What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-25 compared with 2023-04-25 · 126 added, 151 removed, 332 unchanged (45% of the section changed)

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

As of February 28, 2023, we owned and managed on behalf of our joint venture 248 aircraft leased to 73 lessees located in 44 countries.

We are a leading secondary market investor that sources aircraft through various acquisition channels that primarily include other aircraft lessors, airlines through purchase-leaseback transactions, financial institutions and other aircraft owners, and aircraft manufacturers.

We have significant experience in successfully managing aircraft throughout their life cycle, including lease and technical management, aircraft redeliveries, transitions, and sales or disposals.

We sell aircraft and engine assets, either with a lease attached or on a part-out basis, with the aim of generating profits and reinvesting proceeds.

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

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

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

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

As of February 29, 2024, we owned and managed on behalf of our joint venture 252 aircraft leased to 75 lessees located in 43 countries.

The Net Book Value of our flight equipment was $7.2 billion as February 29, 2024, up 9% from $6.6 billion as of February 28, 2023.

The weighted average age of our fleet was 9.3 years and the weighted average remaining lease term was 5.4 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.

The weighted average utilization rate of our fleet was 98% for the year ended February 29, 2024, which improved to 99% during the second half of 2023.

Our revenues, net income and Adjusted EBITDA were $855.4 million, $83.3 million, and $759.5 million for the year ended February 29, 2024, respectively, and $796.0 million, $62.8 million and $732.3 million for the year ended February 28, 2023, respectively.

The Company’s financial performance reflects the continued expansion of global air traffic and strong demand for our aircraft through lease extension requests, primarily due to OEM production issues and delivery delays, as well as the improved financial health of our airline customers.

Our financial results are also partly driven by end-of-lease maintenance payments, strong gains on sales and cash settlement proceeds received in respect of 4 aircraft formerly on lease to Russian airlines.

Acquisitions and Sales

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.

During the year ended February 29, 2024, we acquired 30 aircraft for $1.2 billion.

As of February 29, 2024, we had commitments to acquire 17 aircraft for $525.1 million, with delivery between March 2024 and June 2026, which include estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.

As of April 19, 2024, we have acquired 5 additional aircraft and have commitments to acquire 12 aircraft for $393.3 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.

During the year ended February 29, 2024, we sold 28 aircraft and other flight equipment for net proceeds of $361.8 million.

We recognized gains on the sale or disposition of aircraft totaling $121.6 million, which included $43.2 million related to settlement proceeds received in respect of 4 aircraft formerly on lease to Russian airlines – see “Russian Aircraft Insurance Settlements” below.

As of April 19, 2024, we have sold 1 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.

Russian Aircraft Insurance Settlements

The Company leased 9 aircraft to Russian airlines that were unrecoverable following Russia’s invasion of Ukraine in February 2022.

The Company filed claims against the reinsurers of the Russian airlines’ insurance and the Company’s contingent and possessed insurance policies (“C&P Policies”) seeking indemnity.

On December 26, 2023, the Company received cash settlement proceeds of $43.2 million in settlement of the Company’s claims under the insurance policies of Joint Stock Company Aurora Airlines and Joint Stock Company Rossiya Airlines (collectively, the “Airlines”) in respect of 4 aircraft (collectively, the “Aircraft”) formerly on lease to the Airlines.

The settlement resolves claims against the Airlines, their respective insurers, and transfers the Aircraft title to a Russian insurer.

The Company is in ongoing settlement discussions for the 5 other aircraft that were not included in the insurance settlement.

However, it is uncertain whether any of these discussions will result in any settlement and, if so, in what amount.

Settlement proceeds, net of any related costs, were recorded as a component of gain on sale or disposition of flight equipment for the three months ending February 29, 2024.

The receipt of the insurance settlement proceeds serve to mitigate, in part, the Company’s losses under its aviation insurance policies.

The Company reserves all rights under its C&P Policies.

The collection, timing and amount of any future recoveries, including those related to insurance litigation, remain uncertain.

Accordingly, at this time, the Company can give no assurance as to when or what amounts it may ultimately collect with respect to these matters.

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.

Since our inception in late 2004, we raised $2.3 billion in equity capital from private and public investors, including $200.0 million received during the year ended February 29, 2024, in respect of the Subscription Agreement entered into with our Shareholders – see Note 9 in the Notes to Consolidated Financial Statements.

We also obtained $21.4 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 intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, equity offerings, unsecured bond offerings, 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.

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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:

The following table sets forth certain information with respect to our owned aircraft and aircraft managed by us on behalf of our joint venture as of February 29, 2024 and February 28, 2023:

Owned Aircraft As of

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Number of Aircraft 9 9

(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.

(1) Weighted by Net Book Value.

(2) Aircraft on lease as a percentage of total days in period weighted by net book value.

(4) Lease rental revenue, interest income and cash collections on our net investment in direct financing and sales-type leases for the period as a percent of the average Net Book Value for the period;

(3) Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percent of the average Net Book Value for the period;

quarterly information is annualized.

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Owned Aircraft as of

February 28, 2023 Owned Aircraft as of

February 29, 2024

Owned Aircraft as of

February 28, 2023

Aircraft % of Net

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

(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:

(2) Of the 3 off-lease aircraft at February 29, 2024, we have executed leases for 2 narrow-body converted freighter aircraft and 1 narrow-body converted freighter aircraft that we are currently marketing for lease or sale.

The top ten customers for our owned aircraft at February 29, 2024 were as follows:

Customer Percent of

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KLM 5.0% Netherlands 11

4.2% Mexico 7

American Airlines

4.3% United States 11

4.0% Indonesia 10

American Airlines 3.7% United States 9

Air Canada 3.3% Canada 5

Iberia 3.2% Spain 14

3.7% Mexico 7

Aerolineas Argentinas 3.6% Argentina 7

Frontier Airlines

3.4% United States 5

3.2% Hungary 5

3.0% Mexico 6

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Results of Operations for the year ended February 29, 2024 as compared to the year ended February 28, 2023:

Year Ended February 28,

Year Ended February 29, Year Ended February 28,

(Dollars in thousands)

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Total lease revenue 731,833 713,063

Gain on sale of flight equipment 70,860 26,001

Gain on sale or disposition of flight equipment 121,646 70,860

Other revenue 1,937 12,110

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Total other income:

13,456 43,526

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

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

Income from continuing operations before income taxes 104,376 86,037

Income tax provision 23,265 25,466

Earnings of unconsolidated equity method investment, net of tax 2,205 2,188

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

Net income $ 83,316 $ 62,759

Total revenues increased $59.4 million, attributable to:

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

• 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;

Lease rental revenue increased $17.1 million, primarily attributable to an increase of $84.0 million related to 52 aircraft purchased since March 1, 2022.

This was partially offset by:

• a $28.3 million decrease related to the sale of 30 aircraft since March 1, 2022;

• a $13.3 million decrease, as the year ended February 28, 2023 included a cumulative catch-up adjustment to lease revenues for certain customers which the collectability assessment of lease payments changed to probable during the respective period – see Note 1 in the Notes to Consolidated Financial Statements regarding our lease revenue recognition policy;

• a $12.9 million decrease due to lease extensions, amendments, transitions, and other changes;

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.

• a $12.4 million decrease due to lease terminations.

Direct financing and sales-type lease revenue increased $7.5 million, primarily related to the reclassification of 12 aircraft to sales-type leases, partially offset by the sale of 9 aircraft since March 1, 2022.

Amortization of lease premiums, discounts and incentives:

Year Ended February 28,

Year Ended February 29, Year Ended February 28,

(Dollars in thousands)

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Amortization of lease premiums, discounts and incentives $ (20,420) $ (20,574)

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 29, 2024, we recorded $132.2 million of maintenance revenue primarily related to maintenance payments received by us and recognized into income as a result of scheduled aircraft lease expirations and engine redeliveries.

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.

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 was recognized in maintenance revenue.

Gain on sale or disposition of flight equipment.

During the year ended February 29, 2024, we sold 28 aircraft and recognized gains on the sale or disposition of aircraft totaling $121.6 million, which included $43.2 million related to settlement proceeds received in respect of 4 aircraft formerly on lease to Russian airlines, and gains of $32.7 million related to the reclassification of 10 aircraft from operating leases to sales-type leases.

During the year ended February 28, 2023, we sold 25 aircraft for gains totaling $70.9 million.

Other revenue.

During the year ended February 28, 2023, we received $7.1 million of payments on general security letters of credit for our former Russian lessees.

We also recognized other revenue totaling $4.4 million for security deposits retained by us in connection with aircraft lease terminations and amendments.

During the year ended February 29, 2024, we collected the remaining general security letters of credit totaling $0.6 million.

Operating Expenses:

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 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.

Total operating expenses increased $33.2 million attributable to:

Depreciation expense increased $15.6 million, primarily attributable to an increase of $37.2 million related to 52 aircraft purchased since March 1, 2022.

This was partially offset by a decrease of $21.6 million related to 27 aircraft sold since March 1, 2022.

Interest, net increased $24.4 million due to a higher average cost of borrowing and higher weighted average debt outstanding of $83.0 million.

Selling, general and administrative expense s increased $5.3 million primarily due to an increase in personnel costs and ongoing Russian litigation expenses.

Provision for credit losses increased $10.6 million, primarily related to our credit provision for net investment in leases as a result of 12 aircraft that were reclassified from operating leases to sales-type leases – see Note 15 in the Notes to Consolidated Financial Statements.

We also recognized a credit provision for debt securities received by us as part of an airline restructuring, as well as certain restructured receivables, during the year ended February 29, 2024.

Impairment of aircraft.

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.

During the year ended February 29, 2024, the Company recorded impairment charges totaling $55.2 million, of which $39.5 million were transactional impairments related to scheduled aircraft lease expirations and engine redeliveries.

The Company recognized $48.0 million of maintenance revenue for these aircraft

We also recorded impairments of $9.5 million resulting from the completion of our annual fleet review during the third quarter of fiscal 2023.

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 it.

As a result, the Company recorded impairment charges totaling $31.9 million during the year ended February 28, 2023.

The Company also recognized $20.3 million of maintenance and other revenue for these 9 aircraft related to payments received on maintenance and general security letters of credit.

In addition to the asset write-offs above, 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.

Maintenance and other costs increased $7.7 million, primarily attributable to higher aircraft insurance premiums and higher costs due to the timing of transition of aircraft to new lessees .

Higher transition costs are largely related to aircraft for which the previous lease was terminated early, and the aircraft was repossessed from the prior operator.

Other Income (Expense) :

Total other income decreased by $7.9 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.

Income Tax Provision (Benefit) :

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.

During the year ended February 29, 2024, the Company recognized $5.6 million of other income primarily consisting of cash received in connection with claims settlements from various airline customers that had entered into bankruptcy proceedings or similar-type restructurings.

Income Tax Provision :

Our income tax expense was $23.3 million and $25.5 million and our effective tax rate was 22.3% and 29.6% for the years ended February 29, 2024 and February 28, 2023, respectively.

The year ended February 28, 2023 included higher income taxes of $10.4 million related to certain intra-entity transfers of aircraft assets to Irish aircraft-owning entities.

This was partially offset by an increase in taxes attributable to changes in the mix of profits in taxable and non-taxable jurisdictions, and, in particular, incremental profits earned in Ireland.

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

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Aircraft Valuation

Annual Recoverability Assessment

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

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

For complete information on impairment of flight equipment, see Note 2 in the Notes to the Consolidated Financial Statements and “Comparative Results of Operations” above.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Typically, our aircraft are subject to net operating leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although in a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs.

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

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

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

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

maintenance revenue during the lease.

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

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

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

Our determination of whether to require such payments to be made monthly or to permit a lessee to make a single maintenance payment at the end of the lease term depends on a variety of factors, including the creditworthiness of the lessee, the level of security deposit which may be provided by the lessee and market conditions at the time we enter into the lease.

If a lease requires monthly maintenance payments, we would typically be obligated to reimburse the lessee for

costs they incur for heavy maintenance, overhaul or replacement of certain high-value components to the extent of maintenance payments received in respect of the specific maintenance event, usually shortly following completion of the relevant work.

If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its utilization of the aircraft during the lease;

however, in some cases, we may owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better condition than at lease inception.

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

Reimbursements to the lessee upon the receipt of evidence of qualifying maintenance work are charged against the existing accrued maintenance payments liability.

We currently defer maintenance revenue recognition of most monthly maintenance payments until we are able to determine the amount, if any, by which the monthly maintenance payments received from a lessee exceed costs to be incurred by that lessee in performing heavy maintenance, which generally occurs at or near the end of a lease.

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.

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In making these estimates, we rely upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft.

As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected

maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

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 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.

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

We allocate the consideration paid based on the fair value of the aircraft and lease.

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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.

Additional customer or aircraft specific recoverability assessments are 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, significant change in an aircraft type’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued.

We 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 value deterioration.

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

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See Note 2 in the Notes to Consolidated Financial Statements.

Net Investment in Direct Financing and Sales-Type Leases

Net Investment in Leases

If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease.

The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the leased flight equipment at lease-end and, for direct financing leases, deferred selling profit.

The net investment in leases consists of the lease receivable, estimated unguaranteed residual value of the leased flight equipment at lease-end and, for direct financing leases, deferred selling profit.

For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of fight equipment.

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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 investment in unconsolidated joint ventures.

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

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

Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.

Fair value measurements for aircraft in impairment tests are based on the average of the market approach Level 2 or 3, which include third party appraisal data and an income approach Level 3, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.

We account for our investments in unconsolidated joint ventures under the equity method of accounting.

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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 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;

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

• asset sales;

• sales of common and preference shares.

• issuance of common and preference shares.

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

During the 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.

During the year ended February 29, 2024, we met our liquidity and capital resource needs with $370.3 million of cash flows from operations and $361.8 million of proceeds from the sale of aircraft and other flight equipment.

As of February 29, 2024, the weighted average maturity of our secured and unsecured debt financings was 3.1 years and we were in compliance with all applicable covenants.

We have also determined that as of February 29, 2024, 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.

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.

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.

We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months.

As of April 1, 2024, total liquidity of $3.0 billion included $2.1 billion of undrawn credit facilities, $0.5 billion of projected adjusted operating cash flows and sales through April 1, 2025, $0.3 billion of committed equity 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.

Year Ended February 28,

February 29, February 28,

(Dollars in thousands)

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Net cash flow used in investing activities (879,115) (537,874)

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

Net cash flow provided by financing activities 406,977 161,316

Operating Activities:

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:

• $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.

Cash flow provided by operating activities was $370.3 million and $437.7 million for the years ended February 29, 2024 and February 28, 2023, respectively.

The decrease was primarily attributable to higher cash paid for interest of $47.4 million, of which $15.2 million relates to the timing of interest payments, and the remaining increase due to a higher average cost of borrowing and higher weighted average debt outstanding during the year ended February 29, 2024.

In addition, the year ended February 28, 2023 included incremental customer collections related to the repayment of lease deferrals and other outstanding receivables that had accumulated during the COVID-19 pandemic, as well as $48.9 million of payments received on maintenance and general security letters of credit for our former Russian lessees.

Investing Activities :

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.

Cash flow used in investing activities was $879.1 million and $537.9 million for the years ended February 29, 2024 and February 28, 2023, respectively.

The net increase of $341.2 million was primarily attributable to a $246.1 million increase in the acquisition and improvement of flight equipment, in addition to lower proceeds from the sale or disposition of flight equipment of $64.6 million.

Proceeds from the sale or disposition of flight equipment for the year ended February 29, 2024 includes cash settlement proceeds of $43.2 million received in respect of 4 aircraft formerly on lease to Russian airlines — see Note 3 to the Notes to Consolidated Financial Statements.

Aircraft sales deposits received, net of aircraft purchase deposits paid and progress payments decreased $22.7 million.

Financing Activities :

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.

Cash flow provided by financing activities was $407.0 million and $161.3 million for the years ended February 29, 2024 and February 28, 2023, respectively.

The net increase of $245.7 million was primarily attributable to $200.0 million in proceeds from the issuance of our common stock, in addition to a $38.5 million increase in borrowings from secured and unsecured financings, net of repayments.

Debt Obligations

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

For complete information on our debt obligations, please see 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 were $6.0 billion at both February 28, 2023 and 2022.

Total contractual obligations increased to $6.1 billion at February 29, 2024 from $6.0 billion at February 28, 2023, due to higher outstanding debt and interest obligations, partially offset by lower aircraft purchase commitments.

The following table presents our actual contractual obligations and their payment due dates as of February 29, 2024.

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Senior Notes due 2024-2029 $ 3,850,000 $ 500,000 $ 1,300,000 $ 2,050,000 $ —

DBJ Term Loan

155,000 155,000 — — —

Revolving Credit Facilities

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_____________

(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;

Dublin, Ireland and Singapore.

(1) Future interest payments on variable rate, SOFR-based debt obligations are estimated using the interest rate in effect at February 29, 2024.

(2) Represents contractual payment obligations for our office leases in the United States, Ireland and Singapore.

(3) At February 29, 2024, we had signed purchase agreements to acquire 17 aircraft for $525.1 million.

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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, 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.

For the years ended February 29, 2024, and February 28, 2023 and 2022, we incurred a total of $76.0 million, $90.8 million and $46.6 million, respectively, of capital expenditures, including lease incentives, related to the acquisition and improvement of flight equipment.

As of February 29, 2024, the weighted average age by Net Book Value of our aircraft was 9.3 years.

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This joint venture does not qualify for consolidated accounting treatment.

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.

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

See Note 5 in the Notes to Consolidated Financial Statements.

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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, 2023, 2022 and 2021, we incurred insignificant net gains and losses on foreign currency transactions.

For the years ended February 29, 2024, and February 28, 2023 and 2022, we incurred insignificant net gains and losses on foreign currency transactions.

Management’s Use of EBITDA and Adjusted EBITDA

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Adjusted EBITDA is a material component of these covenants.

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

Year Ended February 28,

The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the years ended February 29, 2024, and February 28, 2023 and 2022.

Year Ended February 29, Year Ended February 28,

2024 2023 2022

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Loss on extinguishment of debt — 636 14,156

Non-cash share-based payment expense — — 28,049

Merger related expenses (1)

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

Contract termination expense — — 172

Adjusted EBITDA $ 759,520 $ 732,327 $ 752,269

______________

(1) Includes $32.6 million in Other income (expense) and $2.6 million in Selling, general and administrative expenses.

Limitations of EBITDA and Adjusted EBITDA

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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.

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

In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S.

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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