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Item 7. Management’s Discussion and Analysis

2021-04-21 compared with 2020-02-13 · 230 added, 283 removed, 286 unchanged (64% of the section changed)

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This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions.

You should read the following discussion in conjunction with Item 6.

“Selected Financial Data” and our historical consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report.

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

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under Item 1A.

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Please see “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Our consolidated financial statements are prepared in accordance with U.S.

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

GAAP and, unless otherwise indicated, the other financial information contained in this Annual Report has also been prepared in accordance with U.S.

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

As of December 31, 2019 , we owned and managed on behalf of our joint ventures 287 aircraft that were leased to 85 lessees located in 49 countries.

As of February 28, 2021, we owned and managed on behalf of our joint venture 261 aircraft leased to 75 lessees located in 43 countries.

Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore.

Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although in certain cases, we are obligated to pay a portion of specified maintenance or modification costs.

As of December 31, 2019 , the net book value of our owned aircraft was $7.79 billion compared to $7.40 billion at the end of 2018 .

Our revenues and net income for the year ended December 31, 2019 were $917.9 million and $156.6 million , respectively, and for the fourth quarter of 2019 were $243.7 million and $47.3 million , respectively.

Pending Merger with MM Air Limited

On November 5, 2019, Aircastle entered into the Merger Agreement with Parent and Merger Sub, pursuant to which, among other things, Merger Sub will merge with and into the Company, with Aircastle surviving as a wholly owned subsidiary of Parent.

Parent and Merger Sub are newly-formed entities controlled by affiliates of Marubeni and Mizuho Leasing.

Pursuant to the Merger Agreement, subject to certain conditions set forth therein, at the Effective Time, each issued and outstanding Common Share (other than (i) shares to be canceled or converted into shares of the surviving company pursuant to the Merger Agreement and (ii) restricted shares to be canceled and exchanged pursuant to the Merger Agreement), shall be converted into the right to receive the Merger Consideration.

Consummation of the Merger is subject to the satisfaction of certain remaining customary closing conditions, including, without limitation, (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 the Company’s shareholders;

(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;

(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;

(iv) the accuracy of each party’s representations and warranties (subject to certain qualifications);

(v) each party’s performance in all material respects of its obligations contained in the Merger Agreement;

and (vi) the absence of a material adverse effect on the Company since the date of the Merger Agreement.

The Merger Agreement includes customary representations, warranties and covenants of Aircastle, Parent, and Merger Sub.

Among other things, Aircastle has agreed to customary covenants regarding the operation of the business of Aircastle and its subsidiaries prior to the closing.

Aircastle is permitted to pay regular quarterly dividends up to $0.32 per common share pursuant to the Merger Agreement.

We currently anticipate that the Merger will close in the first half of calendar year 2020, subject to the satisfaction of the remaining customary closing conditions.

Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from maintenance payments related to lease expirations, lease termination payments, interest recognized from direct financing and sales-type leases and gains on the sale of flight equipment.

Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease.

Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed.

The amount of rent we receive will depend on a number of factors, including the creditworthiness of our lessees and the occurrence of restructurings and defaults.

Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time.

Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends.

An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

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

These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term.

For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement.

We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we typically do not recognize maintenance revenue during the lease.

Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement.

The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.

Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components.

We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease.

We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease.

We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments on the balance sheet.

The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

Operating Expenses

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

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

Income Tax Provision

We obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall

not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda.

Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S.

tax purposes are non-U.S.

corporations.

These non-U.S.

subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S.

federal, state or local income taxes, unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes.

The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

We have a U.S.-based subsidiary which provides management services to our non-U.S.

subsidiaries and is subject to U.S.

federal, state and local income taxes.

We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S.

subsidiaries and are subject to tax in those respective jurisdictions.

Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs.

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

As of February 28, 2021, the net book value of our flight equipment (including flight equipment held for lease and net investment in direct financing and sales-type leases, or “net book value”) was $6.69 billion compared to $7.79 billion for the year ended December 31, 2019.

Our revenues, net income (loss) and Adjusted EBITDA were $832.3 million, $(333.2) million, and $774.4 million for the year ended February 28, 2021, and were $917.9 million, $156.6 million and $862.2 million for the year ended December 31, 2019.

Merger with MM Air Limited

On March 27, 2020, the Company successfully completed its merger (the “Merger”) and is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”).

The Merger has not resulted in any change of the Company’s business strategy, and we believe the Company will benefit by having stable investors with a long-term investment horizon.

We also may benefit by being affiliated with Mizuho Leasing, part of the Mizuho Financial Group, one of the largest Japanese financial institutions.

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

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

Acquisitions and Sales

During 2019 , we acquired 49 aircraft for $1.28 billion.

As of February 10, 2020 , we have not acquired any additional aircraft.

At December 31, 2019 , we had commitments to acquire 31 aircraft for $1.11 billion , including 25 new Embraer E-Jet E2 aircraft from Embraer, with delivery beginning in 2020.

During the year ended February 28, 2021, we acquired five aircraft for $154.3 million.

As of April 15, 2021, we have acquired no additional aircraft.

At February 28, 2021, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer S.A.

for $825.1 million, with delivery beginning in March 2021.

These amounts include estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.

As of February 10, 2020 , we have commitments to acquire 31 aircraft for $1.11 billion .

During 2019 , we sold twenty aircraft and other flight equipment for $361.7 million , which resulted in a net gain of $45.5 million .

As of February 10, 2020 , we have sold five additional aircraft.

The following table sets forth certain information with respect to the aircraft owned and managed on behalf of our joint ventures by us as of December 31, 2019 , 2018 and 2017 :

As of April 15, 2021, we have commitments to acquire 25 aircraft for $825.1 million.

During the year ended February 28, 2021, we sold twelve aircraft and other flight equipment for $180.3 million, which resulted in a net gain of $33.5 million.

As of April 15, 2021, we have sold two additional aircraft.

The following table sets forth certain information with respect to the aircraft owned and managed on behalf of our joint ventures by us as of February 28, 2021, February 29, 2020 and December 31, 2019:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

Owned Aircraft

December 31, 2019 (1)

December 31, 2018 (1)

Owned Aircraft As of

February 28, 2021 (1)

February 29, 2020 (1)

December 31, 2019 (1)

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Weighted Average Age (years) (2)

10.6 10.0 9.9

Weighted Average Remaining Lease Term (years) (2)

Weighted Average Fleet Utilization during the Fourth Quarter (3)(5)

93.7 % N/A 99.2 %

Weighted Average Fleet Utilization for the Year Ended (3)

94.5 % 99.1 % 96.4 %

Portfolio Yield for the Fourth Quarter (4)

8.5 % 11.1 % 11.2 %

Portfolio Yield for the Year Ended (4)

9.2 % 11.0 % 10.9 %

Managed Aircraft on behalf of Joint Ventures

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(3) Aircraft on-lease days as a percent of total days in period weighted by net book value.

The decrease from our historical utilization rate was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.

The decrease from our historical utilization rate was primarily due to early terminations.

Weighted Average Fleet Utilization for the Year Ended February 29, 2020 of 99.1% represents utilization for the two months ended February 29, 2020.

(4) Lease rental revenue, interest income and cash collections on our net investment in direct financing and sales-type leases for the period as a percent of the average net book value for the period;

quarterly information is annualized.

The decrease from our historical portfolio yield was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.

The calculation of portfolio yield includes our net investment in direct financing and sales-type leases in the average net book value, and the interest income and cash collections from our net investment in direct financing and sales-type leases in lease rentals

Our owned aircraft portfolio as of December 31, 2019 is listed in Exhibit 99.1 to this Annual Report.

(5) N/A - not applicable.

PORTFOLIO DIVERSIFICATION

Owned Aircraft as of

December 31, 2019

Owned Aircraft as of

February 28, 2021 Owned Aircraft as of

February 29, 2020 Owned Aircraft as of

December 31, 2019

Aircraft % of Net

Book Value (1)

Aircraft % of Net

Book Value (1)

Aircraft % of Net

Book Value (1)

Aircraft Type

Narrow-body 226 78 % 244 75 % 250 75 %

Wide-body 22 18 % 24 21 % 24 21 %

Total Passenger 248 96 % 268 96 % 274 96 %

Freighter 4 4 % 4 4 % 4 4 %

Total 252 100 % 272 100 % 278 100 %

Airbus 169 64 % 183 63 % 184 63 %

Boeing 78 34 % 84 36 % 89 36 %

Embraer 5 2 % 5 1 % 5 1 %

Total 252 100 % 272 100 % 278 100 %

Regional Diversification

Asia and Pacific 79 37 % 90 38 % 94 38 %

Europe 92 27 % 99 27 % 99 26 %

Middle East and Africa 11 4 % 15 6 % 16 7 %

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South America 26 13 % 26 15 % 26 15 %

Off-lease 16 (2)

Total 252 100 % 272 100 % 278 100 %

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

Consisted of one Airbus A320-200 aircraft, which was delivered on lease to a customer in Europe during the first quarter of 2020, one Airbus A330-200 aircraft, which is subject to a lease commitment, and one Boeing 737-800 aircraft, which we are marketing for lease or sale.

Consisted of ten Airbus A320-200 aircraft, one Airbus A330-200 aircraft, one Boeing 737-800 aircraft and one Boeing 777-300ER aircraft, all of which delivered on lease to customers during 2019, one Airbus A330-200 aircraft, which is subject to a lease commitment, and one Airbus A320-200 aircraft, which was sold during 2019.

Our largest customer represents approximately 9% of the net book value at December 31, 2019 .

Our top fifteen customers for aircraft we owned at December 31, 2019 , representing 139 aircraft and 54% of the net book value, are as follows:

Percent of Net Book Value

Greater than 6% per customer

3% to 6% per customer

United Kingdom

South African Airways

Less than 3% per customer

(2) Consisted of one Airbus A320-200 and one Airbus A330-200 aircraft subject to executed leases with a customer in Europe, four Boeing 737-800 aircraft subject to executed leases or confirmed letters of intent with customers in Europe, one Boeing 737-800 aircraft consigned for sale and four Airbus A320-200, three Airbus A330-200, and two Boeing 737-800 aircraft which we are marketing for lease or sale.

(3) Consisted of one Airbus A330-200 aircraft, which was delivered to a customer in Europe in August 2020, and one Boeing 737-800 aircraft, which is subject to a confirmed letter intent to lease with a customer in Europe.

(4) Consisted of one Airbus A320-200 aircraft, which was delivered on lease to a customer in Europe in February 2020, one Airbus A330-200 aircraft, which was delivered to a customer in Europe in the second quarter of 2020, and one Boeing 737-800 aircraft, which was sold in February 2020.

Our largest customer represents approximately 8% of the net book value at February 28, 2021.

The top ten customers for aircraft we owned at February 28, 2021, are as follows:

Customer Percent of Net Book Value Country Number of

IndiGo 8.3% India 13

7.7% Chile 13

easyJet 4.6% United Kingdom 25

Iberia 3.9% Spain 15

Air Canada 3.7% Canada 5

3.5% Indonesia 7

Aerolineas Argentinas

3.0% Argentina 5

American Airlines

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AirBridge Cargo (2)

Asiana Airlines

Total top 15 customers

2.6% Russia 2

2.5% South Korea 7

Total top ten customers 42.6% 99

All other customers 57.4% 153

Total all customers 100.0% 252

If combined with four aircraft on lease to an affiliate, would represent over 4% of net book value.

(1) LATAM filed for Chapter 11 in May 2020.

(2) Guaranteed by Volga-Dnepr Airlines.

We have one additional aircraft on lease with an affiliate.

Aircastle Limited is a publicly-listed company, and our shares have been trading on the NYSE since August 2006.

We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital over the last sixteen years.

Since our inception in late 2004, we raised $1.69 billion in equity capital from private and public investors.

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See “Liquidity and Capital Resources — Secured Debt Financings” and “Liquidity and Capital Resources — Unsecured Debt Financings” below.

Comparison of the year ended December 31, 2019 to the year ended December 31, 2018 :

Year Ended December 31,

Comparison of the year ended February 28, 2021 to the year ended December 31, 2019:

February 28, December 31,

(Dollars in thousands)

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Operating expenses:

Depreciation 347,517 356,021

Interest, net 235,338 258,070

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Total operating expenses 1,122,110 723,357

Other income (expense)

Other expense

Loss on extinguishment of debt (2,640) (7,577)

Total other income (expense)

Income from continuing operations before income taxes

Merger expenses (32,605) (7,372)

Other (191) (4,492)

Total other expense (35,436) (19,441)

Income (loss) from continuing operations before income taxes (325,258) 175,140

Income tax provision 10,236 22,667

Earnings (loss) of unconsolidated equity method investment, net of tax

Total revenues increased by $27.6 million , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 , primarily as a result of the following:

Lease rental revenue increased by $54.7 million for the year ended December 31, 2019 , primarily as a result of a $163.2 million increase in revenue reflecting the partial year impact of 48 aircraft purchased in 2019 and the full year impact of 37 aircraft purchased in 2018 .

This increase was partially offset by:

a $74.2 million decrease due to lease extensions, amendments, transitions and other changes ($38.3 million of which is attributable to aircraft previously on lease to Avianca Brazil and Jet Airways which we have since transitioned to new lessees);

a $34.2 million decrease due to the sale of 25 aircraft during 2019 and 2018 .

Direct financing and sales-type lease revenue.

For the year ended December 31, 2019 , $32.3 million of interest income from direct financing and sales-type leases was recognized as compared to $35.1 million for the same period in 2018 , primarily attributable to the termination of one lease in 2018 and sales of two aircraft in 2019 , as well as a lower average net investment due to lease payments, partially offset by an increase in interest income related to the reclassification of two aircraft from operating to direct financing and sales-type leases in 2019 .

Earnings of unconsolidated equity method investment, net of tax 2,326 4,102

Net income (loss) $ (333,168) $ 156,575

Total revenues decreased by $85.7 million, for the year ended February 28, 2021 as compared to the year ended December 31, 2019:

Lease rental revenue decreased by $166.0 million for the year ended February 28, 2021, as a result of:

• a $121.6 million decrease due to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy ;

• a $58.2 million decrease due to the sale of 32 aircraft since January 1, 2019;

• a $38.4 million decrease due to lease extensions, amendments, transitions and other changes.

This was partially offset by a $52.2 million increase in revenue reflecting the impact of 48 aircraft purchased since January 1, 2019.

Direct financing and sales-type lease revenue decreased $14.1 million, primarily attributable to the early lease terminations of eight aircraft during the year ended February 28, 2021 and the sales of three aircraft subject to direct financing and sales-type leases.

Amortization of lease premiums, discounts and incentives.

Year Ended December 31,

February 28, December 31,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (22,842) $ (22,636)

The increase in amortization of lease premiums of $4.7 million for the year ended December 31, 2019 as compared to the same period in 2018 , was due to a net increase in amortization resulting from net aircraft acquisitions.

The decrease in amortization of lease discounts of $3.4 million for the year ended December 31, 2019 as compared to the same period in 2018 was primarily due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.

The decrease in amortization of lease discounts of $3.3 million for the year ended February 28, 2021, as compared to the year ended December 31, 2019, was due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.

The decrease in amortization of lease incentives of $2.1 million for the year ended February 28, 2021, as compared to the year ended December 31, 2019, was primarily due to scheduled lease expirations and early lease terminations, as well as the sales of six aircraft.

Maintenance revenue.

For the year ended December 31, 2019 , we recorded $75.0 million of maintenance revenue primarily attributable to sixteen narrow-body and four wide-body aircraft that transitioned due to scheduled lease expirations or early lease terminations, including seven narrow-body aircraft that had early lease terminations with Jet Airways.

For the same period in 2018 , we recorded $105.7 million of maintenance revenue due to the transition of eighteen narrow-body aircraft, three wide-body aircraft and one freighter aircraft, including ten narrow-body and one wide-body aircraft due to early lease terminations with Avianca Brazil.

Gain on sale of flight equipment increased by $8.8 million , to $45.5 million for the year ended December 31, 2019 , as compared to gains of $36.8 million for the same period in 2018 .

During 2019 , we sold twenty aircraft as compared to the sale of fourteen aircraft during the same period in 2018 .

Other revenue was $10.4 million during the year ended December 31, 2019 , due to $5.4 million in fees earned in relation to the sale of all eight aircraft in our Lancaster joint venture, $2.0 million in fees earned from the sale of four aircraft to our IBJ joint venture and $2.0 million in administrative fees from the Lancaster and IBJ Air joint ventures.

For the year ended December 31, 2018 , other revenue was $5.3 million , primarily due to $2.6 million in fees earned in connection with the early termination of two leases and $2.1 million in administrative fees from the Lancaster and IBJ Air joint ventures.

For the year ended February 28, 2021, we recorded $172.7 million of maintenance revenue, comprised primarily of $95.0 million related to the early lease terminations of seventeen narrow-body and one wide-body aircraft, as well as $57.3 million related to the scheduled lease expirations of ten narrow-body and one wide-body aircraft.

In addition, we recorded $16.3 million of maintenance revenue related to three wide-body aircraft for which the customers are subject to judicial insolvency proceedings or similar protection.

For the year ended December 31, 2019, we recorded $75.0 million of maintenance revenue, comprised of $45.8 million related to the scheduled lease expirations of nine narrow-body and four wide-body aircraft and $29.1 million related to the early lease terminations of nineteen narrow-body and one wide-body aircraft.

Gain on sale of flight equipment decreased by $12.0 million to $33.5 million for the year ended February 28, 2021, as compared to gains of $45.5 million for the year ended December 31, 2019.

During the year ended February 28, 2021, we sold twelve aircraft as compared to the sale of twenty aircraft during the year ended December 31, 2019.

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

Other revenue increased $8.9 million to $19.3 million during the year ended February 28, 2021, as compared to $10.4 million for the year ended December 31, 2019, due to $18.7 million of security deposits and early lease termination fees recognized into revenue primarily related to ten narrow-body and one wide-body aircraft.

This was partially offset by lower service fees of $8.8 million related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.

Operating Expenses:

Total operating expenses increased by $93.0 million , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 , primarily as a result of:

Depreciation expense increased by $45.2 million for the year ended December 31, 2019 over the same period in 2018 , primarily as a result of higher depreciation of $60.7 million due to 85 aircraft acquired during 2019 and 2018 .

These increases were partially offset by a decrease of $16.5 million resulting from 26 aircraft sold during 2019 and 2018 .

Total operating expenses increased by $398.8 million, for the year ended February 28, 2021 as compared to the year ended December 31, 2019:

Depreciation expense decreased by $8.5 million for the year ended February 28, 2021 as compared to the year ended December 31, 2019.

The decrease is primarily comprised of $40.0 million resulting from 33 aircraft sold since January 1, 2019 and lower depreciation for thirteen aircraft subject to impairments.

This was partially offset by a $26.6 million increase in depreciation due to 53 aircraft acquired since January 1, 2019.

Interest, net consisted of the following:

Year Ended December 31,

February 28, December 31,

(Dollars in thousands)

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Interest, net $ 235,338 $ 258,070

______________

Included a loan termination gain of $0.8 million related to the sale of aircraft during the year ended December 31, 2018 .

Included $0.2 million and $0.3 million in deferred financing fees written off related to the sale of aircraft during the years ended December 31, 2019 and 2018 , respectively.

Interest, net increased by $23.6 million over the year ended December 31, 2018 .

The net increase was primarily a result of a $23.7 million increase in interest on borrowings due to higher weighted average debt outstanding, partially offset by lower weighted average interest rates and lower amortization of deferred losses on terminated interest rate derivatives of $1.0 million.

Interest, net decreased by $22.7 million as compared to the year ended December 31, 2019, primarily due to lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expense s for year ended February 28, 2021 increased $16.6 million as compared to the year ended December 31, 2019, primarily attributable to an increase in share-based compensation expense of $12.2 million as a result of the Merger and a provision for credit losses of $5.3 million related to the change in our allowance for credit losses.

Impairment of aircraft.

We recorded impairment charges of $7.4 million during 2019 .

No impairments were recorded during the year ended December 31, 2018 .

We recorded impairment charges of $425.6 million for the year ended February 28, 2021, which primarily related to seventeen narrow-body and nine wide-body aircraft.

The Company recognized $157.0 million of maintenance revenue and security deposits into revenue related to these 26 aircraft during the year ended February 28, 2021.

During the year ended December 31, 2019, we recorded impairment charges of $7.4 million related to two narrow-body aircraft.

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

Maintenance and other costs were $24.8 million for the year ended December 31, 2019 , an increase of $15.9 million over the same period in 2018 .

The net increase is primarily attributable to eighteen unscheduled transitions due to early lease terminations related to Avianca Brazil and Jet Airways and higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases of $3.8 million.

Other Income :

Total other income (expense) decreased by $21.1 million for the year ended December 31, 2019 , as compared to the same period in 2018 , due to a loss on extinguishment of debt of $7.6 million related to the early retirement of our 6.25% Senior Notes due 2019, expenses of $7.4 million related to the Merger and unfavorable mark-to-market adjustments on our interest rate caps of $4.8 million.

Maintenance and other costs were $20.0 million for the twelve months ended February 28, 2021, a decrease of $4.8 million as compared to the year ended December 31, 2019.

The year ended December 31, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases, as well as higher costs for unscheduled transitions.

Other Expense :

Total other expense increased by $16.0 million to $35.4 million for the year ended February 28, 2021, as compared to $19.4 million for the year ended December 31, 2019.

During the year ended February 28, 2021, we incurred $32.6 million of legal and banking expenses related to the Merger.

In addition, we recorded losses on extinguishment of debt totaling $2.6 million related to the early repayments of our Senior Notes due 2021 and secured debt obligations for three wide-body aircraft.

During the year ended December 31, 2019, we incurred a loss on extinguishment of debt of $7.6 million due to the early repayment of our Senior Notes due 2019, $7.4 million of legal and banking expenses related to the Merger, and unfavorable mark-to-market adjustments on our interest rate caps of $4.8 million.

Income Tax Provision :

Our provision for income taxes for the years ended December 31, 2019 and 2018 was $22.7 million and $5.6 million , respectively.

Our provision for income taxes for the years ended February 28, 2021 and December 31, 2019, was $10.2 million and $22.7 million, respectively.

Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.

The increase in our income tax provision of $17.0 million for the year ended December 31, 2019 as compared to the same period in 2018 was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

The year ended December 31, 2019 includes tax charges of $4.1 million related to the limitation in deductible compensation and $0.4 million related to the vesting of stock.

The year ended December 31, 2018 included a $3.0 million tax benefit related to the Singapore rate reduction from 10% to 8%.

The decrease in our income tax provision of $12.5 million for the year ended February 28, 2021, as compared to the year ended December 31, 2019, was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

The year ended February 28, 2021, includes a reversal of prior period tax charges of $2.7 million related to the limitation in deductible compensation.

The year ended December 31, 2019, included tax charges of $4.1 million related to the limitation in deductible compensation and $0.4 million related to the vesting of stock.

Earnings (Loss) of Unconsolidated Equity Method Investment, net of Tax:

Earnings from unconsolidated equity method investment, net of tax, was $4.1 million in 2019 compared to a loss of $8.1 million in 2018 .

In 2018 , the majority shareholder of one of our joint ventures, Lancaster Aircraft Leasing (“Lancaster”) stated its intention to liquidate all assets in the joint venture.

The equity loss for the year ended December 31, 2018 relates

to our share of undistributed losses and anticipated costs recorded by Lancaster for this liquidation.

Earnings from unconsolidated equity method investment, net of tax, was $2.3 million during the twelve months ended February 28, 2021, as compared to $4.1 million in December 31, 2019.

See Note 5 “Unconsolidated Equity Method Investment.”

Other Comprehensive Income :

Year Ended December 31,

(Dollars in thousands)

Derivative loss reclassified into earnings

Total comprehensive income

Other comprehensive income was $156.8 million for the year ended December 31, 2019 , a decrease of $92.3 million from the $249.1 million of other comprehensive income for the year ended December 31, 2018 .

Other comprehensive income for the year ended December 31, 2019 primarily consisted of $156.6 million of net income and $0.2 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest rate derivatives.

Other comprehensive income for the year ended December 31, 2018 primarily consisted of $247.9 million of net income and $1.2 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest rate derivatives.

Summary of Recoverability Assessment and Other Impairments

Transactional Impairments

During 2019 , the Company early terminated the leases for seven Boeing 737NG aircraft on lease to Jet Airways (India) Limited (“Jet Airways”) due to lessee default.

As a result of these lease terminations, the Company recognized net maintenance revenue of $17.6 million and impairment charges of $7.4 million.

We did not record any transactional impairments during 2018 .

Impairment of Flight Equipment

During the year ended February 28, 2021, the Company recorded impairment charges totaling $425.6 million, of which $378.2 million were transactional impairments, which primarily related to seventeen narrow-body and eight wide-body aircraft.

The Company recognized $157.0 million of maintenance revenue and security deposits into revenue related to these 25 aircraft during the year ended February 28, 2021.

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

During the year ended December 31, 2019, the Company recognized net maintenance revenue of $17.6 million related to the early lease terminations of seven narrow-body aircraft due to lessee default.

We recorded impairment charges of $7.4 million related to two of these seven narrow-body aircraft.

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter of 2019 .

We also performed aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations.

No impairments were recorded as a result of our annual recoverability assessment.

We completed our annual recoverability assessment of our aircraft in the second quarter.

Of the $425.6 million impairment charges recorded for the year ended February 28, 2021, we recorded $43.0 million related to one narrow-body and one wide-body aircraft as a result our annual recoverability assessment.

Although we have completed our annual recoverability assessment, we continue to monitor the developments of COVID-19.

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

We have and will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deterioration.

The recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows.

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

Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our annual recoverability assessment.

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

While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates.

Aircraft Monitoring List

At December 31, 2019 , no aircraft were on our monitoring list.

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.

If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges.

While we believe that the estimates and related assumptions used in the annual recoverability assessment, and subsequent assessments, are appropriate, actual results could differ from those estimates.

Comparison of the year ended December 31, 2019 to the year ended December 31, 2018:

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this Annual Report because that disclosure was already included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 12, 2019.

We have omitted discussion of the earliest two of the four periods covered by our consolidated financial statements presented in this Annual Report because that disclosure was already included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 13, 2020.

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the year ended December 31, 2019 to the year ended December 31, 2018.

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Lease Revenue Recognition

Our operating lease rentals are recognized on a straight-line basis over the term of the lease.

We will neither recognize revenue nor record a receivable from a customer when collectability is not probable.

We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years.

We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term.

Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals.

Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the lease term using the prevailing rate at lease commencement.

Changes to rate-based lease rentals are recognized in the statement of income (loss) in the period of change.

In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals.

While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement.

We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within Other assets in our Consolidated Balance Sheets.

If we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we recognize lease rental revenue using a cash basis of accounting rather than an accrual method.

Estimating whether collectability is probable requires some level of subjectivity and judgment.

When collectability is not probable, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.

Management determines whether customers should be placed back on accrual status when it becomes probable that payments will be received in a timely manner.

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Events or circumstances outside of historical customer patterns can also result in changes to a customer’s accrual status.

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

Maintenance Payments and Maintenance Revenue

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

These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term.

These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at or near the end of the lease term.

For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon completion of the relevant heavy maintenance, overhaul or parts replacement.

Maintenance revenue recognition would occur at or near the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement.

If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its utilization of the aircraft during the lease;

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In making these estimates, we rely upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft.

As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected

maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs by applying the deferral method.

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Interest income on our net investment in leases is recognized as Direct financing and sales-type lease revenue over the lease term in a manner that produces a constant rate of return on the net investment in the lease.

Collectability of direct financing and sales-type leases is evaluated at lease commencement and periodically during the lease term.

The evaluation is performed at an individual customer level and, among other things, considers the credit of the lessee and the value of the underlying aircraft.

A loss allowance is established if there is evidence that we will be unable to collect all amounts due according to the contractual terms of the lease.

At December 31, 2019, we had no allowance for credit losses for our Net investment in direct financing and sales-type leases.

The net investment in leases is recorded in the consolidated financial statements net of an allowance for credit losses.

The allowance for credit losses is recorded upon the initial recognition of the net investment in the lease based on the Company’s estimate of expected credit losses over the lease term.

The allowance reflects the Company’s estimate of lessee default probabilities and loss given default percentages.

When determining the credit loss allowance, we consider relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the net investment in the lease.

The allowance also considers potential losses due to non-credit risk related to unguaranteed residual values.

A provision for credit losses is recorded as a component of Selling, general, and

administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

Fair Value Measurements

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We record aircraft at fair value when we determine the carrying value may not be recoverable.

Fair value measurements for aircraft in impairment tests are based on an income approach that uses Level 3 inputs, which include our assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

We account for our investments in unconsolidated joint ventures under the equity method of accounting and record impairment when its fair value value is less than its carrying value and the Company determines that the decline is other-than-temporary.

Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.

We account for our investments in unconsolidated joint ventures under the equity method of accounting.

Investments are reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary

The Company records an income tax provision in accordance with the various tax laws for those jurisdictions within which our transactions occur.

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A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount estimated by us to be realizable.

The Company recognizes the tax benefit from an uncertain tax position only

if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities.

We did not have any unrecognized tax benefits.

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

• asset sales;

• sales of common shares.

Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.

During 2019 , we met our liquidity and capital resource needs with $536.4 million of cash flow from operations, $2.12 billion in gross proceeds from the issuance of our Senior Notes due 2026, bank debt and our revolving credit facilities and $361.7 million of cash from aircraft sales.

As of December 31, 2019 , the weighted average maturity of our secured and unsecured debt financings was 3.4 years and we are in compliance with all applicable covenants in our financings.

We have also determined that as of December 31, 2019 , our consolidated subsidiaries’ restricted net assets, as defined by Rule 4-08(e)(3) of Regulation S-X, are less than 25% of our consolidated net assets.

We believe that cash on hand, payments received from lessees and other funds generated from operations, unsecured bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.

During the year ended February 28, 2021, we met our liquidity and capital resource needs with $175.0 million of cash flow from operations, $1.93 billion in gross proceeds from the issuance of our senior notes, bank debt and our revolving credit facilities and $180.3 million of cash from aircraft sales.

As of February 28, 2021, the weighted average maturity of our secured and unsecured debt financings was 3.7 years and we are in compliance with all applicable covenants in our financings.

We have also determined that as of February 28, 2021, our consolidated subsidiaries’ restricted net assets, as defined by Rule 4-08(e)(3) of Regulation S-X, are less than 25% of our consolidated net assets.

We have agreed to defer some near-term lease payments with certain of our airline customers.

As of April 15, 2021, we have agreed to defer approximately $108.4 million in near-term lease payments with 26 airlines, which these airline customers have agreed to repay over time.

If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, government or other sources, we may need to extend further deferrals to some of our other customers or to extend the deferrals we have already made.

We may ultimately be unable to collect all the amounts we have deferred.

As of February 28, 2021, we hold $80.7 million in security deposits, $519.2 million in maintenance payments and $151.5 million in letters of credit from our lessees.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and 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.

In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.

Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.

Year Ended December 31,

February 28, December 31,

(Dollars in thousands)

Net cash flow provided by operating activities $ 175,022 $ 536,418

Net cash flow used in investing activities

Net cash flow provided by (used in) financing activities

Net cash flow provided by (used in) investing activities 21,472 (784,029)

Net cash flow provided by financing activities 212,667 235,201

Operating Activities:

Cash flow provided by operations was $536.4 million and $522.6 million for the years ended December 31, 2019 and 2018 , respectively.

The increase in cash flow provided by operations of $13.8 million for the year ended December 31, 2019 versus the same period in 2018 was primarily a result of:

a $39.0 million increase in cash from lease rentals, net of direct financing and sales-type leases,

a $25.8 million increase in collections from direct financing and sales-type leases (please refer to Note 1);

a $6.9 million decrease in cash paid for taxes;

a $5.1 million increase in cash related to fees from our joint ventures.

These inflows were offset by a:

a $31.7 million increase in in cash paid for interest;

a $22.2 million decrease in cash from working capital;

a $15.9 million increase in cash paid for maintenance.

The COVID-19 pandemic has severely impacted the demand for air travel over the past twelve months, which has negatively impacted our customers’ financial performance.

The impact of the COVID-19 pandemic, together with lease concessions given to many of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the year ended February 28, 2021.

Cash flow provided by operations was $175.0 million for the year ended February 28, 2021 compared to $536.4 million for the year ended December 31, 2019.

The decrease in cash flow provided by operations of $361.4 million was primarily a result of:

• a $121.6 million decrease in cash due to lower lease rental revenue resulting from early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method;

• a $113.0 million decrease in cash resulting from an increase in accounts receivable and other assets, primarily due to deferred lease rentals;

• a $73.6 million decrease in cash resulting from advance lease rentals recognized into revenue, primarily due to lease terminations;

• a $32.6 million decrease in cash due to higher banking and legal costs resulting from the Merger.

Investing Activities :

Cash flow used in investing activities was $784.0 million and $974.7 million for the years ended December 31, 2019 and 2018 , respectively.

The decrease in cash flow used in investing activities of $190.7 million for the year ended December 31, 2019 was primarily a result of:

a $160.9 million decrease in the acquisition and improvement of flight equipment and net investment in direct financing and sales-type leases;

a $32.9 million increase in distribution from our Lancaster joint venture;

a $22.9 million increase in proceeds from the sale of flight equipment;

a $16.3 million decrease in a ircraft purchase deposits and progress payments, net of returned deposits.

These decreases were offset by a $30.0 million decrease in collections on direct financing and sales-type leases (please refer to Note 1) and an $11.8 million increase in our investments in our IBJ joint venture for the purchase of aircraft.

Cash flow provided by investing activities was $21.5 million for the year ended February 28, 2021 as compared to cash flow used in investing activities of $784.0 million for the year ended December 31, 2019.

The net decrease in cash flow provided by investing activities of $805.5 million for the year ended February 28, 2021 was primarily a result of a $1.03 billion decrease in the acquisition and improvement of flight equipment offset by a $181.4 million decrease in aircraft proceeds from the sale of flight equipment.

Financing Activities :

Cash flow provided by financing activities was $235.2 million and $386.1 million for the years ended December 31, 2019 and 2018 , respectively.

The decrease in cash flow provided by financing activities of $150.9 million for the year ended December 31, 2019 was primarily a result:

a $848.4 million increase in repayments of secured and unsecured financings;

a $28.2 million increase in maintenance and security deposits returned, net of deposits received;

a $7.2 million increase in debt extinguishment costs.

These outflows were offset by a $702.9 million increase in proceeds from secured and unsecured financings and a $34.7 million decrease in shares repurchased.

Cash flow provided by financing activities was $212.7 million and $235.2 million for the years ended February 28, 2021 and December 31, 2019, respectively.

The decrease in cash flow provided by financing activities of $22.5 million for the year ended February 28, 2021 was primarily a result of a $183.9 million decrease in proceeds from secured and unsecured financings offset by a $119.9 million decrease in repayments of secured and unsecured financings and $11.2 million decrease in shares repurchased.

Debt Obligations

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Contractual Obligations

Our contractual obligations consist of principal and interest payments on variable and fixed rate liabilities, interest payments on interest rate derivatives, aircraft acquisitions and rent payments pursuant to our office leases.

Total contractual obligations increased to approximately $7.03 billion at December 31, 2019 from $6.95 billion at December 31, 2018 due to an increase in borrowings, partially offset by a decrease in aircraft purchase obligations.

The following table presents our actual contractual obligations and their payment due dates as of December 31, 2019 .

Payments Due by Period as of December 31, 2019

Contractual Obligations

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

Total contractual obligations decreased to $6.82 billion at February 28, 2021 from $7.03 billion at December 31, 2019, due to a decrease in purchase obligations and principal payments for secured financings and borrowings under our revolving credit facilities, partially offset by an increase in principal payments for senior notes.

The following table presents our actual contractual obligations and their payment due dates as of February 28, 2021.

Payments Due by Period as of February 28, 2021

Contractual Obligations Total 1 year

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

(Dollars in thousands)

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DBJ Term Loan

215,000 60,000 155,000 — —

Revolving Credit Facilities

ECA Financings

36,423 14,847 15,517 6,059 —

Bank Financings

738,353 72,096 293,791 372,466 —

Total principal payments 5,189,776 646,943 1,614,308 1,528,525 1,400,000

Interest payments on debt obligations (1)

789,022 215,637 347,553 169,269 56,563

Office leases (2)

13,028 1,928 3,506 3,531 4,063

Purchase obligations (3)

825,119 199,990 473,804 151,325 —

Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at December 31, 2019 .

Total $ 6,816,945 $ 1,064,498 $ 2,439,171 $ 1,852,650 $ 1,460,626

_____________

(1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at February 28, 2021.

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

Dublin, Ireland and Singapore.

At December 31, 2019 , we had commitments to acquire 31 aircraft for $1.11 billion , including 25 new E-Jet E2 aircraft from Embraer S.A.

(3) At February 28, 2021, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer S.A for $825.1 million.

These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments.

As of February 10, 2020 , we have commitments to acquire 31 aircraft for $1.11 billion .

As of April 15, 2021, we have commitments to acquire 25 aircraft for $825.1 million.

Capital Expenditures

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

For the years ended December 31, 2019 , 2018 and 2017 , we incurred a total of $31.8 million, $9.3 million and $12.9 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.

As of December 31, 2019 , the weighted average age (by net book value) of our aircraft was 9.9 years.

For the years ended February 28, 2021, and December 31, 2019 and 2018, we incurred a total of $26.6 million, $31.8 million and $9.3 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.

As of February 28, 2021, the weighted average age (by net book value) of our aircraft was 10.6 years.

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

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

Maintenance reserves may not cover the entire amount of actual maintenance

expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age.

Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age.

“Risk Factors — Risks Related to Our Business — Risks related to our leases — If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease .”

Off-Balance Sheet Arrangements

We entered into two joint venture arrangements in order to help expand our base of new business opportunities.

Neither of these joint ventures qualifies for consolidated accounting treatment.

The assets and liabilities of these entities are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.

We entered into a joint venture arrangement in order to help expand our base of new business opportunities.

This joint venture does not qualify for consolidated accounting treatment.

The assets and liabilities of this entity are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.

See Note 5 – “Unconsolidated Equity Method Investment” in the Notes to Unaudited Consolidated Financial Statements below.

During the third quarter of 2019, the sale of all eight aircraft held by the joint venture with Teachers’ to a single buyer was completed.

Teachers’, as majority shareholder, chose to liquidate the joint venture.

As of December 31, 2019, minimal assets remain in the joint venture as needed to complete its liquidation during 2020.

We hold a 25% equity interest in our joint venture with Mizuho Leasing, IBJ Air Leasing (“IBJ Air”).

At December 31, 2019 , the net book value of the IBJ Air joint venture’s nine aircraft was $327.8 million .

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of February 28, 2021, the net book value of its nine aircraft was $312.0 million.

Foreign Currency Risk and Foreign Operations

At December 31, 2019 all of our leases are payable to us in U.S.

At February 28, 2021 all our leases are payable to us in U.S.

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

For the year ended December 31, 2019 , expenses, such as payroll and office costs, denominated in currencies other than the U.S.

For the year ended February 28, 2021, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

dollar aggregated $20.3 million in U.S.

dollar equivalents and represented 20% of total SG&A expenses.

dollar equivalents and represented approximately 21.7% of total selling, general and administrative expenses (or 26.2% when excluding share-based compensation expense, of which a large portion relates to employees domiciled in the U.S.).

Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees.

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

For the years ended December 31, 2019 , 2018 and 2017 , we incurred insignificant net gains and losses on foreign currency transactions.

For complete information on our derivative instruments, please refer to Note 14 “Other Assets” in the Notes to Consolidated Financial Statements below.

For the years ended February 28, 2021, and December 31, 2019 and 2018, we incurred insignificant net gains and losses on foreign currency transactions.

Inflation affects our lease rentals, asset values and costs, including SG&A expenses and other expenses.

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It provides an indicator for management to determine if adjustments to current spending decisions are needed.

outstanding debt) and asset base (primarily depreciation and amortization) from our operating results.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results.

Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization.

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Adjusted EBITDA is a material component of these covenants.

The table below shows the reconciliation of net income to EBITDA for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Year Ended December 31,

The table below shows the reconciliation of net income to EBITDA for the year ended February 28, 2021, the two months ended February 29, 2020, and for the years ended December 31, 2019 and 2018, respectively.

Year Ended February 28, Two Months Ended February 29, Year Ended December 31,

2021 2020 2019 2018

(Dollars in thousands)

Net income (loss) $ (333,168) $ 3,659 $ 156,575 $ 247,919

Depreciation 347,517 59,853 356,021 310,850

Amortization of lease premiums, discounts and incentives 22,842 3,669 22,636 15,269

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Income tax provision 10,236 1,675 22,667 5,642

EBITDA $ 282,765 $ 109,894 $ 815,969 $ 814,184

Impairment of flight equipment 425,579 62,657 7,404 —

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Merger related expenses (1)

Loss (gain) on mark-to-market of interest rate derivative contracts

Adjusted EBITDA

35,165 321 7,886 —

Includes $7.4 million in Other income (expense) and $0.5 million in Selling, general and administrative expenses.

Management’s Use of Adjusted Net Income (“ANI”)

Management believes that Adjusted Net Income (“ANI”) when viewed in conjunction with the Company’s results under U.S.

GAAP and the below reconciliation, provides useful information about operating and period-over-period performance, and provides additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity, merger related expenses and non-cash share-based payment expense.

The table below shows the reconciliation of net income to ANI for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Year Ended December 31,

(Dollars in thousands)

Loss on extinguishment of debt (1)

Loss (gain) on mark-to-market of interest rate derivative contracts 19 96 4,771 (1,632)

Loan termination (gain) fee (2)

Write-off of deferred financing fees (2)

Non-cash share-based payment expense (3)

Merger related expenses and taxes (4)

Adjusted net income

Contract termination expense 172 — — —

Adjusted EBITDA $ 774,389 $ 187,601 $ 862,161 $ 839,831

______________

Included in Other income (expense).

Included in Interest, net.

Included in Selling, general and administrative expenses.

Includes $7.4 million in Other income (expense), $3.7 million in Income tax provision and $0.5 million in Selling, general and administrative expenses.

Year Ended December 31,

Weighted-average shares:

Common shares outstanding

Restricted common shares

Total weighted-average shares

Year Ended December 31,

Percentage of weighted-average shares:

Common shares outstanding

Restricted common shares (1)

Year Ended December 31,

Weighted-average common shares outstanding — Basic

Effect of dilutive shares (2)

Weighted-average common shares outstanding — Diluted

Year Ended December 31,

Adjusted net income allocation:

(Dollars in thousands, except per share amounts)

Adjusted net income

Distributed and undistributed earnings allocated to restricted common shares (1)

Adjusted net income allocable to common shares — Basic and Diluted

Adjusted net income per common share — Basic

Adjusted net income per common share — Diluted

For the years ended December 31, 2019 , 2018 and 2017 , distributed and undistributed earnings to restricted shares was 0.66% , 0.61% and 0.71% , respectively, of net income.

The amount of restricted share forfeitures for all periods presented was immaterial to the allocation of distributed and undistributed earnings.

For the years ended December 31, 2019 , 2018 and 2017 , dilutive shares represented contingently issuable shares related to the Company’s Performance Share Units (“PSUs”).

Limitations of EBITDA, Adjusted EBITDA and ANI

An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI important measures in evaluating our performance, results of operations and financial position.

(1) Includes $32.6 million in Other expense and $2.6 million in Selling, general and administrative expenses.

Limitations of EBITDA and Adjusted EBITDA

An investor or potential investor may find EBITDA and Adjusted EBITDA important measures in evaluating our performance, results of operations and financial position.

We use these non-U.S.

1 unchanged sentence

GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S.

GAAP measures of earnings (loss).

Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-U.S.

Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA and Adjusted EBITDA, and using these non-U.S.

GAAP measures as compared to U.S.

3 unchanged sentences

• elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;

hedge loss amortization charges related to Term Financing No.

1 and Securitization No.

adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.

EBITDA, Adjusted EBITDA and ANI are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S.

• adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes which may not be comparable to similarly titled measures used by other companies.

EBITDA and Adjusted EBITDA are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S.

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

1 unchanged sentence

GAAP financial measure.

We strongly urge you to review the reconciliations to U.S.

GAAP net income (loss), along with our consolidated financial statements included elsewhere in this Annual Report.

We strongly urge you to

review the reconciliations to U.S.

GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report.

We also strongly urge you to not rely on any single financial measure to evaluate our business.

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis