What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-13 compared with 2021-07-14 · 217 added, 153 removed, 261 unchanged (59% of the section changed)

12 unchanged sentences

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 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.

6 unchanged sentences

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

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.

As of August 31, 2021, we owned and managed on behalf of our joint ventures 264 aircraft leased to 76 lessees located in 42 countries.

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

1 unchanged sentence

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

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.

As of August 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 $6.76 billion compared to $6.69 billion at February 28, 2021.

Our total revenues, net income (loss) and Adjusted EBITDA for the three and six months ended August 31, 2021 were $157.7 million and $323.5 million, $9.8 million and $0.1 million, and $197.5 million and $345.8 million, respectively.

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

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;

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

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

2 unchanged sentences

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.

While there have been some improvements in certain markets recently, according to IATA, as of August 31, 2021, air travel was still down to approximately 44% compared to 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.

1 unchanged sentence

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 $111.7 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.

Even 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 October 8, 2021, our total deferrals, net of repayments, were $101.8 million.

These deferrals have been granted to twenty customers for an average of six to nine months of lease rentals and represent 18% of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended August 31, 2021.

Of the total deferrals, $89.8 million is included in Accounts receivable or Other assets as of August 31, 2021, with the balance representing future lease payments.

Approximately 77% of our total deferrals as of October 8, 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.

If air traffic remains depressed and our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to certain 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.

As of October 8, 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 10% of our Lease rental and direct financing and sales-type lease revenue as of and for the twelve months ended August 31, 2021.

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

1 unchanged sentence

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.

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.

LATAM, our second largest customer, is included in the above group and 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 August 31, 2021.

signed restructured leases for all thirteen of the LATAM aircraft, subject only to LATAM emerging from the Chapter 11 process.

During the three months ended August 31, 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 allowed amount of our unsecured claims was approved by the Bankruptcy Court.

Proceeds from the sales of these claims in the amount of $55.2 million were received during the three and six months ended August 31, 2021 and recognized in Other income (expense).

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 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 believe that we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of October 1, 2021, total liquidity of $2.4 billion includes $1.4 billion of undrawn credit facilities, $0.3 billion of unrestricted cash, $0.3 billion of contracted asset sales and $0.4 billion of projected operating cash flows through September 30, 2022.

As of August 31, 2021, we have commitments to acquire 24 aircraft for $801.8 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.

2 unchanged sentences

Fiscal Year 2021 Lease Expirations and Lease Placements

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.

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

As of October 8, 2021, of these 34 aircraft, we have eleven aircraft, which account for 4.2% of our net book value at August 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:

18 aircraft, representing 5%;

3 unchanged sentences

Acquisitions and Sales

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:

During the six months ended August 31, 2021, we acquired eight aircraft for $353.3 million.

As of October 8, 2021, we acquired no additional aircraft.

At August 31, 2021, we had commitments to acquire 24 aircraft for $801.8 million.

Of this amount, $152.3 million represents commitments for the remainder of fiscal year 2021.

During the six months ended August 31, 2021, we sold four aircraft and other flight equipment for net proceeds of $77.9 million, and recognized net gains on sales of $10.5 million.

As of October 8, 2021, we have sold one additional aircraft.

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

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

8 unchanged sentences

Weighted Average Remaining Lease Term (years) (2)

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

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

94.1 % 93.6 %

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

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

93.6 % 95.1 %

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

Portfolio Yield for the six months ended August 31, 2021 and 2020 (4)

Managed Aircraft on behalf of Joint Venture

4 unchanged sentences

(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 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.

The decrease from our historical utilization rate for the three months ended August 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;

3 unchanged sentences

Owned Aircraft as of

May 31, 2021 Owned Aircraft as of

August 31, 2021 Owned Aircraft as of

August 31, 2020

Aircraft % of Net

21 unchanged sentences

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

(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

(2) Of the seventeen off-lease aircraft at August 31, 2021, we have two narrow-body aircraft and three wide-body aircraft which we are currently marketing for lease or sale.

(3) Of the twenty off-lease aircraft at August 31, 2020, we have three wide-body aircraft which we are currently marketing for lease or sale.

Our largest customer represents approximately 7% of our net book value at August 31, 2021.

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

Customer Country Percent of Net Book Value Number of

IndiGo India 7.5% 11

Chile 7.4% 13

easyJet 4.1% United Kingdom 22

Iberia Spain 3.8% 15

easyJet United Kingdom 3.8% 21

Air Canada Canada 3.6% 5

Lion Air Indonesia 3.4% 7

Frontier Airlines United States 3.0% 4

Aerolineas Argentinas Argentina 2.9% 5

2 unchanged sentences

Russia 2.5% 2

Jeju Air 2.5% South Korea 7

Total top ten customers 40.6% 90

2 unchanged sentences

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

We have signed restructured leases for all thirteen of the LATAM aircraft, subject only to LATAM emerging from the Chapter 11 process.

(2) Guaranteed by Volga-Dnepr Airlines.

9 unchanged sentences

RESULTS OF OPERATIONS

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

Three Months Ended May 31,

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

Three Months Ended August 31,

(Dollars in thousands)

3 unchanged sentences

Maintenance revenue

21,218 20,034

Total lease revenue 155,748 171,047

Gain (loss) on sale of flight equipment 1,502 (848)

Other revenue 402 1,123

Total revenues 157,652 171,322

Operating expenses:

Depreciation 83,391 86,749

Interest, net 55,413 55,324

Selling, general and administrative 15,996 13,555

Impairment of flight equipment 21,232 212,387

Maintenance and other costs 8,087 4,271

Total operating expenses 184,119 372,286

Other income (expense):

Loss on extinguishment of debt (14,132) (57)

Merger expenses — 27

Other 57,609 (173)

Total other income (expense) 43,477 (203)

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments 17,010 (201,167)

Income tax provision 7,665 13,020

Earnings of unconsolidated equity method investments, net of tax 458 674

Net income (loss) $ 9,803 $ (213,513)

Total revenues decreased by $13.7 million for the three months ended August 31, 2021 as compared to the three months ended August 31, 2020.

Lease rental revenue decreased by $13.3 million as a result of:

• a $7.3 million decrease due to the sale of twelve aircraft since June 1, 2020;

• an $8.5 million decrease due to lease extensions, amendments transitions and other changes;

• a $2.5 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.

This decrease was partially offset by a $5.0 million increase in revenue, reflecting the impact of ten aircraft purchased since June 1, 2020.

Direct financing and sales-type lease revenue decreased $2.0 million for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020, primarily attributable to the early lease terminations of one aircraft and the transfer of six aircraft to operating leases.

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

Three Months Ended August 31,

(Dollars in thousands)

Amortization of lease premiums $ (3,597) $ (3,374)

Amortization of lease discounts 227 264

Amortization of lease incentives (2,465) (1,519)

Amortization of lease premiums, discounts and incentives $ (5,835) $ (4,629)

Maintenance revenue.

For the three months ended August 31, 2021, we recorded $21.2 million of maintenance revenue, comprised primarily of $17.0 million related to the early lease terminations of three narrow-body aircraft.

For the three months ended August 31, 2020, we recorded $20.0 million of maintenance revenue primarily related to the early lease terminations of three narrow-body aircraft.

Gain (loss) on sale of flight equipment increased $2.4 million to a gain of $1.5 million for the three months ended August 31, 2021 as compared to a loss of $0.8 million for the three months ended August 31, 2020.

We sold one aircraft in each of the three month periods ended August 31, 2021 and 2020.

Operating expenses

Total operating expenses decreased by $188.2 million for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020.

Depreciation expense decreased by $3.4 million for the three months ended August 31, 2021 as compared to the three months ended August 31, 2020, primarily attributable to a decrease of $5.6 million resulting from twelve aircraft sold since June 1, 2020 and lower depreciation on aircraft subject to impairment charges recorded during 2021.

This was partially offset by higher depreciation of $2.4 million due to ten aircraft acquired since June 1, 2020.

Interest, net consisted of the following:

Three Months Ended August 31,

(Dollars in thousands)

Interest on borrowings and other liabilities $ 51,807 $ 52,638

Amortization of deferred financing fees and debt discount 4,193 3,402

Interest expense 56,000 56,040

Interest income (382) (716)

Capitalized interest (205) —

Interest, net $ 55,413 $ 55,324

Selling, general and administrative expenses for the three months ended August 31, 2021 increased $2.4 million as compared to the three months ended August 31, 2020, due to higher personnel costs, partially offset by a decrease in the provision for credit losses related to the change in our allowance for credit losses.

Impairment of aircraft.

During the three months ended August 31, 2021, we recorded impairment charges of $21.2 million, of which $18.0 million were transactional impairments, primarily related to two narrow-body aircraft resulting from early lease terminations.

The Company recognized $16.1 million of maintenance revenue for these two aircraft.

During the three months ended August 31, 2020, we recorded transactional impairment charges totaling $212.4 million, of which $169.3 million were transactional impairments related to four wide-body and two narrow-body aircraft.

The Company recognized $9.3 million of maintenance revenue related to these six aircraft during the three months ended August 31, 2020.

The impairment charges were attributable to early lease terminations, judicial insolvency proceedings, or as a result of our annual recoverability assessment.

Maintenance and other costs were $8.1 million for the three months ended August 31, 2021, an increase of $3.8 million as compared to the three months ended August 31, 2020, primarily attributable to higher costs for aircraft that returned due to lease terminations and are being transitioned to new lessees.

Other income (expense)

Total other income (expense) increased by $43.7 million for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020.

During the three months ended August 31, 2021, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to the LATAM Bankruptcy into Other income (expense) – see Note 1.

This was partially offset by a $14.1 million loss on extinguishment of debt related to the early redemption in full of $500.0 million outstanding aggregate principal amount of our 5.5 % Senior Notes due 2022.

Income tax provision

Our income tax provision for the three months ended August 31, 2021 and 2020 was $7.7 million and $13.0 million, respectively.

The decrease in our income tax provision of $5.4 million was primarily attributable to changes in the mix of pre-tax book income/(loss) in Bermuda, Ireland and the United States.

The three months ended August 31, 2021 included income from the sales of unsecured claims related to the LATAM Bankruptcy, which was recorded in a low tax jurisdiction.

Further, the three months ended August 31, 2020 included discrete items related to stock compensation and the impact of the CARES Act.

RESULTS OF OPERATIONS

Comparison of the six months ended August 31, 2021 to the six months ended August 31, 2020:

Six Months Ended August 31,

(Dollars in thousands)

Lease rental revenue $ 269,714 $ 334,073

Direct financing and sales-type lease revenue 5,653 10,064

Amortization of lease premiums, discounts and incentives (11,159) (11,975)

Maintenance revenue 47,694 96,665

Total lease revenue 311,902 428,827

Gain on sale of flight equipment 10,524 11,230

12 unchanged sentences

Other 57,619 (192)

Total other expense (14) (32,094)

Total other income (expense) 43,463 (32,299)

Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments (1,322) (228,988)

Income tax benefit (8,292) (551)

Income tax (benefit) provision (627) 12,469

Earnings of unconsolidated equity method investments, net of tax 745 1,405

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:

Net income (loss) $ 50 $ (240,052)

Total revenues decreased $130.4 million for the six months ended August 31, 2021 as compared to the six months ended August 31, 2020.

Lease rental revenue decreased by $64.4 million as a result of:

• a $46.2 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 $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.

• a $14.3 million decrease due to the sale of thirteen aircraft since March 1, 2020;

• a $11.3 decrease due to lease extensions, amendments, transitions and other changes.

This decrease was partially offset by a $7.5 million increase in revenue, reflecting the impact of thirteen aircraft purchased since March 1, 2020.

Direct financing and sales-type lease revenue decreased $4.4 million for the six months ended August 31, 2021, as compared to the six months ended August 31, 2020, primarily attributable to the early lease terminations of eight aircraft and the transition of seven aircraft to operating leases.

Amortization of lease premiums, discounts and lease incentives :

Three Months Ended May 31,

Six Months Ended August 31,

(Dollars in thousands)

3 unchanged sentences

Amortization of lease premiums, discounts and incentives $ (11,159) $ (11,975)

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.

The decrease in amortization of lease premiums of $2.0 million for the six months ended August 31, 2021 as compared to the six months ended August 31, 2020 was primarily due to early lease terminations.

Maintenance revenue .

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.

For the six months ended August 31, 2021, we recorded $47.7 million of maintenance revenue, comprised primarily of $41.9 million related to the scheduled lease expirations of four narrow-body aircraft and the early lease terminations of three narrow-body and one wide-body aircraft.

In addition, we recorded $5.4 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.

For the six months ended August 31, 2020, we recorded $96.7 million of maintenance revenue, comprised primarily of $59.4 million related to the early lease terminations of thirteen narrow-body aircraft and $36.3 million related to the scheduled lease expirations of three narrow-body and one wide-body aircraft.

Gain on sale of flight equipment decreased $0.7 million to $10.5 million for the six months ended August 31, 2021 as compared to $11.2 million for the six months ended August 31, 2020.

During the six months ended August 31, 2021, we sold four aircraft, as compared to the sale of three aircraft during the six months ended August 31, 2020.

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

Other revenue decreased $12.8 million to $1.0 million for the six months ended August 31, 2021 as compared to $13.8 million for the six months ended August 31, 2020.

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

Operating expenses

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.

Total operating expenses decreased $282.3 million for the six months ended August 31, 2021 as compared to the six months ended August 31, 2020.

Depreciation expense decreased $10.2 million for the six months ended August 31, 2021 as compared to the six months ended August 31, 2020.

The decrease is primarily comprised of $13.8 million resulting from fourteen aircraft sold since March 1, 2020 and lower depreciation related to aircraft subject to aircraft impairments.

This was partially offset by a $4.2 million increase in depreciation due to thirteen aircraft acquired since March 1, 2020.

Interest, net consisted of the following:

Three Months Ended May 31,

Six Months Ended August 31,

(Dollars in thousands)

5 unchanged sentences

Interest, net $ 113,450 $ 114,050

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.

Interest, net decreased $0.6 million due to a lower weighted average debt outstanding and cost of borrowing.

Selling, general and administrative expenses decreased $29.4 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.

The six months ended August 31, 2020 also included a provision for credit losses of $4.5 million related to the change in our allowance for credit losses.

Impairment of 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 $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 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 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

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.

During the six months ended August 31, 2021, the Company recorded impairment charges totaling $41.8 million, of which $38.6 million were transactional impairments, primarily related to four narrow-body aircraft and resulted from three early lease terminations and one scheduled lease expiration.

The Company recognized $37.1 million of maintenance revenue for these four aircraft.

During the six months ended August 31, 2020, the Company recorded impairment charges totaling $289.7 million, of which $246.6 million were transactional impairments, primarily related to twelve narrow-body and five wide-body aircraft.

The Company recognized $92.2 million of maintenance and security deposits into revenue for these seventeen aircraft.

The impairment charges were attributable to early lease terminations, scheduled lease expirations, lessee defaults, judicial insolvency proceedings, or as a result of our annual recoverability assessment.

Maintenance and other costs were $15.6 million for the six months ended August 31, 2021, an increase of $5.8 million as compared to the six months ended August 31, 2020, primarily attributable to higher costs for aircraft that returned due to lease terminations and are being transitioned to new lessees.

Other income (expense)

Total other income (expense) increased $75.8 million for the six months ended August 31, 2021, as compared to the six months ended August 31, 2020.

During the three months ended August 31, 2021, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to the LATAM Bankruptcy into Other income (expense).

The six months ended August 31, 2020 included $32.1 million of legal and banking costs related to the Merger.

Income tax (benefit) provision

Our income tax (benefit) provision for the six months ended August 31, 2021 was a $0.6 million benefit as compared to a $12.5 million provision for the six months ended August 31, 2020.

The decrease in our income tax provision of $13.1 million was primarily attributable to changes in the mix of pre-tax book income/(loss) in Bermuda, Ireland and the United States.

The six months ended August 31, 2021 included income from the sale of unsecured claims related to the LATAM Bankruptcy, which was recorded in a low tax jurisdiction.

Further, the six months ended August 31, 2020 included discrete items related to stock compensation and the impact of the CARES Act.

Annual Recoverability Assessment

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.

17 unchanged sentences

• asset sales;

• sales of common and preferred shares.

• sales of common and preference 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 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.

During the six months ended August 31, 2021, we met our liquidity and capital resource needs with $179.7 million of cash flow from operations, $77.9 million of cash from the sale of aircraft and other flight equipment, and $393.4 million in net proceeds from our preference share issuance.

As of August 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.

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 previously granted.

As of October 8, 2021, we have agreed to defer approximately $101.8 million of lease payments with twenty airlines, which they are obligated 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 provide further deferrals to certain customers to extend the deferrals we have previously granted.

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.

Three Months Ended May 31,

As of August 31, 2021, we hold $77.1 million in security deposits, $518.3 million in maintenance payments and $143.3 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 October 1, 2021, total liquidity of $2.4 billion includes $1.4 billion of undrawn credit facilities, $0.3 billion of unrestricted cash, $0.3 billion of contracted asset sales and $0.4 billion of projected operating cash flows through September 30, 2022.

In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, borrowings secured by our 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.

Six Months Ended August 31,

(Dollars in thousands)

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 provided by operating activities $ 179,714 $ 25,592

Net cash flow (used in) provided by investing activities (282,348) 15,529

Net cash flow (used in) provided by financing activities (137,769) 307,712

Operating Activities:

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.

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

Over the past eighteen months, lease concessions have been given to many of our customers in the form of lease rental deferrals or broader lease restructurings.

Our cash flow from operating activities for the six months ended August 31, 2021 includes the repayment of certain lease deferrals granted during the first half of 2020 at the inception of the pandemic.

We expect that our collections will remain under pressure due to the impact of COVID-19.

Cash flow provided by operating activities was $179.7 million and $25.6 million for the six months ended August 31, 2021 and 2020, respectively.

The increase of $154.1 million was primarily attributable to:

• an $82.3 million decrease in accounts receivable and other assets, primarily due to an increase in customer collections, including the repayment of existing lease deferrals as noted above, as well as a reduction in requests for new deferrals as compared to the six months ended August 31, 2020;

• a $55.2 million increase in cash resulting from the sale of unsecured claims related to the LATAM Bankruptcy – see Note 1;

• a $41.6 million increase as the six months ended August 31, 2020, included advance lease rentals recognized into revenue primarily due to lease terminations;

• a $32.1 million increase in cash as the six months ended August 31, 2020, included banking and legal costs resulting from the Merger.

These inflows were offset by a $46.2 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 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.

Cash flow used in investing activities was $282.3 million for the six months ended August 31, 2021 as compared to cash flow provided by investing activities of $15.5 million for the six months ended August 31, 2020.

The net decrease of $297.9 million resulted from a $336.5 million increase in the acquisition and improvement of flight equipment.

These outflows were partially offset by a $24.7 million increase in proceeds from the sale of flight equipment.

Financing Activities:

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.

Cash flow used in financing activities was $137.8 million for the six months ended August 31, 2021 as compared to cash flow provided by financing activities of $307.7 million for the six months ended August 31, 2020.

The net decrease of $445.5 million was primarily attributable to an $889.4 million decrease in proceeds from secured and unsecured debt financings, net of repayments.

These outflows were partially offset by a $393.4 million increase in net proceeds from the issuance of preference shares, a $39.0 million decrease in maintenance and security deposits returned, net of deposits received, and a $24.0 million decrease in dividends paid on common shares as a result of the Merger.

Debt Obligations

2 unchanged sentences

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 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

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

(Dollars in thousands)

Principal payments:

Senior Notes due 2022 - 2028 $ 4,200,000 $ 500,000 $ 1,650,000 $ 650,000 $ 1,400,000

DBJ Term Loan 215,000 60,000 155,000 — —

Revolving Credit Facilities — — — — —

ECA Financings 27,164 7,478 15,632 4,054 —

Bank Financings 720,388 72,478 288,189 359,721 —

Total principal payments 5,162,552 639,956 2,108,821 1,013,775 1,400,000

Interest payments on debt obligations (1)

752,956 215,849 322,658 157,887 56,562

Office leases (2)

12,878 1,938 3,451 3,551 3,938

Purchase obligations (3)

779,372 175,031 453,016 151,325 —

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 May 31, 2021.

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

Dublin, Ireland and Singapore.

(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.

Total contractual obligations decreased to $6.13 billion at August 31, 2021 from $6.82 billion at February 28, 2021, primarily due to the redemption of all of the $500.0 million outstanding aggregate principal amount of our Senior Notes Due 2022.

Capital Expenditures

1 unchanged sentence

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 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.

For the six months ended August 31, 2021 and 2020, we incurred a total of $17.6 million and $11.7 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of August 31, 2021, the weighted average age by net book value of our aircraft was approximately 10.6 years.

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

Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft.

We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, such as lessee default, or a lessee fails to meet its maintenance obligations under the lease agreement.

We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, such as in the event of a lessee default or a lessee fails to meet its maintenance obligations under the lease agreement.

These maintenance reserves are paid by the lessee to provide for future maintenance events.

1 unchanged sentence

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.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of several factors, such as in the event of a lessee default.

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.

5 unchanged sentences

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 May 31, 2021, the net book value of its nine aircraft was $308.6 million.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of August 31, 2021, the net book value of its nine aircraft was $305.3 million.

Foreign Currency Risk and Foreign Operations

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

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

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

dollar aggregated approximately $8.6 million in U.S.

3 unchanged sentences

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

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

Management’s Use of EBITDA and Adjusted EBITDA

9 unchanged sentences

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 months ended May 31, 2021 and 2020:

Three Months Ended May 31,

(Dollars in thousands)

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

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

Three Months Ended August 31, Six Months Ended August 31,

2021 2020 2021 2020

Net income (loss) $ 9,803 $ (213,513) $ 50 $ (240,052)

Depreciation 83,391 86,749 165,782 175,961

1 unchanged sentence

Interest, net 55,413 55,324 113,450 114,050

Income tax benefit (8,292) (551)

Income tax provision (benefit) 7,665 13,020 (627) 12,469

EBITDA 162,107 (53,791) 289,814 74,403

3 unchanged sentences

Merger related expenses (1)

— (27) — 34,601

Loss on mark-to-market of interest rate derivative contracts — 2 — 19

Contract termination expense — 172 — 172

Adjusted EBITDA $ 197,471 $ 158,800 $ 345,785 $ 426,994

9 unchanged sentences

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

GAAP measures as compared to U.S.

GAAP measures as compared to

GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include:

13 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