What changed in this filing

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Item 1A. Risk Factors

2023-04-25 compared with 2022-04-28 · 123 added, 147 removed, 343 unchanged (44% of the section changed)

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• changing political conditions, including risk of protectionism, travel restrictions, or trade barriers;

• geopolitical events, including war, terrorism, epidemic diseases (including the COVID-19 pandemic) and natural disasters;

• geopolitical events, including war, terrorism, epidemic or pandemic diseases and natural disasters;

• impact of climate change and emissions on demand for air travel;

• cyber risk, including information hacking, viruses and malware;

• cyber risk, including information hacking, viruses, ransomware and malware;

• governmental regulation of, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations.

These factors, and others, may lead to defaults by our customers, or may delay or prevent aircraft deliveries or transitions, result in payment or other lease term restructurings, may increase our costs from repossessions and reduce our revenues due to downtime or lower re-lease rates.

The Russian invasion of Ukraine and resulting sanctions by various countries, including the United States, the European Union, and the United Kingdom, has significantly impacted our financial condition, results of operations and cash flows and will continue to have an adverse impact on our business.

On February 24, 2022, the Russian Federation invaded Ukraine.

This has resulted in the closing of airspace in several countries as well as the placement of sanctions on a variety of Russian entities and certain activities involving Russia or Russian entities, such as the leasing of aircraft.

We have and will continue to fully comply with all applicable sanctions.

As of February 24, 2022, we had twelve aircraft on lease with six Russian airlines and one aircraft with a Ukrainian airline.

We have since terminated the leasing activities for all our Russian aircraft and have sought to repossess the aircraft and remove them from Russia.

We have successfully repossessed two of the twelve Russian aircraft.

Nine aircraft remain in Russia and one aircraft was undergoing maintenance outside of Russia and is not operational.

Our aircraft with a Ukrainian airline is in temporary storage outside of Ukraine.

It is unclear whether we will be able to recover the remaining aircraft from our former Russian airline customers or what the condition of the aircraft will be at the time of repossession if we do so or whether we will be able to recover the related technical records and documentation.

Failure to repossess any of our aircraft could adversely affect our business and financial results.

Many of these Russian airlines have continued to fly our aircraft notwithstanding the leasing terminations and our repeated demands for the return of our assets.

Our aircraft that remain in Russia may suffer damage or deterioration due to inadequate maintenance and lack of spare parts.

During the fourth quarter of 2021, we recorded net non-cash impairment charges of $251.9 million related to our Russian and Ukrainian aircraft – see Note 3 in the Notes to the Consolidated Financial Statements.

These thirteen aircraft comprised 6% of our Net Book Value before impairment and 1% of our Net Book Value after impairment.

Excluding lease rentals received in advance recognized into revenue, they represented 7% of our lease rental and direct financing and sales-type lease revenue for the year ended February 28, 2022.

Basic lease rentals were approximately $3.5 million for the month of February 2022.

The termination of our Russian leases will result in reduced revenues and operating cash flows.

We had letters of credit of $49.5 million as of February 28, 2022 related to our aircraft leased to Russian airlines.

We have presented requests for payment to the various financial institutions and have received about half of the proceeds.

We are pursuing collection on remaining letters of credit, but the timing and amount of any further recovery are uncertain.

We have insurance, through the airlines’ insurance and our own policies, and have filed claims against the relevant policies seeking an indemnity of approximately $350 million.

The ten aircraft that are not in our possession had a pre-impairment book value of $314.1 million.

Our claims are subject to the terms of the applicable policies, and given the unprecedented scenario and the magnitude of potential claims, insurers and reinsurers may raise various defenses.

Accordingly, at this stage we can give no assurance as to when or what amounts we may ultimately collect.

Insurance recoveries are generally recognized when they are realized or realizable, which typically occurs at the time cash proceeds are received or a claim agreement is executed, and also considers the counterparty’s ability to pay the claim amount.

It is not possible to predict the broader or longer-term consequences of the Russian invasion of Ukraine, which could include new or additional sanctions (including counter responses by the Russian government or other jurisdictions), embargoes, further escalation or regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, availability and cost of insurance, security conditions, fuel prices, currency exchange rates and financial markets.

Such geopolitical instability and uncertainty could have a negative impact on our ability to lease aircraft, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could materially and adversely affect our business.

The effects of terrorist attacks and geopolitical conditions might adversely impact the financial condition of the airlines and our lessees might not be able to meet their lease payment obligations.

War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase the operating costs of our customers.

They may lead to:

(i) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security measures;

(ii) higher price of jet fuel;

(iii) higher financing costs and difficulty in raising funds on favorable terms, or at all;

(iv) higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available;

(v) higher costs due to the increased security measures;

and (vi) special charges, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.

War, armed hostilities, terrorist attacks, large protests or government instability, or the fear of such events, could negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions.

Adverse currency movements could negatively impact the profitability of our lessees.

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High fuel prices may also have an impact on consumer spending and adversely impact demand for air transportation.

Severe weather conditions, natural disasters or their perceived effects may negatively impact the airline industry.

Demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to their lease payment obligations to us.

Lessee defaults could materially adversely affect our business, financial condition and results of operations.

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While we have the right to repossess the aircraft and to exercise other remedies upon a lessee default, repossession of an aircraft could lead to significant costs for us.

Those costs include legal and other expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings, and costs to obtain possession and/or

deregistration of the aircraft and flight and export permissions.

Those costs include legal and other expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings, and costs to obtain possession and/or deregistration of the aircraft and flight and export permissions.

Delays resulting from these proceedings would increase the period of time during which the aircraft is not generating revenue.

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A default and exercise of remedies involving a lessee where we have a significant exposure or concentration risk could have a materially adverse impact on our future revenue and cash flows.

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and in significant reductions in our cash flow.

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and significant reductions in our cash flow.

When a lessee is late in making payments or fails to make payments in full, we may elect to or be required to restructure the lease.

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• operating costs, including fuel costs, and general economic conditions affecting our lessees’ operations;

• interest and foreign exchange rates, and the availability of credit;

• foreign exchange rates;

• interest rates and the availability of capital to finance certain aircraft types;

• airline restructurings and bankruptcies;

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• regulatory and legal requirements that must be satisfied before the aircraft can be purchased, sold or re-leased;

• compatibility of our aircraft configurations or specifications with those desired by operators.

• compatibility of our aircraft configurations or specifications with those desired by operators and financiers.

Any decrease in the values of and lease rates for commercial aircraft which may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results.

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There are inherent climate-related risks wherever our business is conducted.

Changes in market dynamics, stakeholder expectations, local, national and international climate change policies, all have the potential to disrupt our business and operations.

Various countries, including the United States and the European Union, have announced sustainability initiatives that, among other things, aim to reduce carbon emissions, explore sustainable aviation fuels and establish sustainability measures and targets.

Changes in market dynamics, stakeholder and financier expectations, local, national and international climate change policies, all have the potential to disrupt our business and operations.

Various countries, including the United States and countries in the European Union, have announced sustainability initiatives that, among other things, aim to reduce carbon emissions, explore sustainable aviation fuels and establish sustainability measures and targets.

Climate and environmental objectives may impact the types of aircraft we target for investment and the demand for certain aircraft and engine types, and could result in a significant increase in our costs and expenses and adversely affect future revenue, cash flows and financial performance.

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This may cause lessees to default on their lease payment obligations and may limit the market for certain aircraft in our portfolio.

and other jurisdictions have imposed limits on aircraft engine emissions, such as NOx, CO and CO 2 , consistent with current ICAO standards.

In 2015, over 190 countries, including the United States, reached an agreement to reduce global GHG emissions at the United Nations Framework Convention on Climate.

Many governments have imposed limits on aircraft engine emissions, such as NOx, CO and CO 2 , consistent with current ICAO standards.

In 2015, over 190 countries, including the United States, reached an agreement to reduce global GHG emissions at the United Nations Framework Convention on Climate Change.

The agreement does not expressly reference aviation, but if the agreement is implemented in the United States and other countries there could be an adverse effect on the aviation industry.

Recent actions taken by various organizations continue to prioritize the UNFCCC’s overall initiatives.

In October 2021, IATA announced its Fly Net Zero commitment to achieve net zero carbon by 2050.

This commitment was echoed by the U.S.

Aviation Climate Action Plan, released November 2021.

In February 2022, a collective of airlines, airports, and aviation manufacturers operating in the E.U., U.K., and EFTA unveiled the flagship sustainability measure, Destination 2050 .

Taxonomy is a green classification system that translates the E.U.’s climate and environmental objectives into criteria for specific economic activities for investment purposes.

In addition, the E.U.

Taxonomy can be used by organizations to plan their climate and environmental transition and raise finance for this transition.

While the E.U.

Taxonomy is not a mandatory list of economic activities for investors to invest in, it is expected to act as an enabler of change and encourage a transition towards the E.U.’s climate and environmental objectives.

European countries have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity.

has included the aviation sector in its emissions trading scheme (“ETS”) but its application to flights within the European Economic Area (“EEA”) deferred any further application until 2024, pending a review of the results of a new initiative introduced by the promulgated by ICAO.

On December 6, 2022, a provisional agreement on the European Commission’s “Fit for 55” proposal was reached between the European Parliament and the European Council that will modify the ETS system by phasing out ETS allowances for the aviation sector by 2026.

It remains to be seen how this agreement will be implemented and what effect, if any, this will have on our business.

In October 2016, ICAO adopted a global market-based measure to control CO 2 emissions from international aviation.

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Over time, it is possible that governments will adopt additional regulatory requirements and/or market-based policies to reduce emissions and noise levels from aircraft.

Such initiatives may be based on concerns regarding climate change, energy security, public health, local impacts, or other factors, and may impact the global market for certain aircraft and cause behavioral shifts that result in decreased demand for air travel.

These concerns could result in limitations on the operation of our fleet, particularly aircraft equipped with older technology engines.

Such initiatives may be based on concerns regarding climate change, energy security, public health, local impacts, or other factors, and may impact the global market for certain

aircraft and cause behavioral shifts that result in decreased demand for air travel.

These concerns could result in limitations on our customers’ operation of our fleet and our ability to lease or re-lease certain older mid-life aircraft, particularly aircraft equipped with older technology engines.

Compliance with current or future regulations could cause our lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel and adverse impacts on the financial condition of our lessees.

Such compliance may also affect our lessees’ ability to make rental and other lease payments and limit the market for aircraft in our portfolio.

Public perception of the company’s commitment to positive ESG initiatives could expose us to additional risk.

Companies are facing increasing and frequently evolving scrutiny globally from customers, regulators, financiers, employees and other stakeholders related to their ESG practices and disclosure.

There has been an increased expectation for the global aviation industry to balance commercial interests with conscientious ESG performance focused on accountability to stakeholders.

In recognition of this trend, organizations are sometimes reviewed by rating agencies using varying sustainability evaluation criteria.

In some cases, these reviews result in ESG-specific ratings.

Institutions who invest in our unsecured notes or with whom we have secured lending facilities may also have an elevated focus on the ESG perception of those with whom they transact.

Our ability to obtain financing at strategic rates could be impacted by these perceptions and ratings or by any developing key performance indicators which the Company and financiers may develop over time.

The older age of some of our aircraft may expose us to higher maintenance related expenses.

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Re-leasing larger wide-body aircraft may result in higher reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.

The concentration of aircraft types in our aircraft portfolio could lead to adverse effects on our business should any difficulties specific to a particular type of aircraft occur.

Our portfolio is concentrated in certain aircraft types.

Should any aircraft types or any aircraft manufacturers encounter technical, financial or other difficulties, it would cause a decrease in value of these aircraft, an inability to lease them on favorable terms or at all, or a potential grounding of these aircraft, which may adversely impact our financial results, to the extent the affected type comprises a significant percentage of our portfolio.

The concentration of aircraft or engine types in our portfolio could lead to adverse effects on our business should any difficulties specific to a particular type of aircraft or engine occur.

Our portfolio is concentrated in certain aircraft and engine types.

The supply of commercial aircraft is dominated by Airbus and Boeing and there are a limited number of engine manufacturers.

Should any aircraft or engine types or any manufacturers encounter disruptions, including supply chain issues, manufacturing and quality control issues, financial instability or other difficulties, it would cause a decrease in the value of these assets, an inability to lease them on favorable terms or at all, or a potential grounding of these aircraft or engines, which may adversely impact our financial results, to the extent the affected type comprises a significant percentage of our portfolio.

We operate in a highly competitive market for investment opportunities and for the leasing and sale of aircraft .

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Liability may be placed on an aircraft lessor in certain jurisdictions even under circumstances in which the lessor is not directly controlling the operation of the aircraft.

Lessees are required under our leases to indemnify us for, and insure against, liabilities arising out of the use and operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we

may be deemed liable.

Lessees are required to maintain public liability, property damage and hull all risk and hull war risk insurance on the aircraft at agreed upon levels.

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At the same time, they significantly increased the premiums for such third-party war risk and terrorism liability insurance and coverage in general.

Aviation insurers may take similar actions in response to the potential losses arising from aircraft not being returned from Russia as a result of sanctions.

As a result, the amount of such third-party war risk and terrorism liability insurance that is commercially available at any time may be below the amount stipulated in our leases.

Our lessees’ insurance, including any available governmental supplemental coverage, may not be sufficient to cover all types of claims that may be asserted against us.

The Russian invasion of Ukraine has also led insurers to reassess their coverage and significantly increase premiums.

Our lessees’ insurance (including any available governmental supplemental coverage) and our contingent and possessed insurance may not cover, or be sufficient to cover, all types of claims that may be asserted against us and recovery may also be subject to aggregate limits.

Any inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations will reduce the proceeds that would be received by us upon an event of loss under the respective leases or upon a claim under the relevant liability insurance.

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Risks Related to Our Operations

The COVID-19 pandemic has significantly impacted our results of operations and may continue to have an adverse impact on our business.

The COVID-19 pandemic and related mitigation efforts have had an unprecedented negative impact on the aviation sector, resulting in a dramatic slowdown in air traffic.

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

While there have been improvements in many markets, particularly in terms of domestic travel, according to IATA, as of February 2022, air travel was still down to approximately 55% compared to normal levels.

A full recovery to pre-pandemic levels is not expected for several years and will depend on the effectiveness of vaccinations efforts and the continued easing of travel restrictions, among other things.

While the extent and duration of the impact of the COVID-19 pandemic remain unknown, we continue to believe long-term demand for air travel will return to historical trends over time.

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, and request concessions from lessors, and in certain cases, seek judicial protection.

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.

While we continued to receive requests from our customers for lease concessions, such as deferrals of lease payments or broader lease restructurings, the number of requests for such concessions during the year ended February 28, 2022 has declined compared to 2021.

As of February 28, 2022, we had deferred rent receivables of $55,478 related to nine customers that were included in other assets.

Approximately 93% of these deferrals have been agreed to as part of broader lease restructurings, which generally include term extensions, better security packages, or other valuable considerations in exchange for short-term economic concessions.

The outstanding deferred rent receivables are scheduled to be repaid, on average, within the next seven years.

As of April 25, 2022, four of our customers are subject to judicial insolvency proceedings or similar protection.

These customers lease eighteen aircraft, which comprise 12% of Net Book Value and 9% of our lease rental revenue as of and for the year ended February 28, 2022.

One of these customers is LATAM, our second largest customer, which represents 7% of our Net Book Value and 8% of our lease rental revenue as of and for the year ended February 28, 2022.

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

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

result of these proceedings, the recognition of lease rental revenue for certain customers may be done on a cash basis of accounting rather than the accrual method depending on the customers lease security arrangements.

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

While we cannot currently reasonably estimate the extent to which the COVID-19 pandemic will impact our business, we expect our business, results of operations and financial condition will continue to be negatively impacted in the near term.

Events outside of our control, including the threat or realization of epidemic or pandemic diseases, terrorist attacks, war or armed hostilities between countries or non-state actors, and natural disasters may adversely affect the demand for air travel, the financial condition of our lessees and of the aviation industry more broadly, and may ultimately impact our business.

Air travel has historically been disrupted, sometimes severely, by the occurrence of unexpected events outside of our and our lessees’ control.

The occurrence of any such event, or multiple such events, could cause our lessees to experience decreased passenger demand, to incur higher costs and to generate lower revenues, which could adversely affect their ability to make lease payments to us.

This in turn may lead to lease restructurings and repossessions and could result in reductions to our lease revenues and cash flows, and cause us to record impairment charges to the extent we cannot recover our investment in our aircraft assets.

Passenger demand for air travel has been recently impacted by the COVID-19 pandemic and, in the past, by other epidemic diseases such as severe acute respiratory syndrome, bird flu, swine flu, the Zika virus, and Ebola.

According to IATA, air travel approximated 85% of pre-pandemic levels as of February 28, 2023, compared to 55% as of February 28, 2022.

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 lease concessions to certain customers in the form of deferrals or broader lease restructurings.

We have also experienced and may still experience other impacts from the COVID-19 pandemic, including weaker demand for certain aircraft types and defaults, bankruptcies or reorganizations of our lessees.

While we cannot currently reasonably estimate the extent to which these events will continue to impact our business, we expect our business, financial condition and results of operations will continue to be negatively impacted in the near term.

Future epidemic diseases and other diseases, or the fear of such events could provoke responses that negatively affect passenger air travel.

The airline industry has also been disrupted by terrorist attacks, war or armed hostilities between countries or non-state actors, including the fear of such events.

These events may lead to decreased passenger demand and revenue due to safety concerns, the inconvenience of additional security measures, the higher price of jet fuel, increased financing costs, and difficulty in raising funds on favorable terms, or at all.

In addition, these events may lead to higher costs of aircraft

insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and affect the extent to which such insurance has been or will continue to be available.

they may also lead to higher insurance costs due to the increased security measures and potential special charges, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.

More recently, the Russian invasion of Ukraine and resulting sanctions by various countries, including the United States, countries in the E.U., and the U.K., have significantly affected our business, financial condition, and results of operations.

The Russia invasion of Ukraine has and may continue to have adverse effects on macroeconomic conditions, including fuel prices, the availability and cost of insurance, security conditions, currency exchange rates and financial markets.

Demand for air travel or the inability of airlines to operate to or from certain regions due to the occurrence of natural disasters or other natural phenomena, such as severe weather conditions, floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to satisfy their lease payment obligations to us.

Volatile financial market conditions may adversely impact our liquidity, our access to capital and our cost of capital and may adversely impact the airline industry and the financial condition of our lessees.

The availability and pricing of capital in the commercial bank market and in the unsecured bond market remain susceptible to global events, including political changes, rising interest rates, currency fluctuations, the rate of international economic growth and implications from changes in oil prices.

If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition, results of operations could be materially adversely affected.

We may, from time to time, seek to opportunistically refinance, amend, re-price and/or otherwise replace any of our debt, obtain additional debt financing or enter into other financing arrangements, reduce or extend our debt, lower our interest payments or the cost of capital available to us under certain types of financing arrangements, or otherwise seek to improve our financial position or the terms of our debt or other financing agreements.

These actions may include open market debt repurchases, negotiated repurchases, or other repayments, redemptions or retirements of our debt or other financing arrangements.

The amount of debt that may be borrowed or issued, refinanced, and/or repurchased, repaid, redeemed or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with our debt covenants and other considerations.

The availability and pricing of debt financing remains susceptible to global events, including political changes, rising interest rates, currency fluctuations, and the rate of international economic growth.

If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition and results of operations could be materially adversely affected.

We bear the risk of re-leasing and selling our aircraft.

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If market conditions worsen, or in the event of a customer default, we may be required to record further write-downs.

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

In addition, a recoverability assessment is performed whenever events or changes in circumstances indicate that the carrying amount or net book value of an asset may not recoverable.

Possible indicators include a significant lease restructuring or early lease termination, a significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type that is no longer in production or significant airworthiness directive that is issued.

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

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

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

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

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

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

A recoverability assessment is also performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable.

Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, a significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type that is no longer in production or significant airworthiness directive that is issued.

When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceeds its net book value.

We develop the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third-party industry sources.

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

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

We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have performed 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 focused and will continue to focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers and aircraft variants that are more susceptible to the impact of these above crises and value deterioration.

Departure of key officers could harm our business and financial results.

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Our Board of Directors is involved in succession planning, including review of short- and long-term succession plans for senior positions.

future success depends, to a significant extent, upon the continued service of our senior management personnel, including the Chief Executive Officer, and if we lose one or more of these individuals, our business could be adversely affected.

Our future success depends, to a significant extent, upon the continued service of our senior management personnel, including the Chief Executive Officer, and if we lose one or more of these individuals, our business could be adversely affected.

We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to compete with our competitors.

As of February 28, 2023, our total indebtedness was $4.6 billion, representing 71.1% of our total capitalization.

Aircastle Limited is either the principal obligor or has guaranteed most of this indebtedness, and we are responsible on a full recourse basis for timely payment when due and compliance with covenants under the related debt documentation.

Aircastle Limited is either the principal obligor or has guaranteed most of this indebtedness, and we are responsible for timely payment when due and compliance with covenants under the related debt documentation.

We may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness, and our substantial amount of indebtedness may increase our vulnerability to adverse economic and industry conditions, reduce our flexibility in planning for or reaction to changes in the business environment or in our business or industry, and adversely affect our cash flow and our ability to operate our business and compete with our competitors.

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A credit rating downgrade or being put on negative watch may make it more difficult or costly for us to raise debt financing in the unsecured bond market, or may result in higher pricing or less favorable terms under other financings.

Credit rating downgrades or being put on negative watch, may make it more difficult and/or more costly to satisfy our funding requirements.

Credit rating downgrades or being put on negative watch, may

make it more difficult and/or more costly to satisfy our funding requirements.

Any future tightening or regulation of financial institutions could impact our ability to raise funds in the commercial bank loan market in the future.

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Our compliance with these ratios, tests and covenants depends upon, among other things, the timely receipt of lease payments from our lessees and upon our overall financial performance.

• Senior Notes.

Our senior note indentures impose operating and financial restrictions on our activities.

These restrictions limit our ability to, or in certain cases prohibit us from, incurring or guaranteeing additional indebtedness, refinancing our existing indebtedness, making other restricted payments, making certain investments or entering into joint ventures and a cross-default to certain other financings of the Company.

• Bank Financings.

Our secured bank financings contain, among other customary provisions, a $500 million minimum net worth covenant, a cross-default to certain other financings of the Company, and for one portfolio financing, a minimum debt service coverage ratio of 1.15.

• Unsecured Revolving Credit Facilities and Loan.

Our unsecured revolving credit facilities/loan contain $750 million minimum net worth covenants, minimum unencumbered asset ratios, minimum interest coverage ratios and cross-defaults to certain other financings of the Company.

• ECA Financings.

Our ECA Financings contain a $500 million minimum net worth covenant and also contain, among other customary provisions, a material adverse change default and a cross-default to certain other financings of the Company.

• Senior Notes Our senior note indentures impose operating and financial restrictions on our activities.

These restrictions limit our ability to, or in certain cases prohibit us from guaranteeing additional indebtedness, incurring liens and a cross-default to certain other financings of the Company.

• Term Financings.

Our secured term financings contain, among other customary provisions, a minimum net worth covenant of $1.1 billion, a 2.0:1.0 minimum interest coverage ratio, a 2.0:1.0 minimum fixed coverage ratio, a 75% maximum loan-to-value ratio, a 2.0:1.0 EBITDA to cash interest ratio and a cross-default to certain other financings of the Company.

• Unsecured Revolving Credit Facilities.

Our unsecured revolving credit facilities/loan contain $750 million to $1.1 billion minimum net worth covenants, minimum unencumbered asset ratios, minimum fixed coverage ratios and cross-defaults to certain other financings of the Company.

The terms of our financings also restrict our ability to incur or guarantee additional indebtedness or engage in mergers, amalgamations or consolidations among our subsidiary companies or between a subsidiary company and a third party or otherwise dispose of all or substantially all of our assets.

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We are dependent upon information technology systems to manage, process, store and transmit information associated with our operations, which may include proprietary business information and personally identifiable information of our customers, suppliers and employees.

Our information technology systems are subject to disruption, damage or failure from a variety of sources, including malware, ransomware, security breaches, cyber-attacks, employee error and defects in design.

There may be an elevated risk of cyber-attacks by Russia tin response to economic sanctions imposed by the U.S., the E.U., the U.K.

Our information technology systems are subject to disruption,

damage or failure from a variety of sources, including malware, ransomware, security breaches, cyber-attacks, employee error and defects in design.

There may also be an elevated risk of cyber-attacks by Russia in response to economic sanctions imposed by the U.S., the E.U., the U.K.

and other countries resulting from the Russian invasion of Ukraine.

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The imposition of such taxes would adversely affect our business.

Corporate Alternative Minimum Tax (“AMT”) proposals may impact our effective tax rate in future periods.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (the “IRA”).

The IRA includes a provision which imposes a 15% minimum tax on adjusted financial statement income (“AFSI”) for corporations.

For a corporation that is a member of a foreign-parented multi-national group, the AMT applies where (i) the three-year average annual AFSI from all members of the foreign-parented multi-national group exceeds $1 billion, and (ii) the three-year average annual AFSI from the group’s U.S.

corporation(s) is $100 million or more.

There is currently limited guidance on the application and calculation of any AMT.

This uncertainty will be addressed through regulations promulgated by the U.S.

Treasury and guidance issued by the Internal Revenue Service.

We currently do not expect these changes to have a material impact on our financial position;

however, we will continue to evaluate the impact as further information becomes available.

If there is not sufficient trading in shares of our ultimate parent company, or if 50% of such shares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S.

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lessors (Bermuda and Ireland each do), and certain other requirements must be satisfied.

We can satisfy these requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not collectively own more than 50% of our shares.

We can satisfy these requirements in any year if, for more than half

the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not collectively own more than 50% of our shares.

Following the Merger, these stock ownership requirements are currently tested at the Marubeni and Mizuho Leasing levels such that Aircastle and its subsidiaries can continue to qualify for the Section 883 exemption if the stock of Marubeni is considered to be primarily and regularly traded on a recognized stock exchange and non-qualifying 5% or greater shareholders are not considered to collectively own more than 50% of Marubeni’s shares, as described above.

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Entities subject to the economic substance requirements are required to evidence their compliance and file an economic substance declaration with the Registrar of Companies in Bermuda on an annual basis.

Any entity that must satisfy economic substance requirements but fails to do so could face financial penalties, a restriction of its business activities, automatic reporting by the Bermuda authorities to the competent authorities in the European Union or other jurisdiction of the entity’s beneficial owners, on an entity’s non-compliance or being struck-of as a registered entity in Bermuda.

If any one of the foregoing were to occur it may adversely affect the business operations of the Company or its Bermuda subsidiaries.

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The introduction of Base Erosion and Profit Shifting by the Organization for Economic Cooperation and Development may impact our effective tax rate in future periods.

The Organization for Economic Co-operation and Development (the “OECD”) has introduced an action plan with respect to base erosion and profit shifting (“BEPS”).

The Organization for Economic Cooperation and Development (the “OECD”) has introduced an action plan with respect to base erosion and profit shifting (“BEPS”).

The plan targets among other things tax avoidance measures such as hybrid instruments, excessive interest deductions, treaty shopping, and permanent establishment avoidance.

As part of its BEPS actions, the OECD published the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (“MLI”).

Since June 2017, representatives from over 95 jurisdictions have signed up to the MLI.

The MLI seeks to incorporate agreed tax treaty-related measures combating tax avoidance into bilateral existing tax treaties without the need to negotiate new treaties.

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Further changes to tax law will be required in order to fully implement the BEPS action plans.

At this moment, it is difficult to determine what further BEPS actions the governments of lessee jurisdictions will implement.

Currently, it is difficult to determine what further BEPS actions the governments of lessee jurisdictions will implement.

Depending on the nature of the BEPS action plans adopted, it may result in an increase in our effective tax rate and cash taxes liabilities in future periods.

The introduction of the OECD Action Plan on BEPS to address the tax challenges of the digitalization of the economy and the impact it may have, if any, on our effective tax rate in future periods.

In January 2019, the OECD announced a new program of work (referred to as “BEPS 2.0”) with a view to creating an international consensus on new rules governing international taxation, particularly for businesses with valuable

intangible assets.

It is unclear what impact the OECD and the BEPS initiatives will have on our business.

On January 29, 2019, the OECD announced an initiative , to create an international consensus on new rules (referred to as “BEPS 2.0”) for the framework governing international taxation, which was supported by the publication of the Pillar One and Pillar Two Blueprint Reports (the “Blueprints”) on October 12, 2020.

The stated aim is to move beyond the arm’s length principle and the scope of current taxing rights are limited to businesses with a physical presence in a country.

The new rules, if adopted, would readjust the balance of taxing rights and multinational companies (“MNC”) profit allocation between jurisdictions where MNC assets are owned and the markets where users and consumers are based.

BEPS 2.0 proposes to address this reform through two main pillars of work that are interlinked:

• Pillar 1 - Arriving at a new basis for taxing profits of multinational enterprises (“MNEs”) with global turnover above 20 billion euros and profitability above 10% through the allocation of an amount of taxable profits to market jurisdictions in which those MNEs operate.

• Pillar 2 - Strengthening taxing rights to preserve the tax base and counteract profit shifting to jurisdictions with nil or low effective tax rates, including through the implementation of a global minimum tax rate of 15%.

On October 12, 2020, OECD published Blueprints for Pillar 1 and Pillar 2, together with accompanying documentation including an impact assessment.

On October 7, 2021, Ireland announced it was signing on to the OECD BEPS 2.0 plan.

Under this plan, Ireland will increase its corporation tax rate to achieve a 15% effective rate for multinational groups within the scope of Pillar 2.

Ireland also agreed to Pillar 1 proposals that reallocate taxing rights to market jurisdictions for in scope multinational groups.

These changes are expected to take effect in 2023.

The timing of the implementation of the Pillar 1 and Pillar 2 rules will depend on the publication of an E.U.

Directive that will ensure consistent implementation of the rules across the E.U.

On October 8, 2021, 136 countries, including Ireland and Bermuda, approved a statement, known as the OECD BEPS Inclusive Framework (the “IF”), providing a framework for BEPS 2.0, which builds upon the Blueprints.

The IF and revised Pillar Two Blueprint include a global minimum effective tax rate of 15% for groups with annual consolidated revenue in excess of €750 million, subject to certain exclusions.

The OECD published detailed rules to assist in the implementation of the Pillar 2 rules involving 137 countries on December 20, 2021, and again on March 14, 2022.

These detailed rules should allow some countries to introduce the Pillar 2 rules into domestic legislation during the course of 2023.

On December 22, 2021, the European Commission published a proposed E.U.

Directive to incorporate the Pillar 2 tax rules into E.U.

law and has also issued further publications since that date.

On December 12, 2022, the E.U.

council unanimously agreed to adopt this Directive giving E.U.

countries until December 31, 2023 to transpose the Directive into domestic legislation.

Further guidance is expected from the OECD and the E.U.

as to how certain aspects of the Pillar

Two Blueprint and the Directive will operate mechanically, and as such it is difficult to determine the degree to which these changes may result in an increase in our effective tax rate and cash tax liabilities in future periods.

On March 12, 2022, the E.U.

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Most of the measures were implemented with effect from January 2019, though certain measures may be deferred to 2024.

ATAD contemplates the introduction of a restriction on the deductibility of interest, measures in respect of certain hybrid transactions and instruments, an exit charge, a switch over rule, controlled foreign company rules as well as a general anti-avoidance rule.

ATAD contemplates the introduction of a restriction on the deductibility of interest, measures in respect of certain hybrid transactions and instruments, an exit charge, a switch overrule, controlled foreign company rules as well as a general anti-avoidance rule.

The impact of the other measures in respect of certain hybrid transactions and instruments, an exit charge, a switch over rule, controlled foreign company rules as well as a general anti-avoidance rule will depend on the exact scope of these measures.

The impact on the Company’s tax position (if any), will depend on the implementation of these measures in Ireland and other E.U.

jurisdictions where we have operations.

The Irish Finance Bill published on October 21, 2021 included draft legislation to enact the interest limitation measures prescribed by ATAD.

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Importantly for companies carrying on a leasing trade, a portion of their operating lease income and expense will be treated as equivalent to interest for the purposes of the test.

The legislation was finalized on December 21, 2021;

however, Irish Revenue guidance remains outstanding and may not be issued until later in 2022.

It is therefore difficult to fully and definitively conclude on the potential impact of the interest limitation rule on Aircastle and its Irish subsidiaries.

The impact on the Company’s tax position (if any), will depend on the implementation of these measures in Ireland and other E.U.

jurisdictions where we have operations.

Unshell Proposal may result in additional reporting and disclosure obligations for us.

On December 22, 2021, the European Commission issued a proposal for a Council Directive to issue rules to prevent the misuse of shell entities for tax purposes within the E.U.

(the “Unshell Proposal”).

While the Unshell Proposal

is expected to be adopted and published into E.U.

Member States’ national laws by June 30, 2023, and to come into effect as of January 1, 2024, there is considerable uncertainty surrounding the development of the proposal and its implementation.

The proposal could result in additional reporting and disclosure obligations for Aircastle.

The legislation was finalized on December 21, 2021 and Irish Revenue released guidance on the application of these rules on August 4, 2022, and updated guidance in February 2023.

We currently do not expect these interest limitation rules to have a material impact on our financial position.

On December 22, 2021, the European Commission issued a proposal for a Council Directive laying down rules to prevent the misuse of shell entities for tax purposes within the E.U.

ATAD 3”) and has since issued a number of draft amendments.

ATAD 3 was initially expected to be adopted and published into E.U.

member states’ national laws by June 30, 2023, and become effective as of January 1, 2024, there is considerable uncertainty surrounding the development of the proposal and its implementation.

One of the proposed amendments has been to delay the application of E.U.

ATAD 3 to January 1, 2025.

ATAD 3 could result in additional reporting and disclosure obligations.

On May 11, 2022, the European Commission issued a proposal for a Council Directive laying down rules providing for a debt-equity bias reduction allowance within the E.U.

DEBRA is intended to provide a notional interest deduction in respect of equity invested in a company, with the interest calculated based on the 10-year risk-free rate for the relevant currency, with the maximum deduction available limited to 30% of earnings before interest, tax, depreciation and amortization.

DEBRA is expected to be enacted into legislation in the coming years, but the timing and development of this legislation are uncertain.

DEBRA could result in additional reporting and disclosure obligations.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors