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Item 2. Management’s Discussion and Analysis

2021-07-14 compared with 2021-01-14 · 152 added, 298 removed, 262 unchanged (63% of the section changed)

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

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended, and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S.

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Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.

These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the Securities and Exchange Commission (the “SEC”) and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s 2019 Annual Report on Form 10-K, as amended, and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the Securities and Exchange Commission (the “SEC”) and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s Annual Report on Form 10-K fir the year ended February 28, 2021.

In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements.

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

As of November 30, 2020, we owned and managed on behalf of our joint ventures 269 aircraft leased to 80 lessees located in 45 countries.

As of May 31, 2021, we owned and managed on behalf of our joint ventures 259 aircraft leased to 77 lessees located in 43 countries.

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

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

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

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

As of November 30, 2020, the net book value of our flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) was $6.98 billion compared to $7.57 billion at February 29, 2020.

Our total revenues and net loss for the three and nine months ended November 30, 2020 were $180.9 million and $2.7 million and $634.8 million and $237.3 million, respectively.

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

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

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

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

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

As of May 31, 2021, the net book value of our flight equipment (including flight equipment held for lease and net investment in leases, or “net book value”) was $6.58 billion compared to $6.69 billion at February 28, 2021.

Our total revenues, net loss and Adjusted EBITDA were $165.8 million, $9.8 million and $148.3 million for the three months ended May 31, 2021, and $282.5 million, $26.5 million and $268.2 million for the three months ended May 31, 2020, respectively.

Historically, growth in commercial air traffic has been correlated with world economic activity.

In recent years commercial air traffic growth expanded at a rate 1.5 to 2 times that of global GDP growth.

The expansion of air travel has driven the growth in the world aircraft fleet;

there are approximately 22,000 commercial mainline passenger and freighter aircraft in the world fleet today.

Prior to the COVID-19 pandemic, commercial air traffic growth expanded at a rate 1.3 to 2 times that of global GDP growth.

This expansion of air travel has driven the growth in the world aircraft fleet;

and there are approximately 24,000 commercial mainline passenger and freighter aircraft in the world fleet today.

Aircraft leasing companies own approximately 52% of the world’s commercial jet aircraft.

Under normal circumstances, we would expect the global fleet to continue expanding at a three to four percent average annual rate.

The COVID-19 crisis 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.

While there have been some limited improvements in certain markets recently, according to IATA, as of November 2020, air travel is still down to approximately 34% of normal levels and a full recovery to pre-pandemic levels is not expected for several years.

IATA estimates this situation will cost the airline industry over $510 billion of lost revenue, a number which may be revised upwards.

Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges, including certain of our customers, and this could adversely affect our lessees’ ability to fulfill their lease payment obligations to us.

According to IATA, total net losses for the airline industry will reach $118 billion in 2020 and $39 billion in 2021.

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

Under normal circumstances, we would expect the global fleet to continue expanding at a two to four percent average annual rate.

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.

Airlines have been seeking to preserve liquidity by obtaining support from their respective governments, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, and requesting concessions from lessors.

Some have sought judicial protection.

We have agreed to defer lease payments with numerous airline customers, which they are obligated to repay over time.

As of January 8, 2021, we have agreed to defer approximately $101.0 million in near-term lease payments, including $76.5 million 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 customers, for an average deferral of five months of lease rentals.

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

If air traffic continues to remain depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to our customers

or extend the period of repayment for deferrals we have already made.

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 $111.7 million in total deferrals of lease payments with 22 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, $89.4 million 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 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, 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 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 up to twelve to eighteen months to be resolved.

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 grounding our aircraft, negotiating reductions in aircraft lease rentals, rejecting their leases or taking other actions that could adversely impact us or the value of our aircraft.

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.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of December 31, 2020, have $2.21 billion of liquidity from cash on hand, working capital and/or available credit lines.

As of November 30, 2020, we have commitments to acquire 25 aircraft for $1.01 billion, excluding manufacturer credits, between 2020-2026.

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.

We believe that our long-standing business strategy of maintaining conservative leverage, limiting long-term financial commitments and focusing our portfolio on more liquid narrow-body aircraft will enable us to manage through the COVID-19 crisis.

Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.

Our portfolio of primarily mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.

In addition, we believe that we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of July 1, 2021, total liquidity of $2.88 billion includes $1.38 billion of undrawn credit facilities, $1.02 billion of unrestricted cash, $103 million of contracted asset sales and $375 million of projected operating cash flows through June 30, 2022.

As of May 31, 2021, we have commitments to acquire 23 aircraft for $779.4 million between 2021-2025.

We also believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will enable us to take advantage of new investment opportunities when they arise.

Our Company employs a team of experienced senior professionals with extensive industry and financial experience.

Our leadership team members have an average of more than 30 years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 global financial crisis and the September 11, 2001 terror attacks.

Our business approach will remain differentiated from those of other large leasing companies.

We have intentionally limited large, long-term capital commitments and are less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments than many of our competitors.

While our current posture is defensive given the macro situation, over the long-term we plan to grow our business and profits while maintaining a conservative, flexible capital structure.

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

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

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

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

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

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

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

As a result of the COVID-19 pandemic, the Company has provided lease concessions to certain customers, primarily 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 is generally the same as that which was

required under the original lease agreement.

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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 our Consolidated Balance Sheets and continues to amortize over the remaining life of the lease.

Fiscal Year 2020 Lease Expirations and Lease Placements

At November 30, 2020, the Company had sixteen off-lease aircraft and thirteen aircraft with scheduled lease expirations in fiscal 2020.

As of January 8, 2021, of these 29 aircraft, we have sixteen aircraft, which account for 6% of our net book value at November 30, 2020, still to be placed or sold.

Our leadership team members have an average of more than twenty years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 global financial crisis and the September 11, 2001 terror attacks.

Fiscal Year 2021 Lease Expirations and Lease Placements

Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period fiscal 2021-2024, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in leases) at November 30, 2020, specified below:

At May 31, 2021, the Company had seventeen off-lease aircraft and 22 aircraft with scheduled lease expirations in fiscal 2021.

As of July 9, 2021, of these 39 aircraft, we have eighteen aircraft, which account for 7% of our net book value at May 31, 2021, still to be placed or sold.

Fiscal Years 2022-2025 Lease Expirations and Lease Placements

Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the fiscal years 2022-2025, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in leases) at May 31, 2021, specified below:

19 aircraft, representing 6%;

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38 aircraft, representing 17%.

Operating Expenses

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

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

Income Tax Provision

We obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda.

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

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 non-U.S.

subsidiaries and is subject to U.S.

federal, state and local income taxes.

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

subsidiaries and are subject to tax in those respective jurisdictions.

The 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.

Acquisitions and Sales

During the nine months ended November 30, 2020, we acquired five aircraft for $154.3 million.

As of January 8, 2021, we have not acquired any additional aircraft.

At November 30, 2020, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer for $1.01 billion, excluding manufacturer credits.

Of this amount, approximately $9.0 million represents commitments for the remainder of 2020.

During the nine months ended November 30, 2020, we sold six aircraft for net proceeds of $113.6 million, and recognized net gains on sales of $24.2 million.

As of January 8, 2021, we have sold four additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of November 30, 2020:

During the three months ended May 31, 2021, we acquired two aircraft for $63.9 million.

As of July 9, 2021, we acquired one additional aircraft.

At May 31, 2021, we had commitments to acquire 23 aircraft for $779.4 million.

Of this amount, approximately $134.5 million represents commitments for the remainder of fiscal year 2021.

During the three months ended May 31, 2021, we sold three aircraft and other flight equipment for net proceeds of $63.4 million, and recognized net gains on sales of $9.0 million.

As of July 9, 2021, we have sold one additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of May 31, 2021:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

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Weighted Average Remaining Lease Term (years) (2)

Weighted Average Fleet Utilization during the three months ended November 30, 2020 and 2019 (3)

94.0 % 99.3 %

Weighted Average Fleet Utilization during the nine months ended November 30, 2020 and 2019 (3)

Weighted Average Fleet Utilization during the three months ended May 31, 2021 and 2020 (3)

93.1 % 96.7 %

Portfolio Yield for the three months ended November 30, 2020 and 2019 (4)

Portfolio Yield for the nine months ended November 30, 2020 and 2019 (4)

Portfolio Yield for the three months ended May 31, 2021 and 2020 (4)

Managed Aircraft on behalf of Joint Venture

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

The decrease from our historical utilization rate for the three and nine months ended November 30, 2020 and 2019, was primarily due to early lease terminations.

The decrease from our historical utilization rate for the three months ended May 31, 2021 and 2020, was primarily due to off-lease aircraft as a result of early lease terminations and scheduled lease expirations.

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

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Owned Aircraft as of

November 30, 2020 Owned Aircraft as of

November 30, 2019

May 31, 2021 Owned Aircraft as of

Aircraft % of Net

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

(2) 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.

(3) Consisted of one Airbus A320-200 aircraft, which delivered during the fourth quarter of 2019 to a lessee in Europe, and one Airbus A330-200 aircraft, which delivered during the second quarter of 2020 to a lessee in Europe.

Our top ten customers with respect to aircraft we owned as of November 30, 2020, representing 105 aircraft and 42.4% of our net book value of flight equipment (includes Flight equipment held for lease and Net investment in leases), are as follows:

(2) 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.

(3) Consisted of one Airbus A319-100 aircraft which was sold in the second quarter of 2020, one Airbus A320-200 which was delivered to a lessee in North America in the second quarter of 2021, one Airbus A330-200 aircraft which was delivered to a lessee in Europe in the second quarter of 2020, one Airbus A330-200 aircraft which was delivered to a lessee in Europe in the second quarter of 2021, two Airbus A320-200 aircraft which are subject to confirmed letters of intent with a customer in South America, nine Airbus A320-200 and one Airbus A330-200 aircraft which have been consigned for sale, and three Airbus A330-200 aircraft and two Boeing 737-800 aircraft, which we are marketing for lease or sale.

Our largest customer represents approximately 8% of the net book value at May 31, 2021.

The top ten customers for aircraft we owned at May 31, 2021, are as follows:

Customer Percent of Net Book Value Country Number of

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We have one additional aircraft on lease with an affiliate.

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

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

Since our inception in late 2004, we have raised $2.1 billion in equity capital from private and public investors.

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RESULTS OF OPERATIONS

Comparison of the three months ended November 30, 2020 to the three months ended November 30, 2019:

Three Months Ended November 30,

(Dollars in thousands)

Lease rental revenue $ 139,493 $ 199,847

Direct financing and sales-type lease revenue

Amortization of lease premiums, discounts and incentives (5,384) (5,819)

Maintenance revenue

24,843 15,360

Total lease revenue 163,791 217,148

Gain (loss) on sale of flight equipment 12,951 26,512

Other revenue 4,169 5,215

Total revenues 180,911 248,875

Operating expenses:

Depreciation 86,845 90,737

Interest, net 59,945 63,204

Selling, general and administrative 15,145 18,389

Impairment of flight equipment 9,867 —

Maintenance and other costs 4,207 6,696

Total operating expenses 176,009 179,026

Other expense:

Loss on extinguishment of debt (43) —

Merger expenses (450) (3,044)

Other — (198)

Total other expense (493) (3,242)

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments 4,409 66,607

Income tax provision 2,269 7,659

Earnings of unconsolidated equity method investments, net of tax 572 601

Net income $ 2,712 $ 59,549

Total revenues decreased by $68.0 million for the three months ended November 30, 2020, as compared to the three months ended November 30, 2019.

Lease rental revenue .

The decrease in lease rental revenue of $60.4 million for the three months ended November 30, 2020, as compared to the same period in 2019, was primarily the result of:

• a $52.5 million decrease due to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy;

• a $9.6 million decrease due to the sale of 22 aircraft since September 1, 2019.

This decrease was partially offset by a $6.9 million increase in revenue, reflecting the impact of twenty aircraft purchased since September 1, 2019.

Direct financing and sales-type lease revenue .

For the three months ended November 30, 2020, $4.8 million of interest income from direct financing and sales-type leases was recognized, as compared to $7.8 million recorded for the same period in 2019, primarily attributable to the early lease terminations of eight aircraft during 2020 and sales of two aircraft subject to direct financing and sales-type leases.

Amortization of lease premiums, discounts and lease incentives consisted of the following:

Three Months Ended November 30,

(Dollars in thousands)

Amortization of lease premiums $ (3,353) $ (4,227)

Amortization of lease discounts 262 653

Amortization of lease incentives (2,293) (2,245)

Amortization of lease premiums, discounts and incentives $ (5,384) $ (5,819)

Maintenance revenue.

For the three months ended November 30, 2020, we recorded $24.8 million of maintenance revenue, of which $18.2 million related to the scheduled lease expirations of six narrow-body aircraft.

The remaining activity primarily related to the early lease terminations of two narrow-body aircraft.

For the same period in 2019, we recorded $15.4 million maintenance revenue, of which $11.5 million related to the scheduled lease expirations of two wide-body aircraft.

Gain on sale of flight equipment.

We recorded gains on sale of $13.0 million for the three months ended November 30, 2020, as compared to $26.5 million for the same period in 2019.

During the three months ended of 2020, we sold three aircraft, as compared to the sale of ten aircraft during the three months ended of 2019.

Operating expenses

Total operating expenses decreased by $3.0 million for the three months ended November 30, 2020, as compared to the three months ended November 30, 2019.

Depreciation expense decreased by $3.9 million for the three months ended November 30, 2020 as compared to the same period in 2019, primarily due to a decrease of $8.6 million resulting from 22 aircraft sold since September 1, 2019 and lower depreciation on aircraft subject to impairment charges recorded during 2020.

This is partially offset by higher depreciation of $3.1 million due to 23 aircraft acquired since September 1, 2019.

Interest, net consisted of the following:

Three Months Ended November 30,

(Dollars in thousands)

Interest on borrowings and other liabilities $ 56,087 $ 59,959

Amortization of deferred financing fees and debt discount 3,929 3,810

Interest expense 60,016 63,769

Interest income (71) (565)

Interest, net $ 59,945 $ 63,204

Interest, net decreased by $3.3 million as compared to the three months ended November 30, 2019, primarily as a result of lower weighted average interest rates and lower weighted average debt outstanding.

Selling, general and administrative expenses for the three months ended November 30, 2020 decreased $3.2 million as compared to the same period in 2019, due to lower share-based compensation expense of $3.2 million.

Impairment of aircraft.

We recorded impairment charges of $9.9 million, primarily related to the scheduled lease expiration of two narrow-body aircraft during the three months ended November 30, 2020.

The Company recognized $15.2 million of maintenance revenue related to these two aircraft during the three months ended November 30, 2020.

During the three months ended November 30, 2019, we did not record any impairment charges.

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

Maintenance and other costs were $4.2 million for the three months ended November 30, 2020, a decrease of $2.5 million compared to the same period in 2019, The three months ended November 30, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases.

Other expense

Total other expense decreased by $2.7 million for the three months ended November 30, 2020, as compared to the three months ended November 30, 2019.

The three months ended November 30, 2019 included $3.0 million of legal and banking expenses related to the Merger.

Income tax provision

Our provision for income taxes for the three months ended November 30, 2020 and 2019 was $2.3 million and $7.7 million, respectively.

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

The decrease in our income tax provision of $5.4 million for the three months ended November 30, 2020, as compared to the same period in 2019, was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

During the three months ended November 30, 2020, we had net maintenance revenue of $5.0 million in low tax jurisdictions and a significant decrease in Bermuda income, offset by aircraft sales and increased leasing activity in the U.S.

RESULTS OF OPERATIONS

Comparison of the nine months ended November 30, 2020 to the nine months ended November 30, 2019:

Nine Months Ended November 30,

Comparison of the three months ended May 31, 2021 to the three months ended May 31, 2020:

Three Months Ended May 31,

(Dollars in thousands)

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Total operating expenses 184,128 278,253

Other expense:

Other income (expense):

Loss on extinguishment of debt (24) (8)

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Total other expense (14) (32,094)

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments (224,580) 139,325

Income tax provision 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) $ (237,340) $ 124,326

Total revenues decreased by $65.0 million for the nine months ended November 30, 2020, as compared to the nine months ended November 30, 2019.

Lease rental revenue .

The decrease in lease rental revenue of $114.6 million for the nine months ended November 30, 2020, as compared to the same period in 2019, was primarily the result of:

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

Total revenues decreased $116.7 million for the three months ended May 31, 2021, as compared to the three months ended May 31, 2020.

Lease rental revenue decreased $51.1 million as a result of:

• a $39.9 million decrease due to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy;

• a $40.5 million decrease due to the sale of 27 aircraft since March 1, 2019.

This decrease was partially offset by a $37.5 million increase in revenue, reflecting the impact of 46 aircraft purchased since March 1, 2019.

Direct financing and sales-type lease revenue .

For the nine months ended November 30, 2020, $14.9 million of interest income from direct financing and sales-type leases was recognized, as compared to $24.4 million recorded for the

same period in 2019, primarily attributable to the early lease terminations of eight aircraft during 2020 and sales of two aircraft subject to direct financing and sales-type leases.

Amortization of lease premiums, discounts and lease incentives consisted of the following:

Nine Months Ended November 30,

• a $7.0 million decrease due to the sale of twelve aircraft since March 1, 2020;

• a $6.7 million decrease due to lease extensions, amendments, transitions and other changes.

This was partially offset by a $2.5 million increase in revenue, reflecting the impact of seven aircraft purchased since March 1, 2020.

Direct financing and sales-type lease revenue decreased $2.4 million, primarily attributable to the early lease terminations of eight aircraft and the transition of six aircraft to operating leases.

Amortization of lease premiums, discounts and lease incentives :

Three Months Ended May 31,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (5,325) $ (7,347)

The decrease in amortization of lease discounts of $2.5 million for the nine months ended November 30, 2020, as compared to the same period in 2019 was primarily due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.

The decrease in amortization of lease premiums of $2.2 million for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020, was primarily due to early lease terminations.

Maintenance revenue .

For the nine months ended November 30, 2020, we recorded $121.5 million of maintenance revenue, comprised primarily of $66.3 million related to the early lease terminations of fifteen narrow-body aircraft, as well as $54.5 million related to the scheduled lease expirations of nine narrow-body aircraft and one wide-body aircraft.

For the same period in 2019, we recorded $55.8 million maintenance revenue, comprised of $35.2 million related to the scheduled lease expirations of five narrow-body aircraft and four wide-body aircraft and $17.1 million related to the early lease terminations of eight narrow-body aircraft.

Gain on sale of flight equipment decreased by $15.0 million to $24.2 million for the nine months ended November 30, 2020, as compared to gains of $39.1 million for the same period in 2019.

During the nine months ended of 2020, we sold six aircraft, as compared to the sale of 25 aircraft during the nine months ended of 2019.

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

Other revenue increased by $8.6 million to $18.0 million for the nine months ended November 30, 2020, as compared to $9.4 million for the same period in 2019, primarily due to $13.0 million of security deposits recognized into revenue related to the early lease termination of eight narrow-body aircraft.

This was partially offset by lower service fees of $8.6 million related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.

For the three months ended May 31, 2021, we recorded $26.5 million of maintenance revenue, comprised primarily of $21.7 million related to the scheduled lease expirations of two narrow-body aircraft and the early lease termination of one narrow-body aircraft.

In addition, we recorded $4.8 million of maintenance revenue related to one narrow-body and one wide-body aircraft for which the customers are subject to judicial insolvency proceedings or similar protection.

For the three months ended May 31, 2020, we recorded $76.6 million of maintenance revenue, comprised primarily of $38.8 million related to the early lease terminations of ten narrow-body aircraft and $36.8 million related to the scheduled lease expirations of three narrow-body and one wide-body aircraft.

Gain on sale of flight equipment decreased $3.1 million to $9.0 million for the three months ended May 31, 2021, as compared to gains of $12.1 million for the three months ended May 31, 2020.

During the three months ended May 31, 2021, we sold three aircraft, as compared to the sale of two aircraft during the three months ended May 31, 2020.

Gain on sale for the three months ended May 31, 2020, was primarily attributable to the receipt of insurance proceeds for one aircraft which was disposed.

Other revenue decreased $12.0 million to $0.6 million for the three months ended May 31, 2021, as compared to $12.7 million for the three months ended May 31, 2020.

The three months ended May 31, 2020 included $12.8 million of security deposits recognized into revenue related to the early lease termination of seven narrow-body aircraft.

Operating expenses

Total operating expenses increased by $280.7 million for the nine months ended November 30, 2020, as compared to the nine months ended November 30, 2019.

Depreciation expense decreased by $6.9 million for the nine months ended November 30, 2020 as compared to the same period in 2019.

The decrease is primarily the result of lower depreciation of $26.7 million resulting from 28 aircraft sold since March 1, 2019 and lower depreciation related to aircraft subject to aircraft impairments recorded during 2020.

This was partially offset by higher depreciation of $16.9 million due to 51 aircraft acquired since March 1, 2019.

Total operating expenses decreased $94.1 million for the three months ended May 31, 2021, as compared to the three months ended May 31, 2020.

Depreciation expense decreased $6.8 million for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020.

The decrease is primarily comprised of $8.5 million resulting from thirteen aircraft sold since March 1, 2020 and lower depreciation related to aircraft subject to aircraft impairments.

This was partially offset by a $1.4 million increase in depreciation due to seven aircraft acquired since March 1, 2020.

Interest, net consisted of the following:

Nine Months Ended November 30,

Three Months Ended May 31,

(Dollars in thousands)

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Interest income (35) (324)

Capitalized interest (152) —

Interest, net $ 58,037 $ 58,726

Interest, net decreased by $21.0 million as compared to the nine months ended November 30, 2019, primarily as a result of lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expenses for the nine months ended November 30, 2020 increased $21.1 million as compared to the same period in 2019, primarily attributable to an increase in share-based compensation expense of $18.3 million as a result of the Merger and a provision for credit losses of $5.3 million related to the change in our allowance for credit losses.

Interest, net decreased $0.7 million due to lower weighted average interest rates and debt outstanding, partially offset by higher amortization of deferred financings fees.

Selling, general and administrative expenses decreased $31.9 million, primarily attributable to a decrease in share-based compensation expense of $28.0 million as a result of the completion of the Merger.

The three months ended May 31, 2020 also included a provision for credit losses of $3.3 million related to the change in our allowance for credit losses.

Impairment of aircraft.

During the nine months ended November 30, 2020, we recorded impairment charges of $299.6 million, of which $256.5 million were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company recognized $107.4 million of maintenance revenue and security deposits into revenue related to these eighteen aircraft during the nine months ended November 30, 2020.

During the nine months ended November 30, 2019, the Company recorded impairment charges of $7.4 million related to two narrow-body aircraft.

During the three months ended May 31, 2021, we recorded transactional impairment charges of $20.6 million related to two narrow-body aircraft.

The Company recognized $21.1 million of maintenance revenue for these two aircraft.

During the three months ended May 31, 2020, the Company recorded transactional impairment charges of $77.3 million related to ten narrow-body aircraft and one wide-body aircraft.

The Company recognized $83.3 million of maintenance and security deposits into revenue for these eleven aircraft.

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

Maintenance and other costs were $14.0 million for the nine months ended November 30, 2020, a decrease of $4.7 million compared to the same period in 2019.

The nine months ended November 30, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases, as well as higher costs for unscheduled transitions.

Maintenance and other costs were $7.5 million for the three months ended May 31, 2021, an increase of $2.0 million as compared to the three months ended May 31, 2020, primarily attributable to higher costs for scheduled and unscheduled transitions.

Other expense

Total other expense increased by $18.2 million to $32.8 million for the nine months ended November 30, 2020, as compared to $14.6 million for the nine months ended November 30, 2019.

During the nine months ended November 30, 2020, we incurred $32.5 million of legal and banking expenses related to the Merger.

During the nine months ended November 30, 2019, we incurred a loss on extinguishment of debt of $7.6 million due to the early repayment of our Senior Notes due 2019, unfavorable mark-to-market adjustments on our interest rate caps of $4.3 million, and $3.0 million of legal and banking expenses related to the Merger.

Income tax provision

Our provision for income taxes for the nine months ended November 30, 2020 and 2019 was $14.7 million and $17.3 million, respectively.

Total other expense decreased $32.1 million as the three months ended May 31, 2020 included $32.1 million of legal and banking expenses related to the Merger.

Income tax benefit

Our income tax benefit for the three months ended May 31, 2021 and 2020 was $8.3 million and $0.6 million, respectively.

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

The decrease in our income tax provision of $2.5 million for the nine months ended November 30, 2020, as compared to the same period in 2019, was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.

During the nine months ended November 30, 2020, we incurred net impairment charges of $191.7 million in low tax jurisdictions and a significant decrease in Bermuda income, offset by aircraft sales, increased leasing activity and the limitation on deductibility of officers compensation in the U.S.

The increase in our income tax benefit of $7.7 million was primarily attributable to changes in the mix of pre-tax book income/(loss) in Bermuda, Ireland and the United States.

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

Summary of Recoverability Assessment and Other Impairments

Impairment of Flight Equipment

For the two months ended August 31, 2020, the Company recorded transactional impairment charges of $9.6 million, which primarily related to one narrow-body aircraft for which the customer rejected the lease due to judicial insolvency proceedings.

We also recognized $9.4 million 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 $9.9 million, which primarily related to the scheduled lease expirations of two narrow-body aircraft.

The Company also recognized $15.2 million of maintenance revenue related to these two aircraft.

During the nine months ended November 30, 2020, the Company recorded impairment charges totaling $299.6 million, of which $256.5 million were transactional impairments, which primarily related to thirteen narrow-body and five wide-body aircraft.

The Company also recognized $107.4 million 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.

Annual Recoverability Assessment

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

Of the $299.6 million impairment charges recorded for the nine months ended November 30, 2020, we recorded $43.0 million related to one narrow-body and one wide-body aircraft as a result of our annual recoverability assessment.

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

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

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

During the three months ended May 31, 2021, the Company recorded transactional impairment charges totaling $20.6 million which related to two narrow-body aircraft and were the result of an early lease termination and a scheduled lease expiration.

The Company recognized $21.1 million of maintenance revenue for these two aircraft.

During the three months ended May 31, 2020, the Company recorded transactional impairment charges totaling $77.3 million, which related to ten narrow-body and one wide-body aircraft.

The Company recognized $83.3 million 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 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.

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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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 are appropriate, actual results could differ from those estimates.

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

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio.

Our operations generate a significant amount of cash, primarily from lease rentals and maintenance collections.

Our operations have historically generated a significant amount of cash, primarily from lease rentals and maintenance collections.

We have also met our liquidity and capital resource needs by utilizing several sources over time, including:

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• asset sales;

• contributions from our shareholders.

• sales of common and preferred shares.

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

During the nine months ended November 30, 2020, we met our liquidity and capital resource needs with $124.4 million of cash flow from operations, $1.19 billion from our revolving credit facilities and Senior Notes due 2025 and $113.6 million of cash from aircraft sales.

As of November 30, 2020, the weighted-average maturity of our secured and unsecured debt financings was 3.1 years and we were in compliance with all applicable covenants.

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

As of January 8, 2021, we have agreed to defer approximately $101.0 million in near-term lease payments with 37 airlines, which these airline customers have agreed to repay over time.

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

During the three months ended May 31, 2021, we met our liquidity and capital resource needs with $70.0 million of cash flow from operations and $63.4 million of cash from the sale of aircraft and other flight equipment.

As of May 31, 2021, the weighted-average maturity of our secured and unsecured debt financings was 3.5 years and we were in compliance with all applicable covenants.

We have agreed to defer lease payments with certain of our airline customers.

As of July 9, 2021, we have agreed to defer approximately $111.7 million of lease payments with 22 airlines, which they are obligated to repay over time.

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

As of May 31, 2021, we hold $78.3 million in security deposits, $524.0 million in maintenance payments and $147.9 million in letters of credit from our lessees.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of July 1, 2021, total liquidity of $2.88 billion includes $1.38 billion of undrawn credit facilities, $1.02 billion of unrestricted cash, $103 million of contracted asset sales and $375 million of projected operating cash flows through June 30, 2022.

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

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

Nine Months Ended November 30,

Three Months Ended May 31,

(Dollars in thousands)

Net cash flow provided by operating activities $ 124,380 $ 410,979

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

Net cash flow provided by financing activities 151,497 297,154

Net cash flow provided by (used in) operating activities $ 69,990 $ (44,475)

Net cash flow provided by investing activities 4,549 17,848

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

Operating Activities:

Cash flow provided by operations was $124.4 million and $411.0 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow provided by operations of $286.6 million for the nine months ended November 30, 2020 was primarily attributable to a decrease in cash from working capital.

The COVID-19 pandemic has severely and negatively impacted air travel and our customers’ financial performance as a result of a variety of factors.

The impact of COVID-19, together with lease concessions given to certain of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the nine months ended November 30, 2020.

In addition, as compared to the nine months ended November 30, 2019, the nine months ended November 30, 2020 includes lower lease rental revenues due to early lease terminations and the recognition of revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

Cash flow provided by operations for the nine months ended November 30, 2020 also includes $32.5 million of cash paid for Merger expenses.

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

The impact of COVID-19, together with lease concessions given to many of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the three months ended May 31, 2021 and 2020.

Cash flow provided by operations was $70.0 million for the three months ended May 31, 2021 as compared to cash flow used in operations of $44.5 million for the three months ended May 31, 2020.

The net increase in cash flow provided by operations of $114.5 million was primarily a result of:

• a $98.7 million decrease in accounts receivable and other assets, primarily due to deferred lease rentals;

• a $32.1 million increase in cash as the three months ended May 31, 2020, included higher banking and legal costs resulting from the Merger;

• a $7.2 million increase as the three months ended May 31, 2020, included advance lease rentals recognized into revenue, primarily due to lease terminations.

These inflows were offset by a $39.9 million decrease in cash due to lower lease rental revenue resulting from early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method.

Investing Activities:

Cash flow used investing activities was $25.4 million and $629.1 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow used in investing activities of $603.7 million was primarily a result of a $818.9 million decrease in the acquisition and improvement of flight equipment and a $9.0 million decrease in aircraft purchase deposits and progress payments, net of returned deposits.

These inflows were offset by a $231.7 million decrease in aircraft proceeds from the sale of flight equipment.

Cash flow provided by investing activities was $4.5 million and $17.8 million for the three months ended May 31, 2021 and 2020, respectively.

The decrease in cash flow provided by investing activities of $13.3 million was primarily a result of a $42.4 million increase in the acquisition and improvement of flight equipment.

These outflows were offset by a $17.2 million increase in aircraft purchase deposits and progress payments, net of returned deposits and an $11.5 million increase in aircraft proceeds from the sale of flight equipment.

Financing Activities:

Cash flow provided by financing activities was $151.5 million and $297.2 million for the nine months ended November 30, 2020 and 2019, respectively.

The decrease in cash flow provided by financing activities of $145.7 million was primarily a result of a $160.5 million decrease in proceeds from secured and unsecured financings, net of repayments.

Cash flow used in financing activities was $9.5 million for the three months ended May 31, 2021 as compared to cash flow provided by financing activities of $186.2 million for the three months ended May 31, 2020.

The net decrease of $195.8 million was primarily a result of a $253.3 million decrease in proceeds from secured and unsecured financings, net of repayments.

These outflows were offset by a $38.1 million decrease in maintenance and security deposits returned, net of deposits received, and a $24.0 million decrease in dividends paid.

Debt Obligations

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

Total contractual obligations increased slightly to $6.85 billion at November 30, 2020 from $6.80 billion at February 29, 2020, primarily due to an increase in principal payments for senior notes, partially offset by an decrease in principal payments for secured financings and borrowings under our revolving credit facilities.

The following table presents our actual contractual obligations and their payment due dates as of November 30, 2020:

Payments Due by Period as of November 30, 2020

Total contractual obligations decreased to $6.71 billion at May 31, 2021 from

$6.82 billion at February 28, 2021.

The decrease in principal and interest payments was roughly offset by an increase in purchase obligations from February 28, 2021 to May 31, 2021.

The following table presents our actual contractual obligations and their payment due dates as of May 31, 2021:

Payments Due by Period as of May 31, 2021

Contractual Obligations Total 1 year

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Total $ 6,707,758 $ 1,032,774 $ 2,887,946 $ 1,326,538 $ 1,460,500

(1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at November 30, 2020.

(1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at May 31, 2021.

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

Dublin, Ireland and Singapore.

(3) At November 30, 2020, we had commitments to acquire 25 new E-Jet E2 aircraft from Embraer S.A for $1.01 billion, excluding manufacturer credits.

(3) At May 31, 2021, we had commitments to acquire 23 aircraft for $779.4 million.

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

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

For the nine months ended November 30, 2020 and 2019, we incurred a total of $15.1 million and $20.4 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of November 30, 2020, the weighted average age by net book value of our aircraft was approximately 10.5 years.

For the three months ended May 31, 2021 and 2020, we incurred a total of $6.5 million and $7.1 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of May 31, 2021, the weighted average age by net book value of our aircraft was approximately 10.8 years.

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

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Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments.

In certain cases, we are also

required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

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

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

“Risk Factors - Risks Related to Our Business - Risks related to our leases - If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease” in our 2019 Annual Report on Form 10-K, as amended.

Off-Balance Sheet Arrangements

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

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of November 30, 2020, the net book value of its nine aircraft was $315.4 million.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of May 31, 2021, the net book value of its nine aircraft was $308.6 million.

Foreign Currency Risk and Foreign Operations

At November 30, 2020, all our leases are payable to us in U.S.

At May 31, 2021, all our leases are payable to us in U.S.

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

For the nine months ended November 30, 2020, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

For the three months ended May 31, 2021, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

dollar aggregated approximately $4.5 million in U.S.

dollar equivalents and represented approximately 20.4% of total selling, general and administrative expenses (or 25.8% when excluding share-based compensation expense, of which a large portion relates to employees domiciled in the U.S.).

dollar equivalents and represented 28.9% of total selling, general and administrative expenses.

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

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

For the nine months ended November 30, 2020 and 2019, we incurred insignificant net gains and losses on foreign currency transactions.

For the three months ended May 31, 2021 and 2020, we incurred insignificant net gains and losses on foreign currency transactions.

Management’s Use of EBITDA and Adjusted EBITDA

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Adjusted EBITDA is a material component of these covenants.

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and nine months ended November 30, 2020 and 2019:

Three Months Ended November 30, Nine Months Ended November 30,

2020 2019 2020 2019

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three months ended May 31, 2021 and 2020:

Three Months Ended May 31,

(Dollars in thousands)

Net income (loss) $ 2,712 $ 59,549 $ (237,340) $ 124,326

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

Depreciation 82,391 89,212

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Interest, net 58,037 58,726

Income tax provision 2,269 7,659 14,738 17,280

Income tax benefit (8,292) (551)

EBITDA 127,708 128,195

Impairment of flight equipment 20,583 77,298

Equity share of joint venture impairment — — — 2,724

Loss on extinguishment of debt 24 8

1 unchanged sentence

Merger related expenses (1)

437 3,043 35,039 3,043

Loss on mark-to-market of interest rate derivative contracts — 17

17 unchanged sentences

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

You should not rely

on these non-U.S.

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

GAAP measures as a substitute for any such U.S.

6 unchanged sentences

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 2. Management’s Discussion and Analysis