Aircastle LTD 10-K

ITEM 9A. CONTROLS AND PROCEDURES Management’s Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as of February 28, 2021. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of February 28, 2021. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of the effectiveness of our internal control over financial reporting as of February 28, 2021. The assessment was based on criteria established in the Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of February 28, 2021. Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended February 28, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 44 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Pursuant to Item 401(b) of Regulation S-K, the requisite information pertaining to our executive officers is reported immediately following Item 4 of Part I of this Annual Report. The identification of our Audit Committee and our Audit Committee financial experts will be contained under the captions “CORPORATE GOVERNANCE - Committees of the Board of Directors - The Audit Committee” in our 2020 Proxy Statement to be filed in connection with our 2020 Annual Meeting (the “2020 Proxy Statement”) or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. Information regarding our Code of Business Ethics and Conduct, any material amendments thereto and any related waivers will be contained under the captions “CORPORATE GOVERNANCE - Code of Business Conduct and Ethics” in our 2020 Proxy Statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. Any information required by Item 405 of Regulation S-K will be contained under the caption "OWNERSHIP OF THE COMPANY'S COMMON SHARES - Delinquent Section 16(a) Reports" in our 2020 Proxy Statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. All of the foregoing information is incorporated herein by reference. The Code of Business Conduct and Ethics is posted on our website at www.aircastle.com under Investors - Corporate Governance. Information about our Directors . In connection with the Merger and effective immediately after the Effective Time, the members of the board of directors of the Company (the “Board”) are Douglas A. Hacker, Michael J. Inglese, Takashi Kurihara, Charles W. Pollard, Taro Kawabe, Takayuki Sakakida and Noriyuki Yukawa. Name Age Douglas A. Hacker 65 Michael J. Inglese 60 Taro Kawabe 53 Takashi Kurihara 60 Charles W. Pollard 63 Takayuki Sakakida 49 Noriyuki Yukawa 62 Douglas A. Hacker was appointed to our Board on March 27, 2020 following the consummation of the Merger and served on the prior Board of Aircastle Limited from August 2, 2006 to the consummation of the Merger. Mr. Hacker is currently an independent business executive and formerly served as Executive Vice President, Strategy for UAL Corporation, an airline holding company, and has served in such position from December 2002 to May 2006. Prior to that, Mr. Hacker served with UAL Corporation as President, UAL Loyalty Services from September 2001 to December 2002, and as Executive Vice President and Chief Financial Officer from July 1999 to September 2001. Mr. Hacker served as a director of Travelport from 2016 until May 2019. Mr. Hacker serves as a director or trustee of a series of open-end investment companies that are part of the Columbia family of mutual funds and as lead independent director of SpartanNash Company (“SpartanNash”). In March 2021, the nominating and corporate governance committee of SpartanNash nominated Mr. Hacker to serve as the Chairman of SpartanNash Company. Michael J. Inglese was appointed a member of our Board on March 27, 2020 following the consummation of the Merger and served on the prior Board of Aircastle Limited from June 2017 to the consummation of the Merger. He became our Chief Executive Officer in June 2017, having served as Aircastle’s Acting Chief Executive Officer from January 2017. He was previously our Chief Financial Officer from April 2007 to January 2017. Prior to joining the Company, Mr. Inglese served as Chief Financial Officer of PanAmSat Holding Corporation from June 2000 until the closing of PanAmSat’s sale to Intelsat in July 2006. Mr. Inglese joined PanAmSat in May 1998 as Vice President, Finance after serving as Chief Financial Officer for DIRECTV Japan, Inc. He is a Chartered Financial Analyst who holds a BS in Mechanical Engineering from Rutgers University College of Engineering and his MBA from Rutgers Graduate School of Business Management. Taro Kawabe was appointed to our Board on March 27, 2020 following the consummation of the Merger. Mr. Kawabe is currently an Executive Officer, Chief Operating Officer of Finance and Leasing Business Division of 45 Marubeni. Previously, he was Senior Operating Officer of Finance and Leasing Business Division of Marubeni from April 2019 to March 2020. Prior to that, Mr. Kawabe was the General Manager of the Leasing Business Department of Marubeni from April 2016 to March 2019. Mr. Kawabe joined Marubeni in April 1990. Mr. Kawabe received his degree from Waseda University in 1990. Takashi Kurihara was appointed to our Board on March 27, 2020 following the consummation of the Merger and served on the prior Board of Aircastle Limited from May 2019 to the consummation of the Merger, and was nominated by Marubeni. Mr. Kurihara is the Advisor to the President of Marubeni America Corporation. From January 2017 to March 2019, Mr. Kurihara was a director of Agricultural Solutions Business Division of Bridgestone. Prior to that, Mr. Kurihara was Deputy General Manager, Regional Coordination and Administration Department at Marubeni from April 2016 to September 2016. From July 2013, he was Vice President and a Board member of Gavilon Agriculture Investment until April 2015, when Mr. Kurihara became Executive Vice President and a Board member of Gavilon Agriculture Investment. Mr. Kurihara received his MBA at Columbia Business School in New York and his bachelor degree of political science at Keio University in Tokyo. Mr. Kurihara has over 30 years’ experience at Marubeni including the structured finance for Energy & Chemical plant projects in various countries, the management of the investment decision making process by conducting the analysis and the recommendation to its CEO, various M&A activities including Gavilon and its post-merger integration, and brings to the Board extensive experience in operations, strategic planning and financial matters. Charles W. Pollard was appointed to our Board on March 27, 2020 following the consummation of the Merger and served on the prior Board of Aircastle Limited from July 6, 2010 to the consummation of the Merger. Mr. Pollard joined Omni Air International, Inc., a passenger charter carrier, in 1997, where he served variously as Managing Director, President and CEO, and Vice Chairman until 2009. Previously he spent ten years in senior management positions, including President and CEO, at World Airways, Inc. Prior to joining World Airways, Inc., he practiced corporate law at Skadden, Arps, Slate, Meagher & Flom. He currently serves on the board of directors of Allegiant Travel Company. Takayuki Sakakida was appointed to our Board on March 27, 2020 upon the consummation of the Merger and served on the prior Board of Aircastle Limited from June 9, 2017 to the consummation of the Merger, and was nominated by Marubeni. In April 2019, Mr. Sakakida was appointed as General Manager, Finance & Leasing Business Dept. – II, Marubeni. In April 2017, Mr. Sakakida was appointed as Vice President and General Manager, Aerospace and Ship Unit, Marubeni America Corporation, which is a subsidiary of Marubeni, a general trading company, engaged as an intermediary, importer/exporter, facilitator or broker in various types of trade between and among business enterprises and countries. In April 2016, Mr. Sakakida was appointed as Assistant General Manager, Aerospace and Defense Systems Department, Marubeni. From April 2015 to April 2016, he served as General Manager, Business Administration Section, Aerospace and Defense Systems Department of Marubeni. From April 2011 to 2015, he seconded to MD Aviation Capital Pte Ltd (Singapore) as Managing Director. Mr. Sakakida has over twelve years’ experience in the aviation industry and brings to the Board extensive experience in operations, strategic planning and financial matters relevant to the aviation industry. He maintains high-level contacts with major manufacturers in the aviation industry as well as Asian airlines which may in the future be customers of the Company. Noriyuki Yukawa was appointed to our Board on March 27, 2020 following the consummation of the Merger. Mr. Yukawa is currently an Advisor at Mizuho Leasing, and from April 2013 until March 2020, he also held the title of Managing Executive Officer. From April 2017 to March 2020, he led the Aviation, Finance and Real Estate Departments, and from April 2013 to March 2017 he was in charge of Real Estate. Prior to joining Mizuho Leasing in April 2009, Mr. Yukawa had a 28 year career at Mizuho Bank. His roles included General Manager of the M&A Advisory Division, Joint General Manager of the M&A Finance Division, and Deputy General Manager of the Real Estate Finance Division, as well as an Executive Assistant for the Chairman of the Board. Mr. Yukawa received a Master of Comparative Laws from the University of Illinois, College of Law and a Bachelor of Law from the University of Tokyo. Mr. Yukawa is also a member of the Board of Directors of PLM Fleet LLC. Information about our Executive Officers . The names of the executive officers of the Company and their ages, titles and biographies may be found in: Information about our Executive Officers. Code of Business Conduct and Ethics . To help ensure that the Company abides by applicable corporate governance standards, our Board has adopted a Code of Business Conduct and Ethics and a Code of Ethics for Chief Executive and Senior Financial Officers, which are posted on our website at http://www.aircastle.com under “Investors—Governance Documents” and which are available in print to any shareholder of the Company upon request. 46 Audit Committee of the Board of Directors . After the Effective Time, Takashi Kurihara (Chairman), Noriyuki Yukawa and Douglas A. Hacker were designated as members of the Audit Committee. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION Compensation Discussion and Analysis Given that we changed our fiscal year in 2020 to begin on March 1 and end on the last day of February of each year, all references herein to a year shall mean our fiscal year unless otherwise noted. Our 2020 fiscal year began on March 1, 2020 and ended on February 28, 2021. This Compensation Discussion and Analysis describes and analyzes our executive compensation philosophy and programs. This Compensation Discussion and Analysis focuses on the compensation paid for our 2020 fiscal year and the transition period from January 1, 2020, to February 29, 2020 (the “Transition Period”) to our current Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers, together referred to as our named executive officers, or NEOs. For 2020, our NEOs were: Named Executive Officer Title Michael J. Inglese Chief Executive Officer Aaron A. Dahlke Chief Financial Officer Douglas C. Winter Chief Commercial Officer Christopher L. Beers Chief Legal Officer & Secretary Roy Chandran Chief Strategy Officer Pay for Performance Philosophy We believe executive compensation should be tied to Company performance weighted in favor of long-term performance, and our compensation program for 2020 and the Transition Period rewarded executives and employees in two areas: • Annual Corporate Performance : Achievement of internal corporate financial metrics focused on: (i) adjusted return on equity; (ii) cash flow per share; and (iii) growth through new investments; and • Individual Performance : Achievement of individual performance goals set at the beginning of each year. For 2020, we made annual incentive compensation awards, comprised of a cash bonus and restricted cash award, the payment and vesting of which were based on a mix of corporate performance and individual performance. For more highly compensated employees, including our NEOs, achievement of corporate financial metrics carried a greater weighting relative to individual performance, as illustrated in the table below: Position Corporate Performance Individual Performance CEO 85% 15% Other NEOs 80% 20% 47 2020 Corporate Financial Metrics . We based corporate performance targets on the Company’s business plan and established a performance range for each metric. Results below the low end of each range would not yield any contribution to the Company’s incentive compensation pool for that metric. Conversely, performance above target would result in an enhanced contribution to the Company’s incentive compensation pool, up to a 200% contribution at the upper end of the performance range for each metric. For 2020, we established the following targets, performance ranges and relative weightings for the three financial metrics: Metric 2020 Target Performance Range Weighted Score Adjusted return on equity (1) 9.49 % 25%-150% 25% Cash flow (2) $ 537.20 85%-115% 50% Net investments (3) (in billions) $ 1.40 50%-150% 25% _______________ (1) Adjusted Return on Equity is Adjusted Net Income divided by the average shareholders’ equity. Adjusted Net Income, or ANI, is net income before certain expenses related to our financings and interest rate derivative accounting, and other items we have deemed unusual when viewed in the context of our ongoing business. Our presentation of ANI may not be comparable to similarly-titled measures used by other companies. A reconciliation between non-GAAP performance metrics and U.S. GAAP results is included as Appendix A to this Form 10-K. (2) Cash Flow for a period is Cash Flow from Operations before changes in working capital plus principal payments from our finance leases and distributions from our joint venture investment. A reconciliation between non-GAAP performance metrics and U.S. GAAP results is included as Appendix A to this Form 10-K. (3) New Investments measures the total annual amount invested in aviation assets. Individual and Functional Performance Goals and Compensation. We set individual performance goals for every employee at the beginning of each year and measure each employee’s performance against those goals at the end of the year to determine incentive compensation levels. For 2020, we determined incentive pay for each employee by applying the weighted corporate and individual performance. We set individual bonus targets based on an employee’s function, role and seniority within the organization, among other factors. For 2020, for our executive officers, annual incentive compensation will be paid out in the form of cash and restricted cash awards. For additional retention purposes, the restricted cash awards vest over three years, subject to continued service with us through such period. Compensation Overview For 2020 and the Transition Period, there were three primary elements of total direct compensation: base salary, annual cash bonus, annual restricted cash award. Base Salary. Base salaries provide fixed compensation and allow us to attract and retain talented management. We set base salaries for our named executive officers and review them periodically by taking into account the current market environment and the responsibilities, experience, value to the Company and demonstrated performance of our named executive officers. Annual Incentive Compensation . As discussed below, we make incentive compensation awards based on the Company’s performance against corporate financial metrics, performance against individual performance goals, and, if applicable, functional performance goals for each year. Long-Term Incentive Plan . As a result of the global pandemic and its impact on the commercial aviation industry in 2020, no long-term performance awards (“LTIP”) were granted. In connection with the Merger and in lieu thereof, restricted cash awards vesting on February 15, 2021 were awarded to certain senior professionals, including our NEOs, in an amount equal to 1/3 of the target dollar amount of LTIP awarded in 2019. Other Compensation . We also offered NEOs severance payments and accelerated vesting of restricted cash awards in certain circumstances, as described in greater detail below in the section entitled “Potential Payments upon Termination or Change in Control.” Severance and change in control benefits provide transitional assistance for separated employees and are essential to recruiting and retaining talented executives in a competitive market. In addition, our NEOs are also eligible to participate in our employee benefit plans, including medical, dental, life insurance and 401(k) plans. These plans are available to all employees and do not discriminate in favor of our named executive officers. Recoupment Policy . In January 2016, we adopted a clawback policy covering certain incentive compensation awarded to our executive officers. The policy requires reimbursement of incentive payments awarded to an executive 48 officer based upon financial results that were subsequently the subject of a restatement due to the Company’s material noncompliance with financial reporting requirements. The amount of reimbursement would be to the extent that a lower payment would have been awarded to the executive based on the restated financial results. The policy applies to all incentive compensation awarded or paid to an executive officer in the three years prior to the restatement, even if the executive officer did not engage in conduct which contributed to the restatement. In addition, we may seek to recover any portion of incentive compensation when we determine that an executive officer engaged in a certain misconduct, namely involving: (i) material acts of fraud or dishonesty in connection with employment by the Company; (ii) willfully not complying with material policies or procedures of the Company; or (iii) the commission of a felony or a crime involving material dishonesty. Summary . The primary goals of our compensation programs are to attract, motivate and retain the most talented and dedicated employees and to align incentive compensation. What We Don’t Pay or Provide • Individual contractual rights to change in control benefits based on a single trigger; • Deferred compensation plans; • Company cars or aircraft; • Individual contractual rights to income tax gross-ups; and • Special or enhanced pension or retirement programs. 2020 Compensation Performance versus Corporate Financial Metrics . In 2020, the Company’s performance against its corporate financial metrics resulted in an incentive compensation pool equal to 0% of the total target as a result of the COVID-19 pandemic and its acute impact on the commercial aviation industry. Metric 2020 Target Weighting 2020 Performance Performance Range Performance Weighted Score Adjusted Return on Equity (1) 9.49 % 25% (14.60) % 25% - 150% — % — % Cash flow (1) $ 537.20 50% $ 376.40 85% - 115% — % — % New investments (in billions) $ 1.40 25% $ 0.18 50% - 150% — % — % Total — % _______________ (1) A reconciliation between non-GAAP performance metrics and U.S. GAAP results is included as Appendix A to this Form 10-K. Pursuant to the Merger Agreement, annual incentive awards prior to the Merger could be paid in cash and at target bonus levels. Pre-Merger annual bonuses could be paid at target and in cash to our bonus eligible employees, including our NEOS, but only for the Transition Period. Annual bonus awards for our fiscal year 2020 were determined solely by corporate and individual performance levels. Based on the foregoing and given the corporate performance achievement of 0%, the Compensation Committee took the following actions for our NEOs. For the Transition Period, our NEO received their base salaries and have been awarded pro-rata bonuses at target levels paid in cash. Named Executive Officer 2020 Incentive Compensation (1) Pre-Merger Bonus Payable in Cash at Target Michael J. Inglese $101,250 cash and $202,500 restricted cash grant $337,500 cash Aaron A. Dahlke $96,000 cash and $96,000 restricted cash grant $133,333 cash Douglas C. Winter $120,000 cash and $120,000 restricted cash grant $166,667 cash Christopher L. Beers $120,000 cash and $120,000 restricted cash grant $166,667 cash Roy Chandran $96,000 cash and $96,000 restricted cash grant $133,333 cash _______________ (1) All restricted cash awards are expected to be granted in April 2021 and will vest in equal installments on March 15, 2022, 2023 and 2024. 49 How We Make Decisions Risk . The Compensation Committee reviews the risks and rewards associated with the Company’s compensation programs. We believe that our compensation programs encourage prudent business judgment and appropriate risk-taking, with the overall goal of building sustainable and profitable growth. We believe none of our compensation programs create risks that are reasonably likely to have a material adverse impact on the Company. Base salary is a fixed amount that does not encourage risk taking. Role of Executive Officers. For 2020, the Committee set the corporate financial metrics at the beginning of the year based on the annual business plan endorsed by the Board. We set performance goals for the Chief Executive Officer, who in turn established individual performance goals for the other NEOs. Regularly during the year, the senior management team presented to us the Company’s actual performance against the corporate performance metrics. We shared these discussions with the full Board on a regular basis. Tax Implications of Our Compensation The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) of the Internal Revenue Code and, among other things, eliminated the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. As a result, beginning in 2018, compensation paid to certain executive officers in excess of $1 million will generally be nondeductible, whether or not it is performance-based. In addition, beginning in 2018, the executive officers subject to Section 162(m) (the “Covered Employees”) will include any individual who served as the CEO or Chief Financial Officer (“CFO”) at any time during the taxable year and the three other most highly compensated officers (other than the CEO and CFO) for the taxable year, and once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years. The Tax Cuts and Jobs Act includes a transition rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017, and is not materially modified after that date. To the extent applicable to our pre-Merger contracts and awards, the Compensation Committee might have availed itself of this transition rule. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Compensation Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) if the Compensation Committee determines that doing so is in the best interests of the Company. Effective as of the closing of the Merger, Section 162(m) no longer applied to the Company. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board is currently comprised of three Directors and operates pursuant to a written charter, which is available at http://www.aircastle.com under “Investors—Governance Documents.” The Compensation Committee is primarily responsible for reviewing, approving and overseeing the Company’s compensation plans and practices and works with management to establish the Company’s executive compensation philosophy and programs. The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and based on that review and discussion, has recommended to the Board that it be included in this Form 10-K. Respectfully submitted, The Compensation Committee Charles W. Pollard, Chair Takashi Kurihara Michael J. Inglese 50 Summary Compensation Table for 2020 The table below sets forth information regarding 2020 (FY), the Transition Period (“2020 (2mo)”), 2019 and 2018 compensation for each of our NEOs. Awards (1) Name and Principal Position Fiscal Year Salary Bonus Annual Equity Award (3) Long Term Incentive Plan (3) All Other Compensation (4) Total Michael J. Inglese 2020 (FY) $ 675,000 $ 1,076,868 $ — $ — $ 12,840 $ 1,764,708 Chief Executive Officer 2020 (2mo) 112,500 469,123 — — 2,140 583,763 2019 675,000 717,930 1,522,966 7,717,531 126,114 10,759,541 2018 675,000 935,550 1,091,583 3,442,058 110,288 6,254,479 Aaron A. Dahlke 2020 (FY) 400,000 344,331 — — 12,840 757,171 Chief Financial Officer 2020 (2mo) 66,667 181,349 — — 2,140 250,156 2019 400,000 425,440 449,194 1,860,818 42,543 3,177,995 2018 400,000 554,400 312,330 755,710 32,874 2,055,314 Douglas C. Winter 2020 (FY) 500,000 506,803 — — 21,527 1,028,330 Chief Commercial Officer 2020 (2mo) 83,333 233,631 — — 2,094 319,058 2019 337,180 531,800 696,850 1,090,700 44,767 2,701,297 2018 — — — — — — Christopher L. Beers 2020 (FY) 500,000 506,803 — — 13,250 1,020,053 Chief Legal Officer & 2020 (2mo) 83,333 233,631 — — 2,208 319,172 Secretary 2019 500,000 531,800 567,047 3,155,948 65,010 4,819,805 2018 500,000 693,000 420,396 1,444,308 71,564 3,129,268 Roy Chandran (5) 2020 (FY) 400,000 344,331 — — 12,840 757,171 Chief Strategy Officer 2020 (2mo) 66,667 181,349 — — 2,140 250,156 (formerly EVP Corporate 2019 400,000 425,440 454,826 1,880,591 43,279 3,204,136 Finance & Strategy) 2018 400,000 562,400 312,330 761,238 34,944 2,070,912 _______________ (1) The amounts reported in the Annual Equity Award column for 2019 and 2018 reflect, in part, the aggregate fair value on the grant date of the restricted share awards granted to our NEOs determined in accordance with FASB ASC Topic 718. The amounts reported in the Long-Term Incentive Plan column for 2019 and 2018 reflect, in part, the aggregate fair value on the grant date of the AROE PSUs and the TSR PSUs granted to our NEOs determined in accordance with FASB ASC Topic 718 based on the probable achievement of the applicable AROE and TSR performance conditions as of the grant date. The aggregate fair value on the grant date that would have been included for the AROE PSUs and TSR PSUs, assuming that the highest level of the performance conditions would be achieved, is as follows: Mr. Inglese $2,475,000; Mr. Winter $1,000,000; Mr. Dahlke $600,000; Mr. Beers $1,000,000; and Mr. Chandran $600,000. For a summary of the assumptions made in the valuation of these awards, please see Note 8 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. Pursuant to SEC guidance, the amounts included in both of these columns also include the incremental fair value of certain restricted share awards and PSUs that were materially modified in December 2019 as a result of their accelerated vesting in connection with the 280G mitigation actions taken in connection with the Merger, as described in greater detail above. See “Grants of Plan-Based Awards for 2019” below for additional information regarding (i) the restricted share awards and PSUs made to our NEOs in 2019 and 2018 and (ii) the incremental fair value attributable to the awards that were materially modified in December 2019. (2) Bonus compensation consists of: (i) cash bonuses; (ii) cash-based long-term incentive compensation awarded in 2020 with a one-year vesting period; and (iii) the portion of 2019 restricted cash awards vesting in 2020. (3) Please refer to the Company's Form 10K/A for the year ended December 31, 2019, (filed April 22, 2020) for a description of the Annual Equity Awards and performance-based Long Term Incentive awards for the years 2019 and earlier. No Annual Equity Awards or performance-based Long Term Incentive awards were granted in fiscal year 2020 or the Transition period. (4) The amounts reported in this column consist of Company contributions made to each named executive officer’s 401(k) plan account and certain insurance premiums paid by the Company, in addition to $8,960 paid to Douglas C. Winter as a dividend payment on unvested restricted common shares.” (5) In March 2020, Mr. Chandran was promoted to Chief Strategy Officer. 51 Stock Vested for 2020 The following table summarizes the restricted share awards and performance share units held by our NEOs that vested in connection with the closing of the Merger during the fiscal year ended February 28, 2021: Stock Awards Name Number of Shares Acquired on Vesting Value Realized on Vesting (US$) (1) Michael J. Inglese 207,914 $ 6,653,248 Aaron A. Dahlke 50,404 1,612,928 Douglas C. Winter 112,006 3,584,192 Christopher L. Beers 120,594 3,859,008 Roy Chandran 72,820 2,330,240 _______________ (1) The aggregate dollar value realized is calculated based on the US$32.00 per share price of our common shares on March 26, 2020, the last business day preceding the closing of the Merger. 52 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The following table and summary set forth potential amounts payable to our NEOs upon termination of employment or a change in control, as described below. The table below reflects amounts payable to our NEOs assuming termination of employment on February 28, 2021: Name and Principal Position Voluntary resignation by executive Termination by us for cause Termination by us without cause Termination by us without cause or by executive for good reason following change in control (1) Termination by executive for good reason Normal retirement Death or Disability Michael J. Inglese Cash Severance $ — $ — $ 1,350,000 $ 2,700,000 $ 1,350,000 $ — $ — COBRA Reimbursement — — 52,743 52,743 52,743 — 52,743 Vacation 72,692 72,692 72,692 72,692 72,692 72,692 72,692 Remainder of 2019 Restricted Cash Award — — 478,620 478,620 478,620 — 478,620 Aaron A. Dahlke Cash Severance — — 800,000 1,600,000 800,000 — — Pro-rata Bonus (assumes February 27 termination) — — 400,000 400,000 400,000 — 400,000 COBRA Reimbursement — — 52,743 52,743 52,743 — 52,743 Vacation 43,077 43,077 43,077 43,077 43,077 43,077 43,077 Remainder of 2019 Restricted Cash Award — — 141,813 141,813 141,813 — 141,813 Douglas C. Winter Cash Severance — — 1,000,000 2,000,000 1,000,000 — — Pro-rata Bonus (assumes February 27 termination) — — 500,000 500,000 500,000 — 500,000 COBRA Reimbursement — — 52,743 52,743 52,743 — 52,743 Vacation 53,846 53,846 53,846 53,846 53,846 53,846 53,846 Remainder of 2019 Restricted Cash Award — — 177,267 177,267 177,267 — 177,267 Christopher L. Beers Cash Severance — — 1,000,000 2,000,000 1,000,000 — — Pro-rata Bonus (assumes February 27 termination) — — 500,000 500,000 500,000 — 500,000 COBRA Reimbursement — — 52,743 52,743 52,743 — 52,743 Vacation 53,846 53,846 53,846 53,846 53,846 53,846 53,846 Remainder of 2019 Restricted Cash Award — — 177,267 177,267 177,267 — 177,267 Roy Chandran Cash Severance — — 800,000 1,600,000 800,000 — — Pro-rata Bonus (assumes February 27 termination) — — 400,000 400,000 400,000 — 400,000 COBRA Reimbursement — — 52,743 52,743 52,743 — 52,743 Vacation 43,077 43,077 43,077 43,077 43,077 43,077 43,077 Remainder of 2019 Restricted Cash Award — — 141,813 141,813 141,813 — 141,813 As described below in the section entitled “Employment Agreements with NEOs,” we, through our subsidiary, Aircastle Advisor LLC, have entered into employment agreements (as amended) with our named executive officers which set forth certain terms and conditions of their employment relating to termination and termination payments. Under the employment agreements for our named executive officers: • if the employment of such named executive officer is terminated without “cause” or with “good reason” (as defined in such employment agreement), and if he signs a general release of claims and complies with the covenants described below, then he will be entitled to receive: (i) an amount equal to the sum of the base salary 53 and target annual cash bonus for the year of termination, payable over a one-year period (two times such amount and payable in a lump sum if the termination occurs within 120 days prior to or within two years following a “change in control” as defined in such employment agreement); (ii) a pro-rata annual bonus for the year of termination; (iii) reimbursement of COBRA premiums for up to twelve months; and (iv) accelerated vesting of all outstanding restricted share awards; • if any amounts to be paid to such named executive officer would constitute “excess parachute payments” subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, the amount will be reduced to the extent necessary to avoid the excise tax, but only if such reduction results in a higher after-tax payment to him; and • such named executive officer covenants not to compete with Aircastle for six months following termination of his employment for any reason and will not solicit the employees of Aircastle or the clients or customers of Aircastle for competing business, in each case, for a period of twelve months following termination. Each of the employment agreements were amended effective as of December 19, 2019 to provide that any grants of restricted cash awards in lieu of the annual PSU grants for 2020 and the equity-based portion of the annual bonuses in respect of 2019 will not constitute a good reason event for purposes of the employment agreements or for any other purpose. Employment Agreements with NEOs Through our subsidiary, Aircastle Advisor LLC, we have entered into an employment agreement (as amended) with each of our NEOs. These employment agreements generally provide for payment of an annual base salary and the executives’ eligibility to receive an annual cash bonus with indicated target annual cash bonus and equity incentive award levels. Each employment agreement provides that the NEO is employed “at-will” and may be terminated at any time and for whatever reason by either us or him. A summary of the payments and benefits to be provided to the NEOs upon a termination of employment, along with a description of the restrictive covenants applicable to each NEO, is set forth below in the section entitled “Potential Payments upon Termination or Change in Control.” Director Compensation During 2020 and the Transition Period, cash compensation to the independent Directors for service on our Board is set forth in the table below. On the first business day of calendar year 2020, our independent Directors prior to the Merger received a restricted cash awards equal to $135,000. These restricted cash award fully vested on the closing of Merger. Our affiliated and management Directors are not separately compensated by us for their Board or committee service. All members of the Board were reimbursed for reasonable costs and expenses incurred in attending meetings of the Board or otherwise incurred in connection with carrying out their duties as Directors. 54 The table below describes our compensation of Directors during the Transition Period: Name Fees Earned Restricted Cash Award Total Compensation Earned for the Two Months Ended February 29, 2020 Ronald W. Allen $ 18,550 $ 93,103 $ 111,653 Giovanni Bisignani 15,117 93,103 108,220 Michael J. Cave 20,236 93,103 113,339 Douglas A. Hacker 34,455 93,103 127,558 Jun Horie (1) — — — Michael J. Inglese (1) — — — Takashi Kurihara (1) — — — Ronald L. Merriman 21,079 93,103 114,182 Agnes Mura 18,550 93,103 111,653 Charles W. Pollard 22,766 93,103 115,869 Takayuki Sakakida (1) — — — Peter V. Ueberroth 40,472 93,103 133,575 _______________ (1) Our affiliated and management Directors, Messrs. Inglese, Horie, Kurihara and Sakakida were not separately compensated by us for their Board or committee service. The table below describes our compensation of Directors during the fiscal year ended February 28, 2021: Name Fees Earned Restricted Cash Award Total Compensation Earned for the Year Ended February 28, 2021 Ronald W. Allen $ 8,347 $ 41,897 $ 50,244 Giovanni Bisignani 6,830 41,897 48,727 Michael J. Cave 9,106 41,897 51,003 Douglas A. Hacker 177,195 41,897 219,092 Jun Horie (1) — — — Michael J. Inglese (1) — — — Taro Kawabe (1) — — — Takashi Kurihara (1) — — — Ronald L. Merriman 9,486 41,897 51,383 Agnes Mura 8,317 41,897 50,214 Charles W. Pollard 176,436 41,897 218,333 Takayuki Sakakida (1) — — — Peter V. Ueberroth 9,486 41,897 51,383 Noriyuki Yukawa (1) — — — _______________ (1) Our affiliated and management Directors, Messrs. Inglese, Kawabe, Kurihara, Sakakida, and Yukawa were not separately compensated by us for their Board or committee service. 55 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information . The table below sets forth certain information as of December 31, 2019, the last day of the fiscal year, for (i) all equity compensation plans previously approved by our shareholders and (ii) all equity compensation plans not previously approved by our shareholders. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (A) (B) (C) Equity compensation plans approved by security holders 798,001 (1) — 3,948,503 Equity compensation plans not approved by security holders — — — Total 3,948,503 _______________ (1) Represents 798,001 common shares subject to outstanding PSU awards (assuming payout at maximum). Security Ownership of Certain Beneficial Owners and Management . The table below sets forth information as of April 22, 2020 as to the beneficial ownership of our Common Shares. Name and Address of Beneficial Owner Common Shares Held Percent of Class Marubeni Corporation (1) 7-1 Nihonbashi 2-chome Chuo-ku, Tokyo, 103-6060 Japan 7,024 50 MM Air Limited (2) c/o Compass Administration Services Ltd. Crawford House 50 Cedar Avenue Hamilton, HM11, Bermuda 7,024 50 _______________ (1) Marubeni beneficially owns 7,024 Common Shares through its wholly owned subsidiary MHC. On March 27, 2020, Aircastle consummated the Merger. At the Effective Time, each Common Share issued and outstanding immediately prior to the Effective Time (other than (i) shares canceled or converted into shares of the surviving company pursuant to the Merger Agreement and (ii) restricted shares canceled and exchanged pursuant to the Merger Agreement) was canceled and converted into the right to receive the Merger Consideration. The shares that were owned by MHC immediately prior to the Effective Time were converted into the same percentage of shares of the surviving company in the Merger. As a result, immediately following the Effective Time, MHC beneficially owned 28.8% of the outstanding common shares of the surviving company in the Merger, and MM Air Limited beneficially owned the remaining 71.2%. On March 27, 2020, MM Air Limited transferred 2,976 Common Shares to MHC, resulting in MHC owning 7,024 Common Shares. (2) MM Air Limited beneficially owns 7,024 Common Shares. MM Air Limited is controlled by affiliates of Marubeni and Mizuho Leasing. On March 27, 2020, Aircastle consummated the Merger. At the Effective Time, each Common Share issued and outstanding immediately prior to the Effective Time (other than (i) shares canceled or converted into shares of the surviving company pursuant to the Merger Agreement (as described in footnote (1) above) and (ii) restricted shares canceled and exchanged pursuant to the Merger Agreement) was canceled and converted into the right to receive the Merger Consideration. The shares that were owned by MHC immediately prior to the Effective Time were converted into the same percentage of shares of the surviving company in the Merger. As a result, immediately following the Effective Time, MHC beneficially owned 28.8% of the outstanding common shares of the surviving company in the Merger, and MM Air Limited beneficially owned the remaining 71.2%. On March 27, 2020, MM Air Limited transferred 2,976 Common Shares to MHC, resulting in MM Air Limited owning 7,024 Common Shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Certain Relationships and Related Party Transactions The following is a summary of material provisions of certain transactions we entered into with our executive officers, Directors or 5% or greater shareholders. We believe the terms and conditions set forth in such agreements were reasonable and customary for transactions of this type. 56 Marubeni Corporation Shareholder Agreement Amendment and Limited Waiver On February 18, 2015, the Company, Marubeni and a subsidiary of Marubeni entered into an amendment and restatement of the Shareholder Agreement, which (i) modified the terms of the Shareholder Agreement to immediately permit acquisitions by Marubeni and its affiliates of voting securities of the Company in the secondary market pursuant to a Rule 10b5-1 plan that would result in Marubeni and its affiliates collectively holding more than 21.0%, but no more than 27.5% of the voting power of the Company and (ii) extended the term of the standstill provision of the Shareholder Agreement (the “Marubeni Standstill”) by eighteen months to January 2025. On September 23, 2016, the Company, Marubeni and a subsidiary of Marubeni entered into an amendment increasing the Change of Control threshold from 30% to 35%. On October 23, 2019, the Company granted Marubeni a limited waiver of the Marubeni Standstill solely to allow Marubeni, either alone or in concert with Mizuho Leasing, to make an offer or proposal to the Board or the Company’s senior management to acquire all of the outstanding Common Shares that Marubeni did not already own. The Shareholder Agreement terminated upon completion of the Merger. Merger Agreement with Affiliates of Marubeni and Mizuho Leasing On March 27, 2020, the Company was acquired by a newly-formed entity controlled by affiliates of Marubeni and Mizuho Leasing pursuant to the terms of the previously announced Merger Agreement and related Statutory Merger Agreement, by and among the Company, Parent and Merger Sub. Pursuant to the Merger, Merger Sub merged with and into the Company, with the Company as the surviving company in the Merger and becoming a privately-held company whose only shareholders are Marubeni Aviation Holding Coöperatief U.A., which is an indirect subsidiary of Marubeni, and Parent. Parent is controlled by affiliates of Marubeni and Mizuho Leasing. At the Effective Time, subject to the terms and conditions of the Merger Agreement, the Common Shares of the Company (other than (i) shares canceled or converted into shares of the surviving company pursuant to the Merger Agreement and (ii) restricted shares canceled and exchanged pursuant to the Merger Agreement) were converted into the right to receive the Merger Consideration. Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons Our Board has adopted a Policy and Procedures with Respect to Related Person Transactions, our Related Person Policy. Pursuant to the terms of the Related Person Policy, the Audit Committee must review and approve in advance any transaction involving an affiliate or related party (as defined under Accounting Standards Codification Topic 850), in which the amount involved exceeds $5,000,000, other than those that are pre-approved pursuant to pre-approval guidelines or rules that may be established by the Audit Committee to cover specific categories of transactions, including the guidelines described below. All Related Persons, as defined below, are required to report to our legal department any such related person transaction prior to its completion, and the legal department will determine whether it should be submitted to the Audit Committee for consideration. Our Related Person Policy covers all transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which the Company or any of its subsidiaries was, is or will be a participant, in which the amount involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest. A Related Person is any person who is, or at any time since the beginning of the Company’s last fiscal year was, a Director or executive officer of the Company or a nominee to become a Director of the Company; Marubeni and Mizuho Leasing or their affiliates; any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Director, executive officer, nominee or Marubeni and Mizuho Leasing or their affiliates, and any person (other than a tenant or employee) sharing the household of such Director, executive officer, nominee or Marubeni and Mizuho Leasing or their affiliates. Director Independence Prior to the consummation of the Merger, the Board was comprised of the following individuals: Ronald W. Allen, Giovanni Bisignani, Michael J. Cave, Douglas A. Hacker, Jun Horie, Michael J. Inglese, Takashi Kurihara, Ronald L. Merriman, Agnes Mura, Charles W. Pollard, Takayuki Sakakida, and Peter V. Ueberroth. The Board determined that Messrs. Allen, Bisignani, Cave, Hacker, Merriman, Pollard and Ueberroth and Ms. Mura were independent within the meaning of the NYSE director independence standards and SEC rules. In addition, the Board determined that all 57 members of the Audit (Messrs. Allen, Cave, Hacker and Merriman), Compensation (Messrs. Hacker, Merriman, Pollard and Ms. Mura) and Nominating and Corporate Governance Committees (Messrs. Bisignani, Pollard, Ueberroth and Ms. Mura) were independent within the meaning of the NYSE director independence standards and SEC rules. The Board previously determined, under the NYSE standards and SEC rules, that former Directors Hajime Kawamura and Gentaro Toya were not independent because of their affiliation with Marubeni. Although the Common Shares are no longer listed on NYSE or any other national securities exchange and we are therefore not required to have a majority of independent directors, the Board considers the current Directors Messrs. Hacker and Pollard to be independent and that Directors Messrs. Inglese, Kawabe, Kurihara, Sakakida and Yukawa to be not independent. As a non-listed company, we do not have a standing nominating committee and our Audit (Messrs. Kurihara and Yukawa) and Compensation Committees (Messrs. Inglese and Kurihara) include non-independent Directors. In addition, the Board considered transactions described above under “Item 13. Certain Relationships and Related Transactions, and Director Independence—Certain Relationships and Related Party Transactions” in making the independence determinations. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees, Audit Related Fees, Tax Fees and All Other Fees . In connection with the audit of the 2019 and 2020 financial statements, the Company entered into an engagement letter with Ernst & Young LLP (“EY”) which set forth the terms by which EY has performed audit services for the Company. The following summarizes the fees paid by us to EY for professional services rendered in 2020 and 2019: Twelve Months Ended February 28, 2021 Two Months Ended February 29, 2020 (3) Audit Fees (1) $ 2,168,000 $ 450,000 Tax Fees (2) 808,000 — All Other Fees 5,200 — _______________ (1) Represents fees for the audit of the Company’s consolidated financial statements and internal control over financial reporting, the reviews of interim financial statements included in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, certain Current Reports on Form 8-K, audits of IBJ Air joint venture, consultations concerning financial accounting and reporting standards, statutory audits and services rendered relating to the Company’s registration statements. (2) Represents fees related primarily to assistance with tax compliance matters, including international, federal and state tax return preparation, and consultations regarding tax matters. (3) Estimate based on approved fees, subject to finalization upon completion of audit work. Audit Committee Pre-Approval Policies and Procedures The Audit Committee has policies and procedures that require the pre-approval by the Audit Committee or one of its members of all services performed by the Company’s independent registered public accounting firm and related fee arrangements. In the early part of each year, the Audit Committee approves the proposed services, including the nature, type and scope of services contemplated, and the related fees, to be rendered by these firms during the year. In addition, pre-approval by the Audit Committee or one of its members is also required for those engagements that may arise during the course of the year that are outside the scope of the initial services and fees pre-approved by the Audit Committee pursuant to the Sarbanes-Oxley Act. In accordance with this policy, the Audit Committee pre-approved all services to be performed by the Company’s independent registered accounting firm. 58 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) 1. Consolidated Financial Statements. The following is a list of the “Consolidated Financial Statements” of Aircastle Limited and its subsidiaries included in this Annual Report on Form 10-K, which are filed herewith pursuant to Item 8: Report of Independent Registered Public Accounting Firm. Consolidated Balance Sheets as of February 28, 2021, February 29, 2020 and December 31, 2019. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended February 28, 2021, two months ended February 29, 2020, and years ended December 31, 2019 and 2018 December 31, 2019, and 2018. Consolidated Statements of Cash Flows for the year ended February 28, 2021, two months ended February 29, 2020, and years ended December 31, 2019 and 2018. Consolidated Statements of Changes in Shareholders’ Equity for the year ended February 28, 2021, two months ended February 29, 2021, and years ended December 31, 2019 and 2018. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules. There are no Financial Statement Schedules filed as part of this Annual Report, since the required information is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present. 3. Exhibits. The exhibits filed herewith are listed on the Exhibit Index filed as part of this Annual Report on Form 10-K. 59 (B) EXHIBIT INDEX Exhibit No. Description of Exhibit 2.1 Agreement and Plan of Merger, dated as of November 5, 2019, by and among Aircastle Limited, MM Air Limited and MM Air Merger Sub Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K on filed November 7, 2019). ^ 3.1 Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006). 3.2 Amended Bye-laws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (No. 333-182242) filed on June 20, 2012). 3.3 Amended and Restated Memorandum of Association of Aircastle Limited (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 27, 2020). 3.4 Amended and Restated Bye-laws of Aircastle Limited (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 27, 2020). 4.1 Specimen Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006). 4.2 Indenture, dated as of April 4, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 5, 2012). 4.3 Indenture, dated as of November 30, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 30, 2012). 4.4 Amended and Restated Shareholder Agreement, dated as of February 18, 2015, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2015). 4.5 Amendment Agreement No. 1 to the Amended and Restated Shareholder Agreement, dated as of September 23, 2016, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 26, 2016). 4.6 Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee, Citigroup Global Markets, Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBC Capital Markets, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 6, 2013). 4.7 First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 6, 2013). 4.8 Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 26, 2014). 4.9 Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 15, 2015). 4.10 Fourth Supplemental Indenture, dated as of March 24, 2016, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 24, 2016). 4.11 Fifth Supplemental Indenture, dated as of March 20, 2017, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 20, 2017). E - 1 Exhibit No. Description of Exhibit 4.12 Sixth Supplemental Indenture, dated as of September 25, 2018, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 25, 2018). 4.13 In denture, dated as of August 11, 2020, by and between Aircastle Limited and Wells Fargo Bank, National Association, as (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 11, 2020). 4.14 Indenture, dated as of January 26, 2021, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 26, 2021). 4.15 Description of Aircastle Limited’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.13 to the Company’s Annual Report on Form 10-K filed on February 13, 2020). 10.1 Form of Restricted Share Purchase Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (No. 333-134669) filed on June 2, 2006). # 10.2 Form of Amended Restricted Share Grant Letter under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on March 5, 2010). # 10.3 Form of Amended Restricted Share Agreement for Certain Executive Officers under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on March 10, 2011). # 10.4 Form of Amended International Employee Restricted Share Unit Agreement under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K filed on March 5, 2010). # 10.5 Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.28 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006). # 10.6 Letter Agreement, dated as of February 24, 2006, by and between Aircastle Advisor LLC and Joseph Schreiner (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (No. 333-134669) filed on June 2, 2006). # 10.7 Form of Employment Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 8, 2017). # 10.8 Form of Amendment to Executive Employment Agreement. #* 10.9 Form of Amended and Restated Indemnification Agreement with directors and officers (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2011). 10.10 Registration Rights Agreement, dated as of April 4, 2012, by and among Aircastle Limited and Goldman, Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 5, 2012). 10.11 Share Purchase Agreement, dated as of August 7, 2012, by and among Aircastle Limited and the Fortress Shareholders named therein (incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on August 13, 2012). 10.12 Registration Rights Agreement, dated as of November 30, 2012, by and among Aircastle Limited and J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Goldman, Sachs & Co and RBC Capital Markets, LLC, as representatives of the several Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 30, 2012). 10.13 Third Amended and Restated Credit Agreement, dated as of March 28, 2016, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2016). E - 2 Exhibit No. Description of Exhibit 10.14 Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 23, 2014). # 10.15 Form of Restricted Share Agreement for Certain Executive Officers Under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2014). # 10.16 Form of Non-Officer Director Restricted Share Agreement Under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2014). # 10.17 Form of Performance Share Unit Agreement for Certain Executive Officers under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2016). # 10.18 Form of Restricted Share Unit Agreement Under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2017). # 10.19 Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on May 25, 2017). # 10.20 Purchase Agreement COM0270-15, dated as of June 12, 2015, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2015). Ø 10.21 Amendment No. 1 to Purchase Agreement COM0270-15, dated as of June 22, 2016, by and between Aircastle Holding Corporation and Embraer S. A. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed on February 14, 2017). Ø 10.22 Amendment No. 2 to Purchase Agreement COM0270-15, dated as of November 11, 2016, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on February 14, 2017). Ø 10.23 Amendment No. 3 to Purchase Agreement COM0270-15, dated as of January 13, 2017, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on February 14, 2017). Ø 10.24 Amendment No. 4 to Purchase Agreement COM0270-15, dated as of August 11, 2017, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017). Ø 10.25 Amendment No. 5 to Purchase Agreement COM0270-15, dated as of April 19, 2018, by and between Aircastle Holding Corporation and Embrarer S.A. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2018). Ø 10.26 Amendment No. 6 to Purchase Agreement COM0270-15, dated as of June 29, 2018, by and between Aircastle Holding Corporation and Embrarer S.A. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 1, 2018). Ø 10.27 Amendment No. 7 to Purchase Agreement COM0270-15, dated as of February 5, 2019, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 2, 2019). ØØ 10.28 Amendment No. 8 to Purchase Agreement COM0270-15, dated as of October 24, 2019, by and between Aircastle Holding Corporation and Embraer S.A. *ØØ 10.29 Amendment No. 1 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15, dated as of November 11, 2016, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on February 14, 2017). Ø 10.30 Amendment No. 2 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15, dated as of August 11, 2017, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017). Ø E - 3 Exhibit No. Description of Exhibit 10.31 Amendment No. 3 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15, dated as of February 23, 2018, by and between Aircastle Holding Corporation and Embrarer S.A. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2018). Ø 10.32 Amendment No. 4 to Letter Agreement COM271-15 in Purchase Agreement COM0270-15, dated as of April 19, 2018, by and between Aircastle Holding Corporation and Embrarer S.A. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2018). Ø 10.33 Amendment No. 5 to Letter Agreement COM0270-15, dated as of October 24, 2019, by and between Aircastle Holding Corporation and Embraer S.A. *ØØ 10.34 Letter Agreement, dated as of October 4, 2016, by and between Aircastle Advisor LLC and Aaron Dahlke (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 7, 2016). # 10.35 Retirement and Transition Agreement, dated September 17, 2018, for Michael L. Kriedberg (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2018). # 10.36 Voting and Support Agreement, dated as of November 5, 2019, by and among Aircastle Limited, Marubeni Corporation, Marubeni Aviation Corporation and Marubeni Aviation Holding Coöperatief U.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 7, 2019). 10.37 Form of Indemnification Agreement with directors and officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 27, 2020). 21.1 Subsidiaries of the Subsidiaries of the Registrant * * 31.1 Certification by the Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 * Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 * 31.2 Certification Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 * the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 * 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * of 2002 * 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Act of 2002 * 32.2 The following materials from the Company’s Annual Report on Form 10-K for the year ended February 28, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of February 28, 2021, February 29, 2020 and December 31, 2019; (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018; (iii) Consolidated Statements of Cash Flows for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the year ended February 29, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018; and (v) Notes to Consolidated Financial Statements* 104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. _____________ # Management contract or compensatory plan or arrangement. * Filed herewith. Ø Portions of this exhibit have been omitted pursuant to a request for confidential treatment. ^ Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules to the SEC upon request. ØØ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. ITEM 16. FORM 10-K SUMMARY None. E - 4 Index to Financial Statements Page No. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F - 2 Consolidated Balance Sheets as of February 28, 2021, February 29, 2020 and December 31, 2019 F - 5 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the year ended February 28, 2021, two months ended February 29, 2020, and years ended December 31, 2019 and, 2018 F - 6 Consolidated Statements of Cash Flows for the year ended February 28, 2021, two months ended February 29, 2020, and years ended December 31, 2019, and 2018 F - 7 Consolidated Statements of Changes in Shareholders’ Equity for the year ended February 28, 2021, two months ended February 29, 2020, and years ended December 31, 2019, and 2018 F - 8 Notes to consolidated financial statements F - 9 F - 1 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Aircastle Limited and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Aircastle Limited and Subsidiaries (the Company) as of February 28, 2021, February 29, 2020 and December 31, 2019, the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders' equity and cash flows for the years ended February 28, 2021, December 31, 2019 and 2018 and the two-months ended February 29, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 28, 2021, February 29, 2020 and December 31, 2019, and the results of its operations and its cash flows for the years ended February 28, 2021, December 31, 2019 and 2018 and the two-months ended February 29, 2020 in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F - 2 Recoverability assessment and Impairment of flight equipment held for lease Description of the Matter As more fully described in Note 1 to the consolidated financial statements, flight equipment held for lease is assessed for recoverability by management on an aircraft-by-aircraft basis annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. As a result of the assessments during the two-month period ended February 29, 2020 and the year ended February 28, 2021, the Company recorded impairment charges of $63 million and $426 million respectively related to the flight equipment held for lease. Auditing the Company’s assessment of recoverability of flight equipment held for lease was complex and highly judgmental due to the higher estimation required in determining the future undiscounted cash flows to evaluate whether such cash flows were less than the carrying amount of flight equipment. Further, auditing this analysis also involved evaluating the assumptions utilized in estimating the fair values to calculate the impairment charges. In particular, the undiscounted future cash flows were sensitive to changes related to significant assumptions such as the estimation of the future projected lease rates and future maintenance cash flows, as well as the value of aircraft adjusted for maintenance condition at the end of the useful life. The calculation of impairment charges was sensitive to the changes of the weighted average cost of capital (WACC) used in the estimation of fair value. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's processes to determine whether the book value of each aircraft is recoverable. This included controls over management’s review of the significant assumptions described above which are included in the Company’s recoverability analysis. To test the estimated undiscounted future cash flows attributable to the flight equipment held for lease, we performed audit procedures on a sample of transactions that included, among others, evaluating and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. Our testing of the Company’s significant assumptions included, among others, comparing data to currently contracted lease rental and maintenance cash flows, evaluating future projected lease rates to third party data, evaluating the timing and cost of estimated future maintenance cash flows to manufacturers’ specifications and/or historical data, recalculating end of life value of aircraft based on projected maintenance condition at the end of its useful life and comparing it to published third party and/or historical sales data. In addition, for the assumptions that most significantly impact recoverability we performed a sensitivity analysis to evaluate the changes to the undiscounted future cash flows from changes in the significant assumptions. We also involved our valuation specialists to assist in evaluating the reasonableness of the WACC rates and the fair value of certain assets used in the calculation of the impairment charges recorded. We considered current industry and economic trends and changes to the business. We assessed the historical accuracy of certain assumptions by performing a look back analysis. F - 3 Accounting for Income Tax Description of the Matter The Company is incorporated in Bermuda and leases its aircraft within over 40 countries. The Company’s income is subject to U.S. federal, state and local income taxes, as well as foreign income tax in many of the jurisdictions it leases aircraft. As more fully described in Note 10 to the consolidated financial statements, the Company recognized a consolidated provision for income taxes of $2 million and of $10 million for the two-month period ended February 29, 2020 and for the year ended February 28, 2021, respectively. Auditing the Company’s income tax accounting was complex due to the complicated international tax structure maintained by the Company. Specifically, the auditing of the application of changes in tax law and transactions to transfer, buy or sell aircraft in foreign jurisdictions required increased auditor effort, including the use of tax professionals with specialized skills, to evaluate the Company’s application of the tax laws in relevant jurisdictions and the related income tax. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to prepare the consolidated income tax provision. Our procedures also included, among others, an evaluation of management’s review and consideration of the international tax structure, identification of changes to tax laws in the various jurisdictions in which it operates and its treatment of the transactions to transfer, buy and sell aircraft. To test the income tax related accounts, we performed audit procedures that included, among others, understanding the Company’s tax structure as it relates to current leases through review of its organization chart and various lease documents. We evaluated the Company’s treatment of tax law changes, if any, in the foreign jurisdictions it operates to current tax laws. We also obtained, and assessed the completeness of, a list of transactions to transfer, purchase and sell aircraft during the period and evaluated the tax treatment of a sample of transactions through review of the lease documents and our assessment of the tax law. Our audit procedures were performed with the assistance of our tax professionals with specialized skills and knowledge. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2004. Stamford, CT April 21, 2021 F - 4 Aircastle Limited and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) February 28, February 29, December 31, 2021 2020 2019 ASSETS Cash and cash equivalents $ 578,004 $ 166,083 $ 140,882 Restricted cash and cash equivalents 2,594 5,354 14,561 Accounts receivable 82,572 27,269 18,006 Flight equipment held for lease, net of accumulated depreciation of $ 2,076,972 , $ 1,542,938 and $ 1,501,664 , respectively 6,492,471 7,142,987 7,375,018 Net investment in leases, net of allowance for credit losses of $864, $6,558 and $0, respectively 195,376 426,252 419,396 Unconsolidated equity method investments 35,377 33,470 32,974 Other assets 311,944 206,617 201,209 Total assets $ 7,698,338 $ 8,008,032 $ 8,202,046 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Borrowings from secured financings, net of debt issuance costs $ 768,850 $ 1,012,518 $ 1,129,345 Borrowings from unsecured financings, net of debt issuance costs 4,366,261 3,884,235 3,932,491 Accounts payable, accrued expenses and other liabilities 174,267 207,114 172,114 Lease rentals received in advance 58,013 107,944 108,060 Security deposits 80,699 109,663 124,954 Maintenance payments 519,178 650,369 682,398 Total liabilities 5,967,268 5,971,843 6,149,362 Commitments and Contingencies SHAREHOLDERS’ EQUITY Preference shares, $ 0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding — — — Common shares, $ 0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at February 28, 2021; 75,076,794 shares issued and outstanding at February 29, 2020; and 75,122,129 shares issued and outstanding at December 31, 2019 — 751 751 Additional paid-in capital 1,485,777 1,456,977 1,446,664 Retained earnings 245,293 578,461 605,269 Accumulated other comprehensive loss — — — Total shareholders’ equity 1,731,070 2,036,189 2,052,684 Total liabilities and shareholders’ equity $ 7,698,338 $ 8,008,032 $ 8,202,046 The accompanying notes are an integral part of these consolidated financial statements. F - 5 Aircastle Limited and Subsidiaries Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Dollars in thousands, except per share amounts) Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Revenues: Lease rental revenue $ 611,421 $ 131,119 $ 777,403 $ 722,694 Direct financing and sales-type lease revenue 18,215 4,447 32,295 35,132 Amortization of lease premiums, discounts and incentives ( 22,842 ) ( 3,669 ) ( 22,636 ) ( 15,269 ) Maintenance revenue 172,668 41,214 74,987 105,738 Total lease revenue 779,462 173,111 862,049 848,295 Gain on sale of flight equipment 33,536 15,354 45,532 36,766 Other revenue 19,290 9,183 10,357 5,290 Total revenues 832,288 197,648 917,938 890,351 Operating expenses: Depreciation 347,517 59,853 356,021 310,850 Interest, net 235,338 41,038 258,070 234,504 Selling, general and administrative (including non-cash share-based payment expense of $ 28,049 , $ 10,678 , $ 15,830 and $ 11,488 , respectively) 93,671 23,189 77,034 76,025 Impairment of aircraft 425,579 62,657 7,404 — Maintenance and other costs 20,005 1,703 24,828 8,961 Total operating expenses 1,122,110 188,440 723,357 630,340 Other income (expense): Loss on extinguishment of debt ( 2,640 ) ( 3,955 ) ( 7,577 ) — Merger expenses ( 32,605 ) ( 321 ) ( 7,372 ) — Other ( 191 ) ( 94 ) ( 4,492 ) 1,636 Total other income (expense) ( 35,436 ) ( 4,370 ) ( 19,441 ) 1,636 Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investment ( 325,258 ) 4,838 175,140 261,647 Income tax provision 10,236 1,675 22,667 5,642 Earnings (loss) of unconsolidated equity method investment, net of tax 2,326 496 4,102 ( 8,086 ) Net income (loss) $ ( 333,168 ) $ 3,659 $ 156,575 $ 247,919 Net derivative loss reclassified into earnings — — 184 1,166 Other comprehensive income — — 184 1,166 Total comprehensive income (loss) $ ( 333,168 ) $ 3,659 $ 156,759 $ 249,085 The accompanying notes are an integral part of these consolidated financial statements. F - 6 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ ( 333,168 ) $ 3,659 $ 156,575 $ 247,919 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 347,517 59,853 356,021 310,850 Amortization of deferred financing costs 14,791 2,446 14,578 14,627 Amortization of lease premiums, discounts and incentives 22,842 3,669 22,636 15,269 Deferred income taxes 6,506 1,453 20,223 ( 496 ) Non-cash share-based payment expense 28,049 10,678 15,830 11,488 Cash flow hedges reclassified into earnings — — 184 1,166 Collections on direct financing and sales-type leases 16,859 5,658 25,842 — Security deposits and maintenance payments included in earnings ( 135,115 ) ( 47,293 ) ( 49,029 ) ( 80,628 ) Gain on the sale of flight equipment ( 33,536 ) ( 15,354 ) ( 45,532 ) ( 36,766 ) Loss on extinguishment of debt 2,640 3,955 7,577 — Impairment of aircraft 425,579 62,657 7,404 — Provision for credit losses 5,258 288 — — Other ( 2,305 ) ( 402 ) 206 3,032 Changes on certain assets and liabilities: Accounts receivable ( 57,292 ) ( 6,377 ) ( 13,162 ) ( 12,328 ) Other assets ( 66,290 ) 5,786 2,594 5,065 Accounts payable, accrued expenses and other liabilities ( 13,655 ) 10,205 ( 5,483 ) 10,526 Lease rentals received in advance ( 53,658 ) 143 19,954 32,868 Net cash and restricted cash provided by operating activities 175,022 101,024 536,418 522,592 Cash flows from investing activities: Acquisition and improvement of flight equipment ( 145,589 ) ( 23,035 ) ( 1,172,370 ) ( 1,317,497 ) Proceeds from sale of flight equipment 180,342 103,679 361,747 338,831 Net investment in direct financing and sales-type leases — — — ( 15,783 ) Collections on direct financing and sales-type leases — — — 29,961 Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits ( 13,024 ) ( 4,614 ) 760 ( 15,494 ) Unconsolidated equity method investment and associated costs — — ( 15,175 ) ( 3,350 ) Distributions from unconsolidated equity method investment in excess of earnings 419 — 36,750 3,900 Other ( 676 ) ( 56 ) 4,259 4,745 Net cash and restricted cash provided by (used in) investing activities 21,472 75,974 ( 784,029 ) ( 974,687 ) Cash flows from financing activities: Repurchase of shares ( 25,536 ) ( 2,370 ) ( 36,739 ) ( 71,421 ) Parent contribution at Merger 25,536 — — — Proceeds from secured and unsecured debt financings 1,932,943 100,000 2,116,848 1,413,901 Repayments of secured and unsecured debt financings ( 1,697,662 ) ( 268,799 ) ( 1,817,558 ) ( 969,139 ) Deferred financing costs ( 12,832 ) — ( 13,800 ) ( 11,642 ) Debt extinguishment costs ( 1,524 ) ( 2,685 ) ( 7,183 ) — Security deposits and maintenance payments received 87,510 29,806 202,833 203,925 Security deposits and maintenance payments returned ( 71,743 ) ( 16,956 ) ( 117,872 ) ( 90,803 ) Dividends paid ( 24,025 ) — ( 91,328 ) ( 88,730 ) Net cash and restricted cash provided by (used in) financing activities 212,667 ( 161,004 ) 235,201 386,091 Net increase (decrease) in cash and restricted cash 409,161 15,994 ( 12,410 ) ( 66,004 ) Cash and restricted cash at beginning of year 171,437 155,443 167,853 233,857 Cash and restricted cash at end of year $ 580,598 $ 171,437 $ 155,443 $ 167,853 Aircastle Limited and Subsidiaries Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Reconciliation to Consolidated Balance Sheets: Cash and cash equivalents $ 578,004 $ 166,083 $ 140,882 $ 152,719 Restricted cash and cash equivalents 2,594 5,354 14,561 15,134 Unrestricted and restricted cash and cash equivalents $ 580,598 $ 171,437 $ 155,443 $ 167,853 Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 241,011 $ 21,487 $ 246,026 $ 214,350 Cash paid (received) during the year for income taxes $ 1,469 $ ( 15 ) $ ( 656 ) $ 6,254 Supplemental disclosures of non-cash investing activities: Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment $ 70,716 $ 7,873 $ 90,397 $ 71,837 Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions $ 29,869 $ 16,693 $ 31,958 $ 63,432 Transfers from Flight equipment held for lease to Net investment in direct financing and sales-type leases and Other assets $ 90,352 $ 31,821 $ 104,838 $ 11,202 The accompanying notes are an integral part of these consolidated financial statements. F - 7 Aircastle Limited and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (Dollars in thousands, except share amounts) Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Common Shares Shares Amount Balance, December 31, 2017 78,707,963 $ 787 $ 1,527,796 $ 380,331 $ ( 1,350 ) $ 1,907,564 Issuance of common shares to stockholders, directors and employees 423,202 4 ( 4 ) — — — Repurchase of common shares from stockholders, directors and employees ( 3,676,654 ) ( 37 ) ( 71,384 ) — — ( 71,421 ) Amortization of share-based payments — — 10,523 — — 10,523 Reclassification of prior year director stock award liability — — 1,848 — — 1,848 Dividends declared — — — ( 88,730 ) — ( 88,730 ) Net income — — — 247,919 — 247,919 Adoption of accounting standard — — — ( 188 ) — ( 188 ) Net derivative loss reclassified into earnings — — — — 1,166 1,166 Balance, December 31, 2018 75,454,511 $ 754 $ 1,468,779 $ 539,332 $ ( 184 ) $ 2,008,681 Issuance of common shares to stockholders, directors and employees 1,281,598 13 ( 13 ) — — — Repurchase of common shares from stockholders, directors and employees ( 1,613,980 ) ( 16 ) ( 36,723 ) — — ( 36,739 ) Amortization of share-based payments — — 13,825 — — 13,825 Reclassification of prior year director stock award liability — — 796 — — 796 Dividends declared — — — ( 91,328 ) — ( 91,328 ) Net income — — — 156,575 — 156,575 Adoption of accounting standard — — — 690 — 690 Net derivative loss reclassified into earnings — — — — 184 184 Balance, December 31, 2019 75,122,129 $ 751 $ 1,446,664 $ 605,269 $ — $ 2,052,684 Issuance of common shares to stockholders, directors and employees 28,568 1 ( 1 ) — — — Repurchase of common shares from stockholders, directors and employees ( 73,903 ) ( 1 ) ( 2,369 ) — — ( 2,370 ) Amortization of share-based payments — — 10,678 — — 10,678 Reclassification of prior year director stock award liability — — 2,005 — — 2,005 Dividends declared — — — ( 24,025 ) — ( 24,025 ) Net income — — — 3,659 — 3,659 Adoption of accounting standard — — — ( 6,442 ) — ( 6,442 ) Balance, February 29, 2020 75,076,794 $ 751 $ 1,456,977 $ 578,461 $ — $ 2,036,189 Amortization of share-based payments — — 28,049 — — 28,049 Net loss — — — ( 333,168 ) — ( 333,168 ) Payment of unvested shares at Merger ( 101,809 ) ( 1 ) ( 25,535 ) — — ( 25,536 ) Parent contribution at Merger — — 25,536 — — 25,536 Share cancellation and re-issuance at Merger ( 74,960,937 ) ( 750 ) 750 — — — Balance, February 28, 2021 14,048 $ — $ 1,485,777 $ 245,293 $ — $ 1,731,070 The accompanying notes are an integral part of these consolidated financial statements. F - 8 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Note 1. Summary of Significant Accounting Policies Organization and Basis of Presentation Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is investing in aviation assets, including acquiring, leasing, managing and selling commercial jet aircraft. On March 27, 2020, the Company successfully completed its merger (the “Merger”) and is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”). As previously disclosed, on September 30, 2020, the Company’s Board of Directors unanimously agreed to change the Company’s fiscal year end to the twelve-month period ending on the last day in February. This change better aligns the Company’s financial reporting period with the financial reporting cycle of its shareholders, Marubeni Corporation and Mizuho Leasing. Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns all the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief operating decision maker. Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (“ASC 326”). The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash. Net investment in leases comprised the Company’s financial asset principally affected by the standard. Operating lease receivables are not within the scope of ASC 326. Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses. This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages. The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts. Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values. We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to retained earnings. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted the FASB Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted the FASB ASU No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use-software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. Effective January 1, 2020, the Company adopted the FASB ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities. The standard changes how all entities evaluate F - 9 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) decision-making fees under the variable interest entity guidance. The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures. The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of February 28, 2021 through the date on which the consolidated financial statements included in this Annual Report were issued. Principles of Consolidation The consolidated financial statements include the accounts of Aircastle and all its subsidiaries. Aircastle consolidates two Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding (a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential expected losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance, and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity. Risk and Uncertainties In the normal course of business, Aircastle encounters several significant types of economic risk including credit, market, aviation industry and capital market risks. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments and to fulfill its other contractual obligations. Market risk reflects the change in the value of financings due to changes in interest rate spreads or other market factors, including the value of collateral underlying financings. Aviation industry risk is the risk of a downturn in the commercial aviation industry which could adversely impact a lessee’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of the Company’s aircraft. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of our business or to refinance existing debt facilities. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents Aircastle considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Restricted cash and cash equivalents consist primarily of rent collections, maintenance payments and security deposits received from lessees pursuant to the terms of various lease agreements held in lockbox accounts in accordance with our financings. Virtually all our cash and cash equivalents and restricted cash and cash equivalents are held or managed by three major financial institutions. F - 10 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Flight Equipment Held for Lease and Depreciation Flight equipment held for lease is stated at cost and depreciated using the straight-line method, typically over a 25 -year life from the date of manufacture for passenger aircraft and over a 30 to 35 -year life for freighter aircraft, depending on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are generally determined to be approximately 15 % of the manufacturer’s estimated realized price for passenger aircraft when new and 5 % to 10 % for freighter aircraft when new. Management may make exceptions to this policy on a case-by-case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of value. Examples of situations where exceptions may arise include but are not limited to: • flight equipment where estimates of the manufacturer’s realized sales prices are not relevant (e.g., freighter conversions); • flight equipment where estimates of the manufacturer’s realized sales prices are not readily available; and • flight equipment which may have a shorter useful life due to obsolescence. Major improvements and modifications incurred in connection with the acquisition of aircraft that are required to get the aircraft ready for initial service are capitalized and depreciated over the remaining life of the flight equipment. For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs by applying the deferral method. Under the deferral method, we capitalize the actual cost of major maintenance events, which are depreciated on a straight-line basis over the period until the next maintenance event is required. In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of attached leases, acquired maintenance assets or liabilities and the estimated residual values. In making these estimates, we rely upon actual industry experience with the same or similar aircraft types and our anticipated lessee’s utilization of the aircraft. For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the consideration paid based on the fair value of the aircraft and lease. The fair value of the lease may include a maintenance premium and a lease premium or discount. When we acquire an aircraft with a lease, determining the fair value of attached leases requires us to make assumptions regarding the current fair values of leases for specific aircraft. We estimate a range of current lease rates of like aircraft in order to determine if the attached lease is within a fair value range. If a lease is below or above the range of current lease rates, we present value the estimated amount below or above the fair value range over the remaining term of the lease. The resulting lease discount or premium is amortized into lease rental income over the remaining term of the lease. Impairment of Flight Equipment We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the second quarter. In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates, transition costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 – Fair Value Measurements. Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the F - 11 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors. We are closely monitoring the impact of COVID-19 on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deterioration. Net Investment in Direct Financing and Sales-Type Leases If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease. The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit. For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment. Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement. Interest income on our net investment in leases is recognized as Direct financing and sales-type leases revenue over the lease term in a manner that produces a constant rate of return on the net investment in the lease. The net investment in leases is recorded 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 to adjust the allowance for changes to management’s estimate of expected credit losses. Unconsolidated Equity Method Investment Aircastle accounts for its interest in an unconsolidated joint venture using the equity method as we do not control the joint venture entity. Under the equity method, the investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated joint venture’s undistributed earnings and losses, and distributions of dividends and capital. The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment. Security Deposits Most of our operating leases require the lessee to pay Aircastle a security deposit or provide a letter of credit. Security deposits represent cash received from the lessee that is held on deposit until lease expiration or termination. If a lease is terminated, we recognize security deposits in excess of outstanding lease payments as other revenue. Maintenance Payments Typically, under an operating lease, the lessee is responsible for performing all maintenance but they may also 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 are required to be made monthly in arrears or at the end of the lease term. Whether to permit a lessee to make maintenance payments at the end of the lease term, rather than requiring such payments to be made monthly, depends on a variety of factors, including the creditworthiness of the lessee, the level of security deposit which may be provided by the lessee and market conditions at the time we enter into the lease. If a lease requires monthly maintenance payments, we would typically be obligated to reimburse the lessee for costs they incur for heavy maintenance, overhaul F - 12 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) or replacement of certain high-value components to the extent of maintenance payments received in respect of the specific maintenance event, usually shortly following completion of the relevant work. 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; however, in some cases, we may owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better condition than at lease inception. We record monthly maintenance payments by the lessee as accrued maintenance payments liabilities in recognition of our contractual commitment to refund such receipts. In these contracts, we typically do not recognize such maintenance payments as maintenance revenue during the lease. Reimbursements to the lessee upon the receipt of evidence of qualifying maintenance work are charged against the existing accrued maintenance payments liability. We currently defer maintenance revenue recognition of most monthly maintenance payments until we are able to determine the amount, if any, by which the monthly maintenance payments received from a lessee exceed costs to be incurred by that lessee in performing heavy maintenance, which generally occurs at or near the end of the lease. End of lease term maintenance payments made to us are recognized as maintenance revenue, and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance revenue. Lease Incentives and Amortization 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 amount of the maintenance event cost and the estimated amounts the lessee is responsible to pay. The assumptions supporting these estimates are re-evaluated annually. 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. Lease acquisition costs related to reconfiguration of the aircraft cabin, other lessee specific modifications and other direct costs are capitalized and amortized into revenue over the initial life of the lease, assuming no lease renewals, and are included in other assets. Income Taxes Aircastle uses an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement and tax basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to affect taxable income. 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 on examination by the taxing authorities. We did not have any unrecognized tax benefits. Lease Revenue Recognition We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals. Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the lease F - 13 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) term using the prevailing rate at lease commencement. Changes to rate-based lease rentals are recognized in the statements of income (loss) in the period of change. In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement. We 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. If we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue. COVID-19 has had an unprecedented negative impact on the global economy, and in particular on the aviation sector. As a result of COVID-19, there has been a dramatic slowdown in air traffic, with many markets in near complete shutdown. According to the International Air Transport Association (“IATA”), as of February 2021, air travel was down to approximately 30 % of normal levels and a full recovery to pre-pandemic levels is not expected for several years. Substantially all the world’s airlines are experiencing financial difficulties and liquidity challenges. While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of COVID-19’s economic shock are material; the extent and duration of which cannot currently be determined. Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors. We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time. As of April 15, 2021, we have agreed to defer approximately $ 108,400 in near-term lease payments of which approximately $ 87,400 are included in Accounts receivable or Other assets as of February 28, 2021. This represents approximately 17 % of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended February 28, 2021. These deferrals have been agreed to with 26 airlines, representing 35 % of our customer base, for an average deferral of five months of lease rentals. In certain situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions. If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to our customers or extend the periods of repayment for deferrals we have already made. We may ultimately not be able to collect all the amounts we have deferred. As of April 15, 2021, seven of our customers are subject to judicial insolvency proceedings or similar protection. 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) and 12 % of our Lease rental and direct financing and sales-type lease revenue as of and for the year ended February 28, 2021. 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. Based on historic experience, the judicial process can take anywhere from twelve months to eighteen months to be resolved. We are actively engaged in the various judicial proceedings to protect our economic interests. As a result of these proceedings, the recognition of lease rental revenue for certain customers may be done on a cash basis of accounting rather than the accrual method depending on the customers lease security arrangements. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income and other gains and losses, net of income taxes, if any, affecting shareholders’ equity that, under U.S. GAAP, are excluded from net income (loss). F - 14 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Share-Based Compensation Aircastle recognized compensation cost relating to share-based payment transactions in the financial statements based on the fair value of the equity instruments issued. Aircastle used the straight-line method of accounting for compensation cost on share-based payment awards that contained pro-rata vesting provisions. Deferred Financing Costs Deferred financing costs, which are included in borrowings from secured and unsecured financings, net of debt issuance costs, in the Consolidated Balance Sheets, are amortized using the interest method for amortizing loans over the lives of the relevant related debt. Recent Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a reference rate affected by reference rate reform. If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or re-measurements are required. The standard is effective for all entities from March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December 31, 2022. We have not adopted ASC 848 and are currently evaluating the election available to us under the standard and the impact it may have on our financial statements. In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic. The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases,” for lease concessions provided by lessors as a result of the COVID-19 pandemic. The Company has elected not to apply the lease modification guidance in ASC 842 for such lease concessions – see “Lease Revenue Recognition” above. Note 2. Fair Value Measurements Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: • Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs. • Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability. The valuation techniques that may be used to measure fair value are as follows: • The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. • The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts. • The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). F - 15 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) The following tables set forth our financial assets and liabilities as of February 28, 2021, February 29, 2020 and December 31, 2019 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Fair Value as of February 28, 2021 Fair Value Measurements at February 28, 2021 Using Fair Value Hierarchy Level 1 Level 2 Level 3 Valuation Technique Assets : Cash and cash equivalents $ 578,004 $ 578,004 $ — $ — Market Restricted cash and cash equivalents 2,594 2,594 — — Market Total $ 580,598 $ 580,598 $ — $ — Fair Value as of February 29, 2020 Fair Value Measurements at February 29, 2020 Using Fair Value Hierarchy Level 1 Level 2 Level 3 Valuation Technique Assets : Cash and cash equivalents $ 166,083 $ 166,083 $ — $ — Market Restricted cash and cash equivalents 5,354 5,354 — — Market Derivative assets 19 — 19 — Market Total $ 171,456 $ 171,437 $ 19 $ — Fair Value as of December 31, 2019 Fair Value Measurements at December 31, 2019 Using Fair Value Hierarchy Level 1 Level 2 Level 3 Valuation Technique Assets : Cash and cash equivalents $ 140,882 $ 140,882 $ — $ — Market Restricted cash and cash equivalents 14,561 14,561 — — Market Derivative assets 115 — 115 — Market Total $ 155,558 $ 155,443 $ 115 $ — Our cash and cash equivalents, along with our restricted cash and cash equivalents, consist largely of money market securities that are highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivative included in Level 2 consists of United States dollar-denominated interest rate cap, and its fair value is based on the market comparisons for similar instruments. We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors. For the years ended February 28, 2021, the two months ended February 29, 2020 and the year ended December 31, 2019, we had no transfers into or out of Level 3. We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate the carrying amounts of these assets may not be recoverable. Assets subject to these measurements include our investment in unconsolidated joint ventures and aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital. F - 16 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) We account for our investment in unconsolidated joint ventures under the equity method of accounting. Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital. These investments are also reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary. Aircraft Valuation Impairment of Flight Equipment During the year ended February 28, 2021, the Company recorded impairment charges totaling $ 425,579 , of which $ 378,247 were transactional impairments, which primarily related to seventeen narrow-body and eight wide-body aircraft. The Company recognized $ 157,014 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. In February 2020, the Company initiated a process to accept the redelivery of four wide-body aircraft prior to their scheduled lease expirations due to a lessee default. As a result, the Company recorded impairment charges of $ 62,657 and recognized $ 47,367 of maintenance revenue and security deposits into revenue during the first two months of 2020. During the year ended December 31, 2019, the Company recognized net maintenance revenue of $ 17,554 related to the early lease terminations of seven narrow-body aircraft due to lessee default. We recorded impairment charges of $ 7,404 related to two of these seven narrow-body aircraft. We did not record any transactional impairments during 2018. Annual Recoverability Assessment We completed our annual recoverability assessment of our aircraft in the second quarter. Of the $ 425,579 impairment charges recorded for the year ended February 28, 2021, we recorded $ 43,041 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 have and will continue to 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. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors. If our estimates or assumptions change, 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. Financial Instruments Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature. F - 17 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and fair values of our financial instruments at February 28, 2021, February 29, 2020 and December 31, 2019 are as follows: February 28, 2021 February 29, 2020 December 31, 2019 Carrying Amount of Liability Fair Value of Liability Carrying Amount of Liability Fair Value of Liability Carrying Amount of Liability Fair Value of Liability Credit Facilities $ — $ — $ 100,000 $ 100,000 $ 150,000 $ 150,000 Unsecured Term Loan 215,000 210,290 215,000 215,000 215,000 215,000 ECA Financings 36,423 37,942 50,745 52,593 147,644 150,805 Bank Financings 738,353 740,086 971,693 1,002,620 993,593 1,010,482 Senior Notes 4,200,000 4,402,722 3,600,000 3,807,956 3,600,000 3,787,268 All of our financial instruments are classified as Level 2 with the exception of our senior notes, which are classified as Level 1. Note 3. Lease Rental Revenues and Flight Equipment Held for Lease Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at February 28, 2021 were as follows: Year Ended February 28/29, Amount 2022 $ 649,983 2023 572,094 2024 506,232 2025 373,664 2026 224,947 Thereafter 323,066 Total $ 2,649,986 Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows : Year Ended February 28, Two Months Ended February 29, Year Ended December 31, Region 2021 2020 2019 2018 Asia and Pacific 40 % 43 % 43 % 36 % Europe 31 % 26 % 27 % 28 % Middle East and Africa 6 % 7 % 10 % 11 % North America 12 % 11 % 9 % 9 % South America 11 % 13 % 11 % 16 % Total 100 % 100 % 100 % 100 % The classification of regions in the table above and in the tables and discussion below is determined based on the principal location of the lessee of each aircraft. F - 18 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the periods indicated: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Number of Lessees Combined % of Lease Rental Revenue Largest lessees by lease rental revenue 4 30 % 3 21 % 2 16 % 3 18 % The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue (including maintenance revenue) based on each lessee’s principal place of business for the periods indicated: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Country Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Brazil (1) $ — — % $ — — % $ — — % $ 116,527 13 % India (2) 99,522 12 % — — % 115,865 13 % — — % Indonesia (3) — — % 25,373 13 % — — % — — Mexico (4) 89,314 11 % — — % — — % — — South Africa (5) — — % 50,781 26 % — — % — — ______________ (1) For the year ended December 31, 2018, total revenue attributable to Brazil included $ 72,242 of maintenance revenue due to early lease terminations as a result of lessee default. Total revenue attributable to Brazil was less than 10% for the years ended February 28, 2021 and December 31, 2019, and for the two months ended February 29, 2020. (2) For the year ended February 28, 2021 total revenue attributable to India included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 19,138 . For the year ended December 31, 2019, total revenue attributable to India included maintenance revenue of $ 14,915 . Total revenue attributable to India was less than 10% for the year ended December 31, 2018 and for the two months ended February 29, 2020. (3) For the two months ended February 29, 2020, total revenue attributable to Indonesia included $ 14,987 of gain on sale of flight equipment. Total revenue attributable to Indonesia was less than 10% for the years ended February 28, 2021, and December 31, 2019 and 2018. (4) For the year ended February 28, 2021, total revenue attributable to Mexico included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 79,799 . Total revenue attributable to Mexico was less than 10% for the years ended December 31, 2019 and 2018, and for the two months ended February 29, 2020. (5) For the two months ended February 29, 2020, total revenue attributable to South Africa included $ 47,367 of maintenance revenue and security deposits recognized into revenue. Total revenue attributable to South Africa was less than 10% for the years ended February 28, 2021, and December 31, 2019 and 2018. Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in direct financing and sales-type leases, or “net book value”) was as follows: February 28, 2021 February 29, 2020 December 31, 2019 Region Number of Aircraft Net Book Value % Number of Aircraft Net Book Value % Number of Aircraft Net Book Value % 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 % North America 28 12 % 40 13 % 40 13 % South America 26 13 % 26 15 % 26 15 % Off-lease 16 (1) 7 % 2 (2) 1 % 3 (3) 1 % Total 252 100 % 272 100 % 278 100 % Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) ______________ (1) 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. (2) 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. (3) 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. The following table sets forth net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in direct financing and sales-type leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of business as of: February 28, 2021 February 29, 2020 December 31, 2019 Region Net Book Value Net Book Value % Number of Lessees Net Book Value Net Book Value % Number of Lessees Net Book Value Net Book Value % Number of Lessees India $ 756,514 11 % 3 $ 917,793 12 % 4 $ 924,190 12 % 4 At February 28, 2021, February 29, 2020 and December 31, 2019, the amounts of lease incentive liabilities recorded in maintenance payments on the Consolidated Balance Sheets were $ 14,673 , $ 10,076 and $ 9,176 , respectively. Note 4. Net Investment in Direct Financing and Sales-Type Leases At February 28, 2021, February 29, 2020 and December 31, 2019, our net investment in leases consisted of fifteen , 30 and 29 aircraft, respectively. The components of our net investment in leases at February 28, 2021, February 29, 2020 and December 31, 2019, were as follows: February 28, 2021 February 29, 2020 December 31, 2019 Lease receivable $ 67,075 $ 166,060 $ 164,816 Unguaranteed residual value of flight equipment 129,165 266,750 254,580 Net investment leases 196,240 432,810 419,396 Allowance for credit losses ( 864 ) ( 6,558 ) — Net investment in leases, net of allowance $ 195,376 $ 426,252 $ 419,396 The activity in the allowance for credit losses related to our net investment in leases for the two months ended February 29, 2020 and the year ended February 28, 2021 is as follows: Amount Balance at December 31, 2019 $ — Adoption of accounting standard 6,270 Provision for credit losses 288 Balance at February 29, 2020 6,558 Provision for credit losses 5,258 Write-offs ( 10,952 ) Balance at February 28, 2021 $ 864 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) During the year ended February 28, 2021, we wrote-off $ 10,952 of lease rentals against the allowance for credit losses, primarily due to the early lease terminations of seven narrow-body aircraft which had been classified as Net investment in leases. At February 28, 2021, future lease payments on net investment in leases are as follows: Year Ending February 28/29, Amount 2022 $ 23,753 2023 13,470 2024 12,568 2025 6,989 2026 6,060 Thereafter 15,414 Total lease payments to be received 78,254 Present value of lease payments - lease receivable ( 67,075 ) Difference between undiscounted lease payments and lease receivable $ 11,179 Note 5. Unconsolidated Equity Method Investment We have a joint venture with Mizuho Leasing that has nine aircraft with a net book value of $ 312,029 at February 28, 2021. Amount Investment in joint ventures at December 31, 2019 $ 32,974 Earnings from joint venture, net of tax 496 Investment in joint ventures at February 29, 2020 33,470 Distributions ( 419 ) Earnings from joint venture, net of tax 2,326 Investment in joint ventures at February 28, 2021 $ 35,377 Note 6. Variable Interest Entities Aircastle consolidates two VIEs (the “Air Knight VIEs”), of which it is the primary beneficiary. The operating activities of these Air Knight VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the two aircraft discussed below. During February 2020, we repaid the export credit agency (the “ECA Financings”) for four of the six aircraft owned by the Air Knight VIEs, which included principal and accrued interest amounts outstanding of $ 95,128 and incurred early extinguishment costs of $ 3,955 . In June 2020, the leases of the four aircraft subject to the ECA Financings were formally terminated and the aircraft were released as security under such financings. The only assets that the Air Knight VIEs have on their books are net investments in leases that are eliminated in the consolidated financial statements. The related aircraft, with a net book value as of February 28, 2021 of $ 89,320 , were included in our flight equipment held for lease. The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of February 28, 2021 is $ 36,058 . Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Note 7. Borrowings from Secured and Unsecured Debt Financings The outstanding amounts of our secured and unsecured term debt financings were as follows: At February 28, 2021 At February 29, 2020 At December 31, 2019 Debt Obligation Outstanding Borrowings Number of Aircraft Interest Rate Final Stated Maturity Outstanding Borrowings Outstanding Borrowings Secured Debt Financings: ECA Financings (1) $ 36,423 2 3.49% to 3.96% 12/03/21 to 11/30/24 $ 50,745 $ 147,644 Bank Financings (2) 738,353 31 2.31% to 4.55% 06/17/23 to 03/06/25 971,693 993,593 Less: Debt Issuance Costs ( 5,926 ) ( 9,920 ) ( 11,892 ) Total secured debt financings, net of debt issuance costs and discounts 768,850 33 1,012,518 1,129,345 Unsecured Debt Financings: Senior Notes due 2020 (3) — 7.625 % 04/15/20 300,000 300,000 Senior Notes due 2021 (4) — 5.125 % 03/15/21 500,000 500,000 Senior Notes due 2022 500,000 5.500 % 02/15/22 500,000 500,000 Senior 5.00% Notes due 2023 500,000 5.000 % 04/01/23 500,000 500,000 Senior 4.40% Notes due 2023 650,000 4.400 % 09/25/23 650,000 650,000 Senior Notes due 2024 500,000 4.125 % 05/01/24 500,000 500,000 Senior Notes due 2025 650,000 5.250 % 08/11/25 — — Senior Notes due 2026 650,000 4.250 % 06/15/26 650,000 650,000 Senior Notes due 2028 750,000 2.850 % 01/26/28 — — Unsecured Term Loan 215,000 1.683 % 03/07/22 to 03/07/24 215,000 215,000 Revolving Credit Facilities — 1.25% to 2.00% 7/30/21 to 06/27/22 100,000 150,000 Less: Debt issuance costs and discounts ( 48,739 ) ( 30,765 ) ( 32,509 ) Total unsecured debt financings, net of debt issuance costs and discounts 4,366,261 3,884,235 3,932,491 Total secured and unsecured debt financings, net of debt issuance costs and discounts $ 5,135,111 $ 4,896,753 $ 5,061,836 _______________ (1) The borrowings under these financings at February 28, 2021 have a weighted-average rate of interest of 3.58 %. During February 2020, the Company repaid the ECA Financings for four aircraft owned by the Air Knight VIEs, which were released as security for such financings during the second quarter of 2020 – see Note 6. (2) The borrowings under these financings at February 28, 2021 have a weighted-average fixed rate of interest of 3.24 %. (3) Repaid on April 15, 2020. (4) Repaid on February 25, 2021. Secured Debt Financings: Bank Financings During the fourth quarter of 2021, we prepaid bank financings secured by three wide-body aircraft, which included principal amounts outstanding of $ 145,934 and incurred early extinguishment costs of $ 1,148 , primarily related to the write-off of deferred financing costs. Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Unsecured Debt Financings: Senior Notes due 2020 On April 15, 2020, the Company repaid $ 300,000 aggregate principal amount of 7.625 % Senior Notes due 2020 due at their final stated maturity date. Senior Notes due 2025 On August 11, 2020, the Company issued $ 650,000 aggregate principal amount of Senior Notes due 2025 (the “Senior Notes due 2025”) at an issue price of 99.057 %. The Senior Notes due 2025 will mature on August 11, 2025 and bear interest at a rate of 5.25 % per annum, payable semi-annually on February 11 and August 11 of each year, commencing on February 11, 2021. Interest accrues on the Senior Notes due 2025 from August 11, 2020. Senior Notes due 2028 and 2021 On January 26, 2021, the Company issued $ 750,000 aggregate principal amount of Senior Notes due 2028 (the “Senior Notes due 2028”) at an issue price of 98.543 %. The Senior Notes due 2028 will mature on January 26, 2028 and bear interest at a rate of 2.85 % per annum, payable semi-annually on January 26 and July 26 of each year, commencing on July 26, 2021. Interest accrues on the Senior Notes due 2028 from January 26, 2021. The net proceeds from the issuance were used to redeem the balance of our 5.125 % Senior Notes due 2021, including accrued interest of $ 11,389 and call premium of $ 1,265 , on February 25, 2021. Revolving Credit Facility On July 30, 2020, the Company entered into a $ 150,000 unsecured revolving credit facility with Mizuho Bank Ltd., a related party. The facility bears interest at a rate of LIBOR plus 2 %, or a base rate plus 1 %, matures on July 31, 2021 and includes a one -year extension option. This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy. As of February 28, 2021, we had no borrowings outstanding under our revolving credit facilities and had $ 1,250,000 available. Maturities of the secured and unsecured debt financings over the next five years and thereafter are as follows: Year Ending February 28/29, Amount 2022 $ 646,943 2023 81,611 2024 1,532,697 2025 800,859 2026 727,666 Thereafter 1,400,000 Total $ 5,189,776 As of February 28, 2021, we were in compliance with all applicable covenants in our financings. Note 8. Shareholders’ Equity and Share-Based Payment On March 27, 2020 (the “Merger Date”), the total authorized share capital of the Company was $ 3,000 , comprised of 250,000,000 common shares of $ 0.01 each and 50,000,000 preference shares of $ 0.01 each, and the issued share capital of the Company was comprised of 14,048 common shares of $ 0.01 each. In December 2019, the Company accelerated the vesting of certain restricted common share awards and the vesting and payment of certain Performance Share Units (“PSUs”) held by the Company’s executive officers, initially granted under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan. Share-based compensation expense of Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) $ 914 related to restricted common shares and $ 4,247 related to PSUs represents the cost of this accelerated vesting from March 1, 2020 through the Merger Date. As per the Agreement and Plan of Merger, dated as of November 5, 2019 (the “Merger Agreement”), on the Merger Date, the Company paid $ 4,063 and $ 21,473 representing the payment for 126,971 unvested restricted common shares and 671,030 unvested PSUs, respectively. Concurrently, the Company received $ 25,536 from MM Air Limited, which was recorded as an additional paid-in-capital as of the Merger Date. Included in share-based compensation expense for the year ended February 28, 2021 is $ 3,921 and $ 18,967 related to remaining outstanding restricted common shares and remaining outstanding PSUs, respectively, that were accelerated and paid out (in the case of PSUs, at the maximum level of performance) in accordance with the Merger Agreement. On February 13, 2020, the Company declared a dividend of $ 0.32 per common share and paid $ 24,025 on March 6, 2020, to all shareholders of record as of February 28, 2020. Note 9. Related Party Transactions On April 10, 2020, we sold two engines to Magellan Aviation Group LLLP, an affiliate of Marubeni, for $ 5,355 for a minimal gain. This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy. On July 30, 2020, the Company entered into a $ 150,000 unsecured revolving credit facility with Mizuho Bank Ltd., a related party – see Note 7 for additional information. On February 24, 2021, the Company entered into an intra-company service agreement with Marubeni, whereby Marubeni will provide management services, strategy consultancy, and general administrative support to the Company for an annual fee of $ 1,680 . Note 10. Income Taxes Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland. The sources of income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investment for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018, were as follows: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 U.S. operations $ 31,848 $ 3,084 $ 9,085 $ 8,104 Non-U.S. operations ( 357,106 ) 1,754 166,055 253,543 Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investment $ ( 325,258 ) $ 4,838 $ 175,140 $ 261,647 Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) The components of the income tax provision from continuing operations for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018, consisted of the following: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Current: United States: Federal $ ( 1,232 ) $ 6 $ 782 $ 2,446 State 121 — 437 ( 136 ) Non-U.S. 4,842 217 1,225 3,828 Current income tax provision 3,731 223 2,444 6,138 Deferred: United States: Federal 3,150 1,578 7,205 2,901 State 1,598 561 2,018 759 Non-U.S. 1,757 ( 687 ) 11,000 ( 4,156 ) Deferred income tax provision (benefit) 6,505 1,452 20,223 ( 496 ) Total $ 10,236 $ 1,675 $ 22,667 $ 5,642 Significant components of the Company’s deferred tax assets and liabilities at February 28, 2021, February 29, 2020, and December 31, 2019 and 2018, consisted of the following: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Deferred tax assets: Non-cash share-based payments $ — $ 215 $ 614 $ 2,182 Net operating loss carry forwards 95,462 74,045 69,806 48,660 Other 37,612 54,259 72,732 1,795 Total deferred tax assets 133,074 128,519 143,152 52,637 Deferred tax liabilities: Accelerated depreciation ( 170,382 ) ( 140,363 ) ( 136,268 ) ( 95,107 ) Other ( 37,179 ) ( 53,448 ) ( 70,551 ) ( 338 ) Total deferred tax liabilities ( 207,561 ) ( 193,811 ) ( 206,819 ) ( 95,445 ) Net deferred tax liabilities $ ( 74,487 ) $ ( 65,292 ) $ ( 63,667 ) $ ( 42,808 ) The Company had $ 86,365 of federal net operating loss (“NOL”) carry forwards available at February 28, 2021 to offset future taxable income subject to U.S. graduated tax rates. If not utilized, $ 45,821 of these carry forwards will expire by 2037, with $ 40,544 of these carry forwards having no expiration date. The Company also had NOL carry forwards of $ 567,657 with no expiration date to offset future Irish taxable income. Deferred tax assets and liabilities are included in Other assets and Accounts payable and accrued liabilities, respectively. We do not expect to incur income taxes on future distributions of undistributed earnings of non-U.S. subsidiaries and accordingly, no deferred income taxes have been provided for the distributions of such earnings. As of February 28, 2021, we have elected to permanently reinvest our accumulated undistributed U.S. earnings of $ 36,503 . Accordingly, no U.S. withholding taxes have been provided. Withholding tax of $ 1,825 would be due if such earnings were remitted. Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are primarily non-U.S. corporations. These subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and the U.S. are subject to tax in those respective jurisdictions. We have a U.S.-based subsidiary which provides management services to our subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions. Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income from continuing operations for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018, consisted of the following: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Notional U.S. federal income tax expense at the statutory rate: $ ( 68,304 ) $ 1,016 $ 36,779 $ 54,946 U.S. state and local income tax, net 1,723 390 1,549 525 Non-U.S. operations: Bermuda 82,190 ( 1,845 ) ( 16,950 ) ( 41,064 ) Ireland 1,545 ( 1,147 ) ( 99 ) ( 2,567 ) Singapore 75 ( 6 ) ( 28 ) ( 3,232 ) Other low tax jurisdictions ( 381 ) 2,533 ( 2,504 ) ( 3,246 ) Non-deductible expenses in the U.S. ( 1,904 ) 734 3,581 157 Other ( 4,708 ) — 339 123 Provision for income taxes $ 10,236 $ 1,675 $ 22,667 $ 5,642 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 on examination by the taxing authorities. We did not have any unrecognized tax benefits. We conduct business globally and, as a result, the Company and its subsidiaries or branches are subject to foreign, U.S. federal and various state and local income taxes, as well as withholding taxes. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Ireland and the United States. Our policy is that we will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We did not accrue interest or penalties associated with any unrecognized tax benefits, nor was any interest expense or penalty recognized during the year. Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Note 11. Interest, Net The following table shows the components of interest, net for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018: Year Ended February 28, Two Months Ended February 29, Year Ended December 31, 2021 2020 2019 2018 Interest on borrowings, net settlements on interest rate derivatives, and other liabilities $ 221,246 $ 38,915 $ 245,673 $ 221,987 Amortization of deferred losses related to interest rate derivatives — — 184 1,166 Amortization of deferred financing fees and debt discount 14,791 2,446 14,578 14,627 Interest expense 236,037 41,361 260,435 237,780 Less: Interest income ( 523 ) ( 323 ) ( 2,365 ) ( 2,943 ) Less: Capitalized interest ( 176 ) — — ( 333 ) Interest, net $ 235,338 $ 41,038 $ 258,070 $ 234,504 Note 12. Commitments and Contingencies Rent expense, primarily for the corporate office and sales and marketing facilities, was $ 1,626 , $ 278 , $ 1,601 and $ 2,865 for the year ended February 28, 2021, the two months ended February 29, 2020, and the years ended December 31, 2019 and 2018, respectively. As of February 28, 2021, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows: Year Ending February 28/29, Amount 2022 $ 1,928 2023 1,787 2024 1,719 2025 1,750 2026 1,781 Thereafter 4,063 Total $ 13,028 At February 28, 2021, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer S.A. for $ 825,119 . Remaining commitments, including $ 101,933 of progress payments, contractual price escalations and other adjustments for these aircraft at February 28, 2021, net of amounts already paid, are as follows: Year Ending February 28/29, Amount 2022 $ 199,990 2023 347,979 2024 125,825 2025 39,404 2026 111,921 Thereafter — Total $ 825,119 As of April 15, 2021, we have commitments to acquire 25 aircraft for $ 825,119 . Aircastle Limited and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) Note 13. Other Assets The following table describes the principal components of Other assets on our Consolidated Balance Sheets as of: February 28, February 29, December 31, 2021 2020 2019 Deferred income tax asset $ 637 $ 636 $ 1,007 Lease incentives and premiums, net of accumulated amortization of $75,126, $63,010 and $71,851, respectively 75,169 103,161 112,923 Flight equipment held for sale 53,289 13,083 333 Aircraft purchase deposits and Embraer E-2 progress payments 52,092 39,038 33,754 Right-of-use asset (1) 8,056 9,148 9,329 Deferred rent receivable 69,103 4,494 — Other assets 53,598 37,057 43,863 Total other assets $ 311,944 $ 206,617 $ 201,209 ______________ (1) Net of lease incentives and tenant allowances. Note 14. Accounts Payable, Accrued Expenses and Other Liabilities The following table describes the principal components of Accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of: February 28, February 29, December 31, 2021 2020 2019 Accounts payable and accrued expenses $ 43,088 $ 64,034 $ 47,228 Deferred income tax liability 75,124 65,928 64,674 Accrued interest payable 43,676 62,196 44,694 Lease liability 11,003 12,510 12,800 Lease discounts, net of accumulated amortization of $44,887, $44,968 and $44,696, respectively 1,376 2,446 2,718 Total accounts payable, accrued expenses and other liabilities $ 174,267 $ 207,114 $ 172,114 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Aircastle Limited has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 21, 2021 Aircastle Limited By: /s/ Michael Inglese Michael Inglese Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Aircastle Limited and in the capacities and on the date indicated. SIGNATURE TITLE DATE /s/ Michael Inglese Chief Executive Officer and Director April 21, 2021 Michael Inglese /s/ Aaron Dahlke Chief Financial Officer April 21, 2021 Aaron Dahlke /s/ James C. Connelly Chief Accounting Officer April 21, 2021 James C. Connelly /s/ Takashi Kurihara Chairman of the Board April 21, 2021 Takashi Kurihara /s/ Douglas A. Hacker Director April 21, 2021 Douglas A. Hacker /s/ Taro Kawabe Director April 21, 2021 Taro Kawabe /s/ Charles W. Pollard Director April 21, 2021 Charles W. Pollard /s/ Takayuki Sakakida Director April 21, 2021 Takayuki Sakakida /s/ Noriyuki Yukawa Director April 21, 2021 Noriyuki Yukawa S - 1