−Removed: In addition to the other information set forth in this Annual Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, results of operations or ability to pay dividends in future periods or to meet our debt obligations.
+Added: In addition to the other information set forth in this Annual Report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, results of operations in future periods or our ability to meet our debt obligations.
The risks described below are not the only risks facing our Company.
−Removed: Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations or ability to pay dividends in future periods.
−Removed: Risks Related to Our Business
−Removed: Risks Related to Our Operations
−Removed: Risks affecting the airline industry may adversely affect our customers and have a material adverse impact on our financial results.
+Added: Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations.
+Added: Risk Related to Our Lessees
+Added: Risks affecting the airline industry may materially adversely affect our customers.
We operate as a supplier to airlines and are indirectly impacted by all the risks facing airlines today.
−Removed: The ability of each lessee to perform its obligations under the relevant lease will depend primarily on the lessee’s financial condition and cash flow, which may be affected by factors beyond our control, including:
−Removed: passenger and air cargo demand;
−Removed: passenger fare levels and air cargo rates;
−Removed: availability of financing and other circumstances affecting airline liquidity, including covenants in financings, terms imposed by credit card issuers, collateral posting requirements contained in hedging contracts and the ability of airlines to make or refinance principal payments as they come due;
+Added: The ability of lessees to perform their obligations under the relevant lease depends on the financial condition, which may be affected by factors beyond our control, including:
+Added: • passenger and air cargo demand, fare levels and air cargo rates;
• operating costs, including the price and availability of jet fuel, labor costs and insurance costs and coverages;
• restrictions in labor contracts and labor difficulties, including pilot shortages;
−Removed: economic conditions, including recession, financial system distress and currency fluctuations in the countries and regions in which the lessee operates or from which the lessee obtains financing;
+Added: • availability of financing, including covenants in financings, terms imposed by credit card issuers, collateral posting requirements contained in hedging contracts and the ability of airlines to make or refinance principal payments;
+Added: • operating costs, including the price and availability of jet fuel, labor costs and insurance costs and coverages;
+Added: • restrictions in labor contracts and labor difficulties, including pilot shortages;
+Added: • economic conditions, including recession, financial system distress and currency fluctuations;
• aircraft accidents;
−Removed: the continuing availability of government support, whether through subsidies, loans, guarantees, equity investments or otherwise;
−Removed: changing political conditions, including risk of rising protectionism, restrictions on immigration or imposition of new trade barriers;
−Removed: geopolitical and other events, including war, acts or threats of terrorism, outbreaks of epidemic diseases and natural disasters;
+Added: • the continuing availability of government support through subsidies, loans, guarantees, equity investments;
+Added: • changing political conditions, including risk of protectionism, travel restrictions, or trade barriers;
+Added: • geopolitical events, including war, terrorism, epidemic diseases (including the COVID-19 pandemic) and natural disasters;
• impact of climate change and emissions on demand for air travel;
• cyber risk, including information hacking, viruses and malware;
−Removed: governmental regulation of, or affecting the air transportation business, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations.
+Added: • governmental regulation of, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations.
These factors, and others, may lead to defaults by our customers, or may delay or prevent aircraft deliveries or transitions, result in payment restructurings or other lease term restructurings, and may increase our costs from repossessions and reduce our revenues due to downtime or lower re-lease rates.
−Removed: Volatile financial market conditions may adversely impact our liquidity, our access to capital and our cost of capital and may adversely impact the airline industry and the financial condition of our lessees.
−Removed: The availability and pricing of capital in the commercial bank market and in the unsecured bond market remain susceptible to global events, including, for example, political changes in the U.S.
−Removed: and abroad, rising interest rates, currency fluctuations, the rate of international economic growth and implications from changes in oil prices.
−Removed: If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition, results of operations or our ability to pay dividends to our shareholders could be materially
−Removed: adversely affected.
−Removed: Additionally, such inability to obtain capital on satisfactory terms, or at all, could prevent us from pursuing attractive future growth opportunities.
−Removed: We bear the risk of re-leasing and selling our aircraft.
−Removed: We bear the risk of re-leasing or selling or otherwise disposing of our aircraft in order to continue to generate income.
−Removed: In certain cases we commit to purchase aircraft that are not subject to lease and therefore are subject to lease placement risk.
−Removed: We are exposed to the risk that the residual value of the aircraft will not be sufficient to permit us to fully recover or realize a gain on our investment in the aircraft and that we may have to record impairment charges as only a portion of an aircraft’s value is covered by contractual cash flows from leases.
−Removed: Further, our ability to re-lease, lease or sell aircraft on favorable terms, or at all, or without significant off-lease time and transition costs is likely to be adversely impacted by risks affecting the airline industry generally.
−Removed: Other factors that may affect our ability to fully realize our investment in our aircraft and that may increase the likelihood of impairment charges include credit deterioration of a lessee, declines in rental rates, residual value risk, higher fuel prices which may reduce demand for older, less fuel efficient aircraft, additional environmental regulations, age restrictions, customer preferences and other factors that may effectively shorten the useful life of older aircraft.
−Removed: We own and lease long-lived assets and have written down the value of some of our assets.
−Removed: If market conditions worsen, or in the event of a customer default, we may be required to record further write-downs.
−Removed: We test our assets for recoverability whenever events or changes in circumstances indicate that the carrying amounts for such assets are not recoverable from their expected, undiscounted cash flows.
−Removed: We also perform a fleet-wide recoverability assessment annually.
−Removed: This recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows.
−Removed: 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 from information received from third party sources.
−Removed: If anticipated aircraft lease cash flows or sales values worsen due to a decline in market conditions, or if a lessee defaults, we may have to reassess the carrying value of one or more of our aircraft.
−Removed: As aircraft approach the end of their economic lives, their carrying values may be more susceptible to non-recoverable declines in value because such assets will have a shorter opportunity in which to benefit from a market recovery.
−Removed: We monitor our fleet for aircraft that are more susceptible to failing our recoverability assessments within one year due to their sensitivity to changes in contractual cash flows, future cash flow estimates and aircraft residual or scrap values.
−Removed: As of December 31, 2019 , no aircraft were on our monitoring list.
−Removed: Our ability to obtain debt financing and our cost of debt financing is, in part, dependent upon our credit ratings and a credit downgrade or being put on negative watch could adversely impact our financial results.
−Removed: Maintaining our credit ratings depends in part on strong financial results and in part on other factors, including the outlook of the ratings agencies on our sector and on the market generally.
−Removed: A credit rating downgrade or being put on negative watch may make it more difficult or costly for us to raise debt financing in the unsecured bond market, or may result in higher pricing or less favorable terms under other financings.
−Removed: Credit rating downgrades or being put on negative watch may make it more difficult and/or more costly to satisfy our funding requirements.
−Removed: In addition, any future tightening or regulation of financial institutions, including increasing capital reserves, could impact our ability to raise funds in the commercial bank loan market in the future.
−Removed: An increase in our borrowing costs may adversely affect our earnings and cash available for distribution to our shareholders.
−Removed: Some of our aircraft are financed under long-term debt financings.
−Removed: As these financings mature, we will be required to either refinance these instruments by entering into new financings, which could result in higher borrowing costs, or repay them by using cash on hand or cash from the sale of our assets.
−Removed: Departure of key officers could harm our business and financial results.
−Removed: Our senior management’s reputations and relationships with lessees, sellers, buyers and financiers of aircraft are a critical element of our business.
−Removed: We encounter intense competition for qualified employees from other companies in the aircraft leasing industry, and we believe there are only a limited number of available qualified executives in our industry.
−Removed: The Company seeks to retain a pipeline of senior management personnel with superior talent to provide continuity of succession, including for the Chief Executive Officer position and other senior positions.
−Removed: In addition, our Board of Directors is involved in succession planning, including review of short- and long-term succession plans for the Chief Executive Officer and other senior positions.
−Removed: Our future success depends, to a significant extent, upon the continued service of our senior management personnel, including the Chief Executive Officer and his potential successors, and if we lose one or more of these individuals, our business could be adversely affected.
−Removed: We may not be able to pay or maintain dividends, or we may choose not to pay dividends, and the failure to pay or maintain dividends may adversely affect our share price.
−Removed: On October 28, 2019 , our Board of Directors declared a regular quarterly dividend of $0.32 per common share, or an aggregate of $23.9 million , which was paid on December 13, 2019 to holders of record on November 29, 2019 .
−Removed: This dividend may not be indicative of the amount of any future quarterly dividends.
−Removed: Our ability to pay, maintain or increase cash dividends to our shareholders is subject to the discretion of our Board of Directors and will depend on many factors, including:
−Removed: our ability to comply with financial covenants in our financing documents that limit our ability to pay dividends and make certain other restricted payments;
−Removed: the difficulty we may experience in raising, and the cost of, additional capital and our ability to finance our aircraft acquisition commitments;
−Removed: our ability to re-finance our long-term financings;
−Removed: our ability to negotiate and enforce favorable lease rates and other contractual terms;
−Removed: the level of demand for our aircraft in the lease placement or sales markets;
−Removed: the economic condition of the commercial aviation industry generally;
−Removed: the financial condition and liquidity of our lessees;
−Removed: unexpected or increased aircraft maintenance or other expenses;
−Removed: the level and timing of capital expenditures, principal repayments and other capital needs;
−Removed: maintaining our credit ratings, our results of operations, financial condition and liquidity;
−Removed: legal restrictions on the payment of dividends, including a statutory dividend test and other limitations under Bermuda law;
−Removed: and general business conditions and other factors that our Board of Directors deems relevant.
−Removed: Additionally, the Merger Agreement permits the Company to declare and pay a regular quarterly dividend of up to $0.32 per common share.
−Removed: Some of these factors are beyond our control.
−Removed: In the future, we may choose to not pay dividends or may not be able to pay dividends, maintain our current level of dividends, or increase them over time.
−Removed: The failure to maintain or pay dividends may adversely affect our share price.
−Removed: We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to compete with our competitors.
−Removed: As of December 31, 2019 , our total indebtedness was $5.06 billion , representing approximately 71.1% of our total capitalization.
−Removed: Aircastle Limited is either the principal obligor or has guaranteed most of this indebtedness, and we are responsible on a full recourse basis for timely payment when due and compliance with covenants under the related debt documentation.
−Removed: As a result of our substantial amount of indebtedness, we may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness, and our substantial amount of indebtedness may increase our vulnerability to adverse economic and industry conditions, reduce our flexibility in planning for or reaction to changes in the business environment or in our business or industry, and adversely affect our cash flow and our ability to operate our business and compete with our competitors.
−Removed: Our indebtedness subjects us to certain risks, including:
−Removed: 14.7% of our net book value serves as collateral for our secured indebtedness, and the terms of certain of our indebtedness require us to use proceeds from sales of aircraft, in part, to repay amounts outstanding under such indebtedness;
−Removed: our failure to comply with the terms of our indebtedness, including restrictive covenants contained therein, may result in additional interest being due or defaults that could result in the acceleration of the principal, and unpaid interest on, the defaulted debt, as well as the forfeiture of any aircraft pledged as collateral;
−Removed: non-compliance with covenants prohibiting certain investments and other restricted payments, including limitations on our ability to pay dividends, repurchase our common shares, raise additional capital or refinance our existing debt, may reduce our operational flexibility and limit our ability to refinance or grow the business.
−Removed: The provisions of our long-term financings require us to comply with financial and other covenants.
−Removed: Our compliance with these ratios, tests and covenants depends upon, among other things, the timely receipt of lease payments from our lessees and upon our overall financial performance.
−Removed: Senior Notes.
−Removed: Our senior notes indentures impose operating and financial restrictions on our activities.
−Removed: These restrictions limit our ability to, or in certain cases prohibit us from, incurring or guaranteeing additional
−Removed: indebtedness, refinancing our existing indebtedness, paying dividends, repurchasing our common shares, making other restricted payments, making certain investments or entering into joint ventures and a cross-default to certain other financings of the Company.
−Removed: Bank Financings.
−Removed: Our secured bank financings contain, among other customary provisions, a $500 million minimum net worth covenant, a cross-default to certain other financings of the Company, and for one portfolio financing, a minimum debt service coverage ratio of 1.15.
−Removed: Unsecured Revolving Credit Facilities and Loan.
−Removed: Our unsecured revolving credit facilities/loan contain $750 million minimum net worth covenants, minimum unencumbered asset ratios, minimum interest coverage ratios and cross-defaults to certain other financings of the Company.
−Removed: ECA Financings.
−Removed: Our ECA Financings contain a $500 million minimum net worth covenant and also contain, among other customary provisions, a material adverse change default and a cross-default to certain other financings of the Company.
−Removed: The terms of our financings also restrict our ability to incur or guarantee additional indebtedness or engage in mergers, amalgamations or consolidations among our subsidiary companies or between a subsidiary company and a third party or otherwise dispose of all or substantially all of our assets.
−Removed: We are subject to various risks and requirements associated with transacting business in foreign jurisdictions.
−Removed: The international nature of our business exposes us to trade and economic sanctions and other restrictions imposed by the U.S.
−Removed: and other governments.
−Removed: Departments of Justice, Commerce and Treasury, as well as other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the Foreign Corrupt Practices Act (“FCPA”), and other federal statutes, sanctions and regulations, including those established by the Office of Foreign Assets Control (“OFAC”) and, increasingly, similar or more restrictive foreign laws, rules and regulations, including the U.K.
−Removed: Bribery Act (“UKBA”), which may also apply to us.
−Removed: By virtue of these laws and regulations, and under laws and regulations in other jurisdictions, we may be obliged to limit our business activities, we may incur costs for compliance programs and we may be subject to enforcement actions or penalties for noncompliance.
−Removed: In recent years, U.S.
−Removed: and foreign governments have increased their oversight and enforcement activities with respect to these laws, and we expect the relevant agencies to continue to increase these activities.
−Removed: We have compliance policies and training programs in place for our employees with respect to FCPA, OFAC Regulations, UKBA and similar laws, but there can be no assurance that our employees, consultants or agents will not engage in conduct for which we may be held responsible.
−Removed: Violations of FCPA, OFAC Regulations, UKBA and other laws, sanctions or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities.
−Removed: General Data Protection Regulation (“GDPR”) took effect on May 25, 2018, requiring us to protect the privacy of certain personal data of E.U.
−Removed: While we have implemented processes and controls to comply with GDPR requirements, the manner in which the E.U.
−Removed: will interpret and enforce certain provisions remains unclear and we could incur significant fines of up to 4% of worldwide revenue, individual damages and reputational risks if the E.U.
−Removed: determines that our controls and processes are ineffective and we have failed to adequately comply with the requirements.
−Removed: We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.
−Removed: We are dependent upon information technology systems to manage, process, store and transmit information associated with our operations, which may include proprietary business information and personally identifiable information of our customers, suppliers and employees.
−Removed: Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, employee error, natural disasters and defects in design.
−Removed: Damage, disruption, or failure of one or more information technology systems may result in interruptions to our operations in the interim or may require a significant investment to fix or replace them or may result in significant damage to our reputation.
−Removed: Although various measures have been implemented to manage our risks related to the information technology systems and network disruptions, our resources and technical sophistication may not be adequate to prevent all types of cyber-attacks that could lead to the payment of fraudulent claims, loss of sensitive information, including our own proprietary information or that of our customers, suppliers and employees, and could harm our reputation and result in lost revenues and additional costs and potential liabilities.
+Added: Adverse currency movements could negatively affect our lessees’ ability to honor the terms of their leases.
+Added: Many of our lessees are exposed to currency risk as they earn revenues in local currencies while a significant portion of their liabilities and expenses, including fuel, debt service, and lease payments are denominated in U.S.
+Added: If the local currency is devalued, our lessees may not be able to increase revenue sufficiently to offset the impact of exchange rates on these expenses.
+Added: Currency volatility, particularly in emerging markets, could impact the ability of customers to meet their contractual obligations in a timely manner.
+Added: Shifts in foreign exchange rates can be significant, are difficult to predict, and can occur quickly.
+Added: Fuel prices significantly impact the profitability of the airline industry.
+Added: If fuel prices rise in the future, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results.
+Added: Fuel costs represent a major expense to airlines and fluctuate widely.
+Added: Airlines may not be able to successfully manage their exposure to fuel price fluctuations and significant changes would materially affect their operating results.
+Added: Due to the competitive nature of the airline industry, airlines may not be able to pass on increases in fuel prices to their customers by increasing fares.
+Added: Higher and more volatile fuel prices may also have an impact on consumer confidence and spending, and thus may adversely impact demand for air transportation.
+Added: Fuel cost volatility may result in airlines being reluctant to make future commitments to leased aircraft and reduce the demand for lease aircraft.
+Added: The effects of terrorist attacks and geopolitical conditions might adversely impact the financial condition of the airlines and our lessees might not be able to meet their lease payment obligations.
+Added: War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase the operating costs of our customers.
+Added: Terrorist incidents and other international tensions may lead to:
+Added: (i) higher costs due to the increased security measures;
+Added: (ii) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security measures;
+Added: (iii) higher price of jet fuel;
+Added: (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all;
+Added: (v) higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available;
+Added: and (vi) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.
+Added: Terrorist attacks, war or armed hostilities, large protests or government instability, or the fear of such events, could negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results.
+Added: Severe weather conditions, natural disasters or their perceived effects may negatively impact the airline industry and our lessees’ ability to meet their lease payment obligations to us.
+Added: Demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to their lease payment obligations to us, which could negatively impact our financial results.
+Added: Lessee defaults could materially adversely affect our business, financial condition and results of operations.
+Added: Investors should expect a varying number of lessees to experience payment difficulties, particularly in difficult economic or operating environments.
+Added: As a result of their financial condition and lack of liquidity, lessees may be significantly in arrears in their rental or maintenance payments.
+Added: Liquidity issues are more likely to lead to airline failures in the periods of large air traffic declines, financial system distress, volatile fuel prices, and economic slowdown, with additional liquidity being more difficult and expensive to source.
+Added: Given the size of our aircraft portfolio, we expect that from time to time some lessees will be slow in making, or will fail to make, their payments in full under their leases.
+Added: We may not correctly assess the credit risk of a lessee or that risk could change over time.
+Added: We may not be able to charge risk-adjusted lease rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future.
+Added: A default, delay or deferral of payments from a lessee where we have a significant exposure could have a materially adverse impact on our ability to make payments on our indebtedness or to comply with debt service coverage or interest coverage ratios.
+Added: We may experience some level of delinquency under our leases and default levels may increase over time.
+Added: A lessee may experience periodic difficulties that are not financial in nature, which could impair its performance of maintenance obligations under the leases.
+Added: These difficulties may include the failure to perform required aircraft maintenance and labor-management disagreements or disputes.
+Added: In the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee may not be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance and transition expenses.
+Added: Airline reorganizations could have an adverse effect on our financial results.
+Added: As a result of economic conditions, airlines may be forced to reorganize.
+Added: Bankruptcies and reduced demand may lead to the grounding of significant numbers of aircraft and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values.
+Added: Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms, or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively would have an adverse effect on our financial results.
+Added: We may not recover any of our claims or damages against an airline under bankruptcy or insolvency protection.
+Added: If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and in significant reductions in our cash flow.
+Added: When a lessee is late in making payments, fails to make payments in full or in part or has otherwise advised us that it will in the future fail to make payments in full or in part, we may elect to or be required to restructure the lease.
+Added: Restructuring may involve anything from a simple rescheduling of payments to the termination of a lease without receiving all of the past due amounts.
+Added: If requests for payment restructuring or rescheduling are granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the lease, and the terms of any revised payment schedules may be unfavorable or such payments may not be made.
+Added: We may be unable to agree upon acceptable terms for any requested restructurings and as a result may be forced to exercise our remedies under those leases and we may be unable to repossess our aircraft on a timely basis.
+Added: If we, in the exercise of our remedies, repossess the aircraft, we may not be able to re-lease the aircraft promptly at favorable rates, or at all.
+Added: The terms and conditions of payment restructurings or reschedulings, particularly involving lessees where we have significant exposure, may result in significant reductions of rental payments, which may adversely affect our cash flows or our financial results.
+Added: Significant costs resulting from lease defaults could have a material adverse effect on our business.
+Added: While we have the right to repossess the aircraft and to exercise other remedies upon a lessee default, repossession of an aircraft after a lessee default could lead to significant costs for us.
+Added: Those costs include legal and other expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings, and costs to obtain possession and/or deregistration of the aircraft and flight and export permissions.
+Added: Delays resulting from these proceedings would increase the period of time during which the aircraft is not generating revenue.
+Added: We may incur maintenance, refurbishment or repair costs that a defaulting lessee has failed to incur or pay and that are necessary to put the aircraft in suitable condition for re-lease or sale.
+Added: We may be required to pay off liens, claims, taxes and other governmental charges to obtain clear possession and to remarket the aircraft for re-lease or sale.
+Added: We may also incur maintenance, storage or other costs while we have physical possession of the aircraft.
+Added: We may suffer other adverse consequences due to a lessee default and the repossession of the aircraft.
+Added: Our rights upon a lessee default vary significantly depending upon the jurisdiction, including the need to obtain a court order for repossession of the aircraft and/or consents for deregistration or re-export of the aircraft.
+Added: When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply.
+Added: Certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or entitle the lessee or another third party to retain possession of the aircraft without paying lease rentals or without performing all of the obligations under the lease.
+Added: There can be no assurance that jurisdictions that have adopted
+Added: the Cape Town Convention, which provides for uniformity and certainty for repossession of aircraft, will enforce it as written.
+Added: Certain of our lessees are owned in whole or in part by government-related entities, which could complicate our efforts to repossess the relevant aircraft.
+Added: Accordingly, we may be delayed in, or prevented from, enforcing our rights under a lease and in re-leasing or selling the affected aircraft.
+Added: If we repossess an aircraft, we may not necessarily be able to export or deregister and redeploy the aircraft.
+Added: When a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist deregistration.
+Added: Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the aircraft and obtaining a certificate of airworthiness.
+Added: A default and exercise of remedies involving a lessee where we have a significant exposure or concentration risk could have a materially adverse impact on our future revenue and cash flows.
+Added: If our lessees fail to appropriately discharge aircraft liens, we might find it necessary to pay such claims.
+Added: In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges (including charges imposed by Eurocontrol), landing charges, crew wages, repairer’s charges, salvage or other liens, are likely, depending on the jurisdiction, to attach to the aircraft.
+Added: These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens (particularly “fleet liens”), exceed the value of the relevant aircraft.
+Added: Although the financial obligations relating to these liens are the responsibility of our lessees, if they fail to fulfill their obligations, these liens may attach to our aircraft and ultimately become our responsibility.
+Added: Until these liens are discharged, we may be unable to repossess, re-lease or sell the aircraft or unable to avoid detention or forfeiture of the aircraft.
+Added: Our lessees may not comply with their obligations under their respective leases to discharge liens arising during the terms of their leases.
+Added: If they do not do so, we may find it necessary to pay the claims secured by any liens in order to repossess the aircraft.
+Added: Risks associated with the concentration of our lessees in certain geographical regions could harm our business or financial results.
+Added: Our business is sensitive to local economic and political conditions that can influence the performance of lessees located in a particular region.
+Added: European Concentration
+Added: Thirty-one lessees in Europe accounted for 92 aircraft, totaling 27% of the net book value of our aircraft at February 28, 2021.
+Added: Five lessees, accounting for 37 aircraft, are based in the U.K.
+Added: left the E.U.
+Added: on January 31, 2020.
+Added: The U.K.’s future relations with the E.U.
+Added: are still evolving and could potentially negatively impact carriers based in the U.K.
+Added: and to a lesser extent elsewhere in the E.U.
+Added: Asian Concentration
+Added: Twenty-three lessees in Asia accounted for 79 aircraft, totaling 37% of the net book value of our aircraft at February 28, 2021.
+Added: Growth in Asia has been strong, driven in large part by Southeast Asia and India.
+Added: Twelve lessees accounting for 36 aircraft are based in Southeast Asia and three lessees accounting for 22 aircraft are based in India.
+Added: There is risk of oversupply in the future driven by large outstanding order books of certain Southeast Asian and Indian carriers as well as infrastructure constraints.
+Added: North American Concentration
+Added: Eight lessees in North America accounted for 28 aircraft, totaling 12% of the net book value of our aircraft at February 28, 2021.
+Added: Consolidation in the U.S.
+Added: has helped drive capacity discipline and increased pricing power.
+Added: South American Concentration
+Added: Seven lessees in South America accounted for 26 aircraft, totaling 13% of the net book value of our aircraft at February 28, 2021.
+Added: One lessee in Chile accounted for thirteen aircraft, totaling 8% of the net book value of our aircraft at February 28, 2021.
+Added: Middle East and African Concentration
+Added: Seven lessees in the Middle East and Africa accounted for eleven aircraft, totaling 4% of the net book value of our aircraft at February 28, 2021.
Risks Related to Our Aviation Assets
−Removed: The variability of supply and demand for aircraft could depress lease rates for our aircraft, which would have an adverse effect on our financial results and growth prospects.
−Removed: The aircraft leasing and sales industry has experienced periods of aircraft oversupply and undersupply.
+Added: The variability of supply and demand for aircraft could depress lease rates for our aircraft.
+Added: The aircraft leasing and sales industry has experienced periods of aircraft oversupply.
The oversupply of a specific type of aircraft in the market is likely to depress aircraft lease rates for, and the value of, that type of aircraft.
2 unchanged sentences
• operating costs, including fuel costs, and general economic conditions affecting our lessees’ operations;
−Removed: interest rates;
−Removed: foreign exchange rates;
−Removed: the availability of credit;
+Added: • interest and foreign exchange rates, and the availability of credit;
• airline restructurings and bankruptcies;
1 unchanged sentence
• manufacturer production levels and technological innovation;
−Removed: discounting by manufacturers on aircraft types nearing end of production;
−Removed: manufacturers merging, exiting the industry or ceasing to produce aircraft types;
−Removed: new-entrant manufacturers producing additional aircraft models, or existing manufacturers producing newly engined aircraft models or new aircraft models, in competition with existing aircraft models;
+Added: • new-entrant manufacturers, or existing manufacturers producing new aircraft models;
• geopolitical events, including war, prolonged armed conflict and acts of terrorism;
−Removed: governmental regulation;
+Added: • governmental regulation, tariffs and other restrictions on trade;
• climate change initiatives, technological change, aircraft noise and emissions regulations, aircraft age limits and other factors leading to reduced demand for, early retirement or obsolescence of aircraft models;
−Removed: tariffs and other restrictions on trade;
• outbreaks of communicable diseases and natural disasters;
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• airport and air traffic control infrastructure constraints.
−Removed: These and other factors may produce sharp decreases or increases in aircraft values and lease rates, which would impact our cost of acquiring aircraft and our ability to grow the business, or which may result in lease defaults and also prevent the aircraft from being re-leased or sold on favorable terms.
−Removed: This could have an adverse effect on our financial results and growth prospects.
−Removed: Other factors that increase the risk of decline in aircraft value and lease rates could have an adverse effect on our financial results and growth prospects.
+Added: These and other factors may produce movements in aircraft values and lease rates, which would impact our cost of acquiring aircraft, or which may result in lease defaults or prevent aircraft from being re-leased or sold on favorable terms.
+Added: Other factors that could cause a decline in aircraft value and lease rates.
In addition to factors linked to the aviation industry generally, other factors that may affect the value and lease rates of our aircraft include:
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• whether the aircraft is subject to a lease and, if so, whether the lease terms are favorable to us;
−Removed: the demand for and availability of such aircraft at any given time;
−Removed: applicable airworthiness directives or manufacturer’s service bulletins that have not yet been performed on the aircraft;
+Added: • the demand for and availability of such aircraft;
+Added: • applicable airworthiness directives or manufacturer’s service bulletins that have not yet been performed;
• grounding orders or other regulatory action that could prevent or limit utilization of our aircraft;
−Removed: any regulatory and legal requirements that must be satisfied before the aircraft can be purchased, sold or re-leased;
−Removed: compatibility of our aircraft configurations or specifications with those desired by the operators of other aircraft of that type.
−Removed: Any decrease in the values of and lease rates for commercial aircraft which may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results and growth prospects.
+Added: • regulatory and legal requirements that must be satisfied before the aircraft can be purchased, sold or re-leased;
+Added: • compatibility of our aircraft configurations or specifications with those desired by operators.
+Added: Any decrease in the values of and lease rates for commercial aircraft which may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results.
The advent of superior aircraft technology and higher production levels could cause our existing aircraft portfolio to become outdated and therefore less desirable.
−Removed: As manufacturers introduce technological innovations and new types of aircraft, including the Boeing 787, the Airbus A350, the Airbus A220 (formerly the Bombardier C series) and re-engined and/or replacement types for the Boeing 737, Boeing 777, Airbus A320, Airbus A330 and Embraer E-Jet families of aircraft, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees or purchasers.
−Removed: This next generation of aircraft is expected to deliver improved fuel consumption and reduced noise and emissions with lower operating costs compared to current-technology aircraft.
−Removed: The Boeing 787 and 737 MAX and the Airbus A350, A320neo and A220 are all currently in production.
+Added: As manufacturers introduce technological innovations and new types of aircraft, including the Boeing 787, the Airbus A350, the Airbus A220 and re-engined models of the Boeing 737, Boeing 777, Airbus A320, Airbus A330 and Embraer E-Jet families of aircraft, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees or purchasers.
+Added: This next generation of aircraft generally delivers improved fuel consumption and reduced noise and emissions with lower operating costs compared to current-technology aircraft.
+Added: The Boeing 787 and 737 MAX and the
+Added: Airbus A350, A320neo and A220 are all currently in production.
The Boeing 777X is expected to enter service in 2023.
−Removed: Additionally, Commercial Aircraft Corporation of China Ltd., Mitsubishi and Russia’s United Aircraft Corporation are developing aircraft models that will compete with the Airbus A320 family aircraft, the Boeing 737 and the Embraer E-Jet.
−Removed: The introduction of these new models and the potential resulting overcapacity in aircraft supply, could adversely affect the residual values and the lease rates for our aircraft, our ability to lease or sell our aircraft on favorable terms, or at all, or result in us recording future impairment charges.
−Removed: The effects of energy, emissions, and noise regulations and policies may negatively affect the airline industry.
−Removed: This may cause lessees to default on their lease payment obligations to us and may limit the market for certain aircraft in our portfolio.
−Removed: Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is registered and operated.
−Removed: Jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards.
−Removed: In addition to the current requirements, the United States and ICAO have adopted a new, more stringent set of standards for noise levels which applies to engines manufactured or certified on or after January 1, 2006.
−Removed: Currently, U.S.
−Removed: regulations would not require any phase-out of aircraft that qualify with the older standards applicable to engines manufactured or certified prior to January 1, 2006, but the E.U.
−Removed: has established a framework for the imposition of operating limitations on aircraft that do not comply with the new standards.
−Removed: These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell these non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to make them compliant.
−Removed: In addition to noise restrictions, the U.S.
+Added: The Commercial Aircraft Corporation of China Ltd., and Russia’s United Aircraft Corporation are developing aircraft models that will compete with the Airbus A320 family aircraft, the Boeing 737 and the Embraer E-Jet.
+Added: The introduction of these new models and the potential resulting overcapacity in aircraft supply, could adversely affect the residual values and the lease rates for our aircraft, our ability to lease or sell our aircraft on favorable terms, or at all.
+Added: The effects of emissions and noise regulations and policies may negatively affect the airline industry.
+Added: This may cause lessees to default on their lease payment obligations and may limit the market for certain aircraft in our portfolio.
and other jurisdictions have imposed limits on aircraft engine emissions, such as NOx, CO and CO 2 , consistent with current ICAO standards.
+Added: In 2015, over 190 countries, including the United States, reached an agreement to reduce global GHG emissions at the United Nations Framework Convention on Climate.
+Added: The agreement does not expressly reference aviation, but if the agreement is implemented in the United States and other countries there could be an adverse effect on the aviation industry.
European countries have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity.
−Removed: has included the aviation sector in its emissions trading scheme (“ETS”), and attempted to apply the ETS to flights outside of European airspace.
−Removed: As a result of opposition from other countries to the E.U.
−Removed: effort, in 2014, the E.U.
−Removed: limited the application of the E.U.
−Removed: ETS to flights within the European Economic Area (“EEA”) and deferred any further application until 2024, pending a review of the results of a new initiative introduced by the promulgated by ICAO.
+Added: has included the aviation sector in its emissions trading scheme (“ETS”) but its application to flights within the European Economic Area (“EEA”) deferred any further application until 2024, pending a review of the results of a new initiative introduced by the promulgated by ICAO.
In October 2016, ICAO adopted a global market-based measure to control CO 2 emissions from international aviation.
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The CORSIA pilot phase (2021-2023) and the CORSIA first phase (2024-2026) will apply only to routes between countries that have each volunteered to participate in the scheme.
−Removed: All airlines that operate routes between two volunteering countries will be subject to the offsetting requirements, which means that any such airline must buy an emissions credit that has been verified as having reduced emissions elsewhere to offset the emissions that that airline would otherwise not have caused.
−Removed: The requirement to offset emissions will be divided among airlines in proportion to their total CO 2 emissions (but not the growth of emissions of the company), which is referred to as the “sectoral” approach to emissions.
−Removed: From 2030 onwards, this sectoral approach will transition to a new approach based on each airline’s individual rate of growth.
−Removed: From 2030-2032, 20% of offsets will be calculated according to this “individual” approach, and the remaining 80% calculated by the “sectoral” approach.
−Removed: In 2033-2035, 70% of the offset requirements will be based on the “individual” approach.
−Removed: In 2015, over 190 countries, including the United States, reached an agreement to reduce global GHG emissions at the United Nations Framework Convention on Climate.
−Removed: The agreement does not expressly reference aviation, but if the agreement is implemented in the United States and other countries there could be an adverse direct or indirect effect on the aviation industry as a whole.
−Removed: On June 1, 2017 the United States announced that it intends to withdraw from the 2015 agreement and gave notice officially on November 4, 2019.
−Removed: The withdrawal would be effective November 4, 2020.
−Removed: Over time, it is possible that governments will adopt additional regulatory requirements and/or market-based policies that are intended to reduce energy usage, emissions, and noise levels from aircraft.
−Removed: Such initiatives may be based on concerns regarding climate change, energy security, public health, local impacts, or other factors, and may also impact the global market for certain aircraft and cause behavioral shifts that result in decreased demand for air travel.
−Removed: These concerns could also result in greater limitations on the operation of our fleet, particularly aircraft equipped with older technology engines.
−Removed: Compliance with current or future regulations, taxes or duties could cause our lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel and adverse impacts on the financial condition of our lessees.
−Removed: Such compliance may also affect our lessees’ ability to make rental and other lease payments and limit the market for aircraft in our portfolio, which could have other negative effects on our financial position.
−Removed: The older age, or older technology, of some of our aircraft may expose us to higher than anticipated maintenance related expenses.
+Added: All airlines that operate routes between two volunteering countries will be subject to the offsetting requirements.
+Added: The requirement to offset emissions will be divided among airlines in proportion to their total CO 2 emissions, which is referred to as the “sectoral” approach to emissions.
+Added: From 2030 onwards, this sectoral approach will transition to an approach based on each airline’s individual rate of growth.
+Added: Governmental regulations apply based on where the aircraft is registered and operated.
+Added: Various jurisdictions have adopted noise regulations which require all aircraft to comply with noise level standards.
+Added: and ICAO have adopted a more stringent set of standards for noise levels which applies to engines manufactured or certified after January 1, 2006.
+Added: regulations do not require the phase-out of aircraft that qualified with the older standards applicable prior to 2006.
+Added: has established a framework for the imposition of operating limitations on aircraft that do not comply with the new standards.
+Added: These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell these non-compliant aircraft and engines or, if engine modifications are permitted, require us to make investments in the aircraft and engines to make them compliant.
+Added: Over time, it is possible that governments will adopt additional regulatory requirements and/or market-based policies to reduce emissions and noise levels from aircraft.
+Added: Such initiatives may be based on concerns regarding climate change, energy security, public health, local impacts, or other factors, and may impact the global market for certain aircraft and cause behavioral shifts that result in decreased demand for air travel.
+Added: These concerns could result in limitations on the operation of our fleet, particularly aircraft equipped with older technology engines.
+Added: Compliance with current or future regulations could cause our lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel and adverse impacts on the financial condition of our lessees.
+Added: Such compliance may also affect our lessees’ ability to make rental and other lease payments and limit the market for aircraft in our portfolio.
+Added: The older age of some of our aircraft may expose us to higher maintenance related expenses.
In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft.
−Removed: Additionally, older aircraft typically are less fuel-efficient than newer aircraft and may be more difficult to re-lease or sell, particularly if, due to increasing production rates by aircraft manufacturers or airline insolvencies or other distress, older aircraft are competing with newer aircraft in the lease or sale market.
+Added: Additionally, older aircraft typically are less fuel-efficient than newer aircraft and may be more difficult to re-lease or sell, particularly if, due to increasing production rates by aircraft manufacturers or airline insolvencies, older aircraft are competing with an excess of newer aircraft in the lease or sale market.
Expenses like fuel, carbon charges, aging aircraft inspections, maintenance or modification programs and related airworthiness directives could make the operation of older aircraft less economically viable and may result in increased lessee defaults.
We may also incur some of these increased maintenance expenses and regulatory costs upon acquisition or re-leasing of our aircraft.
−Removed: Re-leasing larger wide-body aircraft may result in higher reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.
−Removed: The concentration of aircraft types in our aircraft portfolio could lead to adverse effects on our business and financial results should any difficulties specific to these particular types of aircraft occur.
−Removed: Our owned aircraft portfolio is concentrated in certain aircraft types.
−Removed: Should any of these aircraft types (or other types we acquire in the future) or aircraft manufacturers encounter technical, financial or other difficulties, it would cause a decrease in value of these aircraft, an inability to lease the aircraft on favorable terms or at all, or a potential grounding of these aircraft, which may adversely impact our financial results, to the extent the affected aircraft types comprise a significant percentage of our aircraft portfolio.
−Removed: We operate in a highly competitive market for investment opportunities in aviation assets and for the leasing and sale of aircraft .
+Added: larger wide-body aircraft may result in higher reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.
+Added: The concentration of aircraft types in our aircraft portfolio could lead to adverse effects on our business should any difficulties specific to a particular type of aircraft occur.
+Added: Our portfolio is concentrated in certain aircraft types.
+Added: Should any aircraft types or any aircraft manufacturers encounter technical, financial or other difficulties, it would cause a decrease in value of these aircraft, an inability to lease them on favorable terms or at all, or a potential grounding of these aircraft, which may adversely impact our financial results, to the extent the affected type comprises a significant percentage of our portfolio.
+Added: We operate in a highly competitive market for investment opportunities and for the leasing and sale of aircraft .
We compete with other lessors, airlines, aircraft manufacturers, financial institutions, aircraft brokers and other investors with respect to aircraft acquisitions, leasing and sales.
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and (iii) aircraft sales.
−Removed: Competition varies among these three basic activities.
A number of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do.
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Some of our competitors may provide financial services, maintenance services or other inducements to potential lessees or buyers that we cannot provide.
−Removed: As a result of competitive pressures, we may not be able to take advantage of attractive investment opportunities from time to time, and we may not be able to identify and make investments that are consistent with our investment objectives.
−Removed: We continue to see lessors and airlines starting to manage the transition from current to newer technology and younger aircraft.
−Removed: Additionally, the barriers to entry in the aircraft acquisition and leasing market are comparatively low, and new entrants with private equity, hedge fund, Asian bank or other funding sources appear from time
+Added: As a result of competitive pressures, we may not be able to take advantage of attractive investment opportunities, and we may not be able to identify and make investments that are consistent with our investment objectives.
+Added: Additionally, the barriers to entry in the aircraft acquisition and leasing market are comparatively low, and new entrants appear from time to time.
We may not be able to compete effectively against present and future competitors in the aircraft acquisition, leasing or sales market.
−Removed: Risks Related to our Order of New Embraer E-Jet E2 Aircraft
−Removed: We have lease commitments for fourteen of the 25 Embraer E-Jet E2 aircraft that we contracted to purchase from Embraer and are scheduled for delivery between the third quarter of 2020 and second quarter of 2024.
−Removed: We do not yet have lease commitments for the remaining deliveries nor have we put financing in place for any of the Embraer E-Jet E2 aircraft deliveries.
−Removed: Our ability to lease these aircraft on favorable terms, if at all, may be adversely affected by desirability of this aircraft type and risks to the commercial airline industry generally.
−Removed: If we are unable to obtain commitments for the remaining deliveries or the necessary financing, if needed, or otherwise satisfy our contractual obligations to Embraer, we will be subject to several potential risks, including:
+Added: Our ability to lease our new Embraer E-Jet E2 aircraft on favorable terms, if at all, may be adversely affected by desirability of this aircraft type and risks to the commercial airline industry generally.
+Added: We have lease commitments for eighteen of the 25 Embraer E-Jet E2 aircraft that we contracted to purchase from Embraer and are scheduled for delivery between the first quarter of 2021 and the fourth quarter of 2025.
+Added: We have not put financing in place for any of the Embraer E-Jet E2 aircraft deliveries.
+Added: Our ability to lease these aircraft on favorable terms, if at all, may be adversely affected by desirability of this aircraft type.
+Added: If we are unable to obtain commitments for the remaining deliveries or the necessary financing, if needed, or otherwise satisfy our contractual obligations to Embraer, we may be subject to several potential risks, including:
• forfeiting advance deposits and progress payments to Embraer, as well as incurring certain significant costs related to these commitments such as contractual damages and legal, accounting and financial advisory expenses;
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• failing to realize the benefits of purchasing and leasing such aircraft.
−Removed: risking harm to our business reputation, which would make it more difficult to purchase and lease aircraft in the future on agreeable terms, if at all.
−Removed: The Embraer E-Jet E2 is a new aircraft variant and first entered service in April 2018.
−Removed: The Embraer E-Jet E2 aircraft incorporates a modified version of the Pratt & Whitney geared turbofan engine.
−Removed: Airframe and engine manufacturers have occasionally experienced delays and technical difficulties in bringing new aircraft and engine types to market.
−Removed: If any aircraft for which we have made future lease commitments is delayed or if Embraer is unable to produce the aircraft in compliance with the performance specifications, some or all of our affected lessees might be able to terminate their leases with respect to such aircraft.
+Added: The Embraer E-Jet E2 is a new aircraft variant which first entered service in April 2018.
Our purchase agreement with Embraer and the anticipated future leases for these aircraft contain certain cancellation rights related to delays in delivery.
−Removed: Any such termination could strain our relations with those lessees going forward.
−Removed: Lastly, we will rely on Embraer to return any advance deposits and progress payments if they are unable to meet their obligations to us, and we may not be able to recover such amounts if Embraer defaults or becomes insolvent.
−Removed: In July 2018, Airbus and Bombardier completed a previously announced partnership for the C-series aircraft (now known as the Airbus A220 model), which competes with the E-Jet E2.
−Removed: In December 2018, Boeing and Embraer announced a strategic partnership.
−Removed: As of today, the transaction has received the approval of both the U.S.
−Removed: and Brazil but the European Commission has yet to approve it.
−Removed: No assurance can be given that the Boeing and Embraer strategic partnership will receive European Commission approval, and that even if the transaction is consummated, what the implications could be for our commitments and the E-Jet E2 program.
−Removed: Any of these events could materially and adversely affect our financial results and operations.
+Added: We rely on Embraer to return any advance deposits and progress payments if they are unable to meet their obligations to us, and we may not be able to recover such amounts if Embraer defaults or becomes insolvent.
+Added: In April 2020, Boeing announced the termination of the previously announced strategic partnership with Embraer and said that it will no longer be proceeding with a transaction to acquire Embraer’s commercial operations, including the E-Jet E2 aircraft line.
+Added: Embraer remaining a stand-alone regional jet manufacturer may negatively impact the E-Jet E2 program.
+Added: The uncertainty relating to the Boeing 737 MAX groundings and the rate of Boeing’s continued production could negatively impact our lessees’ financial condition, lease rates, demand for other aircraft types and the value of the aircraft in our fleet.
+Added: In March 2019, as a result of two fatal accidents, airlines and regulators grounded the worldwide fleet of Boeing 737 MAX aircraft.
+Added: Starting with the FAA in November 2020, these grounding notices have been progressively lifted in the U.S., E.U., Canada, Brazil and United Kingdom.
+Added: Boeing has restarted production and begun to deliver aircraft previously produced but not delivered.
+Added: The uncertainty surrounding the duration of the grounding in other jurisdictions such as China where it has not yet been lifted, and the rate of Boeing’s continued production could negatively impact our lessees’ financial condition, lease rates, demand for other aircraft types and the value of the aircraft in our fleet.
+Added: A similar type of grounding for other aircraft types that we have in our fleet, or have commitments to purchase, could also negatively affect our financial results.
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.
−Removed: The standards of maintenance observed by the various lessees and the condition of the aircraft at the time of lease or sale may affect the future values and rental rates for our aircraft.
−Removed: Under our leases, the relevant lessee is responsible for maintaining the aircraft and complying with all governmental requirements applicable to the lessee and the aircraft, including, without limitation, operational, maintenance, and registration requirements and airworthiness directives, although in certain cases we may agree to share certain of these costs.
+Added: The standards of maintenance observed by lessees and the condition of the aircraft may affect the future values and rental rates for our aircraft.
+Added: Under our leases, the lessee is responsible for maintaining the aircraft and complying with all governmental requirements applicable to the lessee and the aircraft, including, without limitation, operational, maintenance, and registration requirements and airworthiness directives, although in certain cases we may agree to share certain of these costs.
Failure of a lessee to perform required aircraft maintenance or required airworthiness directives could result in a decrease in value of such aircraft, an adverse effect on our ability to lease the aircraft at favorable rates or at all, or a potential grounding of such aircraft, and will likely require us to incur increased maintenance and modification costs upon the expiration or earlier termination of the applicable lease, which could be substantial, to restore such aircraft to an acceptable condition.
If any of our aircraft are not subject to a lease, we would be required to bear the entire cost of maintaining that aircraft and performing any required airworthiness directives.
−Removed: Certain of our leases provide that the lessee is required to make periodic payments to us during the lease term in order to provide cash reserves for major maintenance.
+Added: Certain of our leases provide that the lessee is required to make periodic payments to us during the lease term to provide reserves for major maintenance events.
In these leases there is an associated liability for us to reimburse the lessee after such maintenance is performed.
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Typically, these lessees are required to make payments at the end of the lease term.
−Removed: However, in the event such lessees default, the value of the aircraft could be negatively affected by the maintenance condition and we may be required to fund the entire cost of performing major maintenance on the relevant aircraft without, in either case, having received compensating maintenance payments from these lessees.
+Added: However, in the event such lessees default, the value of the aircraft could be negatively affected by the maintenance condition and we may be required to fund the entire cost of performing major maintenance on the relevant aircraft without having received compensating maintenance payments from these lessees.
Even if we receive maintenance payments, these payments may not cover the entire expense of the scheduled maintenance they are intended to fund.
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By virtue of holding title to the aircraft, lessors may be held strictly liable for losses resulting from the operation of aircraft or may be held liable for those losses based on other legal theories.
−Removed: Liability may be placed on an aircraft lessor in certain jurisdictions around the world even under circumstances in which the lessor is not directly controlling the operation of the relevant aircraft.
+Added: Liability may be placed on an aircraft lessor in certain jurisdictions even under circumstances in which the lessor is not directly controlling the operation of the aircraft.
Lessees are required under our leases to indemnify us for, and insure against, liabilities arising out of the use and operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we may be deemed liable.
−Removed: Lessees are also required to maintain public liability, property damage and hull all risk and hull war risk insurance on the aircraft at agreed upon levels.
+Added: Lessees are required to maintain public liability, property damage and hull all risk and hull war risk insurance on the aircraft at agreed upon levels.
However, they are not generally required to maintain political risk insurance.
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Subsequent changes in applicable law or administrative practice may increase such requirements and a governmental consent, once given, might be withdrawn.
−Removed: Furthermore, consents needed in connection with future re-leasing or sale of an aircraft may not be forthcoming.
+Added: Consents needed in connection with future re-leasing or sale of an aircraft may not be forthcoming.
Any of these events could adversely affect our ability to re-lease or sell aircraft.
−Removed: Due to the fact that many of our lessees operate in emerging markets, we are indirectly subject to many of the economic and political risks associated with competing in such markets.
−Removed: Emerging markets are countries which may be more vulnerable to economic and political problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil disturbances, government instability, nationalization and expropriation of private assets, unfavorable legal systems, change in law regarding recognition of contracts or ownership rights, changes in governments or government policy and the imposition of taxes or other charges by governments.
−Removed: The occurrence of any of these events in markets served by our lessees and the resulting instability may adversely affect our ownership interest in an aircraft or the ability of lessees which operate in these markets to meet their lease obligations and these lessees may be more likely to default than lessees that operate in developed economies.
−Removed: For the year ended December 31, 2019 , 59 of our lessees, which operated 163 aircraft and generated 65% of our lease rental revenue, are domiciled or habitually based in emerging markets.
−Removed: Risks Related to Our Lessees
−Removed: Lessee defaults could materially adversely affect our business, financial condition and results of operations.
−Removed: As a general matter, airlines with weak capital structures are more likely than well-capitalized airlines to seek operating leases, and, at any point in time, investors should expect a varying number of lessees and sub-lessees to experience payment difficulties.
−Removed: As a result of their weak financial condition and lack of liquidity, a portion of lessees over time may be significantly in arrears in their rental or maintenance payments.
−Removed: This is likely to continue to be the case in the future, particularly in difficult economic or operating environments.
−Removed: Liquidity issues are more likely to lead to airline failures in the periods of financial system distress, volatile fuel prices, and economic slowdown, with additional liquidity being more difficult and expensive to source.
−Removed: Given the size of our aircraft portfolio, we expect that from time to time some lessees will be slow in making, or will fail to make, their payments in full under their leases.
−Removed: We may not correctly assess the credit risk of a lessee or may not be in a position to charge risk-adjusted lease rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future.
−Removed: A delayed, reduced or missed rental payment from a lessee decreases our revenues and cash flow and may adversely affect our ability to make payments on our indebtedness or to comply with debt service coverage or interest coverage ratios.
−Removed: A default, delay or deferral of payments from a lessee where we have a significant exposure or concentration risk could have a materially adverse impact on our revenue and cash flows.
−Removed: We may experience some level of delinquency under our leases and default levels may increase over time, particularly as our aircraft portfolio ages and if economic conditions deteriorate.
−Removed: A lessee may experience periodic difficulties that are not financial in nature, which could impair its performance of maintenance obligations under the leases.
−Removed: These difficulties may include the failure to perform required aircraft maintenance and labor-management disagreements or disputes.
−Removed: In the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee may not be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance and transition expenses.
−Removed: If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and in significant reductions in our cash flow or adversely affect our financial results.
−Removed: When a lessee is late in making payments, fails to make payments in full or in part under the lease or has otherwise advised us that it will in the future fail to make payments in full or in part under the lease, we may elect to or be required to restructure the lease.
−Removed: Restructuring may involve anything from a simple rescheduling of payments to the termination of a lease without receiving all or any of the past due amounts.
−Removed: If requests for payment restructuring or rescheduling are made and granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the lease,
−Removed: and the terms of any revised payment schedules may be unfavorable or such payments may not be made.
−Removed: We may be unable to agree upon acceptable terms for any requested restructurings and as a result may be forced to exercise our remedies under those leases and we may be unable to repossess our aircraft on a timely basis.
−Removed: If we, in the exercise of our remedies, repossess the aircraft, we may not be able to re-lease the aircraft promptly at favorable rates, or at all.
−Removed: The terms and conditions of payment restructurings or reschedulings, particularly involving lessees where we have significant exposure or concentration risk, may result in significant reductions of rental payments, which may adversely affect our cash flows or our financial results.
−Removed: Significant costs resulting from lease defaults could have a material adverse effect on our business.
−Removed: While we have the right to repossess the aircraft and to exercise other remedies upon a lessee default, repossession of an aircraft after a lessee default could lead to significantly increased costs for us.
−Removed: Those costs include legal and other expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings or is in bankruptcy, and costs to obtain possession and/or de-registration of the aircraft and flight and export permissions.
−Removed: Delays resulting from any of these proceedings would increase the period of time during which the relevant aircraft is not generating revenue.
−Removed: We may also incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to incur or pay and that are necessary to put the aircraft in suitable condition for re-lease or sale.
−Removed: We may be required to pay off liens, claims, taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the aircraft for re-lease or sale.
−Removed: We may also incur maintenance, storage or other costs while we have physical possession of the aircraft.
−Removed: We may suffer other adverse consequences as a result of a lessee default and the termination of the lease and the repossession of the related aircraft.
−Removed: Our rights upon a lessee default vary significantly depending upon the jurisdiction, including the need to obtain a court order for repossession of the aircraft and/or consents for de-registration or re-export of the aircraft.
−Removed: When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply.
−Removed: Certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or entitle the lessee or another third party to retain possession of the aircraft without paying lease rentals or without performing all or some of the obligations under the relevant lease.
−Removed: There can be no assurance that jurisdictions that have adopted the Cape Town Convention, which provides for uniformity and certainty for repossession of aircraft, will enforce it as written.
−Removed: Certain of our lessees are owned in whole or in part by government-related entities, which could complicate our efforts to repossess the relevant aircraft.
−Removed: Accordingly, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing or selling the affected aircraft.
−Removed: If we repossess an aircraft, we may not necessarily be able to export or de-register and profitably redeploy the aircraft.
−Removed: When a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist de-registration.
−Removed: Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the aircraft and obtaining a certificate of airworthiness for the aircraft.
−Removed: A default and exercise of remedies involving a lessee where we have a significant exposure or concentration risk could have a materially adverse impact on our future revenue and cash flows.
−Removed: Adverse currency movements could negatively affect our lessees’ ability to honor the terms of their leases and could materially adversely affect our business, financial condition and results of operations.
−Removed: Many of our lessees are exposed to currency risk due to the fact that they earn revenues in their local currencies while a significant portion of their liabilities and expenses, including fuel, debt service, and lease payments are denominated in U.S.
−Removed: In the case of a devaluation of the local currency, our lessees may not be able to increase revenue sufficiently to offset the impact of exchange rates on these expenses.
−Removed: This is particularly true for non-U.S.
−Removed: airlines whose operations are primarily domestic.
−Removed: Currency volatility, particularly in emerging market countries, could impact the ability of some of our customers to meet their contractual obligations in a timely manner.
−Removed: Shifts in foreign exchange rates can be significant, are difficult to predict, and can occur quickly.
−Removed: Airline reorganizations could have an adverse effect on our financial results.
−Removed: As a result of economic conditions, significant volatility in oil prices and financial markets distress, airlines may be forced to reorganize.
−Removed: Bankruptcies and reduced demand may lead to the grounding of significant numbers of aircraft and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values.
−Removed: Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms, or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively would
−Removed: have an adverse effect on our financial results.
−Removed: We may not recover any of our claims or damages against an airline under bankruptcy or insolvency protection.
−Removed: If our lessees fail to appropriately discharge aircraft liens, we might find it necessary to pay such claims.
−Removed: In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges (including charges imposed by Eurocontrol), landing charges, crew wages, repairer’s charges, salvage or other liens, are likely, depending on the jurisdiction, to attach to the aircraft.
−Removed: These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens (particularly “fleet liens”), exceed the value of the relevant aircraft.
−Removed: Although the financial obligations relating to these liens are the responsibility of our lessees, if they fail to fulfill their obligations, these liens may attach to our aircraft and ultimately become our responsibility.
−Removed: Until these liens are discharged, we may be unable to repossess, re-lease or sell the aircraft or unable to avoid detention or forfeiture of the aircraft.
−Removed: Our lessees may not comply with their obligations under their respective leases to discharge liens arising during the terms of their leases, whether or not due to financial difficulties.
−Removed: If they do not do so, we may, in some cases, find it necessary to pay the claims secured by any liens in order to repossess the aircraft.
−Removed: Risks associated with the concentration of our lessees in certain geographical regions could harm our business or financial results.
−Removed: Our business is sensitive to local economic and political conditions that can influence the performance of lessees located in a particular region.
−Removed: European Concentration
−Removed: Thirty-four lessees in Europe accounted for 99 aircraft, totaling 26% of the net book value of our aircraft at December 31, 2019 .
−Removed: Five lessees, accounting for 42 aircraft, are based in the U.K.
−Removed: left the E.U.
−Removed: on January 31, 2020.
−Removed: The final terms of the U.K.’s future relations with the E.U.
−Removed: remain unclear and could potentially negatively impact carriers based in the U.K.
−Removed: and to a lesser extent elsewhere in the E.U.
−Removed: Asian Concentration
−Removed: Twenty-five lessees in Asia accounted for 94 aircraft, totaling 38% of the net book value of our aircraft at December 31, 2019 .
−Removed: Growth in Asia has been strong, driven in large part by Southeast Asia and India.
−Removed: Eleven lessees accounting for 40 aircraft are based in Southeast Asia and four lessees accounting for 29 aircraft are based in India.
−Removed: There is risk of oversupply in the future driven by large outstanding order books of certain Southeast Asian and Indian carriers as well as infrastructure constraints.
−Removed: Asian airlines continue to face competition from new entrants and the growth of low cost carriers in the region.
−Removed: North American Concentration
−Removed: Ten lessees in North America accounted for 40 aircraft, totaling 13% of the net book value of our aircraft at December 31, 2019 .
−Removed: Consolidation among major airlines in the U.S.
−Removed: has helped drive capacity discipline and pricing power.
−Removed: South American Concentration
−Removed: Seven lessees in South America accounted for 26 aircraft, totaling 15% of the net book value of our aircraft at December 31, 2019 .
−Removed: One lessee in Chile accounted for thirteen aircraft, totaling 9% of the net book value of our aircraft at December 31, 2019 .
−Removed: Middle East and African Concentration
−Removed: Eight lessees in the Middle East and Africa accounted for sixteen aircraft, totaling 7% of the net book value of our aircraft at December 31, 2019 .
−Removed: One lessee in South Africa accounted for four aircraft totaling 3% of net book value.
−Removed: Risks Related to the Aviation Industry
−Removed: Fuel prices significantly impact the profitability of the airline industry.
−Removed: If fuel prices rise in the future, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and growth prospects.
−Removed: Fuel costs represent a major expense to airlines.
−Removed: Fuel prices fluctuate widely depending primarily on international market conditions, geopolitical and environmental events and currency/exchange rates.
−Removed: As a result, fuel costs are not within the control of lessees and significant changes would materially affect their operating results.
−Removed: Due to the competitive nature of the airline industry, airlines may be unable to pass on increases in fuel prices to their customers by increasing fares in a manner that fully compensates for the costs incurred.
−Removed: Higher and more volatile fuel prices may also have an impact on consumer confidence and spending, and thus may adversely impact demand for air transportation.
−Removed: In addition, airlines may not be able to successfully manage their exposure to fuel price fluctuations.
−Removed: If fuel prices increase due to future terrorist attacks, acts of war, armed hostilities, rebellion or political instability, natural disasters or for any other reason, they are likely to cause our lessees to incur higher costs and/or generate lower revenues, resulting in an adverse impact on their financial condition and liquidity.
−Removed: Fuel cost volatility may contribute to the reluctance of airlines to make future commitments to leased aircraft and reduce the demand for lease aircraft.
−Removed: Consequently, these conditions may:
−Removed: (i) affect our lessees’ ability to make rental and other lease payments;
−Removed: (ii) result in lease restructurings and/or aircraft repossessions;
−Removed: (iii) increase our costs of re-leasing or selling our aircraft;
−Removed: or (iv) impair our ability to re-lease or sell our aircraft on a timely basis at favorable rates or terms, or at all.
−Removed: The effects of terrorist attacks and geopolitical conditions might adversely impact the financial condition of the airlines and our lessees might not be able to meet their lease payment obligations.
−Removed: War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase the operating costs of our customers.
−Removed: Terrorist incidents and other international tensions may lead to regional or broader international instability.
−Removed: Future terrorist attacks, war or armed hostilities, large protests or government instability, or the fear of such events, could further negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results.
−Removed: Terrorist attacks and geopolitical conditions can negatively affected the airline industry, and concerns about geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees), resulting in:
−Removed: (i) higher costs due to the increased security measures;
−Removed: (ii) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security measures;
−Removed: (iii) higher price of jet fuel;
−Removed: (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all;
−Removed: (v) significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available;
−Removed: (vi) limited ability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above;
−Removed: and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.
−Removed: Economic conditions and regulatory changes resulting from the United Kingdom’s (“U.K.”) probable exit from the E.U.
−Removed: could have an adverse effect on our business.
−Removed: In June 2016, voters in the U.K.
−Removed: approved a referendum to exit from the E.U., known as Brexit and the U.K.
−Removed: subsequently left the E.U.
−Removed: on January 31, 2020, though current trade arrangements will remain in place during a transition period, set to end in December 2020.
−Removed: Brexit could result in adverse consequences, including deterioration in economic conditions, volatility in currency exchange rates or adverse impact to air travel and the air freight market.
−Removed: These impacts may negatively impact the airline and finance industries.
−Removed: Future trade arrangements are being negotiated and could have an adverse effect on U.K.
−Removed: carriers, and to a lesser extent other carriers.
−Removed: The effects of Brexit on us will depend on the resulting agreements regarding trade and travel made between the U.K.
−Removed: Epidemic diseases, severe weather conditions, natural disasters or their perceived effects may negatively impact the airline industry and our lessees’ ability to meet their lease payment obligations to us.
−Removed: Recently, a novel strain of coronavirus first identified in Wuhan, Hubei Province, China has led to travel restrictions and cancellation of flights impacting some of our customers.
−Removed: While it is difficult to predict the extent to which the virus may spread both within and beyond China, the outbreak could lead to further restrictions and negatively impact demand for air travel, which could affect our airline customers and have an adverse effect on our financial performance.
−Removed: In addition, if another outbreak of epidemic diseases were to occur, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease.
−Removed: Even if restrictions are not implemented, passengers may voluntarily choose to reduce travel.
−Removed: Additional outbreaks of epidemic diseases, or the fear of such events, could result in travel bans or could have an adverse effect on our financial results.
−Removed: Similarly, demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to their lease payment obligations to us, which could negatively impact our financial results.
−Removed: Risks Related to the Boeing 737 MAX Groundings
−Removed: As a result of two fatal accidents of Boeing 737 MAX aircraft within five months of each other, airlines and regulators grounded the worldwide fleet of Boeing 737 MAX aircraft in March 2019.
−Removed: Boeing continued to produce 737 MAX aircraft until January 2020, and these aircraft remain undelivered.
−Removed: The duration of the Boeing 737 MAX grounding and the timing of its eventual return to service are uncertain, and it is also uncertain when Boeing may resume production and at what rate it may produce these aircraft.
−Removed: We do not own, nor do we have commitments to purchase, any Boeing 737 MAX aircraft.
−Removed: Nevertheless, the uncertainty surrounding the duration of the grounding, the rate of Boeing’s continued production and the timing and implications of any return to service could negatively impact our lessees’ financial condition, lease rates, demand for other aircraft types and the value of the aircraft in our fleet.
−Removed: A similar type of grounding for other aircraft types that we have in our fleet, or have commitments to purchase, could also negatively affect our financial results.
+Added: As many of our lessees operate in emerging markets, we are indirectly subject to the economic and political risks associated with such markets.
+Added: Emerging markets may be more vulnerable to economic and political problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, government instability, nationalization and expropriation of private assets, unfavorable legal systems, change in law regarding recognition of contracts or ownership rights, changes in governments or government policy and the imposition of taxes or other charges by governments.
+Added: The occurrence of these events may adversely affect our ownership interest in an aircraft or the ability of our lessees to meet their lease obligations.
+Added: For the year ended February 28, 2021, 57 of our lessees, which operated 148 aircraft and generated 61% of our lease rental revenue, are domiciled or habitually based in emerging markets.
+Added: Risks Related to Our Operations
+Added: The global impact of COVID-19 has significantly impacted, and could continue to significantly and adversely affect, our business, financial condition and results of operations.
+Added: The COVID-19 crisis has had an unprecedented negative impact on the global economy, and in particular on the aviation sector.
+Added: There has been a dramatic slowdown in air traffic, with many markets in near complete shutdown.
+Added: While recently there have been some limited improvements in certain markets, according to International Air Transport Association (the “IATA”), as of February 2021, air travel is still down to approximately 30% of normal levels and a full
+Added: recovery to pre-pandemic levels is not expected for several years.
+Added: IATA estimates this situation will cost the airline industry over $510 billion of lost revenue, a number which may be revised upwards.
+Added: Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges, including many of our customers, and this could adversely affect our lessees’ ability to fulfill their lease payment obligations to us.
+Added: 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 economic shock are material;
+Added: the extent and duration of those impacts cannot currently be determined.
+Added: 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.
+Added: Some have sought judicial protection.
+Added: We have agreed to defer lease payments with numerous airline customers, which they are obligated to repay over time.
+Added: As of April 15, 2021, we have agreed to defer $108.4 million in near-term lease payments of which $87.4 million are included in Accounts receivable or Other assets as of February 28, 2021.
+Added: This represents approximately 17% of lease rental and direct financing and sales-type lease revenues for the twelve months ended February 28, 2021.
+Added: These deferrals have been agreed to with 26 airlines, representing 35% of our customers, for an average deferral of five months of lease rentals.
+Added: 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.
+Added: 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 some of our customers or extend the period of repayment for deferrals we have already made.
+Added: We may ultimately not be able to collect all the amounts we have deferred.
+Added: As of April 15, 2021, seven of our customers are subject to judicial insolvency proceedings.
+Added: We lease 23 aircraft to these customers, which comprise 14% of our net book value of flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) and 12% of our lease rental revenue as of and for the year ended February 28, 2021.
+Added: One of these customers is LATAM, our second largest customer, which represents 8% of our net book value of flight equipment and 6% of our lease rental revenue as of and for the year ended February 28, 2021.
+Added: Based on historic experience, the judicial process can take up to twelve to eighteen months to be resolved.
+Added: We are actively engaged in these judicial proceedings to protect our economic interests.
+Added: However, the outcome of these proceedings is uncertain and could result in these customers grounding our aircraft, negotiating reductions in aircraft lease rentals, rejecting the leases or taking other actions that could adversely impact us or the value of our aircraft.
+Added: 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.
+Added: We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months.
+Added: as of April 1, 2021, total liquidity of $2.32 billion includes $1.25 billion of undrawn credit facilities, $609 million of unrestricted cash, $123 million of contracted asset sales and $340 million of projected operating cash flows through April 1, 2022.
+Added: See “Capitalization.” As of February 28, 2021, we have commitments to acquire 25 aircraft for $825.1 million, excluding manufacturer credits, between 2022-2026.
+Added: 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.
+Added: Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.
+Added: We also believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will enable us to take advantage of new investment opportunities when they arise.
+Added: We employ a team of experienced senior professionals with extensive industry and financial experience.
+Added: Our leadership team members have an average of more than twenty years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 global financial crisis and the September 11, 2001 terror attacks.
+Added: Volatile financial market conditions may adversely impact our liquidity, our access to capital and our cost of capital and may adversely impact the airline industry and the financial condition of our lessees.
+Added: The availability and pricing of capital in the commercial bank market and in the unsecured bond market remain susceptible to global events, including political changes, rising interest rates, currency fluctuations, the rate of international economic growth and implications from changes in oil prices.
+Added: If we need, but cannot obtain, adequate
+Added: capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition, results of operations could be materially adversely affected.
+Added: We bear the risk of re-leasing and selling our aircraft.
+Added: We bear the risk of re-leasing or selling our aircraft in order to continue to generate cash flows.
+Added: As only a portion of an aircraft’s value is covered by contractual cash flows from leases, we are exposed to the risk that the residual value will not be sufficient to permit us to fully recover our investment and that we may have to record impairment charges.
+Added: In certain cases we commit to purchase aircraft that are not subject to lease and therefore are subject to lease placement risk.
+Added: Other factors that may affect our ability to fully realize our investment in our aircraft and that may increase the likelihood of impairment charges include credit deterioration of a lessee, higher fuel prices which may reduce demand for older, less fuel efficient aircraft, additional environmental regulations, age restrictions, customer preferences and other factors that may effectively shorten the useful life of older aircraft.
+Added: We own and lease long-lived assets and have written down the value of some of our assets.
+Added: If market conditions worsen, or in the event of a customer default, we may be required to record further write-downs.
+Added: We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually.
+Added: In addition, a recoverability assessment is performed whenever events or changes in circumstances indicate that the carrying amount or net book value of an asset may not recoverable.
+Added: Possible indicators include a significant lease restructuring or early lease termination, a significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type that is no longer in production or significant airworthiness directive that is issued.
+Added: We are closely monitoring the impact of the COVID-19 pandemic 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.
+Added: We will continue to focus on customers that have or may enter judicial insolvency proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deterioration.
+Added: The recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows.
+Added: 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.
+Added: 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.
+Added: If our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges.
+Added: Our ability to obtain debt financing and our cost of debt financing is, in part, dependent upon our credit ratings and a credit downgrade or being put on negative watch could adversely impact our financial results.
+Added: Maintaining our credit ratings depends on our financial results and on other factors, including the outlook of the ratings agencies on our sector and on the market generally.
+Added: A credit rating downgrade or being put on negative watch may make it more difficult or costly for us to raise debt financing in the unsecured bond market, or may result in higher pricing or less favorable terms under other financings.
+Added: Credit rating downgrades or being put on negative watch, may make it more difficult and/or more costly to satisfy our funding requirements.
+Added: Any future tightening or regulation of financial institutions could impact our ability to raise funds in the commercial bank loan market in the future.
+Added: An increase in our borrowing costs may adversely affect our earnings.
+Added: Some of our aircraft are financed under long-term debt financings.
+Added: As these financings mature, we will be required to either refinance these instruments by entering into new financings, which could result in higher borrowing costs, or repay them by using cash on hand or cash from the sale of our assets.
+Added: Departure of key officers could harm our business and financial results.
+Added: Our senior management’s reputations and relationships with lessees, sellers, buyers and financiers of aircraft are a critical element of our business.
+Added: We encounter intense competition for qualified employees from other companies in the aircraft leasing industry, and we believe there are only a limited number of available qualified executives in our industry.
+Added: The Company seeks to retain a pipeline of senior management personnel with superior talent to provide continuity of
+Added: succession, including for the Chief Executive Officer position and other senior positions.
+Added: Our Board of Directors is involved in succession planning, including review of short- and long-term succession plans for senior positions.
+Added: Our future success depends, to a significant extent, upon the continued service of our senior management personnel, including the Chief Executive Officer, and if we lose one or more of these individuals, our business could be adversely affected.
+Added: We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to compete with our competitors.
+Added: As of February 28, 2021, our total indebtedness was $5.14 billion, representing 74.8% of our total capitalization.
+Added: Aircastle Limited is either the principal obligor or has guaranteed most of this indebtedness, and we are responsible on a full recourse basis for timely payment when due and compliance with covenants under the related debt documentation.
+Added: We may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness, and our substantial amount of indebtedness may increase our vulnerability to adverse economic and industry conditions, reduce our flexibility in planning for or reaction to changes in the business environment or in our business or industry, and adversely affect our cash flow and our ability to operate our business and compete with our competitors.
+Added: Our indebtedness subjects us to certain risks, including:
+Added: • 17.3% of our net book value serves as collateral for our secured indebtedness, and the terms of certain of our indebtedness require us to use proceeds from sales of certain aircraft, in part, to repay amounts outstanding under such indebtedness;
+Added: • our failure to comply with the terms of our indebtedness, including restrictive covenants, may result in additional interest being due or defaults that could result in the acceleration of the principal, and unpaid interest on, the defaulted debt, as well as the forfeiture of any aircraft pledged as collateral;
+Added: • non-compliance with covenants prohibiting certain investments and other restricted payments, raise additional capital or refinance our existing debt, may reduce our operational flexibility and limit our ability to refinance.
+Added: The provisions of our long-term financings require us to comply with financial and other covenants.
+Added: Our compliance with these ratios, tests and covenants depends upon, among other things, the timely receipt of lease payments from our lessees and upon our overall financial performance.
+Added: • Senior Notes.
+Added: Our senior note indentures impose operating and financial restrictions on our activities.
+Added: These restrictions limit our ability to, or in certain cases prohibit us from, incurring or guaranteeing additional indebtedness, refinancing our existing indebtedness, making other restricted payments, making certain investments or entering into joint ventures and a cross-default to certain other financings of the Company.
+Added: • Bank Financings.
+Added: Our secured bank financings contain, among other customary provisions, a $500 million minimum net worth covenant, a cross-default to certain other financings of the Company, and for one portfolio financing, a minimum debt service coverage ratio of 1.15.
+Added: • Unsecured Revolving Credit Facilities and Loan.
+Added: Our unsecured revolving credit facilities/loan contain $750 million minimum net worth covenants, minimum unencumbered asset ratios, minimum interest coverage ratios and cross-defaults to certain other financings of the Company.
+Added: • ECA Financings.
+Added: Our ECA Financings contain a $500 million minimum net worth covenant and also contain, among other customary provisions, a material adverse change default and a cross-default to certain other financings of the Company.
+Added: The terms of our financings also restrict our ability to incur or guarantee additional indebtedness or engage in mergers, amalgamations or consolidations among our subsidiary companies or between a subsidiary company and a third party or otherwise dispose of all or substantially all of our assets.
+Added: We are subject to various risks and requirements associated with transacting business in foreign jurisdictions.
+Added: The international nature of our business exposes us to trade and economic sanctions and other restrictions imposed by the U.S.
+Added: and other governments.
+Added: Departments of Justice, Commerce and Treasury, as well as other agencies and authorities have a broad range of civil and criminal penalties, they may seek to impose against companies for violations of export controls, the Foreign Corrupt Practices Act (“FCPA”), and other federal statutes, sanctions and regulations, including those established by the Office of Foreign Assets Control (“OFAC”).
+Added: Increasingly, similar or more restrictive foreign laws, rules and regulations, including the U.K.
+Added: Bribery Act (“UKBA”), may also apply to us.
+Added: By virtue of these laws and regulations, we may be obliged to limit our business activities, we may incur costs for compliance
+Added: programs and we may be subject to enforcement actions or penalties for noncompliance.
+Added: In recent years, U.S.
+Added: and foreign governments have increased their oversight and enforcement activities with respect to these laws, and we expect the relevant agencies to continue to increase these activities.
+Added: We have compliance policies and training programs in place for our employees with respect to FCPA, OFAC Regulations, UKBA and similar laws, but there can be no assurance that our employees, consultants or agents will not engage in conduct for which we may be held responsible.
+Added: Violations of FCPA, OFAC Regulations, UKBA and other laws, sanctions or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities.
+Added: The General Data Protection Regulation (“GDPR”) that took effect in May 2018, requires us to protect certain personal data of E.U.
+Added: While we have implemented processes and controls to comply with GDPR requirements, the manner in which the E.U.
+Added: will interpret and enforce certain provisions remains unclear and we could incur significant fines of up to 4% of worldwide revenue, individual damages and reputational risks if the E.U.
+Added: determines that our controls and processes are ineffective and we have failed to adequately comply with the requirements.
+Added: We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.
+Added: We are dependent upon information technology systems to manage, process, store and transmit information associated with our operations, which may include proprietary business information and personally identifiable information of our customers, suppliers and employees.
+Added: Our information technology systems are subject to disruption, damage or failure from a variety of sources, including computer viruses, security breaches, cyber-attacks, employee error and defects in design.
+Added: Damage, disruption, or failure of information technology systems may result in interruptions to our operations or may require a significant investment to fix or replace them or may result in significant damage to our reputation.
+Added: Although various measures have been implemented to manage our risks related to the information technology systems and network disruptions, our resources and technical sophistication may not be adequate to prevent all types of cyber-attacks that could lead to the payment of fraudulent claims, loss of sensitive information, including our own proprietary information or that of our customers, suppliers and employees, and could harm our reputation and result in lost revenues and additional costs and potential liabilities.
Risks Related to Our Organization and Structure
−Removed: If the ownership of our common shares continues to be highly concentrated, it may prevent minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.
−Removed: As of February 10, 2020 , Marubeni owns 21,605,347 shares, or 28.8% of our common shares.
−Removed: Although the Shareholder Agreement, dated as of June 6, 2013, among us, Marubeni and a subsidiary of Marubeni (as amended and restated from time to time, the “Shareholder Agreement”), imposes certain restrictions on Marubeni’s and its affiliates’ ability to make additional acquisitions of our common shares, Marubeni, nonetheless, may be able to influence fundamental corporate matters and transactions, including the election of directors;
−Removed: mergers or amalgamations (subject to prior board approval);
−Removed: consolidations or acquisitions;
−Removed: the sale of all or substantially all of our assets;
−Removed: in certain circumstances, the amendment of our bye-laws;
−Removed: and our winding up and dissolution.
−Removed: This concentration of ownership may delay, deter or prevent acts that would be favored by our other shareholders.
−Removed: The interests of Marubeni may not always coincide with our interests or the interests of our other shareholders.
−Removed: This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of our company.
−Removed: Also, Marubeni may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other shareholders or adversely affect us or our other shareholders.
−Removed: In addition, under the Shareholder Agreement, based on the current ownership of our common shares by Marubeni and the current size of our Board of Directors, Marubeni is entitled to designate three directors for election to our Board of Directors.
−Removed: As a result of these or other factors, the market price of our common shares could decline or shareholders might not receive a premium over the then-current market price of our common shares upon a change in control.
−Removed: In addition, this concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in a company with a significant shareholder.
We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.
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Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries.
−Removed: As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends to our shareholders.
−Removed: Although there are currently no material legal restrictions on our operating subsidiaries’ ability to distribute assets to us,
−Removed: legal restrictions, including governmental regulations and contractual obligations, could restrict or impair our operating subsidiaries’ ability to pay dividends or make loan or other distributions to us.
+Added: As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations.
+Added: Although there are currently no material legal restrictions on our operating subsidiaries’ ability to distribute assets to us, legal restrictions, including governmental regulations and contractual obligations, could restrict or impair our operating subsidiaries’ ability to pay dividends or make loan or other distributions to us.
Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions.
−Removed: We are a Bermuda company, and it may be difficult for securityholders to enforce judgments against us or our directors and executive officers.
−Removed: We are a Bermuda exempted company and, as such, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws.
−Removed: The rights of securityholders under Bermuda law may differ from the rights of securityholders of companies incorporated in other jurisdictions.
−Removed: A substantial portion of our assets are located outside the United States.
−Removed: As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S.
−Removed: courts against us or those persons based on the civil liability provisions of the U.S.
−Removed: securities laws.
−Removed: Uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.
−Removed: Our bye-laws restrict shareholders from bringing legal action against our officers and directors.
−Removed: Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors.
−Removed: The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director.
−Removed: This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
−Removed: We have anti-takeover provisions in our bye-laws that may discourage a change of control.
−Removed: Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors.
−Removed: These provisions include:
−Removed: provisions providing for a classified board of directors with staggered three-year terms;
−Removed: provisions regarding the election of directors, classes of directors, the term of office of directors and amalgamations to be rescinded, altered or amended only upon approval by a resolution of the directors and by a resolution of our shareholders, including the affirmative votes of at least 66% of the votes attaching to all shares in issue entitling the holder to vote on such resolution;
−Removed: provisions in our bye-laws dealing with the removal of directors and corporate opportunity to be rescinded, altered or amended only upon approval by a resolution of the directors and by a resolution of our shareholders, including the affirmative votes of at least 80% of the votes attaching to all shares in issue entitling the holder to vote on such resolution;
−Removed: provisions providing for the removal of directors by a resolution, including the affirmative votes of at least 80% of all votes attaching to all shares in issue entitling the holder to vote on such resolution;
−Removed: provisions providing for our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue such preference shares without shareholder approval;
−Removed: provisions providing for advance notice requirements by shareholders for director nominations and actions to be taken at annual meetings;
−Removed: no provision for cumulative voting in the election of directors;
−Removed: all the directors standing for election may be elected by our shareholders by a plurality of votes cast at a duly convened annual general meeting, the quorum for which is two or more persons present in person or by proxy at the start of the meeting and representing in excess of 50% of all votes attaching to all shares in issue entitling the holder to vote at the meeting.
−Removed: In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and/or our Board of Directors.
−Removed: Public shareholders who might desire to participate in these types of transactions may not have an opportunity to do so.
−Removed: These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control or change our management and Board of Directors and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of control premium.
−Removed: There are provisions in our bye-laws that may require certain of our non-U.S.
−Removed: shareholders to sell their shares to us or to a third party.
−Removed: Our bye-laws provide that if our Board of Directors determines that we or any of our subsidiaries do not meet, or in the absence of repurchases of shares will fail to meet, the ownership requirements of a limitation on benefits article of any bilateral income tax treaty with the U.S.
−Removed: applicable to us, and that such tax treaty would provide material benefits to us or any of our subsidiaries, we generally have the right, but not the obligation, to repurchase, at fair market value (as determined pursuant to the method set forth in our bye-laws), common shares from any shareholder who beneficially owns more than 5% of our issued and outstanding common shares and who fails to demonstrate to our satisfaction that such shareholder is either a U.S.
−Removed: citizen or a qualified resident of the U.S.
−Removed: or the other contracting state of any applicable tax treaty with the U.S.
−Removed: (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty).
−Removed: We will have the option, but not the obligation, to purchase all or a part of the shares held by such shareholder (to the extent the Board of Directors, in the reasonable exercise of its discretion, determines it is necessary to avoid or cure adverse consequences), provided that the Board of Directors will use its reasonable efforts to exercise this option equitably among similarly situated shareholders (to the extent feasible under the circumstances).
−Removed: Instead of exercising the repurchase right described above, we will have the right, but not the obligation, to cause the transfer to, and procure the purchase by, any U.S.
−Removed: citizen or a qualified resident of the U.S.
−Removed: or the other contracting state of the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty) of the number of issued and outstanding common shares beneficially owned by any shareholder that are otherwise subject to repurchase under our bye-laws as described above, at fair market value (as determined in the good faith discretion of our Board of Directors).
−Removed: Our joint venture may have an adverse effect on our business.
−Removed: Our joint venture involves significant risks that may not be present with other methods of ownership, including:
−Removed: we may not realize a satisfactory return on our investment or the joint venture may divert management’s attention from our business;
−Removed: our joint venture partner could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments;
−Removed: our joint venture partner might fail to fund its share of required capital contributions or fail to fulfill its obligations as a joint venture partner;
−Removed: decisions of our partner to sell aircraft in our joint venture may have an impact on our financial performance;
−Removed: our joint venture partner may have competing interests in our markets that could create conflict of interest issues, particularly if aircraft owned by the joint venture are being marketed for lease or sale at a time when the Company also has comparable aircraft available for lease or sale.
−Removed: Risks Related to Our Common Shares
−Removed: The market price and trading volume of our common shares may be volatile or may decline regardless of our operating performance, which could result in rapid and substantial losses for our shareholders.
−Removed: If the market price of our common shares declines significantly, shareholders may be unable to resell their shares at or above their purchase price.
−Removed: The market price or trading volume of our common shares could be highly volatile and may decline significantly in the future in response to various factors, many of which are beyond our control, including:
−Removed: variations in our quarterly or annual operating results;
−Removed: failure to meet any earnings estimates;
−Removed: actual or perceived reduction in our growth or expected future growth;
−Removed: actual or anticipated accounting issues;
−Removed: publication of research reports about us, other aircraft lessors or the aviation industry or the failure of securities analysts to cover our common shares or the decision to suspend or terminate coverage in the future;
−Removed: additions or departures of key management personnel;
−Removed: increased volatility in the capital markets and more limited or no access to debt financing, which may result in an increased cost of, or less favorable terms for, debt financing or may result in sales to satisfy collateral calls or other pressure on holders to sell our shares;
−Removed: redemptions, or similar events affecting funds or other investors holding our shares, which may result in large block trades that could significantly impact the price of our common shares;
−Removed: adverse market reaction to any indebtedness we may incur or preference or common shares we may issue in the future;
−Removed: changes in or elimination of our dividend;
−Removed: actions by shareholders;
−Removed: changes in market valuations of similar companies;
−Removed: the inability to complete the Merger due to the failure to satisfy the remaining conditions to the consummation of the Merger, including receipt of the required shareholder approval or the remaining required regulatory approvals;
−Removed: the risk that the Merger Agreement may be terminated in certain limited circumstances that require us to pay Parent a termination fee of $73.5 million;
−Removed: risks that the proposed Merger disrupts our current plans and operations or affects our ability to retain or recruit key employees;
−Removed: the effect of the pending Merger on Aircastle’s business relationships (including, without limitation customers and suppliers), operating results and business generally;
−Removed: the amount of the costs, fees, expenses and charges related to the Merger;
−Removed: risks related to the Merger diverting management’s or employees’ attention from ongoing business operations;
−Removed: the risk that our share price may decline significantly if the Merger is not completed;
−Removed: announcements by us, our competitors or our suppliers of significant contracts, acquisitions, disposals, strategic partnerships, joint ventures or capital commitments;
−Removed: speculation in the press or investment community;
−Removed: changes or proposed changes in laws or regulations affecting the aviation industry or enforcement of these laws and regulations, or announcements relating to these matters;
−Removed: general market, political and economic conditions and local conditions in the markets in which our lessees are located.
−Removed: In addition, the equity markets in general have frequently experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets.
−Removed: Changes in economic conditions in the U.S., Europe or globally could also impact our ability to grow profitably.
−Removed: These broad market and industry factors may materially affect the market price of our common shares, regardless of our business or operating performance.
−Removed: In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company.
−Removed: Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Future additional debt, which would be senior to our common shares upon liquidation, and additional equity securities, which would dilute the percentage ownership of our then current common shareholders and may be senior to our common shares for the purposes of dividends and liquidation distributions, may adversely affect the market price of our common shares.
−Removed: In the future, we may attempt to increase our capital resources by incurring debt or issuing additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes or loans and series of preference shares or common shares.
−Removed: Upon liquidation, holders of our debt investments and preference shares and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common shares.
−Removed: Additional equity offerings would dilute the holdings of our then current common shareholders and could reduce the market price of our common shares, or both.
−Removed: Preference shares, if issued, could have a preference on liquidating distributions or a preference on dividend payments.
−Removed: Restrictive provisions in our debt and/or preference shares could limit our ability to make a distribution to the holders of our common shares.
−Removed: Because our decision to incur more debt or issue additional equity securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
−Removed: timing or nature of our future capital raising activities.
−Removed: Thus, holders of our common shares bear the risk of our future debt and equity issuances reducing the market price of our common shares and diluting their percentage ownership.
−Removed: The market price of our common shares could be negatively affected by sales of substantial amounts of our common shares in the public markets.
−Removed: As of February 10, 2020 , there were 75,109,023 shares issued and outstanding, all of which are freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).
−Removed: Approximately 28.8% of our outstanding common shares are held by our affiliate, Marubeni, and can be resold into the public markets in the future in accordance with the requirements of Rule 144 under the Securities Act.
−Removed: Beginning in July 2016, pursuant to the occurrence of certain events set forth in the Shareholders Agreement, Marubeni and permitted third-party transferees have the ability to cause us to register the resale of their common shares into the public markets.
−Removed: We cannot assure you if or when any such registration or offering may occur.
−Removed: The issuance of additional common shares in connection with acquisitions or otherwise will dilute all other shareholdings.
−Removed: As of February 10, 2020 , we had an aggregate of 149,608,871 common shares authorized but unissued and not reserved for issuance under our incentive plan.
−Removed: We may issue all of these common shares without any action or approval by our shareholders.
−Removed: We intend to continue to actively pursue acquisitions of aviation assets and may issue common shares in connection with these acquisitions.
−Removed: Any common shares issued in connection with our acquisitions, our incentive plan, and the exercise of outstanding share options or otherwise would dilute the percentage ownership held by existing shareholders.
Risks Related to Taxation
If Aircastle were treated as engaged in a trade or business in the United States, it would be subject to U.S.
−Removed: federal income taxation on a net income basis, which would adversely affect our business and result in decreased cash available for distribution to our shareholders.
+Added: federal income taxation on a net income basis, which would adversely affect our business.
If, contrary to expectations, Aircastle were treated as engaged in a trade or business in the United States, the portion of its net income, if any, that was “effectively connected” with such trade or business would be subject to U.S.
federal income taxation at a maximum rate of 35% for taxable years ending on or prior to December 31, 2017 and 21% for taxable years beginning after December 31, 2017 (such rate, the “Federal Rate”).
−Removed: Such reduction in the Federal Rate occurred as a result of the passage of The Tax Cuts and Jobs Act on December 22, 2017 (the “Tax Act”).
In addition, Aircastle would be subject to the U.S.
federal branch profits tax on its effectively connected earnings and profits at a rate of 30%.
−Removed: The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.
−Removed: If there is not sufficient trading in our shares, or if 50% of our shares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S.
+Added: The imposition of such taxes would adversely affect our business.
+Added: If there is not sufficient trading in shares of our ultimate parent company, or if 50% of such shares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S.
federal income taxation on rental income from our aircraft used in “international traffic” and could be subject to U.S.
−Removed: federal income taxation which would adversely affect our business and result in decreased cash available for distribution to our shareholders.
+Added: federal income taxation, which would adversely affect our business.
We expect that we are currently eligible for an exemption under Section 883 of the Internal Revenue Code of 1986, as amended (the “Code”), which provides an exemption from U.S.
federal income taxation with respect to rental income derived from aircraft used in international traffic by certain foreign corporations.
−Removed: No assurances can be given that we will continue to be eligible for this exemption as our stock is traded on the market and changes in our ownership or the amount of our shares that are traded could cause us to cease to be eligible for such exemption.
+Added: No assurances can be given that we will continue to be eligible for this exemption.
To qualify for this exemption in respect of rental income, the lessor of the aircraft must be organized in a country that grants a comparable exemption to U.S.
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We can satisfy these requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not collectively own more than 50% of our shares.
−Removed: Our shares will be considered to be primarily and regularly traded on a recognized exchange in any year if:
−Removed: (i) the number of trades in our shares effected on such recognized stock exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities markets;
−Removed: (ii) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during every calendar quarter in the year;
−Removed: and (iii) the aggregate number of our shares traded on such stock exchanges during the taxable year is at least 10% of the average number of our shares outstanding in that class during that year.
−Removed: Following the Merger, these stock ownership requirements will be tested at the Marubeni and Mizuho Leasing levels such
−Removed: that Aircastle and its subsidiaries can continue qualify for the Section 883 exemption if the stock of Marubeni is considered to be primarily and regularly traded on a recognized stock exchange and non-qualifying 5% or greater shareholders are not considered to collectively own more than 50% of Marubeni’s shares, as described above.
−Removed: If our (or, following the Merger, Marubeni’s) shares cease to satisfy these requirements, then we may no longer be eligible for the Section 883 exemption with respect to rental income earned by aircraft used in international traffic.
+Added: Following the Merger, these stock ownership requirements are currently tested at the Marubeni and Mizuho Leasing levels such that Aircastle and its subsidiaries can continue to qualify for the Section 883 exemption if the stock of Marubeni is considered to be primarily and regularly traded on a recognized stock exchange and non-qualifying 5% or greater shareholders are not considered to collectively own more than 50% of Marubeni’s shares, as described above.
+Added: If Marubeni’s shares cease to satisfy these requirements, then we may no longer be eligible for the Section 883 exemption with respect to rental income earned by aircraft used in international traffic.
If we were not eligible for the exemption under Section 883 of the Code, we expect that the U.S.
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federal branch profits tax on its effectively connected earnings and profits at a rate of 30%.
−Removed: The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.
+Added: The imposition of such taxes would adversely affect our business.
Bermuda Economic Substance Act 2018
−Removed: Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ESA”) that came into force on January 1, 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant activities” referred to in the ESA must comply with economic substance requirements.
+Added: Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ESA”) that came into force in January 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant activities” referred to in the ESA must comply with economic substance requirements.
The ESA may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain adequate physical presence in Bermuda or perform core income-generating activities in Bermuda.
The list of “relevant activities” includes carrying on any one or more of:
−Removed: banking, insurance, fund management, financing and leasing (which excludes operating leases), headquarters, shipping, distribution and service center, intellectual property and holding entities.
−Removed: Entities subject to the economic substance requirements will be required to evidence their compliance and file an economic substance declaration with the Registrar of Companies in Bermuda on an annual basis.
+Added: insurance, financing and leasing (which excludes operating leases), headquarters, intellectual property and holding entities.
+Added: Entities subject to the economic substance requirements are required to evidence their compliance and file an economic substance declaration with the Registrar of Companies in Bermuda on an annual basis.
Any entity that must satisfy economic substance requirements but fails to do so could face financial penalties, a restriction of its business activities, automatic reporting by the Bermuda authorities to the competent authorities in the European Union on an entity’s non-compliance or being struck-of as a registered entity in Bermuda.
If any one of the foregoing were to occur it may adversely affect the business operations of the Company or its Bermuda subsidiaries.
−Removed: The Company and its Bermuda subsidiaries believe they have complied with the ESA requirements and will file an economic substance declaration with the Registrar of Companies in Bermuda.
−Removed: The Registrar of Companies in Bermuda will ultimately assess compliance with the ESA requirements.
−Removed: One or more of our Irish subsidiaries could fail to qualify for treaty benefits, including as a result of the Merger, which would subject certain of their income to U.S.
−Removed: federal income taxation, which could adversely affect our business and result in decreased cash available for distribution to our shareholders.
−Removed: Qualification for the benefits of the double tax treaty between the United States and Ireland (the “Irish Treaty”) depends on many factors, including, historically, our ability to establish the identity of the ultimate beneficial owners of our common shares.
−Removed: Following the Merger, we do not expect that our Irish subsidiaries will qualify for benefits under the Irish Treaty solely on the basis of our beneficial ownership, which will change significantly as a result of the Merger.
−Removed: Certain of our Irish subsidiaries may continue to qualify for benefits under the Irish Treaty following the Merger if such subsidiaries are considered to be engaged in an active trade or business in Ireland for purposes of the Irish Treaty.
−Removed: However, the ability to satisfy the Irish Treaty’ s active trade or business standard is subject to significant legal and factual uncertainties, which may prevent our Irish subsidiaries from receiving benefits under the Irish Treaty.
−Removed: Accordingly, for any year, our Irish subsidiaries may not satisfy the requirements of the Irish Treaty or may be deemed to have a permanent establishment in the United States.
−Removed: Moreover, the provisions of the Irish Treaty may change.
−Removed: Failure to so qualify, or to be deemed to have a permanent establishment in the United States, could result in the rental income from aircraft used for flights within the United States being subject to increased U.S.
−Removed: federal income taxation.
−Removed: The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.
−Removed: We may become subject to an increased rate of Irish taxation which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.
+Added: The Company and its Bermuda subsidiaries believe they have complied with the ESA requirements and have filed, and will continue to file, annual economic substance declarations with the Registrar of Companies in Bermuda as required.
+Added: The Registrar of Companies in Bermuda ultimately assesses compliance with the ESA requirements.
+Added: We may become subject to an increased rate of Irish taxation which would adversely affect our business.
Our Irish subsidiaries and affiliates are expected to be subject to corporation tax on their income from leasing, managing, and servicing aircraft at the 12.5% tax rate applicable to trading income.
−Removed: This expectation is based on certain assumptions, including that we will maintain at least the current level of our business operations in Ireland.
−Removed: If we are not successful in achieving trading status in Ireland, the non-trading income activities of our Irish subsidiaries and affiliates would be subject to tax at the rate of 25% and capital gains would be taxed at the rate of 35%, which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.
−Removed: We may be subject to an increased rate of Singapore taxation which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.
−Removed: Our Singapore subsidiaries are subject to Singapore income tax on their income from leasing, managing and servicing aircraft.
−Removed: Our Singapore subsidiaries had obtained a reduced rate of tax from the Singapore authorities through June 30, 2017.
−Removed: Beginning on July 1, 2017 and effective to June 30, 2022, the Singapore authorities renewed the reduced rate of tax to our Singapore subsidiaries, provided we satisfy certain conditions and requirements.
−Removed: If we cannot meet such conditions and requirements, or if the award is not renewed after June 30, 2022, we would be subject to additional Singapore income tax.
−Removed: This would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.
+Added: This expectation is based on certain
+Added: assumptions, including that we will maintain at least the current level of our business operations in Ireland.
+Added: If we are not successful in achieving trading status in Ireland, the non-trading income activities of our Irish subsidiaries and affiliates would be subject to tax at the rate of 25% and capital gains would be taxed at the rate of 33%.
We may become subject to income or other taxes in the non-U.S.
−Removed: jurisdictions in which our aircraft operate, where our lessees are located or where we perform certain services which would adversely affect our business and result in decreased cash available for distributions to shareholders.
−Removed: Certain Aircastle entities are expected to be subject to the income tax laws of Ireland, Mauritius, Singapore and the United States.
+Added: jurisdictions in which our aircraft operate, where our lessees are located or where we perform certain services which would adversely affect our business.
+Added: Certain Aircastle entities are expected to be subject to the income tax laws of Ireland and the United States.
In addition, we may be subject to income or other taxes in other jurisdictions by reason of our activities and operations, where our aircraft operate or where the lessees of our aircraft (or others in possession of our aircraft) are located.
3 unchanged sentences
Our leases typically require our lessees to indemnify us in respect of taxes, but some leases may not require such indemnification or a lessee may fail to make such indemnification payment.
−Removed: The imposition of such taxes could adversely affect our business and result in decreased earnings available for distribution to our shareholders.
−Removed: We expect to continue to be a passive foreign investment company (“PFIC”) and may be a controlled foreign corporation (“CFC”) for U.S.
−Removed: federal income tax purposes.
−Removed: We expect to continue to be treated as a PFIC and may be a CFC for U.S.
−Removed: federal income tax purposes.
−Removed: If you are a U.S.
−Removed: person and do not make a qualified electing fund (“QEF”) election with respect to us and each of our PFIC subsidiaries, unless we are a CFC and you own 10% of our shares (by vote or value), you would be subject to special deferred tax and interest charges with respect to certain distributions on our common shares, any gain realized on a disposition of our common shares and certain other events.
−Removed: The effect of these deferred tax and interest charges could be materially adverse to you.
−Removed: Alternatively, if you are such a shareholder and make a QEF election for us and each of our PFIC subsidiaries, or if we are a CFC and you own 10% or more of our shares (by vote or value), you will not be subject to those charges, but could recognize taxable income in a taxable year with respect to our common shares in excess of any distributions that we make to you in that year, thus giving rise to so-called “phantom income” and to a potential out-of-pocket tax liability.
−Removed: Distributions made to a U.S.
−Removed: person that is an individual will not be eligible for taxation at reduced tax rates generally applicable to dividends paid by certain United States corporations and “qualified foreign corporations.” The more favorable rates applicable to regular corporate dividends could cause individuals to perceive investment in our shares to be relatively less attractive than investment in the shares of other corporations, which could adversely affect the value of our shares.
+Added: The imposition of such taxes could adversely affect our business.
The introduction of Base Erosion and Profit Shifting by the Organization for Economic Cooperation and Development's may impact our effective tax rate in future periods.
1 unchanged sentence
The plan targets among other things tax avoidance measures such as hybrid instruments, excessive interest deductions, treaty shopping, and permanent establishment avoidance.
−Removed: As part of its BEPS actions, the OECD published the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (the “MLI”).
+Added: As part of its BEPS actions, the OECD published the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (“MLI”).
Since June 2017, representatives from over 95 jurisdictions have signed up to the MLI.
−Removed: MLI seeks to incorporate agreed tax treaty-related measures combating tax avoidance into bilateral existing tax treaties without the need to negotiate a new treaty.
−Removed: MLI may apply to double tax treaties entered into by other countries in which we have operations (in some cases with effect from as early as January 1, 2019).
−Removed: MLI entered into force for Ireland on May 1, 2019, and became effective for withholding tax on January 1, 2020.
−Removed: MLI changed Ireland's treaties by including a principal purpose test (“PPT”), which will disallow treaty benefits where it is reasonable to conclude that the main purpose or one of the main purposes of a transaction or arrangement is to obtain directly or indirectly the benefits of the treaty.
+Added: The MLI seeks to incorporate agreed tax treaty-related measures combating tax avoidance into bilateral existing tax treaties without the need to negotiate new treaties.
+Added: The MLI may apply to double tax treaties entered into by other countries in which we have operations (in some cases with effect from as early as January 2019).
+Added: The MLI entered into force for Ireland in May 2019, and became effective for withholding tax on January 1, 2020.
+Added: The MLI changed Ireland's treaties by including a principal purpose test (“PPT”), which will disallow treaty benefits where it is reasonable to conclude that the main purpose or one of the main purposes of a transaction or arrangement is to obtain directly or indirectly the benefits of the treaty.
Given the subjectivity of the PPT, there is a risk that each counterparty jurisdiction will interpret it differently, which creates uncertainty in its application to leasing and other arrangements.
Until such time as countries develop guidance on how the test will be applied, it will be difficult to determine its effect on us.
−Removed: Ireland did not adopt MLI’s “dependent agent” permanent establishment threshold.
+Added: Ireland did not adopt the MLI’s “dependent agent” permanent establishment threshold.
Some countries could seek a bilateral re-negotiation on the point to change the dependent agent provisions in their tax treaty with Ireland.
17 unchanged sentences
The impact on the Company’s tax position (if any), will depend on the implementation of these measures in Ireland and other EU jurisdictions where we have operations.
−Removed: Risks Related to the Proposed Merger
−Removed: The Merger is subject to closing conditions, including governmental, regulatory and shareholder approvals, as well as other uncertainties and there can be no assurances as to whether and when it may be completed.
−Removed: Failure to complete the Merger could negatively impact our share price, future business and financial results.
−Removed: There can be no assurance that the proposed Merger will occur.
−Removed: Consummation of the Merger is subject to certain customary conditions, including, without limitation:
−Removed: (i) approval of the Merger Agreement and the transactions contemplated thereby by the affirmative votes of a majority of the votes cast by holders of outstanding Common Shares at a meeting of
−Removed: the Company’s shareholders;
−Removed: (ii) the receipt of any applicable pre-clearance or similar approval of certain remaining specified jurisdictions (i.e., Chile, Mexico and Morocco), and all required regulatory approvals being in full force and effect;
−Removed: (iii) the absence of any law, judgment or other legal restraint that prevents, makes illegal or prohibits the consummation of the Merger and the other transactions contemplated by the Merger Agreement;
−Removed: (iv) the accuracy of each party’s representations and warranties (subject to certain qualifications);
−Removed: (v) each party’s performance in all material respects of its obligations contained in the Merger Agreement;
−Removed: and (vi) the absence of a material adverse effect on the Company since the date of the Merger Agreement.
−Removed: While we believe we will receive the requisite approvals, there can be no assurance that these and other conditions to closing will be satisfied at all or satisfied on the proposed terms and schedules as contemplated by the parties.
−Removed: Satisfaction of the closing conditions may delay the consummation of the Merger, and if certain closing conditions are not satisfied prior to the end date specified in the Merger Agreement, the parties will not be obligated to complete the Merger.
−Removed: If the Merger is not completed for any reason, we will have incurred substantial expenses.
−Removed: We have incurred substantial legal, accounting and financial advisory fees that are payable by us whether or not the Merger is completed, and our management has devoted considerable time and effort in connection with the pending Merger.
−Removed: The Merger Agreement contains specified termination rights for each of the parties.
−Removed: Upon termination of the Merger Agreement under specified circumstances, including with respect to the Company’s entry into an agreement with respect to a qualifying “Superior Proposal” (as defined in the Merger Agreement), the Company will be required to pay Parent a termination fee of $73.5 million.
−Removed: For these and other reasons, a failed merger could materially adversely affect our business, operating results or financial condition.
−Removed: In addition, the trading price of our common stock could be adversely affected to the extent that the current price reflects an assumption that the Merger will be completed.
−Removed: The pendency of the Merger may cause disruptions in our business, which could have an adverse effect on our business, financial condition or results of operations.
−Removed: The pendency of the Merger could cause disruptions in and create uncertainty regarding our business, which could have an adverse effect on our financial condition and results of operations, regardless of whether the Merger is completed.
−Removed: These risks, which could be exacerbated by a delay in the consummation of the Merger, include the following:
−Removed: key management and other employees may be difficult to retain or may become distracted from day-to-day operations because matters related to the Merger may require substantial commitments of their time and resources, which could adversely affect our operations and financial results;
−Removed: our ability to pursue alternative business opportunities, including strategic acquisitions, is limited by the terms of the Merger Agreement.
−Removed: If the Merger is not completed for any reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely affected;
−Removed: our ability to make appropriate changes to our business may be restricted by covenants in the Merger Agreement;
−Removed: these restrictions generally require us to conduct our business in the ordinary course and subject us to a variety of specified limitations absent Parent’s prior written consent.
−Removed: We may find that these and other contractual restrictions in the Merger Agreement may delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable;
−Removed: the costs and potential adverse outcomes of litigation relating to the Merger.
UNRESOLVED STAFF COMMENTS
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.