FTAI Aviation Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand FTAI Aviation Ltd. (the “Company,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We own, lease and sell aviation equipment. We also develop and manufacture through a joint venture, and repair and sell, through exclusivity arrangements, aftermarket components for aircraft engines. Additionally, we own and lease offshore energy equipment. We target assets that, on a combined basis, generate strong cash flows with potential for earnings growth and asset appreciation. We believe that there is a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital, will allow us to take advantage of these opportunities. We are externally managed by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), which has a dedicated team of experienced professionals focused on the acquisition of transportation assets since 2002. As of March 31, 2023, we had total consolidated assets of $2.4 billion and total equity of $74.2 million . Impact of Russia’s Invasion of Ukraine Economic sanctions and export controls against Russia and Russia’s aviation industry were imposed due to its invasion of Ukraine during the three months ended March 31, 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines. We determined that it is unlikely that we will regain possession of the aircraft and engines that had not yet been recovered from Ukraine and Russia. As a result, during the three months ended March 31, 2022, we recognized an impairment charge totaling $122.8 million, net of maintenance deposits, to write-off the entire carrying value of leasing equipment assets that we did not expect to recover from Ukraine and Russia. As of March 31, 2023, four aircraft and one engine were still located in Ukraine and eight aircraft and seventeen engines were still located in Russia. Our lessees are required to provide insurance coverage with respect to leased aircraft and engines, and we are named as insureds under those policies in the event of a total loss of an aircraft or engine. We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. The insured value of the aircraft and engines that remain in Ukraine and Russia is approximately $274.0 million. We intend to pursue all our claims under these policies. However, the timing and amount of any recoveries under these policies are uncertain. The extent of the impact of Russia’s invasion of Ukraine and the related sanctions on our operational and financial performance, including the ability for us to recover our leasing equipment in the region, will depend on future developments, including the duration of the conflict, sanctions and restrictions imposed by Russian and international governments, all of which remain uncertain. Spin-Off of FTAI Infrastructure Inc. (“FTAI Infrastructure”) On August 1, 2022, we effected a spin-off of our infrastructure business held by FTAI Infrastructure (a wholly-owned subsidiary of the Company) as a distribution of all of the shares owned by the Company of common stock of FTAI Infrastructure to the holders of the Company’s ordinary shares as of July 21, 2022. FTAI Infrastructure is a corporation for U.S. federal income tax purposes and holds, among other things, the Company’s previously held interests in the (i) Jefferson Terminal business, (ii) Repauno business, (iii) Long Ridge investment, and (iv) Transtar business. FTAI Infrastructure retained all related project-level debt of those entities. In connection with the spin-off, FTAI Infrastructure paid a dividend of $730.3 million to the Company. The Company used these proceeds to repay all outstanding borrowings under its 2021 bridge loans, $200.0 million of its 6.50% senior unsecured notes due 2025, and approximately $175.0 million of the outstanding borrowings under its revolving credit facility. Fortress Transportation and Infrastructure Investors LLC (“FTAI LLC”) retained the aviation business and certain other assets, and FTAI LLC’s remaining outstanding corporate indebtedness. In connection with the spin-off, the Company and the Manager assigned the Company’s then-existing management agreement to FTAI Infrastructure, and FTAI Infrastructure and the Manager executed an amended and restated agreement. The Company and certain of its subsidiaries executed a new management agreement with the Manager. The new management agreement has an initial term of six years. The Manager is entitled to a management fee and reimbursement of certain expenses on substantially similar terms as the previous arrangements with the Manager, which were assigned to FTAI Infrastructure. Prior to the Merger described below, our Manager remained entitled to incentive allocations (comprised of income incentive allocation and capital gains incentive allocation) on the same terms as they existed prior to spin-off. Following the Merger, the Company entered into a Services and Profit Sharing Agreement (the “Services and Profit Sharing Agreement”), with a subsidiary of the Company and Fortress Worldwide Transportation and Infrastructure Master GP LLC (“Master GP”), pursuant to which Master GP is entitled to incentive payments on substantially similar terms as the previous arrangements. On November 10, 2022, the Company completed the transactions set forth in the Agreement and Plan of Merger (the “Merger”) between FTAI LLC and FTAI Aviation Ltd. and certain other parties, with FTAI LLC becoming a subsidiary of the company. As a result of the merger, FTAI Aviation Ltd. became a Cayman Islands exempted company. Upon merger completion, FTAI LLC 30 public common shareholders’ shares of the Company were exchanged automatically for shares of FTAI Aviation Ltd. without any further action from the shareholders. Operating Segments As a result of the spin-off of FTAI Infrastructure effective August 1, 2022, the Company reevaluated its operating segments. The key factors used to identify the reportable segments are the organization and alignment of our internal operations and the nature of our products and services. Our two reportable segments are (i) Aviation Leasing and (ii) Aerospace Products. The Aviation Leasing segment owns and manages aviation assets, including aircraft and aircraft engines, which it leases and sells to customers. The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through exclusivity arrangements, aircraft engines and aftermarket components for aircraft engines. The interim period discloses the reportable segments on this basis, and prior periods have been restated to reflect the change in accordance with the requirements of ASC 280, Segment Reporting . Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, shared services costs, and management fees. Additionally, Corporate and Other also includes offshore energy related assets, which consist of vessels and equipment that support offshore oil and gas activities and production which are typically subject to operating leases. Our Manager On December 27, 2017, SoftBank Group Corp. (“SoftBank”) completed its acquisition of Fortress (the “SoftBank Merger”). In connection with the Softbank Merger, Fortress operates within SoftBank as an independent business headquartered in New York. Results of Operations Adjusted EBITDA (Non-GAAP) The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance and make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. During the third quarter of 2022, the Company updated its measure of segment profit to include the add back of dividends on preferred shares in Adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) attributable to shareholders from continuing operations, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, dividends on preferred shares and interest expense, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA. 31 Comparison of the three months ended March 31, 2023 and 2022 The following table presents our consolidated results of operations: Three Months Ended March 31, Change (in thousands) 2023 2022 Revenues Lease income $ 55,978 $ 39,325 $ 16,653 Maintenance revenue 35,141 36,732 (1,591) Asset sales revenue 108,691 — 108,691 Aerospace products revenue 85,113 14,313 70,800 Other revenue 7,795 1,321 6,474 Total revenues 292,718 91,691 201,027 Expenses Cost of sales 145,670 9,050 136,620 Operating expenses 22,534 61,799 (39,265) General and administrative 4,067 4,561 (494) Acquisition and transaction expenses 3,262 2,273 989 Management fees and incentive allocation to affiliate 2,997 3 2,994 Depreciation and amortization 40,926 41,305 (379) Asset impairment 1,220 122,790 (121,570) Interest expense 39,292 44,139 (4,847) Total expenses 259,968 285,920 (25,952) Other (expense) income Equity in (losses) earnings of unconsolidated entities (1,335) 198 (1,533) Gain on sale of assets, net — 16,288 (16,288) Other income 8 128 (120) Total other (expense) income (1,327) 16,614 (17,941) Income (loss) from before income taxes 31,423 (177,615) 209,038 Provision for income taxes 2,026 1,339 687 Net income (loss) from continued operations 29,397 (178,954) 208,351 Net loss from discontinued operations, net of income taxes — (50,705) 50,705 Net income (loss) 29,397 (229,659) 259,056 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries: Continued operations — — — Discontinued operations — (7,466) 7,466 Less: Dividends on preferred shares 6,791 6,791 — Net income (loss) attributable to shareholders $ 22,606 $ (228,984) $ 251,590 32 The following table sets forth a reconciliation of net income (loss) attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2023 2022 Net income (loss) attributable to shareholders from continuing operations $ 22,606 $ (185,745) $ 208,351 Add: Provision for income taxes 2,026 1,339 687 Add: Equity-based compensation expense 108 — 108 Add: Acquisition and transaction expenses 3,262 2,273 989 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges 1,220 122,790 (121,570) Add: Incentive allocations 2,942 — 2,942 Add: Depreciation and amortization expense (1) 48,770 53,317 (4,547) Add: Interest expense and dividends on preferred shares 46,083 50,930 (4,847) Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (696) 254 (950) Less: Equity in losses (earnings) of unconsolidated entities 1,335 (198) 1,533 Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 127,656 $ 44,960 $ 82,696 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2023 and 2022: (i) depreciation and amortization expense of $40,926 and $41,305 , (ii) lease intangible amortization of $3,983 and $3,658 and (iii) amortization for lease incentives of $3,861 and $8,354 , respectively. (2) Includes the following items for the three months ended March 31, 2023 and 2022: (i) net (loss) income of $(1,335) and $198 , (ii) depreciation and amortization expense of $400 and $56 , and (iii) acquisition and transaction expenses of $239 and $0, respectively. Revenues Presentation of assets sales During the third quarter of 2022, we updated our corporate strategy based on the opportunities available in the market such that the sale of aircraft and engines is now an output of our recurring, ordinary activities. As a result of this update, the transaction price allocated to the sale of assets is included in Revenues in the Consolidated Statement of Operations beginning in the third quarter of 2022 and are accounted for in accordance with ASC 606. The corresponding net book values of the assets sold are recorded in Cost of sales in the Consolidated Statement of Operations beginning in the third quarter of 2022. Sales transactions of aircraft and engines prior to the third quarter of 2022 were accounted for in accordance with ASC 610-20, Gains and losses from the derecognition of nonfinancial assets and were included in Gain (loss) on sale of assets, net on the Consolidated Statement of Operations, as we were previously only occasionally selling these assets. Generally, assets sold were included in Leasing equipment, net, on the Consolidated Balance Sheets. Comparison of the three months ended March 31, 2023 and 2022 Total revenues increased $201.0 million primarily due to an increase in asset sales revenue, aerospace products revenue, lease income and other revenue. Asset sales reven ue increased $108.7 million primarily due to an increase in the sale of commercial aircraft and engines in our Aviation Leasing segment during 2023. See above discussion regarding presentation of asset sales. Aerospace products revenue increased $70.8 million primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023. Lease income increased $16.7 million primarily due to an increase in the number of aircraft placed on lease and an increase in the Offshore Energy business as the daily charter rate on one of our vessels increased. Other revenue increased $6.5 million primarily due to an increase in end-of lease redelivery compensation. Expenses Comparison of the three months ended March 31, 2023 and 2022 Total expenses decreased $26.0 million, primarily due to lower (i) asset impairment charges, (ii) operating expenses and (iii) interest expense, partially offset by higher (iv) cost of sales and (v) management fees and incentive allocation to affiliate. 33 Asset impairme nt d ecreased $121.6 million primarily due to the write down in 2022 of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 4 to the consolidated financial statements for additional information. Operating expenses decreased $39.3 million which primarily reflects: • a decrease of $47.4 million in the Aviation Leasing segment primarily as a result of decreases in provision for credit losses as a result of the sanctions imposed on Russian airlines in 2022, professional fees and repairs and maintenance expenses, partially offset by increases in insurance expense and shipping and storage fees. • an increase of $6.1 million in the Offshore Energy business which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel and crane repairs on one of our vessels. • an increase of $2.0 million in the Aerospace Products segment primarily due to an increase in commission expenses due to the increase in sales from the used material program as well as an increase in professional fees and other operating expenses due to the ramp-up of Aerospace Products. Interest expense decreased $4.8 million which reflects a decrease in the average outstanding debt of approximately $426.0 million due to decreases in (i) the 2021 Bridge Loans of $260.0 million and (ii) the Senior Notes due 2025 of $199.2 million, which were partially redeemed in August 2022, partially offset by an increase in (iii) the Revolving Credit Facility of $33.2 million. Cost of sales increased $136.6 million primarily as a result of an increase in asset sales and aerospace product sales and the gross presentation of asset sales revenue and Aerospace Product revenues as described above. Management fees and incentive allocation to affiliate increased $3.0 million primarily due to an increase in incentive fee due to the Manager. Other income (expense) Total other income decreased $17.9 million which primarily reflects (i) a decrease of $16.3 million in gain on sale of assets, net in the Aviation Leasing and Aerospace Products segments due to the change in presentation of asset sales as described above and (ii) an increase of $1.5 million in Aviation Leasing’s and Aerospace Products’ proportionate share of unconsolidated entities’ net loss. See above discussion regarding presentation of asset sales and impact on gain on sales of assets, net. Net income from continuing operations Net income from continuing operations increased $208.4 million primarily due to the changes noted above. Net loss from discontinued operations Net loss from discontinued operations decreased $50.7 million primarily due to: • A decrease in net loss of $32.1 million in the Ports and Terminals business in Q1 2022 of which $23.6 million relates to our equity pick-up in net losses for the Long Ridge investment; • A decrease in net loss of $16.1 million in the Jefferson business which is primarily driven by no activity in Q1 2023 compared to three months of activity during Q1 2022; and • A decrease in acquisition and transaction expense of $3.6 million and management fees due to affiliate of $4.2 million, both due to the spin-off of the infrastructure business; all offset by • A decrease in net income of $7.5 million from the Transtar business during Q1 2022. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $82.7 million primarily due to the changes noted above. 34 Aviation Leasing Segment As of March 31, 2023, in our Aviation Leasing segment, we own and manage 334 aviation assets, consisting of 93 commercial aircraft and 241 engines, including four aircraft and one engine that were still located in Ukraine and eight aircraft and seventeen engines that were still located in Russia. As of March 31, 2023, 76 of our commercial aircraft and 137 of our engines were leased to operators or other third parties. Aviation assets currently off lease are either undergoing repair and/or maintenance, being prepared to go on lease or held in short term storage awaiting a future lease. Our aviation equipment was approximately 75% utilized during the three months ended March 31, 2023, based on the percent of days on-lease in the quarter weighted by the monthly average equity value of our aviation leasing equipment, excluding airframes. Our aircraft currently have a weighted average remaining lease term of 44 months, and our engines currently on-lease have an average remaining lease term of 10 months. The table below provides additional information on the assets in our Aviation Leasing segment: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2023 8 98 106 Purchases — 5 5 Sales (2) (6) (8) Transfers — (10) (10) Assets at March 31, 2023 6 87 93 Engines Assets at January 1, 2023 40 184 224 Purchases — 22 22 Sales (3) (10) (13) Transfers 1 7 8 Assets at March 31, 2023 38 203 241 35 The following table presents our results of operations for our Aviation Leasing segment: Three Months Ended March 31, Change (in thousands) 2023 2022 Revenues Lease income $ 48,830 $ 33,958 $ 14,872 Maintenance revenue 35,141 36,732 (1,591) Asset sales revenue 108,691 — 108,691 Other revenue 6,378 22 6,356 Total revenues 199,040 70,712 128,328 Expenses Cost of sales 92,234 — 92,234 Operating expenses 7,088 54,472 (47,384) Acquisition and transaction expenses 1,462 209 1,253 Depreciation and amortization 38,140 39,228 (1,088) Asset impairment 1,220 122,790 (121,570) Total expenses 140,144 216,699 (76,555) Other (expense) income Equity in (losses) earnings of unconsolidated entities (99) 552 (651) Gain on sale of assets, net — 6,587 (6,587) Other income 8 165 (157) Total other (expense) income (91) 7,304 (7,395) Income (loss) before income taxes 58,805 (138,683) 197,488 Provision for income taxes 995 986 9 Net income (loss) 57,810 (139,669) 197,479 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Net income (loss) attributable to shareholders $ 57,810 $ (139,669) $ 197,479 36 The following table sets forth a reconciliation of net income (loss) attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2023 2022 Net income (loss) attributable to shareholders from continuing operations $ 57,810 $ (139,669) $ 197,479 Add: Provision for (benefit from) income taxes 995 986 9 Add: Equity-based compensation expense 22 — 22 Add: Acquisition and transaction expenses 1,462 209 1,253 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges 1,220 122,790 (121,570) Add: Incentive allocations — — — Add: Depreciation and amortization expense (1) 45,984 51,240 (5,256) Add: Interest expense and dividends on preferred shares — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (36) 552 (588) Less: Equity in (earnings) losses of unconsolidated entities 99 (552) 651 Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 107,556 $ 35,556 $ 72,000 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2023 and 2022: (i) depreciation expense of $38,140 and $39,228, (ii) lease intangible amortization of $3,983 and $3,658 and (iii) amortization for lease incentives of $3,861 and $8,354, respectively. (2) Includes the following items for the three months ended March 31, 2023 and 2022: (i) net (loss) income of $(99) and $552 and (ii) depreciation and amortization of $63 and $0, respectively. Comparison of the three months ended March 31, 2023 and 2022 Revenues Total revenue increased $128.3 million driven by an increase in asset sales revenue, lease income and other revenue, partially offset by a decrease in maintenance revenue. • Asset sales revenue increased $108.7 million primarily due to an increase in the sale of commercial aircraft and engines. See above discussion regarding presentation of asset sales. • Lease income increased $14.9 million primarily due an increase in the number of aircraft placed on lease. • Other revenue increased $6.4 million primarily due to an increase in end-of-lease redelivery compensation. • Maintenance revenue decreased $1.6 million primarily due to the recognition of maintenance deposits in 2022 related to the early termination of aircraft leases with Russian airlines as a result of the sanctions imposed on Russian airlines, partially offset by an increase in the number of aircraft and engines placed on lease, and higher aircraft and engine utilization. 37 Expenses Total expenses decreased $76.6 million primarily driven by a decrease in asset impairment expense and operating expenses, partially offset by an increase in cost of sales. • Asset impairment decreased $121.6 million primarily due to the write down in 2022 of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 4 to the consolidated financial statements for additional information. • Operating expenses decreased $47.4 million primarily as a result of decreases in provision for credit losses as a result of the sanctions imposed on Russian airlines in 2022, professional fees and repairs and maintenance expenses, partially offset by increases in insurance expense and shipping and storage fees. • Cost of sales increased $92.2 million primarily as a result of an increase in asset sales and the gross presentation of asset sales revenues and related costs of sales as described above. Other income (expense) Total other income decreased $7.4 million primarily due to a decrease of $6.6 million in gain on the sale of leasing equipment in 2022 due to the change in presentation of asset sales as described above and a decrease of $0.7 million in Aviation Leasing’s proportionate share of unconsolidated entities’ net income. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $72.0 million primarily due to the changes noted above. Aerospace Products Segment The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through exclusivity arrangements, aircraft engines and aftermarket components primarily for the CFM56-7B and CFM56-5B commercial aircraft engines. Our engine and module sales are facilitated through The Module Factory, a dedicated commercial maintenance program, designed to focus on modular repair and refurbishment of CFM56-7B and CFM56-5B engines, performed by a third party. Used serviceable material is sold through our exclusive partnership with AAR Corp, who is responsible for the teardown, repair, marketing and sales of spare parts from our CFM56 engine pool. We also hold a 25% interest in the Advanced Engine Repair JV which focuses on developing new cost savings programs for engine repairs and a 50% interest in Quick Turn Engine Center LLC or “Quick Turn” (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the CFM56 engine. The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2023 2022 Aerospace products revenue 85,113 14,313 70,800 Expenses Cost of sales 53,436 9,050 44,386 Operating expenses 3,655 1,623 2,032 Acquisition and transaction expenses 755 — 755 Depreciation and amortization 86 34 52 Total expenses 57,932 10,707 47,225 Other (expense) income Equity in losses of unconsolidated entities (1,236) (354) (882) Gain on sale of assets, net — 9,701 (9,701) Total other (expense) income (1,236) 9,347 (10,583) Income before income taxes 25,945 12,953 12,992 Provision for income taxes 916 71 845 Net income 25,029 12,882 12,147 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Net income attributable to shareholders $ 25,029 $ 12,882 $ 12,147 38 The following table sets forth a reconciliation of net income attributable to shareholders from continuing operations to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2023 2022 Net income attributable to shareholders $ 25,029 $ 12,882 $ 12,147 Add: Provision for income taxes 916 71 845 Add: Equity-based compensation expense 15 — 15 Add: Acquisition and transaction expenses 755 — 755 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — — — Add: Incentive allocations — — — Add: Depreciation and amortization expense 86 34 52 Add: Interest expense and dividends on preferred shares — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) (660) (298) (362) Less: Equity in losses of unconsolidated entities 1,236 354 882 Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 27,377 $ 13,043 $ 14,334 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2023 and 2022: (i) net loss of $1,236 and $354, (ii) depreciation and amortization expense of $337 and $56, and (iii) acquisition and transaction expenses of $239 and $0, respectively. Comparison of the three months ended March 31, 2023 and 2022 Revenues Total Aerospace Products revenue increased $70.8 million primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023. Expenses Total expenses increased $47.2 million primarily due to an increase in costs of sales and operating expenses . • Cost of sales increased $44.4 million primarily as a result of an increase in Aerospace Product sales and the gross presentation described above. • Operating expenses increased $2.0 million primarily due to an increase in commission expenses due to the increase in sales from the used material program as well as an increase in professional fees and other operating expenses due to the ramp-up of Aerospace Products. Other income (expense) Total other income (expense) decreased $10.6 million primarily due to a decrease of $9.7 million in gain on sale of assets, net and an increase of $0.9 million in our proportionate share of unconsolidated entities’ net loss. See above discussion regarding presentation of asset sales. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $14.3 million primarily due to the changes noted above. 39 Corporate and Other The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2023 2022 Revenues Lease income $ 7,148 $ 5,367 $ 1,781 Other revenue 1,417 1,299 118 Total revenues 8,565 6,666 1,899 Expenses Operating expenses 11,791 5,704 6,087 General and administrative 4,067 4,561 (494) Acquisition and transaction expenses 1,045 2,064 (1,019) Management fees and incentive allocation to affiliate 2,997 3 2,994 Depreciation and amortization 2,700 2,043 657 Interest expense 39,292 44,139 (4,847) Total expenses 61,892 58,514 3,378 Other expense Other expense — (37) 37 Total other expense — (37) 37 Loss before income taxes (53,327) (51,885) (1,442) Provision for income taxes 115 282 (167) Net loss (53,442) (52,167) (1,275) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Less: Dividends on preferred shares 6,791 6,791 — Net loss attributable to shareholders from continuing operations $ (60,233) $ (58,958) $ (1,275) The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2023 2022 Net loss attributable to shareholders from continuing operations $ (60,233) $ (58,958) $ (1,275) Add: Provision for income taxes 115 282 (167) Add: Equity-based compensation expense 71 — 71 Add: Acquisition and transaction expenses 1,045 2,064 (1,019) Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — — — Add: Incentive allocations 2,942 — 2,942 Add: Depreciation and amortization expense 2,700 2,043 657 Add: Interest expense and dividends on preferred shares 46,083 50,930 (4,847) Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — Less: Equity in losses (earnings) of unconsolidated entities — — — Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ (7,277) $ (3,639) $ (3,638) 40 Comparison of the three months ended March 31, 2023 and 2022 Revenues Total revenues increased $1.9 million primarily due to an increase in the Offshore Energy business as the daily charter rate on one of our vessels increased. Expenses Total expenses increased $3.4 million primarily due to higher operating expenses, management fees and incentive allocation to affiliate, and depreciation expense, partially offset by lower interest expense and acquisition and transaction expenses. • Operating expenses increased $6.1 million which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel and crane repairs on one of our vessels. • Management fees and incentive allocation to affiliate increased $3.0 million primarily due to an increase in incentive fee due to the Manager. • Depreciation and amortization expense increased $0.7 million primarily due to the Well Intervention Tower being placed into service on one of our offshore vessels in December 2022. • Interest expense decreased $4.8 million, which reflects a decrease in the average outstanding debt of approximately $426.0 million due to decreases in (i) the 2021 Bridge Loans of $260.0 million and (ii) the Senior Notes due 2025 of $199.2 million, which were partially redeemed in August 2022, partially offset by an increase in (iii) the Revolving Credit Facility of $33.2 million. • Acquisition and transaction expense decreased $1.0 million primarily due to lower professional fees related to strategic transactions. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased $3.6 million primarily due to the changes noted above. Liquidity and Capital Resources We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. This includes limiting discretionary spending across the organization and re-prioritizing our investments amid market volatility. Our principal uses of liquidity have been and continue to be (i) acquisitions of aircraft and engines, (ii) dividends to our ordinary and preferred shareholders, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments. • Cash used for the purpose of making investments was $167.0 million and $284.4 million during the three months ended March 31, 2023 and 2022, respectively. • Dividends to shareholders and holders of eligible participating securities were $36.7 million and $39.5 million during the three months ended March 31, 2023 and 2022, respectively. • Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our aviation assets (including maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales. • Cash flows from operating activities, plus maintenance reserve collections were $48.8 million and $12.8 million during the three months ended March 31, 2023 and 2022, respectively. • During the three months ended March 31, 2023, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $145.0 million and $220.0 million, respectively. During the three months ended March 31, 2022, additional borrowings were obtained in connection with the (i) 2021 Bridge Loans of $239.5 million, (ii) Revolving Credit Facility of $160.0 million and (iii) EB-5 Loan Agreement of $9.5 million. We made total principal repayments of $224.5 million relating to the Revolving Credit Facility. • Proceeds from the sale of assets were $153.7 million and $54.4 million during the three months ended March 31, 2023 and 2022, respectively. • Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs were $61.7 million and $0.0 million during the three months ended March 31, 2023 and 2022, respectively. 41 We are currently evaluating several potential transactions and related financings, which could occur within the next 12 months. None of these potential transactions, negotiations, or financings are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction or related financing. Historical Cash Flow Comparison of the three months ended March 31, 2023 and 2022 The following table compares the historical cash flow from continuing and discontinued operations for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, (in thousands) 2023 2022 Cash Flow Data: Net cash provided by operating activities $ 38,697 $ 1,923 Net cash used in investing activities (12,323) (228,127) Net cash (used in) provided by financing activities (38,445) 145,810 Net cash provided by operating activities increased $36.8 million, which primarily reflects an increase in net income of $259.1 million, partially offset by certain adjustments to reconcile net income to cash provided by operating activities including (i) asset impairment of $121.6 million, (ii) provision for credit losses of $47.4 million, (iii) equity in losses of unconsolidated entities of $22.7 million, (iv) depreciation and amortization of $17.4 million and (v) gain on sale of assets, net of $15.4 million. Net cash used in investing activities decreased $215.8 million, primarily due to (i) higher proceeds from the sale of leasing equipment of $102.2 million, (ii) a decrease in acquisitions of leasing equipment of $91.9 million, and (iii) a decrease in acquisitions of property, plant and equipment of $53.2 million, partially offset by an increase in investment in unconsolidated subsidiaries of $17.9 million. Net cash used in financing activities increased $184.3 million, primarily due to a decrease in proceeds from debt of $264.0 million, partially offset by an increase in proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs of $61.7 million. Cash Flows of Discontinued Operations The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows for all periods presented. The absence of cash flows from discontinued operations is not expected to adversely affect our liquidity or our ability to fund capital expenditures or working capital needs. The discontinued operations historically generate negative operating and investing cash flows. We also have current availability for borrowing of up to $225.0 million. Debt Obligations Refer to Note 7 of the Consolidated Financial Statements for additional information. Contractual Obligations Our material cash requirements include the following contractual and other obligations: Debt Obligations — As of March 31, 2023, we had outstanding principal and interest payment obligations of $2.1 billion and $0.6 billion, respectively, of which only interest payments of $142.1 million are due in the next twelve months. See Note 7 to the consolidated financial statements for additional information about our debt obligations. Lease Obligations —As of March 31, 2023, we had outstanding operating and finance lease obligations of $2.7 million, of which $0.8 million is due in the next twelve months. Other Cash Requirements —In addition to our contractual obligations, we pay quarterly cash dividends on our ordinary shares and preferred shares, which are subject to change at the discretion of our Board of Directors. During the last twelve months, we declared cash dividends of $125.7 million and $27.2 million on our ordinary shares and preferred shares, respectively. We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required. Critical Accounting Estimates and Policies There were no material changes to our critical accounting estimates described in our Annual Report on Form 10-K for the year ended December 31, 2022. 42 Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements.