What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 153 added, 110 removed, 290 unchanged (48% of the section changed)

9 unchanged sentences

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 .

As of June 30, 2023, we had total consolidated assets of $2.5 billion and total equity of $91.3 million.

Impact of Russia’s Invasion of Ukraine

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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.

As a result, during the six months ended June 30, 2022, we recognized an impairment charge totaling $120.0 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 June 30, 2023, four aircraft 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.

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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.

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.

On May 22, 2023, Fortress and Mubadala Investment Company, through its wholly owned asset management subsidiary Mubadala Capital (“Mubadala”), announced that they have entered into definitive agreements pursuant to which, among other things, certain members of Fortress management and affiliates of Mubadala will acquire 100% of the equity of Fortress that is currently indirectly held by SoftBank Group Corp.

(“SoftBank”).

After the closing of the transaction, Fortress will continue to operate as an independent investment manager under the Fortress brand, with autonomy over investment processes and decision making, personnel and operations.

Results of Operations

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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.

Comparison of the three months ended March 31, 2023 and 2022

Comparison of the three and six months ended June 30, 2023 and 2022

The following table presents our consolidated results of operations:

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

18 unchanged sentences

Other income 408 1,118 (710) 416 1,246 (830)

Total other (expense) income (1,327) 16,614 (17,941)

Income (loss) from before income taxes 31,423 (177,615) 209,038

Total other income (expense) 28 64,798 (64,770) (1,299) 81,412 (82,711)

Income (loss) before income taxes 56,608 47,518 9,090 88,031 (130,097) 218,128

Provision for income taxes 1,855 1,829 26 3,881 3,168 713

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Dividends on preferred shares 8,335 6,791 1,544 15,126 13,582 1,544

Net income (loss) attributable to shareholders $ 22,606 $ (228,984) $ 251,590

Net income (loss) attributable to shareholders from continuing operations $ 46,418 $ 11,449 $ 34,969 $ 69,024 $ (217,535) $ 286,559

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

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

16 unchanged sentences

___________________________________________________

(1) Includes the following items for the three months ended March 31, 2023 and 2022:

( 1) Includes the following items for the three months ended June 30, 2023 and 2022:

(i) depreciation and amortization expense of $38,514 and $39,303, (ii) lease intangible amortization of $3,616 and $3,310 and (iii) amortization for lease incentives of $6,804 and $8,495, 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.

Includes the following items for the six months ended June 30, 2023 and 2022:

(i) depreciation and amortization expense of $79,440 and $80,608, (ii) lease intangible amortization of $7,599 and $6,968 and (iii) amortization for lease incentives of $10,665 and $16,849, respectively.

(2) Includes the following items for the three months ended June 30, 2023 and 2022:

(i) net (loss) income of $(380) and $35, (ii) depreciation and amortization expense of $435 and $117 and (iii) acquisition and transaction expense of $95 and $0, respectively.

Includes the following items for the six months ended June 30, 2023 and 2022:

(i) net (loss) income of $(1,715) and $233, (ii) depreciation and amortization expense of $835 and $173 and (iii) acquisition and transaction expense of $334 and $0, respectively.

Presentation of assets sales

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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

Comparison of the three months ended June 30, 2023 and 2022

Total revenues increased $162.3 million primarily due to an increase in Asset sales revenue, Aerospace products revenue and Lease income.

Asset sales reven ue increased $101.5 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 $41.6 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 $19.9 million primarily due to an increase in the number of aircraft placed on lease and an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels.

Comparison of the six months ended June 30, 2023 and 2022

Total revenues increased $363.3 million primarily due to an increase in Asset sales revenue, Aerospace products revenue, Lease income and Other revenue.

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Aerospace products revenue increased $112.4 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.

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.

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.

Lease income increased $36.6 million primarily due to an increase in the number of aircraft placed on lease and an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels.

Other revenue increased $3.7 million primarily due to an increase in end-of-lease redelivery compensation in the Aviation Leasing segment and an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels.

Comparison of the three months ended June 30, 2023 and 2022

Total expenses increased $88.4 million , primarily due to higher (i) Cost of sales, (ii) Operating expenses and (iii) Management fees and incentive allocation to affiliate, partially offset by lower (iv) Interest expense.

Cost of sales increased $89.4 million primarily as a result of an increase in asset sales and Aerospace Products sales and the gross presentation of Asset sales revenue and Aerospace products revenue as described above.

Operating expenses increased $5.8 million, primarily due to an increase of $5.1 million in the Offshore Energy business which reflects increases in 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 as well as increased number of days on-hire.

Management fees and incentive allocation to affiliate increased $5.6 million primarily due to an increase in incentive fee due to the Manager.

Interest expense decreased $9.4 million which reflects a decrease in the average outstanding debt of approximately $581.0 million due to decreases in (i) the 2021 Bridge Loans of $339.8 million, (ii) the Senior Notes due 2025 of $199.4 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $41.8 million.

Comparison of the six months ended June 30, 2023 and 2022

Total expenses increased $62.5 million , primarily due to higher (i) Cost of sales and (ii) Management fees and incentive allocation to affiliate, partially offset by lower (iii) Asset impairment, (iv) Operating expenses and (v) Interest expense.

Cost of sales increased $226.0 million primarily as a result of an increase in asset sales and Aerospace Products sales and the gross presentation of Asset sales revenue and Aerospace products revenue as described above.

Management fees and incentive allocation to affiliate increased $8.6 million primarily due to an increase in incentive fee due to the Manager.

Asset impairment decreased $122.5 million p rimarily 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 $33.5 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.

• a decrease of $46.9 million in the Aviation Leasing segment primarily as a result of decreases in provision for credit losses and other expenses as a result of the sanctions imposed on Russian airlines in 2022.

• an increase of $11.2 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 as well as increased number of days on-hire.

• an incr ease of $2.3 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.

Interest expense decreased $14.2 million, which reflects a decrease in the average outstanding debt of approximately $503.5 million due to decreases in (i) the 2021 Bridge Loans of $299.9 million and (ii) the Senior Notes due 2025 of $199.3 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $4.3 million.

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.

Total other income decreased $64.8 million during the three months ended June 30, 2023 which primarily reflects (i) a decrease of $63.6 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) a decrease of $0.4 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.

Total other income decreased $82.7 million during six months ended June 30, 2023 which primarily reflects (i) a decrease of $79.9 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 $1.9 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 income from continuing operations increased $9.1 million for the three months ended June 30, 2023 and increased $217.4 million for the six months ended June 30, 2023 as compared to prior years 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;

• 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.

Net loss from discontinued operations decreased $35.9 million and $86.6 million for the three and six months ended June 30, 2023, respectively, compared to the prior year as these businesses have spun off and there is no corresponding activity in the current period.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITDA increased $82.7 million primarily due to the changes noted above.

Adjusted EBITDA increased $2.3 million and $85.0 million during the three and six months ended June 30, 2023, respectively, primarily due to the changes noted above.

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.

As of June 30, 2023, in our Aviation Leasing segment, we own and manage 344 aviation assets, consisting of 97 commercial aircraft and 247 engines, including four aircraft that were still located in Ukraine and eight aircraft and seventeen engines that were still located in Russia.

As of June 30, 2023, 77 of our commercial aircraft and 148 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 aviation equipment was approximately 77% utilized during the three months ended June 30, 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 43 months, and our engines currently on-lease have an average remaining lease term of 10 months.

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Transfers (1) (18) (19)

Assets at March 31, 2023 6 87 93

Assets at June 30, 2023 5 92 97

Assets at January 1, 2023 40 184 224

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Transfers 2 (4) (2)

Assets at March 31, 2023 38 203 241

Assets at June 30, 2023 38 209 247

The following table presents our results of operations for our Aviation Leasing segment:

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

10 unchanged sentences

Total expenses 114,018 45,375 68,643 254,162 262,074 (7,912)

Other (expense) income

Equity in (losses) earnings of unconsolidated entities (35) 246 (281) (134) 798 (932)

1 unchanged sentence

Other income 408 38 370 416 203 213

Total other (expense) income (91) 7,304 (7,395)

Total other income 373 55,068 (54,695) 282 62,372 (62,090)

Income (loss) before income taxes 78,386 92,127 (13,741) 137,191 (46,556) 183,747

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Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — — —

Net income (loss) attributable to shareholders $ 57,810 $ (139,669) $ 197,479

Net income (loss) attributable to shareholders from continuing operations $ 77,299 $ 91,412 $ (14,113) $ 135,109 $ (48,257) $ 183,366

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

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

Net income (loss) attributable to shareholders from continuing operations $ 77,299 $ 91,412 $ (14,113) $ 135,109 $ (48,257) $ 183,366

Provision for (benefit from) income taxes 995 986 9

Provision for income taxes 1,087 715 372 2,082 1,701 381

Equity-based compensation expense 105 — 105 127 — 127

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28 307 (279) (8) 859 (867)

Equity in (earnings) losses of unconsolidated entities 99 (552) 651

Equity in losses (earnings) of unconsolidated entities 35 (246) 281 134 (798) 932

Non-controlling share of Adjusted EBITDA — — — — — —

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________________________________________________________

(1) Includes the following items for the three months ended March 31, 2023 and 2022:

(1) Includes the following items for the three months ended June 30, 2023 and 2022:

(i) depreciation expense of $35,713 and $37,191, (ii) lease intangible amortization of $3,616 and $3,310 and (iii) amortization for lease incentives of $6,804 and $8,495, respectively.

(2) Includes the following items for the three months ended March 31, 2023 and 2022:

Includes the following items for the six months ended June 30, 2023 and 2022:

(i) depreciation expense of $73,853 and $76,419, (ii) lease intangible amortization of $7,599 and $6,968 and (iii) amortization for lease incentives of $10,665 and $16,849, respectively.

(2) Includes the following items for the three months ended June 30, 2023 and 2022:

(i) net (loss) income of $(35) and $246 and (ii) depreciation and amortization of $63 and $61, respectively.

Comparison of the three months ended March 31, 2023 and 2022

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.

Includes the following items for the six months ended June 30, 2023 and 2022:

(i) net (loss) income of $(134) and $798 and (ii) depreciation and amortization of $126 and $61, respectively.

Comparison of the three months ended June 30, 2023 and 2022

Total revenue increased $109.6 million driven by an increase in Asset sales revenue, Lease income and Maintenance revenue, partially offset by a decrease in Other revenue.

• Asset sales revenue increased $101.5 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.

• Lease income increased $10.9 million primarily due to an increase in the number of aircraft and engines placed on lease.

• Maintenance revenue increased $2.1 million primarily due an increase in the number of aircraft and engines placed on lease, and higher aircraft and engine utilization, partially offset by lower end-of-lease return compensation.

• Other revenue decreased $4.9 million primarily due to lower end-of-lease redelivery compensation.

Comparison of the six months ended June 30, 2023 and 2022

Total revenue increased $237.9 million driven by an increase in Asset sales revenue, Lease income and Other revenue.

• Asset sales revenue increased $210.2 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 $25.7 million primarily due to primarily due to an increase in the number of aircraft and engines placed on lease.

• Other revenue increased $1.5 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.

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.

Comparison of the three months ended June 30, 2023 and 2022

Total expenses increased $68.6 million primarily driven by an increase in Cost of sales, partially offset by a decrease in Depreciation and amortization expense.

• Cost of sales increased $69.6 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.

• Depreciation and amortization expense decreased $1.5 million driven by an increase in the number of aircraft redelivered and parted out into our engine leasing pool, partially offset by an increase in the number of assets owned and on lease.

Comparison of the six months ended June 30, 2023 and 2022

Total expenses decreased $7.9 million primarily driven by a decrease in Asset impairment and Operating expenses, partially offset by an increase in Cost of sales.

• Asset impairment decreased $122.5 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.

• Operating expenses decreased $46.9 million primarily as a result of decreases in provision for credit losses and other expenses as a result of the sanctions imposed on Russian airlines in 2022.

• Cost of sales increased $161.8 million 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.

Total other income decreased $54.7 million during the three months ended June 30, 2023 primarily due to a decrease of $54.8 million in Gain on sale of assets, net in 2022 due to the change in presentation of asset sales as described above.

Total other income decreased $62.1 million during the six months ended June 30, 2023 primarily due to a decrease of $61.4 million in Gain on sale of assets, net in 2022 due to the change in presentation of asset sales as described above and a decrease of $0.9 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.

Adjusted EBITDA decreased $16.4 million and increased $55.6 million during the three and six months ended June 30, 2023, respectively, primarily due to lower gain on sales period over period and the changes noted above.

Aerospace Products Segment

4 unchanged sentences

The following table presents our results of operations:

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

13 unchanged sentences

Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — — —

Net income attributable to shareholders $ 25,029 $ 12,882 $ 12,147

Net income attributable to shareholders from continuing operations $ 28,567 $ 15,072 $ 13,495 $ 53,596 $ 27,954 $ 25,642

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

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

Net income attributable to shareholders $ 25,029 $ 12,882 $ 12,147

Net income attributable to shareholders from continuing operations $ 28,567 $ 15,072 $ 13,495 $ 53,596 $ 27,954 $ 25,642

Provision for income taxes 584 1,887 (1,303) 1,500 1,958 (458)

13 unchanged sentences

________________________________________________________

(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

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.

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.

(1) Includes the following items for the three months ended June 30, 2023 and 2022:

(i) net loss of $345 and $211, (ii) depreciation and amortization expense of $372 and $56 and (iii) acquisition and transaction expense of $95 and $0, respectively.

Includes the following items for the six months ended June 30, 2023 and 2022:

(i) net loss of $1,581 and $565, (ii) depreciation and amortization expense of $709 and $112 and (iii) acquisition and transaction expense of $334 and $0, respectively .

Total Aerospace products revenue increased $41.6 million and $112.4 million during the three and six months ended June 30, 2023 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.

Total expenses increased $20.4 million during the three months ended June 30, 2023 primarily due to an increase in Cost of sales of $19.8 million as a result of an increase in Aerospace product sales and the gross presentation described above.

Total expenses increased $67.6 million primarily due to an increase in Cost of sales and Operating expenses during the six months ended June 30, 2023.

• Cost of sales increased $64.2 million primarily as a result of an increase in Aerospace products sales and the gross presentation described above.

• Operating expenses increased $2.3 million primarily due to an increase in commission expenses due to the increase in sales from the used material program.

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.

Total other income decreased $9.0 million primarily due to a decrease of $8.9 million in Gain on sale of assets, net during the three months ended June 30, 2023.

See above discussion regarding presentation of asset sales.

Total other income decreased $19.6 million primarily due to a decrease of $18.6 million in Gain on sale of assets, net and an increase of $1.0 million in our proportionate share of unconsolidated entities’ net loss during the six months ended June 30, 2023.

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.

Adjusted EBITDA increased $13.0 million and $27.3 million during the three and six months ended June 30, 2023, respectively, primarily due to the changes noted above.

Corporate and Other

The following table presents our results of operations:

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

9 unchanged sentences

Total expenses 65,168 65,781 (613) 127,060 124,295 2,765

Other expense

Other expense — (37) 37

Total other expense — (37) 37

Other income — 1,080 (1,080) — 1,043 (1,043)

Total other income — 1,080 (1,080) — 1,043 (1,043)

Loss before income taxes (50,929) (61,568) 10,639 (104,256) (113,453) 9,197

Provision for income taxes 115 282 (167)

Provision for (benefit from) income taxes 184 (773) 957 299 (491) 790

Net loss (51,113) (60,795) 9,682 (104,555) (112,962) 8,407

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Net loss attributable to shareholders from continuing operations $ (59,448) $ (67,586) $ 8,138 $ (119,681) $ (126,544) $ 6,863

The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:

Three Months Ended March 31, Change

The following table sets forth a reconciliation of net loss attributable to shareholders from continuing operations to Adjusted EBITDA:

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2023 2022 2023 2022

Net loss attributable to shareholders from continuing operations $ (59,448) $ (67,586) $ 8,138 $ (119,681) $ (126,544) $ 6,863

Provision for income taxes 115 282 (167)

Provision for (benefit from) income taxes 184 (773) 957 299 (491) 790

Equity-based compensation expense 335 — 335 406 — 406

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Adjusted EBITDA (non-GAAP) $ (2,836) $ (8,583) $ 5,747 $ (10,113) $ (12,220) $ 2,107

Comparison of the three months ended March 31, 2023 and 2022

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.

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.

Total revenues increased $11.1 million and $13.0 million during the three and six months ended June 30, 2023 primarily due to an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels.

Comparison of the three months ended June 30, 2023 and 2022

Total expenses decreased $0.6 million primarily due to lower Interest expense and Acquisition and transaction expenses, partially offset by higher Management fees and incentive allocation to affiliate and Operating expenses.

• Interest expense decreased $9.4 million, which reflects a decrease in the average outstanding debt of approximately $581.0 million due to decreases in (i) the 2021 Bridge Loans of $339.8 million, (ii) the Senior Notes due 2025 of $199.4 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $41.8 million.

• Acquisition and transaction expense decreased $1.8 million primarily due to lower professional fees related to strategic transactions.

• Management fees and incentive allocation to affiliate increased $5.6 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.

• Operating expenses increased $5.1 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 as well as increased number of days on-hire.

Comparison of the six months ended June 30, 2023 and 2022

Total expenses increased $2.8 million primarily due to higher Operating expenses and Management fees and incentive allocation to affiliate, partially offset by lower Interest expense and Acquisition and transaction expenses.

• Operating expenses increased $11.2 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 as well as increased number of days on-hire.

• Management fees and incentive allocation to affiliate increased $8.6 million primarily due to an increase in incentive fee due to the Manager.

• Interest expense decreased $14.2 million, which reflects a decrease in the average outstanding debt of approximately $503.5 million due to decreases in (i) the 2021 Bridge Loans of $299.9 million and (ii) the Senior Notes due 2025 of $199.3 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $4.3 million.

• Acquisition and transaction expense decreased $2.8 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.

Adjusted EBITDA increased $5.7 million and $2.1 million during the three and six months ended June 30, 2023, respectively, primarily due to the changes noted above.

Liquidity and Capital Resources

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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.

• Cash used for the purpose of making investments was $380.8 million and $457.9 million during the six months ended June 30, 2023 and 2022, respectively.

• Dividends to shareholders and holders of eligible participating securities were $75.0 million and $79.4 million during the six months ended June 30, 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.

Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our aviation assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales.

• Cash flows provided by operating activities, plus the principal collections on finance leases and maintenance reserve collectio ns were $87.3 million during the six months ended June 30, 2023.

Cash flows used in operating activities, plus the principal collections on finance leases and maintenance reserve collectio ns were $23.6 million during the six months ended June 30, 2022

• During the six months ended June 30, 2023, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $325.0 million and $330.0 million, respectively.

During the six months ended June 30, 2022, additional borrowings were obtained in connection with the (i) 2021 Bridge Loa ns of $239.5 million, (ii) Revolving Credit Facility of $255.0 million and (iii) EB-5 Loan Agreement of $9.5 million.

We made total principal repaymen ts of $224.5 million relating t o the Revolving Credit Facility.

• Proceeds from the sale of assets were $273.2 million and $142.3 million d uring the six months ended June 30, 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 six months ended June 30, 2023 and 2022, respectively.

We are currently evaluating several potential transactions and related financings, which could occur within the next 12 months.

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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,

Comparison of the six months ended June 30, 2023 and 2022

The following table compares the historical cash flow from continuing and discontinued operations for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(in thousands) 2023 2022

Cash Flow Data:

Net cash provided by operating activities $ 38,697 $ 1,923

Net cash provided by (used in) operating activities $ 67,241 $ (48,569)

Net cash used in investing activities (101,846) (306,784)

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

Net cash provided by financing activities 2,674 212,097

Net cash provided by operating activities increased $115.8 million, which primarily reflects (i) an increase in Net income of $304.0 million and (ii) Changes in working capital of $50.9 million, partially offset by certain adjustments to reconcile net income to Cash used in operating activities including, (iii) Asset impairment of $122.5 million , (iv) Provision for credit losses of $46.2 million, (v) Equity in losses of unconsolidated entities of $36.1 million and (vi) Depreciation and amortization of $35.5 million.

Net cash used in investing activities decreased $204.9 million, primarily due to (i) higher Proceeds from the sale of leasing equipment of $135.2 million and (ii) a decrease in Acquisitions of property, plant and equipment of $116.4 million partially offset by (iii) an increase in Investment in unconsolidated entities of $17.3 million , (iv) a decrease in Proceeds for deposit on sale of aircraft and engine of $6.4 million, (v) an increase in Acquisition of lease intangibles of $5.5 million and (vi) an increase in Acquisitions of leasing equipment of $4.7 million.

Net cash provided by financing activities decreased $209.4 million, primarily due to (i) a decrease in Proceeds from debt of $179.0 million, and (ii) an increase in Repayments of debt of $105.3 million partially offset by (iii) an increase in Proceeds from the issuance of preferred shares of $61.7 million, and (iv) a decrease in Payments of deferred financing costs of $13.0 million.

We also have current availability for borrowing of up to $155.0 million.

Cash Flow 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.

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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.

Debt Obligations — As of June 30, 2023, we had outstanding principal and interest payment obligations of $2.2 billion and $0.6 billion, respectively, of which only interest payments of $152.2 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.

Lease Obligations —As of June 30, 2023, we had outstanding operating and finance lease obligations of $2.5 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis