What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-13 compared with 2021-10-13 · 161 added, 151 removed, 327 unchanged (49% of the section changed)

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

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.

As of November 30, 2021, we owned and managed on behalf of our joint ventures 264 aircraft leased to 79 lessees located in 43 countries.

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

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

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.

As of November 30, 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 $6.73 billion compared to $6.69 billion at February 28, 2021.

Our total revenues, net income (loss) and Adjusted EBITDA for the three and nine months ended November 30, 2021 were $191.5 million and $514.9 million, $(62.4) million and $(62.4) million, and $174.1 million and $519.9 million, respectively.

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

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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 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.

While there have been some improvements in certain markets recently, according to IATA, as of November 30, 2021, air travel was still down to approximately 53% 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.

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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.

As of January 7, 2022, our total deferrals, net of repayments, were $87.2 million.

These deferrals have been granted to nineteen customers for an average of six to twelve months of lease rentals and represent 15% of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended November 30, 2021.

Of the total deferrals, $81.8 million is included in Accounts receivable or Other assets as of November 30, 2021, with the balance representing future lease payments.

Approximately 87% of our total deferrals as of January 7, 2022, 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.

Many 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 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 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.

As of January 7, 2022, six of our customers are subject to judicial insolvency proceedings or similar protection.

These customers lease 21 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 12% of our Lease rental and direct financing and sales-type lease revenue as of and for the twelve months ended November 30, 2021.

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

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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.

LATAM, our second largest customer, is included in the above group and represents 7% of our net book value of

flight equipment and 7% of our Lease rental revenue as of and for the twelve months ended November 30, 2021.

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

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

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

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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).

Proceeds from the sales of these claims in the amount of $55.2 million were received during the second quarter of 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.

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.

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.

We believe that we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of January 1, 2022, total liquidity of $2.1 billion includes $1.4 billion of undrawn credit facilities, $0.2 billion of unrestricted cash, $0.1 billion of contracted asset sales and $0.4 billion of projected operating cash flows through December 31, 2022.

As of November 30, 2021, we have commitments to acquire 27 aircraft for $964.3 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.

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Fiscal Year 2021 Lease Expirations and Lease Placements

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.

At November 30, 2021, the Company had thirteen off-lease aircraft and twelve aircraft with scheduled lease expirations in fiscal 2021.

As of January 7, 2022, of these 25 aircraft, we have ten aircraft, which account for 3.8% of our net book value at November 30, 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 August 31, 2021, specified below:

16 aircraft, representing 4%;

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Acquisitions and Sales

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.

During the nine months ended November 30, 2021, we acquired twelve aircraft for $514.3 million.

As of January 7, 2022, we acquired three additional aircraft.

At November 30, 2021, we had commitments to acquire 27 aircraft for $964.3 million.

Of this amount, $183.1 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:

During the nine months ended November 30, 2021, we sold seven aircraft and other flight equipment for net proceeds of $127.6 million, and recognized net gains on sales of $17.9 million.

As of January 7, 2022, we have sold three additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of November 30, 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 August 31, 2021 and 2020 (3)

Weighted Average Fleet Utilization during the three months ended November 30, 2021 and 2020 (3)

94.0 % 94.0 %

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

Weighted Average Fleet Utilization during the nine months ended November 30, 2021 and 2020 (3)

93.7 % 94.8 %

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)

Portfolio Yield for the three months ended November 30, 2021 and 2020 (4)

Portfolio Yield for the nine months ended November 30, 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 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.

The decrease from our historical utilization rate for the three and nine months ended November 30, 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;

quarterly information is annualized.

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

The calculation of portfolio yield includes our net investment in leases in the average net book value, and the interest income and cash collections from our net investment in leases.

PORTFOLIO DIVERSIFICATION

Owned Aircraft as of

August 31, 2021 Owned Aircraft as of

August 31, 2020

November 30, 2021 Owned Aircraft as of

November 30, 2020

Aircraft % of Net

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Aircraft Type

Narrow-body 229 79 % 245 78 %

Wide-body 22 17 % 24 18 %

Narrow-body - new technology (2)

23 15 % 13 9 %

Narrow-body - current technology 206 65 % 220 68 %

Wide-body - current technology 22 16 % 23 19 %

Total Passenger 251 96 % 256 96 %

Freighter 4 4 % 4 4 %

Freighter - current technology 4 4 % 4 4 %

Total 255 100 % 260 100 %

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

(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:

(2) Includes Airbus A320-200neo, Boeing 737-MAX8 and Embraer E2 aircraft.

(3) Of the thirteen off-lease aircraft at November 30, 2021, we have two narrow-body aircraft and three wide-body aircraft which we are currently marketing for lease or sale.

(4) Of the sixteen off-lease aircraft at November 30, 2020, we have three wide-body aircraft which we are currently marketing for lease or sale.

The top ten customers for aircraft we owned at November 30, 2021, are as follows:

Customer Country Percent of Net Book Value Number of

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Chile 7.3% 13

Iberia Spain 3.8% 15

easyJet United Kingdom 3.8% 21

Air Canada Canada 3.5% 5

Iberia Spain 3.4% 14

American Airlines United States 3.4% 8

Lion Air Indonesia 3.3% 7

easyJet United Kingdom 3.3% 18

Frontier Airlines United States 3.0% 4

Aerolineas Argentinas Argentina 2.9% 5

American Airlines United States 2.7% 7

AirBridgeCargo (2)

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RESULTS OF OPERATIONS

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

Three Months Ended August 31,

Comparison of the three months ended November 30, 2021 to the three months ended November 30, 2020:

Three Months Ended November 30,

(Dollars in thousands)

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Total lease revenue 183,455 163,791

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

Gain on sale of flight equipment 7,420 12,951

Other revenue 605 4,169

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Selling, general and administrative 17,141 14,403

Provision for credit losses 958 742

Impairment of flight equipment 69,111 9,867

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Merger expenses — (450)

Other 57,609 (173)

Total other income (expense) 63 (493)

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Net income (loss) $ (62,407) $ 2,712

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.

Total revenues increased by $10.6 million for the three months ended November 30, 2021 as compared to the three months ended November 30, 2020.

Lease rental revenue increased by $16.6 million as a result of:

• a $20.8 million increase related to certain customers which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

The three months ended November 30, 2020 included a higher number of customers for which lease rental revenue was recognized using a cash basis of accounting;

• a $9.3 million increase in revenue related to fourteen aircraft purchased since September 1, 2020.

These increases were partially offset by decreases in revenue of $7.3 million due to the sale of fourteen aircraft since September 1, 2020 and $6.2 million related to lease extensions, amendments, transitions and other changes.

Direct financing and sales-type lease revenue decreased $2.1 million for the three months ended November 30, 2021 as compared to the three months ended November 30, 2020, primarily attributable to the reclassification of six aircraft to operating leases and the early lease termination of one aircraft.

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

Three Months Ended August 31,

Three Months Ended November 30,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (8,867) $ (5,384)

The amortization of lease premiums increased $2.4 million primarily due to the write-off of unamortized lease premiums resulting from early lease terminations.

The amortization of lease incentives increased $1.1 million primarily due to the transition of aircraft to new lessees.

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.

For the three months ended November 30, 2021, we recorded $33.5 million of maintenance revenue, comprised primarily of $28.9 million related to the early lease terminations of four narrow-body and one wide-body aircraft and $4.2 million related to the scheduled lease expirations of four narrow-body aircraft.

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.

Gain on sale of flight equipment decreased $5.5 million to $7.4 million for the three months ended November 30, 2021 as compared to $13.0 million for the three months ended November 30, 2020.

We sold three aircraft in each of the three month periods ended November 30, 2021 and 2020.

Other revenue decreased $3.6 million to $0.6 million for the three months ended November 30, 2021 as compared to $4.2 million for the three months ended November 30, 2020.

The three months ended November 30, 2020 included $4.0 million of security deposits recognized into revenue primarily related to the early lease terminations of two narrow-body aircraft.

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.

Total operating expenses increased by $54.9 million for the three months ended November 30, 2021 as compared to the three months ended November 30, 2020.

Depreciation expense decreased by $2.3 million primarily attributable to a decrease of $6.2 million resulting from fourteen aircraft sold since September 1, 2020 and lower depreciation on aircraft subject to impairment charges.

This was partially offset by higher depreciation of $4.1 million related to fourteen aircraft acquired since September 1, 2020.

Interest, net consisted of the following:

Three Months Ended August 31,

Three Months Ended November 30,

(Dollars in thousands)

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Interest, net $ 50,515 $ 59,945

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.

Interest, net decreased $9.4 million due to a lower weighted average debt outstanding and a lower average cost of borrowing.

Selling, general and administrative expenses for the three months ended November 30, 2021 increased $2.7 million as compared to the three months ended November 30, 2020 primarily due to higher personnel and travel costs.

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.

During the three months ended November 30, 2021, the Company recorded transactional impairment charges totaling $69.1 million related to two narrow-body and one wide-body aircraft on lease to Garuda Indonesia, resulting from the lessee’s default on its lease obligations.

The Company recognized $24.3 million of maintenance revenue for these three aircraft.

During the three months ended November 30, 2020, the Company recorded transactional impairment charges totaling $9.9 million, primarily related to the scheduled lease expirations of two narrow-body aircraft.

The Company recognized $15.2 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.

Maintenance and other costs were $8.7 million for the three months ended November 30, 2021, an increase of $4.5 million as compared to the three months ended November 30, 2020.

The increase is primarily attributable to aircraft that have transitioned or will transition to new lessees as a result of scheduled lease expirations or related to aircraft that returned due to lease terminations.

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.

Our income tax provision for the three months ended November 30, 2021 and 2020 was $23.5 million and $2.3 million, respectively.

The increase in our income tax provision of $21.2 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 November 30, 2021 included certain impairment charges which were recorded in a low tax jurisdiction.

Further, the three months ended November 30, 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,

Comparison of the nine months ended November 30, 2021 to the nine months ended November 30, 2020:

Nine Months Ended November 30,

(Dollars in thousands)

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Selling, general and administrative 48,714 70,897

Provision for credit losses 970 5,255

Impairment of flight equipment 110,926 299,551

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Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments (40,690) (224,580)

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

Income tax provision 22,877 14,738

Earnings of unconsolidated equity method investments, net of tax 1,210 1,978

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.

Net loss $ (62,357) $ (237,340)

Total revenues decreased $119.8 million for the nine months ended November 30, 2021 as compared to the nine months ended November 30, 2020.

Lease rental revenue decreased by $47.8 million as a result of:

• a $27.9 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 $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.

• a $21.6 million decrease related to the sale of fifteen aircraft since March 1, 2020;

• a $15.0 million decrease due to lease extensions, amendments, transitions and other changes.

These decreases were partially offset by a $16.7 million increase in revenue related to seventeen aircraft purchased since March 1, 2020.

Direct financing and sales-type lease revenue decreased $6.5 million for the nine months ended November 30, 2021 as compared to the nine months ended November 30, 2020, primarily attributable to the early lease terminations of eight aircraft and the reclassification of seven aircraft to operating leases.

Amortization of lease premiums, discounts and lease incentives :

Six Months Ended August 31,

Nine Months Ended November 30,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (20,026) $ (17,360)

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.

The amortization of lease incentives increased $2.1 million primarily due to the transition of aircraft to new lessees.

Maintenance revenue .

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.

For the nine months ended November 30, 2021, we recorded $81.2 million of maintenance revenue, comprised primarily of $53.7 million related to the early lease terminations of six narrow-body and one wide-body aircraft and $20.5 million related to the scheduled lease expirations of six narrow-body aircraft.

In addition, we recorded $5.8 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 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.

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 and $54.5 million related to the scheduled lease expirations of nine narrow-body and one wide-body aircraft.

Gain on sale of flight equipment decreased $6.2 million to $17.9 million for the nine months ended November 30, 2021 as compared to $24.2 million for the nine months ended November 30, 2020.

During the nine months ended November 30, 2021, we sold seven aircraft as compared to the sale of six aircraft during the nine months ended November 30, 2020.

Gain on sale for the nine months ended November 30, 2020 includes the receipt of insurance proceeds for one aircraft which was disposed.

Other revenue decreased $16.3 million to $1.6 million for the nine months ended November 30, 2021 as compared to $18.0 million for the nine months ended November 30, 2020.

The nine months ended November 30, 2020 included $17.5 million of lease termination fees and security deposits recognized into revenue related to early lease terminations.

Operating expenses

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.

Total operating expenses decreased $227.4 million for the nine months ended November 30, 2021 as compared to the nine months ended November 30, 2020.

Depreciation expense decreased $12.5 million primarily attributable to $19.5 million resulting from sixteen aircraft sold since March 1, 2020 and lower depreciation related to aircraft subject to aircraft impairments.

This was partially offset by an increase of $8.6 million related to seventeen aircraft acquired since March 1, 2020.

Interest, net consisted of the following:

Six Months Ended August 31,

Nine Months Ended November 30,

(Dollars in thousands)

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Interest, net $ 163,965 $ 173,996

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 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.

Interest, net decreased $10.0 million due to a lower weighted average debt outstanding and a lower average cost of borrowing.

Selling, general and administrative expenses decreased $22.2 million, primarily attributable to a decrease in share-based compensation expense of $28.0 million as a result of the completion of the Merger, partially offset by an increase in personnel costs.

Provision for credit losses decreased $4.3 million for the nine months ended November 30, 2021 as compared to the nine months ended November 30, 2020.

The nine months ended November 30, 2020 included a higher provision for credit losses resulting from changes in estimates of lessee default probabilities and loss given default percentages for certain customers.

Impairment of 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.

During the nine months ended November 30, 2021, the Company recorded impairment charges totaling $110.9 million, of which $107.7 million were transactional impairments, primarily related to six narrow-body and one wide-body aircraft.

The impairment charges resulted from early lease terminations, scheduled lease expirations and a lessee default.

The Company recognized $61.4 million of maintenance revenue for these seven 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 primarily related to thirteen narrow-body and five wide-body aircraft.

The Company recognized $107.4 million of maintenance and security deposits into revenue for these eighteen 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.

Maintenance and other costs were $24.3 million for the nine months ended November 30, 2021, an increase of $10.2 million as compared to the nine months ended November 30, 2020.

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).

Total other income (expense) increased $76.3 million for the nine months ended November 30, 2021 as compared to the nine months ended November 30, 2020.

During the nine months ended November 30, 2021, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to the LATAM Bankruptcy into Other income (expense).

This was partially offset by a $14.2 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.

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.

The nine months ended November 30, 2020 included $32.5 million of legal and banking costs related to the Merger.

Income tax provision

Our income tax provision for the nine months ended November 30, 2021 and 2020 was $22.9 million and $14.7 million, respectively.

The increase in our income tax provision of $8.1 million was primarily attributable to changes in the mix of pre-tax book income/(loss) in Bermuda, Ireland and the United States.

The nine months ended November 30,

2021 included income from the sale of unsecured claims related to the LATAM Bankruptcy and certain impairment charges, which were recorded in a low tax jurisdiction.

Further, the nine months ended November 30, 2020 included discrete items related to stock compensation and the impact of the CARES Act.

Aircraft Valuation

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.

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

No impairments were recorded as a result of annual recoverability assessment – see Note 2 for further detail regarding transactional impairment charges recorded during the three and nine months ended November 30, 2021.

Although we have completed our annual recoverability assessment, we will 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.

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

We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources.

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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 our recoverability assessments are appropriate, actual results could differ from those estimates.

While we believe 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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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 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.

During the nine months ended November 30, 2021, we met our liquidity and capital resource needs with $271.4 million of cash flows from operations, $127.6 million of cash from the sale of aircraft and other flight equipment, and $393.3 million in net proceeds from our preference share issuance.

As of November 30, 2021, the weighted-average maturity of our secured and unsecured debt financings was 3.3 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 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.

As of January 7, 2022, we have agreed to defer approximately $87.2 million of lease payments with nineteen 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 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.

As of November 30, 2021, we hold $72.6 million in security deposits, $499.0 million in maintenance payments and $143.1 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 January 1, 2022, total liquidity of $2.1 billion includes $1.4 billion of undrawn credit facilities, $0.2 billion of unrestricted cash, $0.1 billion of contracted asset sales and $0.4 billion of projected operating cash flows through December 31, 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.

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.

Six Months Ended August 31,

Nine Months Ended November 30,

(Dollars in thousands)

Net cash flow provided by operating activities $ 271,435 $ 124,380

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

Net cash flow used in investing activities (417,582) (25,352)

Net cash flow (used in) provided by financing activities (155,422) 151,497

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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.

As a result, 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 nine months ended November 30, 2021 includes the repayment of certain lease deferrals granted during fiscal year 2020 at the onset 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.

Cash flow provided by operating activities was $271.4 million and $124.4 million for the nine months ended November 30, 2021 and 2020, respectively.

The increase of $147.1 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 $77.5 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 nine months ended November 30, 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.

• a $48.5 million increase as the nine months ended November 30, 2020 included advance lease rentals recognized into revenue primarily due to lease terminations;

• a $32.5 million increase in cash as the nine months ended November 30, 2020 included banking and legal costs resulting from the Merger.

These inflows were offset by a $27.9 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 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.

Cash flow used in investing activities was $417.6 million and $25.4 million for the nine months ended November 30, 2021 and 2020, respectively.

The net increase of $392.2 million was primarily attributable to a $399.5 million increase in the acquisition and improvement of flight equipment.

These outflows were partially offset by a $14.0 million increase in proceeds from the sale of flight equipment.

Financing Activities:

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.

Cash flow used in financing activities was $155.4 million for the nine months ended November 30, 2021 as compared to cash flow provided by financing activities of $151.5 million for the nine months ended November 30, 2020.

The net decrease of $306.9 million was primarily attributable to a $733.6 million decrease in proceeds from secured and unsecured debt financings, net of repayments.

These outflows were partially offset by a $393.3 million increase in net proceeds from the issuance of preference shares, a $27.0 million decrease in maintenance and security deposits returned, net of deposits received, and an $18.4 million decrease in dividends paid on common shares as a result of the Merger.

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 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.

Total contractual obligations decreased to $6.23 billion at November 30, 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

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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 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.

For the nine months ended November 30, 2021 and 2020, we incurred a total of $27.5 million and $15.1 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.

As of November 30, 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.

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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 August 31, 2021, the net book value of its nine aircraft was $305.3 million.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of November 30, 2021, the net book value of its nine aircraft was $301.9 million.

Foreign Currency Risk and Foreign Operations

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

At November 30, 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 six months ended August 31, 2021, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

For the nine months ended November 30, 2021, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

dollar aggregated approximately $13.0 million in U.S.

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

For the nine months ended November 30, 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 six months ended August 31, 2021 and 2020:

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

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and nine months ended November 30, 2021 and 2020:

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

2021 2020 2021 2020

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Interest, net 50,515 59,945 163,965 173,996

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

Income tax provision 23,504 2,269 22,877 14,738

EBITDA 105,005 157,155 394,819 231,560

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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

GAAP measures as compared to U.S.

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

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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