Company’s estimate of lessee default probabilities and loss given default percentages. When determining the credit loss allowance, we consider relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the net investment in the lease. The allowance also considers potential losses due to non-credit risk related to unguaranteed residual values. A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses. Recent Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a reference rate affected by reference rate reform. If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or re-measurements are required. The standard is effective for all entities from March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December 31, 2022. We have not adopted ASC 848 for this interim period and are currently evaluating the election available to us under the standard and the impact it may have on our financial statements. In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic. The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases”, for lease concessions provided by lessors as a result of the 10 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. Note 2. Fair Value Measurements Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: • Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs. • Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability. The valuation techniques that may be used to measure fair value are as follows: • The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. • The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts. • The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). The following tables set forth our financial assets as of 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 November 30, 2020 Using Fair Value Hierarchy Fair Value as of November 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique Assets: Cash and cash equivalents $ 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 August 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique Assets: Cash and cash equivalents $ 514,917 $ 514,917 $ — $ — Market Restricted cash and cash equivalents 5,353 5,353 — — Market Total $ 520,270 $ 520,270 $ — $ — 11 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 in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique Assets: Cash and cash equivalents $ 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. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivative included in Level 2 consists of a United States dollar-denominated interest rate cap, and its fair value is based on the market comparisons for similar instruments. We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors. For the 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 the carrying amounts of these assets may not be recoverable. Assets subject to these measurements include our investment in unconsolidated joint ventures and aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital. We account for our investment in unconsolidated joint ventures under the equity method of accounting. Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital. These investments are also reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary. Aircraft Valuation 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. 12 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. 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 deterioration. The recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors. If our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates. Financial Instruments Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature. The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and fair values of our financial instruments at 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 Amount of Liability Fair Value of Liability Credit Facilities $ — $ — $ 150,000 $ 148,737 $ 100,000 $ 100,000 Unsecured Term Loan 215,000 209,784 215,000 209,326 215,000 215,000 ECA Financings 40,055 41,814 43,649 45,680 50,745 52,593 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. 13 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 3. Lease Rental Revenues and Flight Equipment Held for Lease Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at November 30, 2020 were as follows: Year Ending February 28/29, Amount (1) Remainder of 2020 $ 175,301 2021 660,667 2022 572,525 2023 500,271 2024 373,021 Thereafter 508,869 Total $ 2,790,654 _______________ (1) Reflects impact of lessee lease rental deferrals. Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows: 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 % North America 12 % 9 % 12 % 10 % 11 % 9 % 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: 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 Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Largest lessees by lease rental revenue 5 40 % 3 22 % 4 31 % 3 21 % 4 29 % 3 21 % 14 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 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: 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 Canada (1) $ — — % $ — — % $ 24,338 13 % $ — — % $ — — % $ — — % India (2) 22,606 20 % 19,592 14 % 22,455 12 % 27,673 11 % 75,951 12 % 96,117 14 % Mexico (3) — — % — — % — — % — — % 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: November 30, 2020 August 31, 2020 February 29, 2020 Region Number of Aircraft Net Book Value % Number of Aircraft Net Book Value % Number of Aircraft Net Book Value % 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 % North America 28 11 % 28 10 % 40 13 % South America 26 13 % 26 13 % 26 15 % Off-lease 16 (1) 7 % 20 (2) 7 % 2 (3) 1 % Total 260 100 % 273 100 % 272 100 % _______________ (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. 15 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: November 30, 2020 August 31, 2020 February 29, 2020 Country Net Book Value Net Book Value % Number of Lessees Net Book Value Net Book Value % Number of Lessees Net Book Value Net Book Value % Number of Lessees 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. Note 4. Net Investment in Leases 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 Unguaranteed residual value of flight equipment 204,360 202,189 266,750 Net investment leases 315,752 320,036 432,810 Allowance for credit losses ( 3,714 ) ( 2,972 ) ( 6,558 ) Net investment in leases, net of allowance $ 312,038 $ 317,064 $ 426,252 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: Amount Balance at February 29, 2020 $ 6,558 Provision for credit losses 4,513 Write-offs ( 8,099 ) Balance at August 31, 2020 2,972 Provision for credit losses 742 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 2021 32,504 2022 23,811 2023 22,628 2024 6,836 Thereafter 31,130 Total lease payments to be received 130,358 Present value of lease payments - lease receivable ( 111,392 ) Difference between undiscounted lease payments and lease receivable $ 18,966 16 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 5. Unconsolidated Equity Method Investments We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 315,418 at November 30, 2020. Amount Investment in joint ventures at February 29, 2020 $ 33,470 Earnings from joint venture, net of tax 1,406 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 . This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy. Note 6. Variable Interest Entities Aircastle consolidates two VIEs (the “Air Knight VIEs”) of which it is the primary beneficiary. The operating activities of these 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 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 . 17 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 7. Secured and Unsecured Debt Financings The outstanding amounts of our secured and unsecured debt financings are as follows: At November 30, 2020 At August 31, 2020 At February 29, 2020 Debt Obligation Outstanding Borrowings Number of Aircraft Interest Rate Final Stated Maturity Outstanding Borrowings Outstanding Borrowings Secured Debt Financings: ECA Financings (1) $ 40,055 2 3.49% to 3.96% 12/03/21 to 11/30/24 $ 43,649 $ 50,745 Bank Financings (2) 905,219 34 2.15% to 4.55% 06/17/23 to 01/19/26 927,385 971,693 Less: Debt issuance costs and discounts ( 7,671 ) — ( 8,375 ) ( 9,920 ) Total secured debt financings, net of debt issuance costs and discounts 937,603 36 962,659 1,012,518 Unsecured Debt Financings: Senior Notes due 2020 (3) — 7.625 % 04/15/20 — 300,000 Senior Notes due 2021 500,000 5.125 % 03/15/21 500,000 500,000 Senior Notes due 2022 500,000 5.50 % 02/15/22 500,000 500,000 Senior 5.00% Notes due 2023 500,000 5.00 % 04/01/23 500,000 500,000 Senior 4.40% Notes due 2023 650,000 4.40 % 09/25/23 650,000 650,000 Senior Notes due 2024 500,000 4.125 % 05/01/24 500,000 500,000 Senior Notes due 2025 650,000 5.250 % 08/11/25 650,000 — 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 Less: Debt issuance costs and discounts ( 34,859 ) ( 37,234 ) ( 30,765 ) Total unsecured debt financings, net of debt issuance costs and discounts 4,130,141 4,277,766 3,884,235 Total secured and unsecured debt financings, net of debt issuance costs and discounts $ 5,067,744 $ 5,240,425 $ 4,896,753 (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. (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 18 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) 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. Note 8. Shareholders' Equity and Share-Based Payment On March 27, 2020, (the “Merger Date”), the total authorized share capital of the Company was $ 3,000 , comprised of 250,000,000 common shares of $ 0.01 each and 50,000,000 preference shares of $ 0.01 each, and the issued share capital of the Company was comprised of 14,048 common shares of $ 0.01 each. 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 $ 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 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. Note 9. Income Taxes Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland. The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the 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 U.S. operations $ 5,161 $ 3,655 $ 15,291 $ 80 $ 28,188 $ 6,381 Non-U.S. 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 19 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. tax purposes are primarily non-U.S. corporations. These subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and the U.S. are subject to tax in those respective jurisdictions. We have a U.S.-based subsidiary which provides management services to our subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions. The consolidated income tax expense for the 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: Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30, 2020 2019 2020 2019 2020 2019 Notional U.S. federal income tax expense (benefit) at the statutory rate $ ( 482 ) $ 3,463 $ 925 $ 13,987 $ ( 47,162 ) $ 29,258 U.S. state and local income tax, net 492 229 917 221 2,998 611 Non-U.S. operations: 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 The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property. The CARES Act did not materially impact the Company’s effective tax rate for the nine months ended November 30, 2020. 20 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 10. Interest, Net The following table shows the components of interest, net: 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 financing fees and debt discount 2,319 2,589 3,929 3,810 10,642 11,105 Interest expense 37,407 44,564 60,016 63,769 174,463 197,117 Less: Interest income ( 52 ) ( 493 ) ( 71 ) ( 565 ) ( 467 ) ( 2,165 ) Interest, net $ 37,355 $ 44,071 $ 59,945 $ 63,204 $ 173,996 $ 194,952 Note 11. Commitments and Contingencies 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 February 28/29, Amount Remainder of 2020 $ 483 2021 1,923 2022 1,783 2023 1,716 2024 1,747 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 2021 181,455 2022 448,408 2023 157,274 2024 84,829 Thereafter 127,115 Total $ 1,008,096 21 Aircastle Limited and Subsidiaries Notes to Unaudited Consolidated Financial Statements (Dollars in thousands, except per share amounts) November 30, 2020 Note 12. Other Assets The following table describes the principal components of other assets on our Consolidated Balance Sheets as of: November 30, 2020 August 31, 2020 February 29, 2020 Deferred income tax asset $ 1,135 $ 1,531 $ 636 Lease incentives and lease premiums, net of amortization of $73,081, $70,234 and $63,010, respectively 81,809 93,322 103,161 Flight equipment held for sale 53,218 5,632 13,083 Aircraft purchase deposits and Embraer E-2 progress payments 42,901 42,901 39,038 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) Net of lease incentives and tenant allowances. Note 13. Accounts Payable, Accrued Expenses and Other Liabilities The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of: November 30, 2020 August 31, 2020 February 29, 2020 Accounts payable, accrued expenses and other liabilities $ 49,151 $ 43,210 $ 64,034 Deferred income tax liability 78,159 71,130 65,928 Accrued interest payable 51,005 54,525 62,196 Lease liability 11,486 11,846 12,510 Lease discounts, net of amortization of $44,627, $45,359 and $44,968, respectively 1,636 1,898 2,446 Total accounts payable, accrued expenses and other liabilities $ 191,437 $ 182,609 $ 207,114 22