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Item 7. Management’s Discussion and Analysis

2023-04-25 compared with 2022-04-28 · 146 added, 172 removed, 337 unchanged (49% of the section changed)

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As of February 28, 2023, the Net Book Value of our flight equipment was $6.6 billion.

Our revenues, net loss and Adjusted EBITDA were $769.8 million, $278.2 million, and $752.3 million for the year ended February 28, 2022, and $832.3 million, $333.2 million and $774.4 million for the year ended February 28, 2021.

The weighted average age of our fleet was 9.7 years and the weighted average remaining lease term was 5.3 years.

Our revenues, net income (loss) and Adjusted EBITDA were $796.0 million, $62.8 million, and $732.3 million for the year ended February 28, 2023, and $769.8 million, $(278.2) million and $752.3 million for the year ended February 28, 2022.

Acquisitions and Sales

During the year ended February 28, 2022, we acquired eighteen aircraft for $763.3 million.

During the year ended February 28, 2023, we acquired 22 aircraft for $914.2 million.

As of February 28, 2023, we had commitments to acquire 20 aircraft for $763.7 million, with delivery between the first quarter of 2023 and the fourth quarter of 2025, which include estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.

As of April 25, 2022, we have acquired one additional aircraft and have commitments to acquire 23 aircraft for $842.3 million.

During the year ended February 28, 2022, we sold fifteen aircraft and other flight equipment for net proceeds of $210.7 million and recognized a net gain on sale of $26.0 million.

As of April 25, 2022, we have sold two additional aircraft.

The following table sets forth certain information with respect to the aircraft owned and managed on behalf of our joint ventures by us as of February 28, 2022 and 2021, and February 29, 2020:

As of April 18, 2023, we have acquired 6 additional aircraft and have commitments to acquire 14 aircraft for $491.2 million.

During the year ended February 28, 2023, we sold 25 aircraft and other flight equipment for net proceeds of $426.5 million and recognized a net gain on sale of $70.9 million.

As of April 18, 2023, we have sold 3 additional aircraft.

Update on Russian Invasion of Ukraine

At the onset of the Russian Federation’s invasion of Ukraine on February 24, 2022, we had 13 aircraft on lease with Russian or Russian-affiliated airlines and have since terminated the leasing activities for all of these aircraft.

As of February 28, 2023, 9 of our aircraft that were previously leased to Russian airlines remain in Russia.

Most of the operators of these aircraft have continued to fly the aircraft notwithstanding the sanctions imposed on Russia and leasing terminations.

While we will continue to pursue repossession, it is unlikely we will regain possession of any of these 9 aircraft.

As a result, the Company wrote off the remaining book value of these 9 aircraft, resulting in impairment

charges totaling $31.9 million during the year ended February 28, 2023.

These 9 aircraft have been removed from the Company’s owned fleet count.

The Company is vigorously pursuing insurance claims to recover its losses relating to these aircraft and has initiated legal proceedings against its contingent and possessed insurers.

The collection, timing and amounts of any insurance recoveries is uncertain.

We have also successfully recovered 4 aircraft that were previously leased to Russian or Russian-affiliated airlines as of February 28, 2023, comprised of 1 narrow-body, 1 wide-body, and 2 freighter aircraft.

During the year ended February 28, 2023, we sold the 2 freighter aircraft and 1 wide-body aircraft that we recovered for gains totaling $53.5 million.

We received $48.9 million of maintenance and general security letters of credit for our former Russian lessees during the year ended February 28, 2023, which we have recognized in maintenance and other revenue.

We collected the remaining letters of credit totaling $0.6 million subsequent to February 28, 2023.

We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital from debt and equity investors.

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

We also obtained $19.4 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market.

The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, unsecured bond offerings, secured borrowings secured by our aircraft, draws under on our revolving credit facilities and proceeds from any future aircraft sales.

We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales.

Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.

See “Liquidity and Capital Resources” below.

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)

The following table sets forth certain information with respect to the aircraft owned and managed on behalf of our joint ventures by us as of February 28, 2023 and 2022:

Owned Aircraft As of

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Number of Aircraft 9 9

(1) Calculated using Net Book Value at period end.

(1) Excludes 9 aircraft that remain in Russia with zero Net Book Value – see “Update on Russian Invasion of Ukraine” above and Note 3 in the Notes to Consolidated Financial Statements.

(2) Weighted by Net Book Value.

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quarterly information is annualized.

The calculation of portfolio yield includes our net investment in direct financing and sales-type leases in the average Net Book Value, and the interest income and cash collections from our net investment in direct financing and sales-type leases in lease rentals.

PORTFOLIO DIVERSIFICATION

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Aircraft % of Net

Book Value (1)

Book Value Number of

Aircraft % of Net

Book Value (1)

Aircraft Type

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_______________

(1) Calculated using Net Book Value at year end.

(1) Includes Airbus A320-200neo and A321-200neo, Boeing 737-MAX8, and Embraer E2 aircraft.

(3) Of the eleven off-lease aircraft at February 28, 2022, we have three wide-body aircraft that we are currently marketing for lease or sale.

(4) Of the sixteen off-lease aircraft at February 28, 2021, we have one wide-body aircraft that we are currently marketing for lease or sale

The top ten customers for aircraft we owned at February 28, 2022 are as follows:

Customer Percent of Net Book Value Country Number of

(2) Of the 14 off-lease aircraft at February 28, 2023, we have 1 wide-body and 4 narrow-body aircraft that we are currently marketing for lease or sale.

(3) All 11 off-lease aircraft at February 28, 2022, have been placed for lease or sold.

The top ten customers for our owned aircraft at February 28, 2023 are as follows:

Customer Percent of

Net Book Value Country Number of

IndiGo 8.9% India 13

7.6% Chile 13

LATAM 7.0% Chile 13

KLM 5.0% Netherlands 10

4.2% Mexico 7

4.0% Indonesia 9

American Airlines 3.7% United States 9

Air Canada 3.3% Canada 5

Iberia 3.2% Spain 14

American Airlines 3.5% United States 8

Frontier Airlines

2.9% United States 4

Aerolineas Argentinas

2.9% Argentina 5

2.9% United Kingdom 12

2.9% Mexico 5

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Total all customers 100.0% 239

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

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

We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital from debt and equity investors.

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

We also obtained $18.9 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market.

The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales.

See “Liquidity and Capital Resources” below.

Comparison of the year ended February 28, 2022 to the year ended February 28, 2021:

(1) Includes 4 aircraft on lease with 3 affiliated airlines.

COMPARATIVE RESULTS OF OPERATIONS

Results of Operations for the year ended February 28, 2023 as compared to the year ended February 28, 2022:

Year Ended February 28,

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Loss on extinguishment of debt (636) (14,156)

Merger expenses — (32,605)

Other 14,092 57,682

Total other income (expense):

Total other income:

13,456 43,526

Loss from continuing operations before income taxes (289,251) (325,258)

Income (loss) from continuing operations before income taxes 86,037 (289,251)

Income tax provision (benefit) 25,466 (7,998)

Earnings of unconsolidated equity method investment, net of tax 2,188 3,044

Net loss $ (278,209) $ (333,168)

Total revenues decreased $62.5 million for the year ended February 28, 2022 as compared to the year ended February 28, 2021.

Net income (loss) $ 62,759 $ (278,209)

Total revenues increased $26.2 million, attributable to:

Lease rental revenue decreased $8.7 million as a result of:

• a $26.7 million decrease related to the sale of eighteen aircraft since March 1, 2020;

• a $22.0 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 in the Notes to the Consolidated Financial Statements regarding our lease revenue recognition policy;

• a $67.6 million decrease due to lease terminations, of which $59.5 million related to the termination of leasing activities with Russian or Russian-affiliated airlines as a result of sanctions;

• a $21.3 million decrease related to the sale of 21 aircraft since March 1, 2021;

• a $6.9 million decrease due to lease extensions, amendments, transitions, and other changes.

These decreases were partially offset by the following:

• a $29.0 million increase in revenue related to 23 aircraft purchased since March 1, 2020;

• an $18.1 million increase related to lease rentals received in advance that were recognized into revenue for our Russian lessees resulting from sanctions requiring the termination of leasing activities in Russia – see Note 2 in the Notes to the Consolidated Financial Statements.

Direct financing and sales-type lease revenue decreased $7.5 million as a result of:

• $4.0 million related to the reclassification of seven aircraft to operating leases;

• $3.3 million related to the early lease terminations of eight aircraft and sales of six aircraft since March 1, 2020.

These decreases were partially offset by:

• a $66.2 million increase related to 40 aircraft purchased since March 1, 2021;

• a $20.9 million increase related to the timing of payments for cash basis customers and a lower number of customers for which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method – see Note 1 in the Notes to Consolidated Financial Statements regarding our lease revenue recognition policy.

Direct financing and sales-type lease revenue decreased $1.7 million, primarily related to the sale of 3 aircraft and scheduled lease expirations of 7 aircraft since March 1, 2021, partially offset by the reclassification of 2 aircraft to sales-type leases.

Amortization of lease premiums, discounts and incentives.

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Amortization of lease premiums, discounts and incentives $ (20,574) $ (20,190)

The amortization of lease incentives decreased $2.0 million for the year ended February 28, 2022 primarily attributable to a $5.7 million write-off of lease incentive liabilities for our Russian lessees resulting from sanctions requiring the termination of leasing activities in Russia – see Note 2 in the Notes to the Consolidated Financial Statements.

This was partially offset by an increase of amortization due to the transition of aircraft to new lessees.

The amortization of lease premiums decreased $3.5 million, primarily related to lower write-offs of unamortized lease premiums resulting from early lease terminations, partially offset by new lease premiums for aircraft purchased since March 1, 2021.

The amortization of lease incentives increased $3.9 million, primarily related to the transition of aircraft to new lessees.

Maintenance revenue.

For the year ended February 28, 2022, we recorded $152.0 million of maintenance revenue, partially comprised of $59.9 million related to the early lease terminations of seven narrow-body and two wide-body aircraft and $28.6 million related to the scheduled lease expirations of eight narrow-body aircraft.

In addition, we recorded $61.6 million of maintenance revenue related to nine narrow-body and one wide-body aircraft with Russian lessees, resulting from sanctions requiring the termination of leasing activities in Russia.

For the year ended February 28, 2021, we recorded $172.7 million of maintenance revenue, comprised primarily of $95.0 million related to the early lease terminations of seventeen narrow-body and one wide-body aircraft, as well as $57.3 million related to the scheduled lease expirations of ten narrow-body and one wide-body aircraft.

In addition, we recorded $16.3 million of maintenance revenue related to three wide-body aircraft for which the customers are subject to judicial insolvency proceedings or similar protection.

Gain on sale of flight equipment decreased $7.5 million to $26.0 million for the year ended February 28, 2022 as compared to $33.5 million for the year ended February 28, 2021.

During the year ended February 28, 2022, we sold fifteen aircraft as compared to the sale of twelve aircraft during the year ended February 28, 2021.

Gain on sale for the year ended February 28, 2021, included the receipt of insurance proceeds for one aircraft that was disposed.

Other revenue was $6.0 million and $19.3 million for the years ended February 28, 2022 and 2021, respectively, which primarily comprised of lease termination fees and security deposits recognized into revenue related to early lease terminations.

For the year ended February 28, 2023, we recorded $138.1 million of maintenance revenue, comprised primarily of $46.4 million related to scheduled lease expirations and $49.9 million related to the early lease terminations of 5 narrow-body, 1 wide-body, and 1 freighter aircraft.

We also received $41.8 million of maintenance security letters of credit for our former Russian lessees during the year ended February 28, 2023, which we have recognized in maintenance revenue – see Note 3 in the Notes to Consolidated Financial Statements.

For the year ended February 28, 2022, we recorded $152.0 million of maintenance revenue, partially comprised of $59.9 million related to the early lease terminations of 7 narrow-body and 2 wide-body aircraft and $28.6 million related to the scheduled lease expirations of 8 narrow-body aircraft.

In addition, we recorded $61.6 million of maintenance revenue related to 9 narrow-body and 1 wide-body aircraft with Russian lessees, resulting from sanctions requiring the termination of leasing activities in Russia.

Gain on sale of flight equipment.

During the year ended February 28, 2023, we sold 25 aircraft for gains totaling $70.9 million as compared to the sale of 15 aircraft during the year ended February 28, 2022 for gains totaling $26.0 million.

Other revenue increased $6.1 million, primarily attributable to $7.1 million of payments received on general security letters of credit for our former Russian lessees.

Operating Expenses:

Total operating expenses increased $19.5 million for the year ended February 28, 2022 as compared to the year ended February 28, 2021:

Depreciation expense decreased $10.0 million primarily attributable to $23.1 million resulting from nineteen aircraft sold since March 1, 2020 and lower depreciation related to aircraft subject to aircraft impairments.

Total operating expenses decreased $379.1 million attributable to:

Depreciation expense decreased $4.9 million primarily attributable to $41.2 million resulting from 26 aircraft sold since March 1, 2021 and lower depreciation related to aircraft subject to aircraft impairments, including aircraft that were previously leased to Russian airlines.

This was partially offset by an increase of $30.5 million related to 40 aircraft purchased since March 1, 2021.

Interest, net consisted of the following:

Year Ended February 28,

(Dollars in thousands)

Interest on borrowings and other liabilities $ 200,220 $ 221,246

Amortization of deferred financing fees and debt discount 16,267 14,791

Interest expense 216,487 236,037

Interest income (1,209) (523)

Capitalized interest (926) (176)

Interest, net $ 214,352 $ 235,338

Interest, net decreased $21.0 million due to lower weighted average debt outstanding by $383.2 million and a lower average cost of borrowing.

Selling, general and administrative expense s decreased $22.1 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 year ended February 28, 2022, as compared to the year ended February 28, 2021.

The year ended February 28, 2021 included a higher provision for credit losses resulting from changes in estimates of lessee default probabilities and loss given default percentages for certain customers.

Interest, net decreased $9.7 million, primarily due to a lower weighted average debt outstanding of $292.1 million, partially offset by a higher average cost of borrowing.

Selling, general and administrative expense s increased $10.5 million primarily due to an increase in personnel costs, as well as Russia-related legal costs and travel expenses due to increased business travel.

Impairment of aircraft.

We recorded impairment charges of $452.3 million for the year ended February 28, 2022, of which $449.0 million were transactional impairments, primarily related to sixteen narrow-body, two wide-body and two freighter aircraft.

The Company recognized $147.8 million of lease rentals received in advance, maintenance, and security deposits into revenue for these twenty aircraft during the year ended February 28, 2022.

The impairment charges, in part, resulted from early lease terminations, scheduled lease expirations and lessee defaults.

Of the total impairment charges, $341.3 million related to thirteen aircraft that were with Russian and Ukrainian lessees, resulting from the Russian invasion of Ukraine and related sanctions placed on Russia during the fourth quarter of 2021.

The Company recognized $89.4 million of lease rentals received in advance, maintenance, security deposits and other revenue for these thirteen aircraft During the year ended February 28, 2021, we recorded impairment charges of $425.6 million, which primarily related to seventeen narrow-body and eight wide-body aircraft.

The Company recognized $157.0 million of maintenance and security deposits into revenue related to these 25 aircraft during the year ended February 28, 2021.

See “Aircraft Valuation” below for a detailed discussion of impairment charges related to certain aircraft.

Maintenance and other costs were $31.2 million for the year ended February 28, 2022, an increase of $11.2 million as compared to the year ended February 28, 2021.

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

Excluding asset write-offs related to the Russian invasion of Ukraine, during the year ended February 28, 2023, the Company recorded impairment charges totaling $53.7 million primarily related to the scheduled lease expirations of 3 narrow-body aircraft and lease terminations of 2 narrow-body aircraft, as well as 1 wide-body

aircraft resulting from our annual fleet review.

The Company recognized $58.9 million of maintenance and lease rentals received in advance into revenue for these aircraft during the year ended February 28, 2023.

The Company wrote off the remaining book values of 8 narrow-body and 1 freighter aircraft in Russia which have not been returned to us.

As a result, the Company recorded impairment charges totaling $31.9 million during the year ended February 28, 2023 – see Note 3 in the Notes to Consolidated Financial Statements.

During the year ended February 28, 2023, the Company recognized $20.3 million of maintenance and other revenue for these aircraft related to payments received on maintenance and general security letters of credit.

During the year ended February 28, 2022, we recorded impairment charges of $452.3 million, of which $449.0 million were transactional impairments, primarily related to 16 narrow-body, 2 wide-body and 2 freighter aircraft.

The Company recognized $147.8 million of maintenance, security deposits and lease rentals received in advance into revenue for these 20 aircraft during the year ended February 28, 2022.

The impairment charges, in part, resulted from lease terminations, scheduled lease expirations and lessee defaults.

Of the total impairment charges, $341.3 million related to 13 aircraft that were with Russian and Ukrainian lessees, resulting from the Russian invasion of Ukraine and related sanctions placed on Russia.

The Company recognized $89.4 million of maintenance, security deposits and lease rentals received in advance into revenue for these 13 aircraft.

Maintenance and other costs were $22.2 million and $31.2 million for the years ended February 28, 2023 and 2022, respectively, which related to aircraft that have transitioned or will transition to new lessees as a result of lease terminations or scheduled lease expirations.

The Company incurred higher maintenance costs during the year ended February 28, 2022 and continues to incur higher costs compared to historical levels, resulting from extended transition periods driven by supply chain issues and manpower shortages.

Other Income (Expense) :

Total other income (expense) increased by $79.0 million for the year ended February 28, 2022 as compared to the year ended February 28, 2021.

During the year ended February 28, 2022, 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 decreased by $30.1 million.

During the year ended February 28, 2023, the Company recognized $14.1 million of other income related to claims settlements received in the form of cash, notes, or equity securities from various airline customers that had entered into bankruptcy proceedings or similar-type restructurings.

During the year ended February 28, 2022, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to LATAM Airlines Group S.A.

and certain of its subsidiaries’ Chapter 11 filing (the “LATAM Bankruptcy”).

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 year ended February 28, 2021 included $32.6 million of legal and banking costs related to the Merger.

Additionally, we recognized loss on extinguishment of debt of $2.6 million related to the early redemption in full of $500.0 million outstanding aggregate principal amount of our 5.125% Senior Notes due 2021 and early repayment of secured debt obligations for three wide-body aircraft.

Income Tax Provision (Benefit) :

Our income tax benefit was $8.0 million for the year ended February 28, 2022 as compared to an income tax provision of $10.2 million for the year ended February 28, 2021.

The decrease in our income tax provision of $18.2 million was primarily attributable to changes in the mix of pre-tax book loss in Bermuda, Ireland, and the United States.

The year ended February 28, 2022 included certain net non-cash impairment charges of $158.4 million that were recorded in Ireland, resulting in a $19.8 million decrease in our tax provision.

The year ended February 28, 2021 included discrete items related to stock compensation and the impact of the CARES Act.

Our income tax expense was $25.5 million for the year ended February 28, 2023 as compared to an income tax benefit of $8.0 million for the year ended February 28, 2022.

Our effective tax rate was 29.6% and 2.8% for the years ended February 28, 2023 and 2022, respectively.

The increase in our tax provision was primarily due to $8.9 million of additional income tax expense resulting from the tax effects of the transfer of certain assets between tax jurisdictions.

The increase is also partly attributable to changes in the mix of pre-tax book income in Bermuda, Ireland, and the United States.

The year ended February 28, 2022 included the tax effect of certain net non-cash impairment charges of $19.8 million and income from the sale of unsecured claims related to the LATAM Bankruptcy.

Results of Operations for the year ended February 28, 2022 as compared to the year ended February 28, 2021:

We have omitted discussion of the above two periods covered by our consolidated financial statements presented in this Annual Report because that disclosure was already included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, filed with the SEC on April 28, 2022.

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the year ended February 28, 2022 to the year ended February 28, 2021.

Aircraft Valuation

Impairment of Flight Equipment

Excluding impairment charges resulting from the Russian invasion of Ukraine, during the year ended February 28, 2022, the Company recorded impairment charges totaling $110.9 million, of which $107.7 million were transactional impairments.

These impairments primarily related to six narrow-body and one wide-body aircraft, and resulted from early lease terminations, a scheduled lease expiration, and a lessee default.

The Company recognized $61.4 million of maintenance revenue for these seven aircraft.

During the year ended February 28, 2022, the Company recorded impairment charges totaling $341.3 million related to ten narrow-body, one wide-body, and two freighter aircraft that were leased to Russian and Ukrainian airlines.

The Company recognized $89.4 million of lease rentals received in advance, maintenance, security deposits and other revenue for these thirteen aircraft.

These impairment charges resulted from the Russian invasion of Ukraine and related sanctions placed on Russia during the fourth quarter of 2021, which required the termination of aircraft leasing activities in Russia, as well as our consideration of the likelihood of successfully repossessing our aircraft including the related technical records and documentation.

During the year ended February 28, 2021, the Company recorded impairment charges totaling $425.6 million, of which $378.2 million were transactional impairments, which primarily related to seventeen narrow-body and eight wide-body aircraft.

The Company recognized $157.0 million of maintenance revenue and security deposits into revenue related to these 25 aircraft during the year ended February 28, 2021.

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

Annual Recoverability Assessment

We performed our annual recoverability assessment of all our aircraft during the third quarter of 2022.

No impairments were recorded as a result of our annual recoverability assessment.

Although we have completed our annual recoverability assessment, we will continue to closely monitor the impacts of COVID-19 and the Russian invasion of Ukraine on our customers, air traffic, lease rental rates, and aircraft valuations, and have performed 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 have focused and will focus on our customers that have been significantly impacted by the above crises, entered judicial insolvency proceedings, and any additional customers that may become subject to similar-type proceedings, as well as aircraft with near-term lease expirations and certain aircraft variants that are more susceptible to the impact of the above crises 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 recorded an impairment charge of $6.3 million related to 1 wide-body aircraft during the year ended February 28, 2023 as

a result of our annual recoverability assessment – see “Impairment of Aircraft” above and Note 2 in the Notes to Consolidated Financial Statements for further detail regarding impairment of our flight equipment.

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 or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.

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 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 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, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges.

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

Comparison of the year ended February 28, 2021, to the year ended December 31, 2019:

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the year ended February 28, 2021 to the year ended December 31, 2019.

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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End of lease term maintenance payments made to us are recognized as maintenance revenue and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance revenue.

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

The amount of maintenance revenue or contra maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled expiries and early lease terminations, the timing of maintenance events and the utilization of the aircraft by the lessee.

Lease Incentives and Amortization

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

The assumptions supporting these estimates are re-evaluated annually.

The assumptions supporting these estimates are reevaluated annually.

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

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For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs by applying the deferral method.

Under the deferral method, we capitalize the actual cost of major maintenance events, which are depreciated on a straight-line basis over the period until the next maintenance event is required.

Under the deferral method, we capitalize the actual cost of major maintenance events, which are typically depreciated on a straight-line basis over the period until the next maintenance event is required.

For purchase and lease back transactions, we account for the transaction as a single arrangement.

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In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge.

See Note 3 in the Notes to the Consolidated Financial Statements.

Management develops 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 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.

We continue to closely monitor the impact of COVID-19 and the Russian invasion of Ukraine 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 will focus on our customers that have been significantly impacted by the above crises, 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 above crises and value deterioration.

See Note 2 in the Notes to Consolidated Financial Statements.

Net Investment in Direct Financing and Sales-Type Leases

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

A provision for credit losses is recorded as a component of operating expenses in

our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

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

Fair Value Measurements

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GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable.

Assets subject to these measurements include our aircraft and unconsolidated equity investments.

Assets subject to these measurements include our aircraft and investment in unconsolidated joint ventures.

We record aircraft at fair value when we determine the carrying value may not be recoverable.

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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 in the Notes to the Consolidated Financial Statements below.

See Note 1 in the Notes to Consolidated Financial Statements below.

RECENTLY PROPOSED ACCOUNTING PRONOUNCEMENTS

See Note 1 in the Notes to the Consolidated Financial Statements below.

See Note 1 in the Notes to Consolidated Financial Statements below.

LIQUIDITY AND CAPITAL RESOURCES

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

• various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions;

• various forms of borrowing secured by our aircraft, including term facilities, term financings and limited recourse securitization financings for new aircraft acquisitions;

• unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;

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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 year ended February 28, 2022, we met our liquidity and capital resource needs with $372.9 million of cash flow from operations, $210.7 million of cash from the sale of aircraft and other flight equipment, and $393.0 million in net proceeds from our preference share issuance.

As of February 28, 2022, the weighted average maturity of our secured and unsecured debt financings was 3.1 years and we are in compliance with all applicable covenants in our financings.

During the year ended February 28, 2023, we met our liquidity and capital resource needs with $437.7 million of cash flow from operations and $426.5 million of proceeds from the sale of aircraft and other flight equipment.

As of February 28, 2023, the weighted average maturity of our secured and unsecured debt financings was 2.5 years and we were in compliance with all applicable covenants.

We have also determined that as of February 28, 2023, our consolidated subsidiaries’ restricted net assets, as defined by Rule 4-08(e)(3) of Regulation S-X, are less than 25% of our consolidated net assets.

Even as the airline industry begins to recover from the COVID-19 pandemic, 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.

While we continued to receive requests from our customers for lease concessions, such as deferral 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 $55.5 million with nine customers that are scheduled to be repaid, on average, within the next seven years – see Note 2 in the Notes to the Consolidated Financial Statements for additional information.

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.

While the industry continues to recover from the impact of COVID-19, 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 may ultimately be unable to collect some or all amounts that we have deferred or may defer in future periods.

As of February 28, 2023, we hold $61.7 million in security deposits, $465.6 million in maintenance payments and $81.4 million in letters of credit from our lessees.

Approximately $49.5 million of our letters of credit are with our Russian lessees, of which we have initiated draws for and received cash of $$25.4 million subsequent to February 28, 2022.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of April 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 adjusted operating cash flows through April 1, 2023.

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

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of April 3, 2023, total liquidity of $2.0 billion included $1.4 billion of undrawn credit facilities, $0.5 billion of projected adjusted operating cash flows through April 1, 2024, and $0.1 billion of unrestricted cash.

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.

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Net cash flow provided by operating activities $ 437,737 $ 372,865

Net cash flow (used in) provided by investing activities (586,500) 21,472

Net cash flow (used in) provided by financing activities (196,281) 212,667

Net cash flow used in investing activities (537,874) (586,500)

Net cash flow provided by (used in) financing activities 161,316 (196,281)

Operating Activities:

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

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.

Our cash flow from operating activities for the year ended February 28, 2022 includes the repayment of certain lease deferrals granted during 2020 at the onset of the pandemic.

Even as the airline industry begin to recover, we expect that our collections will remain under pressure due to the impact of COVID.

Cash flow provided by operating activities was $372.9 million for the year ended February 28, 2022 compared to $175.0 million for the year ended February 28, 2021.

Cash flow provided by operating activities was $437.7 million and $372.9 million for the years ended February 28, 2023 and 2022, respectively.

The increase of $64.9 million was primarily attributable to:

• a $110.6 million decrease in accounts receivable and other assets, primarily due to an increase in customer collections, including the repayment of existing lease deferrals and a reduction in the requests for new deferrals as compared to the year ended February 28, 2021;

• a $55.2 million increase in cash resulting from the sale of unsecured claims related to the LATAM Bankruptcy – see Note 2 in the Notes to the Consolidated Financial Statements;

• a $32.6 million increase in cash as the year ended February 28, 2021 included banking and legal costs resulting from the Merger;

• a $30.2 million increase as the year ended February 28, 2021 included advance lease rentals recognized into revenue primarily due to lease terminations.

• $48.9 million of payments received on maintenance and general security letters of credit for our former Russian lessees;

• a $70.8 million increase in cash related to accounts receivable, other assets and lease rentals received in advance, primarily due to an increase in customer collections, including the repayment of lease deferrals, as global air traffic recovers from the COVID-19 pandemic;

• a $20.9 million increase in lease rental revenue related to the timing of payments for cash basis customers and a lower number of customers for which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method for the year ended February 28, 2023.

The year ended February 28, 2022 included an additional $47.4 million of lease payments related to our former Russian and Russian-affiliated airline customers.

Investing Activities :

Cash flow used in investing activities was $586.5 million for the year ended February 28, 2022 as compared to cash flow provided by investing activities of $21.5 million for the year ended February 28, 2021.

The net increase in cash flow used in investing activities of $608.0 million for the year ended February 28, 2022 was primarily a result of a $649.8 million increase in the acquisition and improvement of flight equipment.

These outflows were partially offset by a $30.4 million increase in proceeds from the sale of flight equipment and a $12.8 million decrease in aircraft purchase deposits and progress payments, net of deposits returned and aircraft sales deposits.

Cash flow used in investing activities was $537.9 million and $586.5 million for the years ended February 28, 2023 and 2022, respectively.

The decrease of $48.6 million was primarily attributable to a $215.7 million increase in proceeds from the sale of flight equipment, partially offset by a $198.6 million increase in the acquisition and improvement of flight equipment.

Aircraft sales deposits and purchase deposits returned, net of aircraft purchase deposits paid and progress payments increased $28.6 million.

Financing Activities :

Cash flow used in financing activities was $196.3 million for the year ended February 28, 2022 as compared to cash flow provided by financing activities of $212.7 million for the year ended February 28, 2021.

The net increase in cash flow used in financing activities of $408.9 million for the year ended February 28, 2022 was primarily attributable to an $862.2 million decrease in proceeds from secured and unsecured debt financings, net of repayments.

These outflows were partially offset by a $393.0 million increase in net proceeds from the issuance of preference shares, a $46.3 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.

Cash flow provided by financing activities was $161.3 million for the year ended February 28, 2023 as compared to cash flow used in financing activities of $196.3 million for the year ended February 28, 2022.

The net cash increase of $357.6 million was primarily attributable to proceeds of $473.8 million from borrowings under secured and unsecured financings, as well as a $226.6 million decrease in repayments of secured and unsecured debt financings.

These inflows were partially offset by a $393.0 million decrease in net proceeds from the issuance of preference shares.

Debt Obligations

For complete information on our debt obligations, please refer to Note 7.

Secured and Unsecured Debt Financings in the Notes to Consolidated Financial Statements below.

For complete information on our debt obligations, please refer to Note 8 in the Notes to Consolidated Financial Statements below.

Contractual Obligations

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

Total contractual obligations decreased to $6.0 billion at February 28, 2022 from $6.8 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 were $6.0 billion at both February 28, 2023 and 2022.

The following table presents our actual contractual obligations and their payment due dates as of February 28, 2023.

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20,000 — 20,000 — —

ECA Financings

21,576 7,645 13,931 — —

Bank Financings

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_____________

(1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at February 28, 2022.

(1) Future interest payments on variable rate, SOFR and LIBOR-based debt obligations are estimated using the interest rate in effect at February 28, 2023.

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

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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 years ended February 28, 2022 and 2021, and December 31, 2019, we incurred a total of $46.6 million, $26.6 million and $31.8 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.

For the years ended February 28, 2023, 2022 and 2021, we incurred a total of $90.8 million, $46.6 million and $26.6 million, respectively, of capital expenditures, including lease incentives, related to the acquisition and improvement of flight equipment.

As of February 28, 2023, the weighted average age (by Net Book Value) of our aircraft was 9.7 years.

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

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

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

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

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

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

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

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The assets and liabilities of this entity are not included in our consolidated balance sheets and we record our net investment under the equity method of accounting.

See Note 6 in the Notes to the Consolidated Financial Statements below.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of February 28, 2022, the net book value of its nine aircraft was $298.5 million.

See Note 6 in the Notes to Consolidated Financial Statements.

We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of February 28, 2023, the net book value of its 9 aircraft was $285.2 million.

Foreign Currency Risk and Foreign Operations

At February 28, 2022 all our leases are payable to us in U.S.

At February 28, 2023, more than 99% of 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 year ended February 28, 2023, expenses, such as payroll and office costs, denominated in currencies other than the U.S.

dollar aggregated $17.7 million in U.S.

dollar totaled $20.2 million in U.S.

dollar equivalents and represented approximately 26% of total selling, general and administrative expenses.

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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 years ended February 28, 2022 and 2021, and December 31, 2019, we incurred insignificant net gains and losses on foreign currency transactions.

Inflation affects our lease rentals, asset values and costs, including operating expenses and maintenance and other costs.

We do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

For the years ended February 28, 2023, 2022 and 2021, 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 to EBITDA for the year ended February 28, 2022 and 2021, the two months ended February 29, 2020, and for the year ended December 31, 2019, respectively.

Year Ended February 28, Two Months Ended February 29, Year Ended December 31,

The table below shows the reconciliation of net income (loss) to EBITDA for the years ended February 28, 2023, 2022 and 2021, respectively.

Year Ended February 28,

2023 2022 2021

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Impairment of flight equipment 85,623 452,250 425,579

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

Loss on extinguishment of debt 636 14,156 2,640

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Merger related expenses (1)

— 35,165 321 7,886

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

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EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S.

GAAP measures of earnings (loss).

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

GAAP measures of income (loss).

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

GAAP measures as compared to U.S.

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• the cash portion of income tax provision (benefit) generally represents charges (gains), which may significantly affect our financial results;

• elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;

• adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes which may not be comparable to similarly titled measures used by other companies.

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We strongly urge you to review the reconciliations to U.S.

GAAP net income (loss), along with our consolidated financial statements included

elsewhere in this report.

GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report.

We also strongly urge you to not rely on any single financial measure to evaluate our business.

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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-K

Item 7. Management’s Discussion and Analysis