What changed in this filing

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Item 1. Financial Statements

2021-07-14 compared with 2021-01-14 · 196 added, 360 removed, 364 unchanged (60% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

2020 August 31,

2021 February 28,

18 unchanged sentences

Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding — —

Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at November 30 and August 31, 2020;

and 75,076,794 shares issued and outstanding at February 29, 2020 — — 751

Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at May 31, 2021 and February 28, 2021 — —

Additional paid-in capital 1,485,777 1,485,777

4 unchanged sentences

Aircastle Limited and Subsidiaries

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Consolidated Statements of Loss and Comprehensive Loss

(Dollars in thousands)

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Three Months Ended May 31,

Lease rental revenue $ 132,125 $ 183,178

3 unchanged sentences

Total lease revenue 156,154 257,778

Gain (loss) on sale of flight equipment ( 185 ) 4,448 12,951 26,512 24,181 39,134

Gain on sale of flight equipment 9,021 12,078

Other revenue 635 12,670

3 unchanged sentences

Interest, net 58,037 58,726

Selling, general and administrative (including non-cash share-based payment expense of $0 and $2,283 for the two months ended August 31, 2020 and 2019, $0 and $3,209 for the three months ended November 30, 2020 and 2019, and $28,049 and $9,793 for the nine months ended November 30, 2020 and 2019, respectively) 8,249 11,999 15,145 18,389 76,152 55,060

Selling, general and administrative (including non-cash share-based payment expense of $0 and $28,049 for the three months ended May 31, 2021 and 2020, respectively) 15,589 47,451

Impairment of flight equipment 20,583 77,298

1 unchanged sentence

Total operating expenses 184,128 278,253

Other expense:

Other income (expense):

Loss on extinguishment of debt ( 24 ) ( 8 )

2 unchanged sentences

Total other expense ( 14 ) ( 32,094 )

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments ( 2,296 ) 16,490 4,409 66,607 ( 224,580 ) 139,325

Income tax provision 9,325 1,283 2,269 7,659 14,738 17,280

Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments ( 18,332 ) ( 27,821 )

Income tax benefit ( 8,292 ) ( 551 )

Earnings of unconsolidated equity method investments, net of tax 287 731

Net income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326

Total comprehensive income (loss) $ ( 11,195 ) $ 16,367 $ 2,712 $ 59,549 $ ( 237,340 ) $ 124,326

Net loss $ ( 9,753 ) $ ( 26,539 )

Total comprehensive loss $ ( 9,753 ) $ ( 26,539 )

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended November 30,

Three Months Ended May 31,

Cash flows from operating activities:

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

Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities:

Net loss $ ( 9,753 ) $ ( 26,539 )

Adjustments to reconcile net loss to net cash and restricted cash provided by operating activities:

Depreciation 82,391 89,212

15 unchanged sentences

Lease rentals received in advance ( 2,496 ) ( 9,740 )

Net cash and restricted cash provided by operating activities 124,380 410,979

Net cash and restricted cash provided by (used in) operating activities 69,990 ( 44,475 )

Cash flows from investing activities:

2 unchanged sentences

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits 11,963 ( 5,198 )

Unconsolidated equity method investments and associated costs — ( 11,681 )

Other — ( 409 )

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

Net cash and restricted cash provided by investing activities 4,549 17,848

Cash flows from financing activities:

8 unchanged sentences

Dividends paid — ( 24,025 )

Net cash and restricted cash provided by financing activities 151,497 297,154

Net increase in cash and restricted cash:

Net cash and restricted cash (used in) provided by financing activities ( 9,534 ) 186,235

Net decrease in cash and restricted cash:

65,005 159,608

5 unchanged sentences

(Dollars in thousands)

Nine Months Ended November 30,

Three Months Ended May 31,

Reconciliation to Consolidated Balance Sheets:

14 unchanged sentences

(Dollars in thousands, except share amounts)

Three Months Ended May 31, 2021

Capital Retained

4 unchanged sentences

Balance, February 28, 2021 14,048 $ — $ 1,485,777 $ 245,293 $ 1,731,070

Amortization of share-based payments — — 28,049 — 28,049

Net loss — — — ( 9,753 ) ( 9,753 )

Payment of unvested shares at Merger ( 101,809 ) ( 1 ) ( 25,535 ) — ( 25,536 )

Parent contribution at Merger — — 25,536 — 25,536

Share cancellation and re-issuance at Merger ( 74,960,937 ) ( 750 ) 750 — —

Balance, June 30, 2020 14,048 — 1,485,777 349,604 1,835,381

Net loss — — — ( 11,195 ) ( 11,195 )

Balance, August 31, 2020 14,048 — 1,485,777 338,409 1,824,186

Net income — — — 2,712 2,712

Balance, November 30, 2020 14,048 $ — $ 1,485,777 $ 341,121 $ 1,826,898

Balance, May 31, 2021 14,048 $ — $ 1,485,777 $ 235,540 $ 1,721,317

Three Months Ended May 31, 2020

Capital Retained

(Deficit) Total

Earnings Total

Shareholders’

2 unchanged sentences

Balance, February 29, 2020 75,076,794 $ 751 $ 1,456,977 $ 578,461 $ 2,036,189

Issuance of common shares to directors and employees 56,043 — — — —

Repurchase of common shares from stockholders, directors and employees ( 139,275 ) ( 1 ) ( 2,863 ) — ( 2,864 )

Amortization of share-based payments — — 28,049 — 28,049

Reclassification of prior year director stock award liability — — 796 — 796

Dividends declared — — — ( 22,543 ) ( 22,543 )

Net income — — — 48,410 48,410

Balance, June 30, 2019 74,983,114 750 1,460,534 560,200 2,021,484

Repurchase of common shares from stockholders, directors and employees ( 347,784 ) ( 4 ) ( 7,005 ) — ( 7,009 )

Amortization of share-based payments — — 2,100 — 2,100

Dividends declared — — — ( 22,485 ) ( 22,485 )

Net income — — — 16,367 16,367

Balance, August 31, 2019 74,635,330 746 1,455,629 554,082 2,010,457

Amortization of share-based payments — — 2,821 — 2,821

Dividends declared — — — ( 23,789 ) ( 23,789 )

Net income — — — 59,549 59,549

Balance, November 30, 2019 74,635,330 $ 746 $ 1,458,450 $ 589,842 $ 2,049,038

Net loss — — — ( 26,539 ) ( 26,539 )

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, May 31, 2020 14,048 $ — $ 1,485,777 $ 551,922 $ 2,037,699

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Dollars in thousands, except per share amounts)

November 30, 2020

Summary of Significant Accounting Policies

3 unchanged sentences

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.

10 unchanged sentences

However, we believe that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended, and the Company’s Transition Report on Form 10-Q for the two months ended February 29, 2020.

Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (“ASC 326”).

The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash.

Net investment in leases comprised the Company’s financial asset principally affected by the standard.

Operating lease receivables are not within the scope of ASC 326.

Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses.

This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages.

The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts.

Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values.

We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to retained earnings.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company adopted, the FASB Accounting Standard Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement .

The standard modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project.

The adoption of the standard did not have a material impact on our consolidated financial statements

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

or related disclosures.

Effective January 1, 2020, the Company adopted the FASB ASU No.

2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

The standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use-software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company adopted the FASB ASU No.

2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities .

The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance.

The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.

The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of November 30, 2020, through the date on which the consolidated financial statements included in this Form 10-Q were issued.

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 May 31, 2021, through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

The consolidated financial statements include the accounts of Aircastle and all its subsidiaries.

Aircastle consolidates two Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary.

The consolidated financial statements include the accounts of Aircastle and all its subsidiaries, including any Variable Interest Entity (“VIE”) 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;

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 to Aircastle.

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 its business or to refinance existing debt facilities.

Use of Estimates

2 unchanged sentences

While Aircastle believes the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

COVID-19 Pandemic

COVID-19 has had an unprecedented negative impact on the aviation sector, resulting in a dramatic slowdown in air traffic.

While there have been some improvements in certain markets recently, according to IATA, as of May 31, 2021, air travel was still down to approximately 37 % of normal levels and a full recovery to pre-pandemic levels is not expected for several years.

Substantially all the world’s airlines have experienced financial difficulties and liquidity challenges, including many of our customers.

While we believe 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 those impacts cannot currently be determined.

As the airline industry begins to recover, airlines continue to seek support from their respective governments, raise debt and equity, delay or cancel new aircraft orders, furlough employees, request concessions from lessors, and in certain cases, seek judicial protection.

As of July 9, 2021, we have agreed to $ 111,720 in total deferrals of lease payments with twenty-two customers.

These deferrals have been granted for an average of six to nine months of lease rentals and represent 19 % of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended May 31, 2021.

Of the total deferrals, $ 89,400 is included in Accounts receivable or Other assets as of May 31, 2021, with the balance representing future lease payments.

Approximately 76 % of our total deferrals as of July 9, 2021, have been agreed to as part of broader lease restructurings.

These generally include term extensions, better security packages, or other valuable consideration in exchange for near-term economic concessions.

Some have repayment terms that extend beyond twelve months and in a limited number of situations, we have agreed to broader lease restructurings that do not include the full repayment of all of lease payments.

If air traffic remains depressed and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to some of our customers or extend the period of repayment for deferrals we have already made.

We may ultimately not be able to collect all the amounts we have deferred.

As of July 9, 2021, six of our customers are subject to judicial insolvency proceedings or similar protection.

These customers lease 22 aircraft, which represent 13 % of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases, or “net book value”) and 11 % of our Lease rental and direct financing and sales-type lease revenue as of and for the twelve months ended May 31, 2021.

LATAM, our second largest customer, is included in this group and represents 8 % of our net book value of flight equipment and 7 % of our Lease rental revenue as of and for the twelve months ended May 31, 2021.

We are actively engaged in these judicial proceedings to protect our economic interests.

However, the outcome of these proceedings is uncertain and could result in these customers negotiating reductions in aircraft lease rentals, rejecting their leases or taking other actions that could adversely impact us or the value of our aircraft.

Based on historic experience, the judicial process can take up to twelve to eighteen months to be resolved.

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.

Lease Revenue Recognition

2 unchanged sentences

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

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

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

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

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

We 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.

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

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

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

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

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

The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular on the aviation sector.

As a result of COVID-19, there has been a dramatic slowdown in air traffic, with many markets in near complete shutdown.

According to the International Air Transport Association (“IATA”), as of November 2020, air travel was down to approximately 34 % of normal levels and a full recovery to pre-pandemic levels is not expected for several years.

Substantially all the world’s airlines are experiencing financial difficulties and liquidity challenges.

While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of the COVID-19 virus’ economic shock are material;

the extent and duration of which cannot currently be determined.

Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors.

We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time.

As of January 8, 2021, we have agreed to defer approximately $ 101,000 in near-term lease payments, including $ 76,460 that appear in our Consolidated Balance Sheets as components of Accounts receivable, Net investment in leases, or Other assets as of November 30, 2020.

This represents approximately 15 % of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended November 30, 2020.

Deferrals have been agreed to with 37 airlines, representing 46 % of our customer base, and for an average deferral of five months of lease rentals.

In certain situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions.

I f air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to our customers or extend the periods of repayment for deferrals we have already made.

We may ultimately not be able to collect all the amounts we have deferred.

As of January 8, 2021, seven of our customers are subject to judicial insolvency proceedings or similar protection.

We lease 22 aircraft to these customers, which comprise 13 % of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases) and 11 % of our Lease rental and direct financing and sales-type lease revenue as of and for the twelve months ended November 30, 2020.

One of these customers is LATAM, our second largest customer, which represents 7 % of our net book value of flight equipment and 6 % of our Lease rental revenue as of and for the twelve months ended November 30, 2020.

Based on historic experience, the judicial process can take anywhere from twelve months to eighteen months to be resolved.

We are actively engaged in the various judicial proceedings to protect our economic interests.

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.

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.

We perform an annual recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis.

A recoverability assessment is also 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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

payments, future projected lease rates, transition costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors.

The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates and maintenance payments, transition costs, estimated down time, and estimated residual or scrap values for an aircraft.

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.

2 unchanged sentences

The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors.

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

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

Net Investment in Leases

If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease.

The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit.

For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment.

Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement.

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

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

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

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

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

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

A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

We continue to closely monitor 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.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a reference rate affected by reference rate reform.

If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or re-measurements are required.

The standard is effective for all entities from March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December 31, 2022.

We have not adopted ASC 848 for this interim period and are currently evaluating the election available to us under the standard and the impact it may have on our financial statements.

In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic.

The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases”, for lease concessions provided by lessors as a result of the

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform Topic 848 (“ASC 848”), in response to the market transition from the LIBOR and other interbank offered rates (“IBORs”) to alternative reference rates.

GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract.

ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform.

The standard provides this temporary election through December 31, 2022, and cannot be applied to contract modifications that occur after December 31, 2022.

Reference rate reform will primarily impact our lease and debt arrangements for which floating-rate lease rentals and interest expense are based on LIBOR.

As of May 31, 2021, less than 1 % of our fleet have floating-rate lease rentals and, for the three months ended May 31, 2021, 5 % of our interest expense was derived from floating-rate debt which is referenced to LIBOR.

We have not adopted ASC 848 and are currently evaluating the election available to us under the standard.

Effective, March 1, 2021, the Company adopted FASB ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.

The guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance.

The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2020.

This adoption did not have a material impact on our consolidated financial statements.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

COVID-19 pandemic.

The Company has elected not to apply the lease modification guidance in ASC 842 for such lease concessions – see “Lease Revenue Recognition” above.

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:

Observable inputs such as quoted prices in active markets for identical assets or liabilities.

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.

Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:

• The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

• The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.

• The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth our financial assets as of November 30, 2020, August 31, 2020 and February 29, 2020 that we measured at fair value on a recurring basis by level within the fair value hierarchy.

The following tables set forth our financial assets as of May 31, 2021 and February 28, 2021 that we measured at fair value on a recurring basis by level within the fair value hierarchy.

Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

Fair Value Measurements at November 30, 2020

Using Fair Value Hierarchy

Fair Value as of November 30, 2020 Quoted Prices

(Level 1) Significant

(Level 2) Significant

(Level 3) Valuation

Cash and cash equivalents $ 416,621 $ 416,621 $ — $ — Market

Restricted cash and cash equivalents 5,341 5,341 — — Market

Total $ 421,962 $ 421,962 $ — $ —

Fair Value Measurements at August 31, 2020

Fair Value Measurements at May 31, 2021

Using Fair Value Hierarchy

Fair Value as of August 31, 2020 Quoted Prices

Fair Value as of May 31, 2021 Quoted Prices

(Level 1) Significant

4 unchanged sentences

Total $ 645,603 $ 645,603 $ — $ —

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Fair Value Measurements at February 28, 2021

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Restricted cash and cash equivalents 2,594 2,594 — — Market

Derivative assets 19 — 19 — Market

Total $ 580,598 $ 580,598 $ — $ —

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are highly liquid and easily tradable.

These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

Our interest rate derivative included in Level 2 consists of a United States dollar-denominated interest rate cap, and its fair value is based on the market comparisons for similar instruments.

We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors.

For the two months ended August 31, 2020 and 2019, and the three and nine months ended November 30, 2020, we had no transfers into or out of Level 3.

Our cash and cash equivalents, and restricted cash and cash equivalents balances, consist largely of money market securities that are highly liquid and easily tradable.

These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.

For the three months ended May 31, 2021, 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.

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

Aircraft Valuation

Impairment of Flight Equipment

For the two months ended August 31, 2020, the Company recorded transactional impairment charges of $ 9,596 , which primarily related to one narrow-body aircraft for which the customer rejected the lease due to judicial insolvency proceedings.

We also recognized $ 9,367 of maintenance reserves and security deposits into revenue for this one aircraft.

For the three months ended November 30, 2020, the Company recorded transactional impairment charges totaling $ 9,867 , which primarily related to the scheduled lease expirations of two narrow-body aircraft.

The Company also recognized $ 15,200 of maintenance revenue related to these two aircraft.

During the nine months ended November 30, 2020, the Company recorded impairment charges totaling $ 299,551 , of which $ 256,510 were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company also recognized $ 107,448 of maintenance reserves and security deposits into revenue for these eighteen aircraft.

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

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter of 2020.

Of the $ 299,551 impairment charges recorded for the nine months ended November 30, 2020, we recorded $ 43,040 related to one narrow-body and one wide-body aircraft as a result of our annual recoverability assessment.

Although we have completed our annual recoverability assessment, we will continue to monitor the developments of the COVID-19 virus throughout the remainder of the year.

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

Aircraft Valuation

Impairment of Flight Equipment

During the three months ended May 31, 2021, the Company recorded transactional impairment charges totaling $ 20,583 which related to two narrow-body aircraft and were the result of an early lease termination and a scheduled lease expiration.

The Company recognized $ 21,061 of maintenance revenue for these two aircraft.

During the three months ended May 31, 2020, the Company recorded transactional impairment charges totaling $ 77,298 , which related to ten narrow-body and one wide-body aircraft.

The Company recognized $ 83,342 of maintenance and security deposits into revenue for these eleven aircraft.

The impairment charges and revenue were recognized as a result of the early lease terminations of nine aircraft and scheduled lease expirations of two aircraft.

We plan to perform our annual recoverability assessment of all our aircraft during the fiscal third quarter for the nine months ended November 30, 2021.

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 the COVID-19 pandemic and value deterioration.

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

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

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

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

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 our recoverability 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.

Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and amounts borrowed under financings.

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.

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The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of our financial instruments at November 30, 2020, August 31, 2020 and February 29, 2020 were as follows:

November 30, 2020 August 31, 2020 February 29, 2020

The carrying amounts and fair values of our financial instruments at May 31, 2021 and February 28, 2021 were as follows:

May 31, 2021 February 28, 2021

Carrying Amount

of Liability Fair Value

of Liability Carrying Amount

of Liability Fair Value

of Liability Carrying

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Unsecured Term Loan 215,000 210,767 215,000 210,290

ECA Financings 40,055 41,814 43,649 45,680 50,745 52,593

Export Credit Agency (“ECA”) Financings 27,163 28,422 36,423 37,942

Bank Financings 720,389 721,859 738,353 740,086

Senior Notes 4,200,000 4,448,863 4,200,000 4,402,722

All our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

All our financial instruments are classified as Level 2 except for our Senior Notes, which are classified as Level 1.

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

Lease Rental Revenues and Flight Equipment Held for Lease

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at November 30, 2020 were as follows:

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at May 31, 2021 were as follows:

Year Ending February 28/29, Amount (1)

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Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

Three Months Ended May 31,

Region 2021 2020

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The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the periods indicated:

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Three Months Ended May 31,

Number of Lessees Combined % of Lease

Rental Revenue Number of Lessees Combined % of Lease

Rental Revenue

3 unchanged sentences

(Dollars in thousands, except per share amounts)

November 30, 2020

The following table sets forth revenue attributable to individual countries representing at least 10% of Total revenue (including maintenance and other revenue) based on each lessee’s principal place of business for the periods indicated:

Two Months Ended August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Country Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue

Three Months Ended May 31,

Country Revenue % of Total Revenue Revenue % of Total Revenue

$ 20,202 12 % $ — — %

— — % 69,508 25 %

South Korea (3)

21,043 13 % — — %

_______________

(1) For the three months ended November 30, 2020, total revenue attributable to Canada included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 19,260 .

For the two months ended August 31, 2020 and 2019, and for the nine months ended November 30, 2020, and the three and nine months ended November 30, 2019, total revenue attributable to Canada was less than 10%.

(2) For the two months ended August 31, 2020, total revenue attributable to India included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 10,171 .

For the two months ended August 31, 2019, total revenue attributable to India included maintenance revenue of $( 716 ).

For the three and nine months ended November 30, 2020, total revenue attributable to India included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 6,080 and $ 16,251 , respectively.

For the three and nine months ended November 30, 2019, total revenue attributable to India included $( 803 ) and $ 16,035 of maintenance revenue, respectively.

(3) For the nine months ended November 30, 2020, total revenue attributable to Mexico included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 79,912 .

For the two months ended August 31, 2020 and 2019, and for the three months ended November 30, 2020, and the three and nine months ended November 30, 2019, total revenue attributable to Mexico was less than 10%.

(1) For the three months ended May 31, 2021, total revenue attributable to India included maintenance revenue totaling $ 654 .

Total revenue attributable to India was less than 10% for the three months ended May 31, 2020.

(2) For the three months ended May 31, 2020, total revenue attributable to Mexico included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $ 67,265 .

Total revenue attributable to Mexico was less than 10% for the three months ended May 31, 2021.

(3) For the three months ended May 31, 2021, total revenue attributable to South Korea included maintenance revenue totaling $ 13,253 .

Total revenue attributable to South Korea was less than 10% for the three months ended May 31, 2020.

Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) was as follows:

November 30, 2020 August 31, 2020 February 29, 2020

May 31, 2021 February 28, 2021

Region Number

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Aircraft Net Book

Value % Number

Aircraft Net Book

Asia and Pacific 77 36 % 79 37 %

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_______________

(1) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2020 to a lessee in North America, one Airbus A320-200 aircraft and two Boeing 737-800 aircraft, which are subject to executed leases with airlines in Europe, one Airbus A330-200 aircraft, which is subject to a confirmed letter of intent to lease with an airline in Europe, and one Airbus A319-100, three Airbus A320-200 aircraft, three Airbus A330-200 aircraft, and four Boeing 737-800 aircraft, which we are marketing for lease or sale.

(2) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2020 to a lessee in North America, one Airbus A330-200 aircraft, which is subject to a confirmed letter of intent to lease with an airline in Europe, eleven Airbus A320-200, four Airbus A330-200 and three Boeing 737-800 aircraft, which we are marketing for lease or sale.

(3) Consisted of one Airbus A330-200 aircraft, which delivered during the second quarter of 2020 to a lessee in Europe, and one Boeing 737-800 aircraft, which we are marketing for lease or sale.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

The following table sets forth net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of business as of:

November 30, 2020 August 31, 2020 February 29, 2020

(1) Consisted of one Airbus A320-200 aircraft, one Airbus A330-200 aircraft, and one Boeing 737-800 aircraft, all of which were delivered to lessees in Europe during the second quarter of 2021, one Airbus A321-200 aircraft which was delivered to a lessee in North America during the second quarter of 2021, four Airbus A320-200 aircraft which are subject to confirmed letters of intent with customers in Europe or South America, one Boeing 737-800 aircraft which is subject to an executed lease with a lessee in Europe, and one Airbus A320-200 aircraft, three Airbus A330-200 aircraft, and four Boeing 737-800 aircraft, which we are marketing for lease or sale.

(2) Consisted of one Airbus A320-200 aircraft, one Airbus A330-200 aircraft and one Boeing 737-800 aircraft, each of which was delivered to a lessee in Europe during the first half of 2021, three Airbus A320-200 aircraft which are subject to confirmed letters of intent with customers in Europe or South America, and one Boeing 737-800 aircraft which is subject to a lease commitment with a customer in Europe, and one Airbus A320-200 aircraft, three Airbus A330-200 aircraft, and five Boeing 737-800 aircraft, which we are marketing for lease or sale.

The following table sets forth the net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of business as of:

May 31, 2021 February 28, 2021

Country Net Book

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Value % Number

Lessees Net Book

Value Net Book

Value % Number

India $ 730,449 11 % 3 $ 756,514 11 % 3

At November 30, 2020, August 31, 2020 and February 29, 2020, the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 13,731 , $ 12,173 and $ 10,076 , respectively.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

At May 31, 2021 and February 28, 2021, the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $ 16,097 and $ 14,673 , respectively.

Net Investment in Leases

At November 30, 2020, August 31, 2020 and February 29, 2020, our net investment in leases consisted of 24 , 24 and 30 aircraft, respectively.

The components of our net investment in leases at November 30, 2020, August 31, 2020 and February 29, 2020, were as follows:

November 30, 2020 August 31, 2020 February 29, 2020

At May 31, 2021 and February 28, 2021, our net investment in leases consisted of 15 and 15 aircraft, respectively.

The components of our net investment in leases at May 31, 2021 and February 28, 2021, were as follows:

May 31, 2021 February 28, 2021

Lease receivable $ 61,321 $ 67,075

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Net investment in leases, net of allowance $ 191,457 $ 195,376

The activity in the allowance for credit losses related to our net investment in leases for the nine months ended November 30, 2020 is as follows:

The activity in the allowance for credit losses related to our net investment in leases for the three months ended May 31, 2021 is as follows:

Balance at February 28, 2021 $ 864

Provision for credit losses 6

Write-offs ( 8,099 )

Balance at August 31, 2020 2,972

Provision for credit losses 742

Balance at November 30, 2020 $ 3,714

During the nine months ended November 30, 2020, we wrote-off $ 8,099 of lease rentals against the allowance for credit losses due to the early lease termination of seven Airbus A320-200 aircraft which had been classified as Net investment in leases.

At November 30, 2020, future lease payments on net investment in leases are as follows:

Balance at May 31, 2021 $ 870

At May 31, 2021, future lease payments on net investment in leases are as follows:

Year Ending February 28/29, Amount

4 unchanged sentences

Difference between undiscounted lease payments and lease receivable $ 10,253

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Unconsolidated Equity Method Investments

We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 315,418 at November 30, 2020.

We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $ 308,640 at May 31, 2021.

Investment in joint ventures at February 28, 2021 $ 35,377

Earnings from joint venture, net of tax 287

Investment in joint ventures at August 31, 2020 34,876

Earnings from joint venture, net of tax 572

Investment in joint venture at November 30, 2020 $ 35,448

In April 2020, we sold two engines to Magellan, an affiliate of Marubeni, for $ 5,355 .

This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy.

Variable Interest Entities

Aircastle consolidates two VIEs (the “Air Knight VIEs”) of which it is the primary beneficiary.

The operating activities of these Air Knight VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling two aircraft as discussed below.

During February 2020, we repaid the export credit agency (the “ECA Financings”) for four of the six aircraft owned by the Air Knight VIEs, which included principal and accrued interest amounts outstanding of $ 95,128 and incurred early extinguishment costs of $ 4,020 .

In June 2020, the leases of the four aircraft subject to the ECA Financings were formally terminated and the aircraft were released as security under such financings.

The only assets that the Air Knight VIEs have on their books are net investments in leases that are eliminated in the consolidated financial statements.

The related aircraft, with a net book value as of November 30, 2020 of $ 121,878 , were included in our flight equipment held for lease.

The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of November 30, 2020 is $ 39,634 .

Investment in joint ventures at May 31, 2021 $ 35,664

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

Secured and Unsecured Debt Financings

The outstanding amounts of our secured and unsecured debt financings are as follows:

At November 30, 2020 At

At May 31, 2021 At

Debt Obligation Outstanding

1 unchanged sentence

Maturity Outstanding

Borrowings Outstanding

Secured Debt Financings:

ECA Financings $ 27,163 1 3.49 % 11/30/24 $ 36,423

$ 40,055 2 3.49% to 3.96% 12/03/21 to 11/30/24 $ 43,649 $ 50,745

Bank Financings (1)

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Senior Notes due 2022 500,000 5.50 % 02/15/22 500,000

— 7.625 % 04/15/20 — 300,000

Senior 5.00% Notes due 2023 500,000 5.00 % 04/01/23 500,000

4 unchanged sentences

Senior Notes due 2028 750,000 2.85 % 01/26/28 750,000

Senior Notes due 2026 650,000 4.250 % 06/15/26 650,000 650,000

Unsecured Term Loans 215,000 1.65 % 02/27/22 to 02/27/24 215,000

3 unchanged sentences

Total secured and unsecured debt financings, net of debt issuance costs and discounts $ 5,107,474 $ 5,135,111

(1) The borrowings under these financings at November 30, 2020 have a weighted-average rate of interest of 3.60 %.

During February 2020, the Company repaid the ECA Financings for four aircraft owned by the Air Knight VIEs, which were released as security for such financings during the second quarter of 2020 – see Note 6.

(2) The borrowings under these financings at November 30, 2020 have a weighted-average fixed rate of interest of 3.09 %.

On April 15, 2020, the Company repaid $ 300,000 aggregate principal amount of 7.625 % Senior Notes due 2020 due at their final stated maturity date.

On July 30, 2020, the Company entered into a $ 150,000 unsecured revolving credit facility with Mizuho Bank Ltd., a related party.

The facility bears interest at a rate of LIBOR plus 2 %, or a base rate plus 1 %, matures on July 31, 2021 and includes a one -year extension option.

This transaction was approved by our Audit Committee as an arm’s length transaction under our related party policy.

On August 11, 2020, the Company issued $ 650,000 aggregate principal amount of Senior Notes due 2025 (the “Senior Notes due 2025”) at an issue price of 99.057 %.

The Senior Notes due 2025 will mature on August 11, 2025 and

(1) The borrowings under these financings at May 31, 2021 have a weighted-average fixed rate of interest of 3.22 %.

Unsecured Debt Financings:

Revolving Credit Facilities

On April 1, 2021, we entered into an amendment that split the $ 300,000 commitment of one of our unsecured revolving credit facilities into two tranches:

$ 160,000 was allocated to Tranche A, which will mature on the facility’s previously stated maturity date of December 27, 2021, and $ 140,000 was allocated to Tranche B, which will mature on February 28, 2023.

On May 24, 2021, the revolving credit facility was expanded to $ 330,000 , with $ 155,000 and $ 175,000 of the commitment allocated to Tranche A and Tranche B, respectively.

On April 26, 2021, we entered into an amendment that increased the size of one of our revolving credit facilities from $ 800,000 to $ 1,000,000 .

The stated maturity date for $ 900,000 of the total commitment was extended to April 26, 2025, and the remaining $ 100,000 commitment will mature on the facility’s previously stated maturity date of June 27, 2022.

On April 26, 2021, we entered into an amendment that reduced the size of our revolving credit facility with Mizuho Bank Ltd., a related party, from $ 150,000 to $ 50,000 and extended its maturity date to July 30, 2022.

Mizuho Bank, Ltd.

is now a lender for our $ 1,000,000 revolving credit facility with a commitment in the amount of $ 100,000 .

Aircastle Limited and Subsidiaries

1 unchanged sentence

(Dollars in thousands, except per share amounts)

November 30, 2020

bear interest at a rate of 5.25 % per annum, payable semi-annually on February 11 and August 11 of each year, commencing on February 11, 2021.

Interest accrues on the Senior Notes due 2025 from August 11, 2020.

As of November 30, 2020, we had no borrowings outstanding under our revolving credit facilities and had $ 1,250,000 available for borrowing.

As of November 30, 2020, we were in compliance with all applicable covenants in our financings.

Shareholders' Equity and Share-Based Payment

On March 27, 2020, (the “Merger Date”), the total authorized share capital of the Company was $ 3,000 , comprised of 250,000,000 common shares of $ 0.01 each and 50,000,000 preference shares of $ 0.01 each, and the issued share capital of the Company was comprised of 14,048 common shares of $ 0.01 each.

In December 2019, the Company accelerated the vesting of certain restricted common share awards and the vesting and payment of certain Performance Share Units (“PSUs”) held by the Company’s executive officers, initially granted under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan.

Share-based compensation expense of $ 914 related to restricted common shares and $ 4,247 related to PSUs represents the cost of this accelerated vesting from March 1, 2020 through the Merger Date.

As per the Agreement and Plan of Merger, dated as of November 5, 2019, (the “Merger Agreement”), on the Merger Date, the Company paid $ 4,063 and $ 21,473 representing the payment for 126,971 unvested restricted common shares and 671,030 unvested PSUs, respectively.

Concurrently, the Company received $ 25,536 from MM Air Limited, which was recorded as an additional paid-in-capital as of the Merger Date.

Included in share-based compensation expense for the nine months ended November 30, 2020 is $ 3,921 and $ 18,967 related to remaining outstanding restricted common shares and remaining outstanding PSUs, respectively, that were accelerated and paid out (in the case of PSUs, at the maximum level of performance) in accordance with the Merger Agreement.

On February 13, 2020, the Company declared a dividend of $ 0.32 per share and paid $ 24,025 on March 6, 2020 for all shareholders of record as of February 28, 2020.

On June 29, 2021, we elected to redeem the outstanding balance of our 5.5 % Senior Notes due 2022, including accrued interest and a call premium on July 30, 2021.

As of May 31, 2021, we had no borrowings outstanding under our revolving credit facilities and had $ 1,380,000 available for borrowing.

As of May 31, 2021, we were in compliance with all applicable covenants in our financings.

Shareholders' Equity

On June 8, 2021, the Company issued 400,000 depositary shares (the “Depositary Shares”), each representing a 0.001 interest in a share of 5.250 % Series A Cumulative Redeemable Perpetual Preference Shares par value $ 0.01 per share with a $ 1,000 liquidation preference per share (equivalent to $ 1,000 per Depositary Share) (the “Preference Shares”).

The Preference Shares are perpetual and have no maturity date.

Dividends on the Preference Shares, when, as and if declared by the Company’s board of directors or any duly authorized committee thereof, will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021.

Dividends will be payable:

(i) from the date of original issue to, but excluding September 15, 2026 (the “original reset date”) at a fixed rate per annum of 5.250 %;

(ii) from, and including, the original reset date to, but excluding, September 15, 2031 (the “2031 reset date”), at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.410 %;

(iii) from, and including, the 2031 reset date to, but excluding, September 15, 2046 (the “2046 reset date”), during each reset period at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.660 %;

and (iv) from, and including, the 2046 reset date, during each reset period at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 5.410 %.

Dividends on the Preference Shares will accumulate daily and be cumulative from, and including, the date of original issuance of the Preference Shares.

The Company may not redeem the Preference Shares before the date that is 90 -days prior to the original reset date.

The Company may, at its option, redeem the Preference Shares, in whole or in part, from time to time during the period beginning 90 -days prior to each reset date and ending on such reset date at a redemption price in cash equal to $ 1,000,000 per Preference Share (equivalent to $ 1,000 per Depositary Share), plus all accumulated and unpaid dividends (whether or not declared) to, but excluding, such redemption date.

In addition, the Company may redeem the Preference Shares, in whole but not in part, at the Company’s option under certain other limited conditions.

Except with respect to certain amendments to the terms of the Preference Shares, in the case of certain dividend non-payments and as otherwise required by applicable law, the Preference Shares will not have voting rights.

The Company intends to use the net proceeds from the Offering for general corporate purposes, which may include the repayment, refinancing or redemption of its existing indebtedness.

Related Party Transactions

On April 26, 2021, the Company entered into an amendment that reduced the size and extended the term of our unsecured revolving credit facility with Mizuho Bank Ltd., a related party – see Note 6 for additional information.

During the three months ended May 31, 2021, the Company incurred $ 980 in fees to Marubeni as part of its intra-company service agreement, whereby Marubeni provides company-sponsored benefits, management services, strategy consultancy, and general administrative support to the Company.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

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.

The Company received assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035.

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

The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the two months ended August 31, 2020 and 2019, and the three and nine months ended November 30, 2020 and 2019 were as follows:

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

The sources of loss from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three months ended May 31, 2021 and 2020 were as follows:

Three Months Ended May 31,

operations $ 3,711 $ 4,046

operations ( 22,043 ) ( 31,867 )

Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments $ ( 2,296 ) $ 16,490 $ 4,409 $ 66,607 $ ( 224,580 ) $ 139,325

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

Our aircraft-owning subsidiaries that are recognized as corporations for U.S.

tax purposes are primarily non-U.S.

corporations.

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

Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments $ ( 18,332 ) $ ( 27,821 )

Our aircraft-owning subsidiaries generally earn income from sources outside the U.S.

and typically are not subject to U.S.

federal, state or local income taxes.

5 unchanged sentences

subsidiaries and are subject to tax in those respective jurisdictions.

The consolidated income tax expense for the two months ended August 31, 2020, and the three and nine months ended November 30, 2020 was determined based upon estimates of the Company’s consolidated effective income tax rates for the fiscal year ending February 28, 2021.

The consolidated income tax expense for the two months ended August 31, 2019, and the three and nine months ended November 30, 2019 was based upon estimates of the Company’s consolidated effective income tax rate for the calendar year ended December 31, 2019.

The Company’s effective tax rates (“ETRs”) for two months ended August 31, 2020 and 2019 were ( 406.1 )% and 7.8 %, respectively.

The Company’s ETRs for the three and nine months ended November 30, 2020 and 2019 were 51.5 % and ( 6.6 )%, and 11.5 % and 12.4 %, respectively.

The two months ended August 31, 2020 includes an adjustment to change from calendar year to fiscal year ETR for the six months ended June 30, 2020.

Excluding this adjustment, the two months August 2020 ETR would have been ( 55.5 )%.

Movements in the ETR are generally caused by changes in the proportion of the Company’s pre-tax earnings in taxable and non-tax jurisdictions.

During the nine months ended November 30, 2020, we incurred net impairment charges of $ 191,697 in low tax jurisdictions and a significant decrease in Bermuda income.

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income (loss) from continuing operations consisted of the following:

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Notional U.S.

federal income tax expense (benefit) at the statutory rate $ ( 482 ) $ 3,463 $ 925 $ 13,987 $ ( 47,162 ) $ 29,258

state and local income tax, net 492 229 917 221 2,998 611

Bermuda 7,853 1,503 ( 1,719 ) ( 8,037 ) 56,572 ( 10,562 )

Ireland 781 ( 1,422 ) ( 287 ) 147 1,470 ( 1,055 )

Singapore ( 10 ) ( 16 ) ( 1 ) ( 3 ) 80 ( 18 )

Other low tax jurisdictions 30 ( 1,372 ) 25 578 ( 412 ) ( 1,779 )

Non-deductible expenses in the U.S.

661 45 38 766 3,385 825

Other — ( 1,147 ) 2,371 — ( 2,193 ) —

Income tax provision $ 9,325 $ 1,283 $ 2,269 $ 7,659 $ 14,738 $ 17,280

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020.

The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property.

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

The CARES Act did not materially impact the Company’s effective tax rate for the three months ended May 31, 2021.

The Company’s effective tax rates (“ETRs”) for the three months ended May 31, 2021 and 2020 were 45.2 %, and 2.0 %, respectively.

The movement in the ETR is primarily caused by changes in the mix of the Company’s pre-tax earnings/(losses) in its taxable and non-tax jurisdictions.

Further, the three-month period ended May 31, 2020 included discrete items related to stock compensation and the impact of the CARES act.

Interest, Net

The following table shows the components of interest, net:

Two Months Ended

August 31, Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019 2020 2019

Three Months Ended May 31,

Interest on borrowings and other liabilities $ 54,033 $ 55,739

2 unchanged sentences

Interest income ( 35 ) ( 324 )

Capitalized interest ( 152 ) —

Interest, net $ 58,037 $ 58,726

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Commitments and Contingencies

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 252 for the two months ended August 31, 2020, and $ 413 and $ 1,213 for the three and nine months ended November 30, 2020, respectively, and $ 276 for the two months ended August 31, 2019, and $ 415 and $ 1,216 for the three and nine months ended November 30, 2019, respectively.

As of November 30, 2020, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut;

Rent expense, primarily for the corporate offices and sales and marketing offices, was $ 413 and $ 411 for the three months ended May 31, 2021 and 2020, respectively.

As of May 31, 2021, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut;

Dublin, Ireland;

4 unchanged sentences

Total $ 12,878

At November 30, 2020, we had commitments to acquire 25 Embraer E-Jet E2 aircraft for $ 1,008,096 , excluding manufacturer credits.

Commitments, including $ 110,946 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at November 30, 2020, net of amounts already paid, are as follows:

At May 31, 2021, we had commitments to acquire 23 aircraft for $ 779,372 .

Commitments, including $ 101,933 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at May 31, 2021, net of amounts already paid, are as follows:

Year Ending February 28/29, Amount

Remainder of 2021 $ 134,520

Thereafter 127,115

Total $ 779,372

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

November 30, 2020

The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:

2020 August 31,

2021 February 28,

4 unchanged sentences

Right-of-use asset (1)

8,341 8,620 9,148

Deferred rent receivable 75,287 69,103

3 unchanged sentences

(1) Net of lease incentives and tenant allowances.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

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:

2020 August 31,

2021 February 28,

5 unchanged sentences

Total accounts payable, accrued expenses and other liabilities $ 171,810 $ 174,267

Subsequent Event

During the fiscal second quarter of 2021, the Company entered into claims sale and purchase agreements with a third party for the sale of certain unsecured claims filed by various Aircastle entities against LATAM Airlines Group S.A.

and certain of its subsidiaries in the Chapter 11 case captioned LATAM Airlines Group S.A., et al., Case No.

20-11254 (JLG) (Jointly Administered) (the “Bankruptcy Case”).

Proceeds from the sales of these claims were received during the fiscal second quarter of 2021.

The allowed amount of our unsecured claims has been approved by the Bankruptcy Court so that such claims are now approved claims in the Bankruptcy Case subject to customary conditions.

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

What changed 10-Q

Item 1. Financial Statements