What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-04-26 · 196 added, 102 removed, 241 unchanged (55% of the section changed)

7 unchanged sentences

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, 2024, we had total consolidated assets of $3.2 billion and total equity of $177.6 million .

We believe that there is a large number of acquisition opportunities in our markets and that our expertise and business and financing relationships, together with our access to capital, will allow us to take advantage of these opportunities.

As of June 30, 2024, we had total consolidated assets of $3.4 billion and total equity of $69.6 million.

Internalization of Management

On May 28, 2024, the Company entered into definitive agreements with the Former Manager and Master GP to internalize the Company’s management function.

As part of the termination of the Management Agreement, the Company (i) agreed to pay the Former Manager (for itself and on behalf of the Master GP, as applicable) the Cash Consideration, the compensation accrued and payable, but not yet paid, under the Management Agreement and the expenses that were reimbursable, but not yet reimbursed, under the Management Agreement;

(ii) issued to the Former Manager (for itself and on behalf of the Master GP, as applicable) the Share Consideration;

(iii) purchased from Master GP all of its partnership interests in FTAI Aviation Holdco Ltd., a subsidiary of the Company, in exchange for $30.

Following the Internalization, the Company no longer pays management fees or incentive distributions to the Former Manager and Master GP.

In connection with the termination of the Management Agreement, the Company also entered into a Transition Services Agreement with the Former Manager.

Under the Transition Services Agreement, the Former Manager is required to continue to provide the Company and its affiliates with all of the Services for a transition period during which the Company will procure replacements for the Services.

The Services will be provided to the Company for a fee equal to the Former Manager’s cost of providing the Services, including the allocated cost of, among other things, overhead, employee wages and compensation, rent and related real estate expenses and actually incurred out-of-pocket expenses, plus a mark-up of ten percent (10%).

The Company is required to use commercially reasonable efforts to make available to the Former Manager certain employees of the Company who were previously employees of the Former Manager to provide the Reverse Services, subject to certain exceptions.

Unless the Transition Services Agreement is terminated earlier or the Company elects to terminate a Service by providing written notice to the Former Manager, the Former Manager is required to provide certain Services to the Company until October 31, 2024.

In addition, the Former Manager is required to continue to provide the services that are reasonably required by the Company to prepare its quarterly and annual financial statements until May 31, 2025.

The Company is required to continue to provide the Reverse Services until the later to occur of the dissolution or sale of the entities receiving Reverse Services.

The Transition Services Agreement may be terminated earlier (x) by mutual agreement of the parties, (y) by either the Former Manager or the Company in the event of a material breach by the non-terminating party that is not cured within thirty (30) days following written notification thereof, or (z) by the Former Manager if the Company fails to pay any undisputed sum overdue and payable for a period of at least thirty (30) days.

We incurred $3.4 million in costs for Transition Services during the three and six months ended June 30, 2024, and these costs are reported in Acquisition and transaction expenses in the Consolidated Statements of Operations.

Impact of Russia’s Invasion of Ukraine

3 unchanged sentences

As a result 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 March 31, 2024, eight aircraft and seventeen engines were still located in Russia.

As of June 30, 2024, 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.

13 unchanged sentences

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 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

5 unchanged sentences

We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance.

Adjusted EBITDA is defined as net income (loss) attributable to shareholders, 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, 2024 and 2023

Adjusted EBITDA is defined as net income (loss) attributable to shareholders, 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, internalization fee to affiliate, (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 and six months ended June 30, 2024 and 2023

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) 2024 2023 2024 2023

10 unchanged sentences

Management fees and incentive allocation to affiliate 3,554 5,563 (2,009) 8,449 8,560 (111)

Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000

Depreciation and amortization 56,691 38,514 18,177 106,611 79,440 27,171

4 unchanged sentences

Equity in losses of unconsolidated entities (694) (380) (314) (1,361) (1,715) 354

Other income 634 8 626

Total other expense (33) (1,327) 1,294

Income from before income taxes 45,194 31,423 13,771

Provision for income taxes 5,572 2,026 3,546

Net income 39,622 29,397 10,225

Loss on extinguishment of debt (13,920) — (13,920) (13,920) — (13,920)

Other (expense) income (498) 408 (906) 136 416 (280)

Total other (expense) income (15,112) 28 (15,140) (15,145) (1,299) (13,846)

(Loss) Income from before income taxes (232,903) 56,608 (289,511) (187,709) 88,031 (275,740)

(Benefit from) provision for income taxes (13,033) 1,855 (14,888) (7,461) 3,881 (11,342)

Net (loss) income (219,870) 54,753 (274,623) (180,248) 84,150 (264,398)

Dividends on preferred shares 8,335 8,335 — 16,670 15,126 1,544

Net income attributable to shareholders $ 31,287 $ 22,606 $ 8,681

Net (loss) income attributable to shareholders $ (228,205) $ 46,418 $ (274,623) $ (196,918) $ 69,024 $ (265,942)

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2024 2023 2024 2023

Net income attributable to shareholders $ 31,287 $ 22,606 $ 8,681

Provision for income taxes 5,572 2,026 3,546

Net (loss) income attributable to shareholders $ (228,205) $ 46,418 $ (274,623) $ (196,918) $ 69,024 $ (265,942)

(Benefit from) provision for income taxes (13,033) 1,855 (14,888) (7,461) 3,881 (11,342)

Equity-based compensation expense 638 510 128 1,148 618 530

7 unchanged sentences

Interest expense and dividends on preferred shares 63,531 46,834 16,697 119,573 92,917 26,656

Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000

Pro-rata share of Adjusted EBITDA from unconsolidated entities (2)

4 unchanged sentences

________________________________________________________

(1) Includes the following items for the three months ended March 31, 2024 and 2023:

(1) Includes the following items for the three months ended June 30, 2024 and 2023:

(i) depreciation and amortization expense of $56,691 and $38,514, (ii) lease intangible amortization of $3,786 and $3,616 and (iii) amortization for lease incentives of $5,332 and $6,804, respectively.

(2) Includes the following items for the three months ended March 31, 2024 and 2023:

Includes the following items for the six months ended June 30, 2024 and 2023:

(i) depreciation and amortization expense of $106,611 and $79,440, (ii) lease intangible amortization of $7,762 and $7,599 and (iii) amortization for lease incentives of $10,558 and $10,665, respectively.

(2) Includes the following items for the three months ended June 30, 2024 and 2023:

(i) net loss of $694 and $380, (ii) depreciation and amortization expense of $77 and $435, and (iii) acquisition and transaction expenses of $0 and $95, respectively.

Comparison of the three months ended March 31, 2024 and 2023

Total revenues increased $34.0 million primarily due to an increase in Aerospace products revenue and Maintenance revenue, partially offset by decreases in Asset sales revenue, Lease income, and Other revenue.

Includes the following items for the six months ended June 30, 2024 and 2023:

(i) net loss of $1,361 and $1,715, (ii) depreciation and amortization expense of $196 and $835, and (iii) acquisition and transaction expenses of $0 and $334, respectively.

Comparison of the three months ended June 30, 2024 and 2023

Total revenues increased $169.2 million primarily due to an increase in Aerospace products revenue, Lease income, and Maintenance revenue partially offset by decreases in Asset sales revenue.

Aerospace products revenue increased $152.5 million primarily driven by an increase in sales relating to the CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2024.

Maintenance reve nue increased $10.6 million p rimarily due to an increase in the number of aircraft and engines placed on lease and higher aircraft and engine utilizat ion.

Lease income increased $11.2 million primarily due to an increase in the number of engines placed on lease during the year, partially offset by an increase in the number of aircraft and engines redelivered and sold.

Maintenance reve nue increased $9.1 million primarily due to an increase in the number of aircraft and engines placed on lease and higher aircraft and engine utilization.

Asset sales reven ue decreased $4.4 million primarily due to a decrease in the sale of commercial aircraft and engines in our Aviation Leasing segment.

Comparison of the six months ended June 30, 2024 and 2023

Total revenues increased $203.2 million primarily due to an increase in Aerospace products revenue, Maintenance revenue, and Lease income partially offset by decreases in Asset sales revenue and Other revenue.

Aerospace products revenue increased $256.4 million primarily driven by an increase in sales relating to the CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2024.

Maintenance reve nue increased $19.8 million primarily due to an increase in the number of aircraft and engines placed on lease and higher aircraft and engine utilization.

Lease income increased $8.4 million primarily due to an i ncrease in the number of aircraft and engines placed on lease during the year, partially offset by an increase in the number of aircraft and engines redelivered.

Asset sales reven ue decreased $74.5 million primarily due to a decrease in the sale of commercial aircraft and engines in our Aviation Leasing segment.

Other revenue decreased $6.9 million primarily due to a decrease in end-of-lease redelivery compensation.

Lease income decreased $2.8 million primarily due to a decrease in leasing income of the Offshore Energy business as one of our vessels was off-hire in 2024 compared to on-hire in 2023.

Comparison of the three months ended March 31, 2024 and 2023

Total expenses increased $21.5 million, primarily due to higher (i) Depreciation and amortization expense, (ii) Interest expense, (iii) Acquisition and transaction expenses, (iv) Operating expenses and (v) M anagement fees and incentive allocation to affiliate, partially offset by lower (vi) Cost of sales.

Comparison of the three months ended June 30, 2024 and 2023

Total expenses increased $443.6 million, primarily due to higher (i) Internalization fee to affiliate, (ii) Cost of sales, (iii) Depreciation and amortization, (iv) Interest expense, (v) Acquisition and transaction expenses, and (vi) Operating expenses.

This increase was partially offset by lower (vii) Management fees and incentive allocation to affiliate.

Internalization fee to affiliate increased $300.0 million relating to the Internalization effective May 28, 2024.

Cost of sales increased $101.3 million primarily as a result of an increase in Aerospace Products Sales.

Depreciation and amortization increased $18.2 million primarily driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool.

Interest expense increased $8.4 million, which reflects an increase in the average debt outstanding of approximately $417.1 million primarily due to an increase in the (i) Senior Notes due 2030 of $496.8 million, which were issued in November 2023, partially offset by a decrease in the (ii) Revolving Credit Facility of $78.3 million.

Acquisition and transaction expenses increased $2.9 million primarily due to higher professional fees related to strategic transactions.

Operating expenses increased $2.8 million primarily due to an increase in repairs and maintenance expense, professional fees and shipping an d storage fees, as well as increase in commission expenses due to the increase in sales from the used material program, partially offset by decreases in the Offshore Energy business in crew expenses, project costs and other operating expenses as one of our vessels was off-hire in 2024.

Management fees and incentive allocation to affiliate increased $1.9 million primarily due to an increase in incentive fee due to the Manager driven by an increase in net income.

Cost of sales decreased $2.9 million primarily as a result of a decrease in asset sales, partially offset by an increase in Aerospace Product sales.

Other income (expense)

Total other expense decreased $1.3 million primarily due to a decrease of $0.7 million in the proportionate share of unconsolidated entities’ net loss.

Interest expense increased $16.7 million, which reflects an increase in the average debt outstanding of approximately $756.8 million primarily due to an increase in the (i) Senior Notes due 2031 of $700.0 million, which were issued in April 2024, (ii) Senior Notes due 2030 of $496.8 million, which were issued in November 2023, (iii) Senior Notes due 2032 of $266.7 million, which were issued in June 2024, and the (iv) Revolving Credit Facility of $33.3 million, partially offset by decreases in the (v) Senior Notes due 2025 of $650.0 million, which were redeemed in April 2024, and the (vi) Senior Notes due 2027 of $89.7 million, which were partially redeemed in June 2024.

Acquisition and transaction expenses increased $5.3 million primarily due to higher professional fees related to strategic transactions and fees associated with the Internalization.

Operating expenses increased $4.3 million which primarily reflects an increase in commission expenses due to higher sales from the used material program, increases in shipping and storage fees, professional fees and other operating expenses in the Aerospace Products segment, an increase in professional fees and repairs and maintenance expenses in the Aviation Leasing Segment.

Management fees and incentive allocation to affiliate decreased $2.0 million primarily due to the Internalization of the Company as of May 28, 2024.

Comparison of the six months ended June 30, 2024 and 2023

Total expenses increased $465.1 million, primarily due to higher (i) Internalization to affiliate, (ii) Cost of Sales, (iii) Depreciation and amortization, (iv) Interest expense, (v) Acquisition and transaction expenses, and (vi) Operating expenses.

This increase was partially offset by lower (vii) General and administrative, (viii) Asset impairment, and (ix) Management fees and incentive allocation to affiliate.

Internalization fee to affiliate increased $300.0 million relating to the Internalization effective May 28, 2024.

Cost of sales increased $98.5 million primarily as a result an increase in Aerospace Product Sales, partially offset by a decrease in Asset sales.

Depreciation and amortization increased $27.2 million primarily driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool.

Interest expense increased $25.1 million, which reflects an increase in the average debt outstanding of approximately $585.6 million primarily due to an increase in the (i) Senior Notes due 2030 of $496.8 million, (ii) Senior Notes due 2031 of $350.0 million issued in April 2024, (iii) Senior Notes due 2032 of $133.3 million, which were issued in June 2024, partially offset by decreases in the (iv) Senior Notes due 2025 of $326.8 million, which were redeemed in April 2024, the (v) Senior Notes due 2027 of $44.8 million, which were partially redeemed in June 2024, and a decrease in the (vi) Revolving Credit Facility of $22.5 million.

Acquisition and transaction expenses increased $8.3 million primarily due to higher professional fees related to strategic transactions and fees associated with the Internalization.

Operating expenses increased $7.1 million which primarily reflects an increase in commission expenses due to higher sales from the used material program, increases in shipping and storage fees, professional fees and other operating expenses in the Aerospace Products segment, an increase in professional fees and repairs and maintenance expenses in the Aviation Leasing Segment.

Other (expense) income

Total other expense increased $15.1 million during the three months ended June 30, 2024 primarily due to a $13.9 million increase in the loss on extinguishment of debt, a $0.9 million increase in other expense and a $0.3 million increase in the proportionate share of unconsolidated entities’ net loss.

Total other expense increased $13.8 million during the six months ended June 30, 2024 primarily due to a $13.9 million increase in the loss on extinguishment of debt.

(Benefit from) provision for income taxes

The benefit from income taxes increased $14.9 million and $11.3 million during the three and six months ended June 30, 2024, respectively, primarily due to the expected tax benefit from the Internalization fee paid to affiliate.

Net income (loss)

Net income increased $10.2 million primarily due to the changes noted above.

Net income decreased $274.6 million and $264.4 million for the three and six months ended June 30, 2024 as compared to prior years primarily due to the changes noted above.

Adjusted EBITDA (Non-GAAP)

Adjusted EBIT DA increased $36.4 million primarily due to the changes noted above.

Adjusted EBIT DA in creased $60.8 million and $97.3 million during the three and six months ended June 30, 2024, respectively, primarily due to the changes noted above.

Aviation Leasing Segment

As of March 31, 2024, in our Aviation Leasing segment, we own and manage 380 aviation assets, consisting of 103 commercial aircraft and 277 engines, including eight ai rcraft and seventeen engines that were still located in Russia.

As of March 31, 2024, 82 of our commercial aircraft and 184 of our engines were leased to operators or other third parties.

As of June 30, 2024, in our Aviation Leasing segment, we own and manage 391 aviation assets, consisting of 99 commercial aircraft and 292 engines, including eight aircraft and seventeen engines that were still located in Russia.

As of June 30, 2024, 88 of our commercial aircraft and 175 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 78% utilized during the three months ended March 31, 2024, 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 81% utilized during the six months ended June 30, 2024, 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 45 months, and our engines currently on-lease have an average remaining lease term of 22 months.

4 unchanged sentences

Transfers — (21) (21)

Assets at March 31, 2024 5 98 103

Assets at June 30, 2024 5 94 99

Assets at January 1, 2024 32 235 267

2 unchanged sentences

Transfers — (15) (15)

Assets at March 31, 2024 30 247 277

Assets at June 30, 2024 25 267 292

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) 2024 2023 2024 2023

10 unchanged sentences

Total expenses 122,392 94,058 28,334 212,295 234,202 (21,907)

Other income (expense)

Other (expense) income

Equity in losses of unconsolidated entities (61) (35) (26) (207) (134) (73)

Other income 369 8 361

Total other income (expense) 223 (91) 314

Other (expense) income (911) 408 (1,319) (542) 416 (958)

Total other (expense) income (972) 373 (1,345) (749) 282 (1,031)

Income before income taxes 61,073 73,696 (12,623) 106,703 132,501 (25,798)

2 unchanged sentences

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2024 2023 2024 2023

Net income attributable to shareholders $ 52,780 $ 72,609 $ (19,829) $ 95,377 $ 130,419 $ (35,042)

Provision for (benefit from) income taxes 3,033 995 2,038

Provision for income taxes 8,293 1,087 7,206 11,326 2,082 9,244

Equity-based compensation expense 128 105 23 233 127 106

7 unchanged sentences

Interest expense and dividends on preferred shares — — — — — —

Internalization fee to affiliate — — — — — —

Pro-rata share of Adjusted EBITDA from unconsolidated entities (2)

4 unchanged sentences

________________________________________________________

(1) Includes the follo wing items for the three months ended March 31, 2024 and 2023:

(1) Includes the following items for the three months ended June 30, 2024 and 2023:

(i) depreciation expense of $52,672 and $35,713, (ii) lease intangible amortization of $3,786 and $3,616 and (iii) amortization for lease incentives of $5,332 and $6,804, respectively.

(2) Includes the following items for the three months ended March 31, 2024 and 2023:

Includes the following items for the six months ended June 30, 2024 and 2023:

(i) depreciation expense of $98,756 and $73,853, (ii) lease intangible amortization of $7,762 and $7,599 and (iii) amortization for lease incentives of $10,558 and $10,665, respectively.

(2) Includes the following items for the three months ended June 30, 2024 and 2023:

(i) net loss of $61 and $35 and (ii) depreciation and amortization of $21 and $63, respectively.

Comparison of the three months ended March 31, 2024 and 2023

Total reven ue decreased $63.7 million driven by a decrease in asset sales revenue and other revenue, partially offset by an increase in maintenance revenue and lease income.

Includes the following items for the six months ended June 30, 2024 and 2023:

(i) net loss of $207 and $134 and (ii) depreciation and amortization of $84 and $126, respectively.

Comparison of the three months ended June 30, 2024 and 2023

Total reven ue in creased $17.1 million driven by an increase in Lease income and Maintenance revenue, partially offset by a decrease in Asset sales revenue.

• Leas e income increased $12.6 million primarily due to an increase in the number of aircraft and engines placed on lease during the year, partially offset by an increase in the number of aircraft and engines redelivered .

• Maintenance revenue increased $9.1 million primarily due to an increase in the number of aircraft and engines placed on lease and higher aircraft and engine utilization.

• Asset sales revenue decreased $4.4 million primarily due to a decrease in the sale of commercial aircraft and engines.

• Other revenu e decreased $6.3 million primarily due to a decrease in end-of-lease redelivery compensation.

Comparison of the six months ended June 30, 2024 and 2023

Total reven ue decreased $46.7 million driven by a decrease in Asset sales revenue and Other revenue, partially offset by an increase in Maintenance revenue and Lea se income .

• Asset sales revenue decreased $74.5 million primarily due to a decrease in the sale of commercial aircraft and engines.

• Other revenue decreased $6.6 million primarily due to a decrease in end-of-lease redelivery compensation.

• Maintenance revenue increased $19.8 million primarily due to an increase in the number of aircraft and engines placed on lease and higher aircraft and engine utilization.

• Leas e income increased $14.6 million primarily due to an increase in the number of aircraft and engines placed on lease during the year, partially offset by an increase in the number of aircraft and engines redelivered.

Total exp enses decreased $50.2 million primarily driven by a decrease in cost of sales, partially offset by an increase in depreciation and amortization, acquisition and transaction expenses, and operating expenses.

Comparison of the three months ended June 30, 2024 and 2023

Total expenses increased $28.3 million primarily driven by an increase in Depreciation and amortization, Cost of sales, Operating expenses, and Acquisition and transaction expenses.

• Depreciation and amortization expense increased $17.0 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool.

• Cost of sales increased $9.4 million primarily as a result of an increase in asset sales.

• Operating expenses increased $1.2 million driven by an increase in professional fees and repairs and maintenance expenses, partially offset by a decrease in shipping and storage fees and insurance expense.

• Acquisition and transaction expenses increased $0.8 million driven by r elated costs associated with the acquisition of aviation leasing equipment.

Comparison of the six months ended June 30, 2024 and 2023

Total exp enses decreased $21.9 million primarily driven by a decrease in Cost of sales, partially offset by an increase in Depreciation and amortization, Operating expenses, and Acquisition and transaction expenses.

• Cost of sales decreased $51.0 million primarily as a result of a decrease in asset sales .

• Depreciation and amor tization expense increased $24.9 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool.

• Operating exp enses increased $2.3 million driven by an increase in professional fees, shipping and storage fees and repairs and maintenance expenses, partially offset by a decrease in insurance expense.

• Acquisition and transaction expense s increased $2.1 million driven by higher compensation and related costs associated with the acquisition of aviation leasing equipment.

• Operating exp enses increased $1.1 million driven by an increase in professional fees and repairs and maintenance expenses, partially offset by a decrease in shipping and storage fees and insurance expense.

Other income (expense)

Total other income increased $0.3 million primarily due to an increase in interest income, partially offset by an increase in Aviation Leasing’s proportionate share of unconsolidated entities’ net loss.

Net income decreased $15.2 million primarily due to the changes noted above.

Other (expense) income

Total other expense increased $1.3 million and $1.0 million during the three and six months ended June 30, 2024 primarily due to an increase in other expense and an increase in the proportionate share of unconsolidated entities’ net loss.

Provision for income taxes

The provision for income taxes increased $2.0 million primarily due to the Company reducing a portion of the deferred tax asset of $46.6 million in connection with a tax law change in Bermuda, which was recorded at December 31, 2023.

See Note 10 to the consolidated financial statements for additional information.

The provision for income taxes increased $7.2 million and $9.2 million during the three and six months ended June 30, 2024, respectively, primarily due to taxable income in each period.

Net income decreased $19.8 million and $35.0 million during the three and six months ended June 30, 2024, respectively, primarily due to the changes noted above.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITD A decreased $2.7 million primarily due to the changes noted above.

Adjusted EBITD A in creased $3.8 million and $1.1 million primarily due to the changes noted above.

Aerospace Products Segment

6 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) 2024 2023 2024 2023

12 unchanged sentences

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2024 2023 2024 2023

9 unchanged sentences

Interest expense and dividends on preferred shares — — — — — —

Internalization fee to affiliate — — — — — —

Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)

4 unchanged sentences

________________________________________________________

(1) Includes the following items for the three months ended March 31, 2024 and 2023:

(i) net loss of $521 and $1,236, (ii) depreciation and amortization expense of $56 and $337, and (iii) acquisition and transaction expenses o f $0 and $239, respectively.

Comparison of the three months ended March 31, 2024 and 2023

Tot al Aerospace Products revenue increased $103.9 million primarily driven by an increase in sales relating to the CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2024.

Tota l expenses increased $61.6 million primarily due to an increase in costs of sales, operating expenses and depreciation and amortization.

(1) Includes the following items for the three months ended June 30, 2024 and 2023:

(i) net loss of $633 and $345, (ii) depreciation and amortization expense of $56 and $372, and (iii) acquisition and transaction expenses of $0 and $95, respectively.

Includes the following items for the six months ended June 30, 2024 and 2023:

(i) net loss of $1,154 and $1,581, (ii) depreciation and amortization expense of $112 and $709, and (iii) acquisition and transaction expenses of $0 and $334, respectively.

Tot al Aerospace Products revenue increased $152.5 million and $256.4 million during the three and six months ended June 30, 2024 primarily driven by an increase in sales relating to the CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2024.

Comparison of the three months ended June 30, 2024 and 2023

Tota l expenses increased $96.2 million primarily due to a n increase in Costs of sales and Operating expenses.

• Cost of sale s increased $92.0 million primarily as a result of an increase in Aerospace Product sales.

• Operating expenses increased $3.2 million primarily driven by an increase in commission expenses due to the increase in sales from the used material program as well as increases in shipping and storage fees, professional fees and other operating expenses.

Comparison of the six months ended June 30, 2024 and 2023

Tota l expenses increased $157.9 million primarily due to an increase in Costs of sales and Operating expenses.

• Cost of sales increased $149.4 million primarily as a result of an increase in Aerospace Product sales.

• Op erating expenses increased $7.0 million primarily driven by an increase in commission expenses due to the increase in sales from the used material program as well as increases in shipping and storage fees, professional fees and other operating expenses.

Other expense

Total other expense decreased $0.7 million due to a decrease in our proportionate share of unconsolidated entities’ net loss.

Net income increased $41.4 million primarily due to the changes noted above.

Total other expense in creased $0.3 million during the three months ended June 30, 2024 due to an in crease in our proportionate share of unconsolidated entities’ net loss.

Total other expense decreased $0.4 million during the six months ended June 30, 2024 due to a decrease in our proportionate share of unconsolidated entities’ net loss.

Provision for income taxes

The provision for income taxes increased $4.3 million and $6.0 million during the three and six months ended June 30, 2024, respectively, primarily due to the increase in net income.

Net income increased $51.6 million and $93.0 million during the three and six months ended June 30, 2024, respectively, primarily due to the changes noted above.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITD A increased $42.9 million primarily due to the changes noted above.

Adjusted EBITD A increased $56.5 million and $99.4 million during the three and six months ended June 30, 2024, 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) 2024 2023 2024 2023

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Management fees and incentive allocation to affiliate 3,554 5,563 (2,009) 8,449 8,560 (111)

Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000

Depreciation and amortization 3,081 2,704 377 5,984 5,404 580

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Total expenses 384,219 65,168 319,051 456,219 127,060 329,159

Other (expense) income

Loss on extinguishment of debt (13,920) — (13,920) (13,920) — (13,920)

Other income 413 — 413 678 — 678

Total other income 265 — 265

Total other expense (13,507) — (13,507) (13,242) — (13,242)

Loss before income taxes (383,769) (50,929) (332,840) (453,177) (104,256) (348,921)

Provision for income taxes — 115 (115)

(Benefit from) provision for income taxes (26,244) 184 (26,428) (26,244) 299 (26,543)

Net loss (357,525) (51,113) (306,412) (426,933) (104,555) (322,378)

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in thousands) 2024 2023 2024 2023

Net loss attributable to shareholders $ (365,860) $ (59,448) $ (306,412) $ (443,603) $ (119,681) $ (323,922)

Provision for income taxes — 115 (115)

(Benefit from) provision for income taxes (26,244) 184 (26,428) (26,244) 299 (26,543)

Equity-based compensation expense 582 335 247 917 406 511

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Interest expense and dividends on preferred shares 63,531 46,834 16,697 119,573 92,917 26,656

Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000

Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — — —

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Adjusted EBITDA (non-GAAP) $ (2,317) $ (2,836) $ 519 $ (13,300) $ (10,113) $ (3,187)

Comparison of the three months ended March 31, 2024 and 2023

Total revenues decreased $6.2 million primarily due to a decrease in the Offshore Energy business as one of our vessels was off-hire in 2024 compared to on-hire in 2023.

Total expenses increa sed $10.1 million primarily due to higher (i) Interest expense, (ii) Acquisition and transaction expenses, (iii) Management fees and incentive allocation to affiliate, partially offset by lower (iv) Operating expenses.

• Interest expense i ncreased $8.4 million, which reflects an increase in the average debt outstanding of approximately $417.1 million primarily due to an increase in the (i) Senior Notes due 2030 of $496.8 million, which were issued in November 2023, partially offset by a decrease in the (ii) Revolving Credit Facility of $78.3 million.

• Acquisition and transaction expense increased $2.1 million primarily due to higher professional fees related to strategic transactions.

• Management fees and incentive allocation to affiliate increased $1.9 million primarily due to an increase in incentive fee due to the Manager driven by an increase in net income.

• Operating expenses decreased $2.2 million primarily due to decreases in the Offshore Energy business in crew expenses, project costs and other operating expenses as one of our vessels was off-hire in 2024.

Total other income increased $0.3 million which primarily reflects an increase in bank fees and expenses.

Net loss increased $16.0 million primarily due to the changes noted above.

Total revenues decreased $0.3 million and $6.5 million during the three and six months ended June 30, 2024 primarily due to a decrease in the Offshore Energy business as one of our vessels was off-hire in 2024 compared to on-hire in 2023.

Comparison of the three months ended June 30, 2024 and 2023

Total expense s increased $319.1 million primarily due to higher (i) Internalization fee to affiliate, (ii) Interest expense, and (iii) Acquisition and Transaction expenses partially offset by lower (iv) Management Fees and incentive allocation to affiliate, and (v) Operating expenses.

• Internalization fee to affiliate increased $300.0 million relating to the Internalization effective May 28, 2024.

• Interest expense increased $16.7 million, which reflects an increase in the average debt outstanding of approximately $756.8 million primarily due to an increase in the (i) Senior Notes due 2031 of $700.0 million, which were issued in April 2024, (ii) Senior Notes due 2030 of $496.8 million, which were issued in November 2023, (iii) Senior Notes due 2032 of $266.7 million, which were issued in June 2024, and the (iv) Revolving Credit Facility of $33.3 million, partially offset by decreases in the (v) Senior Notes due 2025 of $650.0 million, which were redeemed in April 2024, and the (vi) Senior Notes due 2027 of $89.7 million, which were partially redeemed in June 2024.

• Acquisition and transaction expense increased $4.3 million primarily due to higher professional fees associated with the Internalization.

• Management fees and incentive allocation to affiliate decreased $2.0 million, primarily due to a decrease in the incentive fee due to the Former Manager, driven by the Internalization effective May 28, 2024.

• Operating expenses decreased $0.1 million primarily due to decreases in the Offshore Energy business in crew expenses, project costs and other operating expenses as one of our vessels was off-hire in Q1 2024.

Comparison of the six months ended June 30, 2024 and 2023

Total expenses increased $329.2 million primarily due to higher (i) Internalization fee to affiliate, (ii) Interest expense, and (iii) Acquisition and transaction expenses, partially offset by lower (v) Operating expenses.

• Internalization fee to affiliate increased $300.0 million relating to the Internalization effective May 28, 2024.

• Interest expense increased $25.1 million, which reflects an increase in the average debt outstanding of approximately $585.6 million primarily due to an increase in the (i) Senior Notes due 2030 of $496.8 million, (ii) Senior Notes due 2031 of $350.0 million, issued in April 2024 (iii) Senior Notes due 2032 of $133.3 million, which were issued in June 2024,

partially offset by decreases in the (iv) Senior Notes due 2025 of $326.8 million, which were redeemed in April 2024, the (v) Senior Notes due 2027 of $44.8 million, which were partially redeemed in June 2024, and a decrease in the (vi) Revolving Credit Facility of $22.5 million.

• Acquisition and transaction expense increased $6.4 million primarily due to higher professional fees associated with the Internalization.

• Operating expenses decreased $2.2 million primarily due to decreases in the Offshore Energy business in crew expenses, project costs and other operating expenses for one of our vessels driven by fewer days on-hire.

Other (expense) income

Total other expense increased $13.5 million during the three months ended June 30, 2024, primarily due to a $13.9 million increase in the loss on extinguishment of debt.

Total other expense increased $13.2 million during the six months ended June 30, 2024, primarily due to a $13.9 million increase in the loss on extinguishment of debt.

Benefit from income taxes

The benefit from income taxes increased $26.4 million and $26.5 million during the three and six months ended June 30, 2024, respectively, primarily due to the tax benefit from the Internalization fee paid to affiliate.

Net loss increased $306.4 million and $322.4 million during the three and six months ended June 30, 2024, respectively, primarily due to the changes noted above.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITDA decreased $3.7 million primarily due to the changes noted above.

Adjusted EBITDA increased $0.5 million and decreased $3.2 million during the three and six months ended June 30, 2024, 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 $303.0 million and $167.0 million during the three months ended March 31, 2024 and 2023, respectively.

• Distributions to shareholders, including cash dividends, were $38.4 million and $36.7 million during the three months ended March 31, 2024 and 2023, respectively.

• Cash used for the purpose of making investments was $563.1 million and $380.8 million during the six months ended June 30, 2024 and 2023, respectively.

• Distributions to shareholders, including cash dividends, were $76.8 million and $75.0 million during the six months ended June 30, 2024 and 2023, respectively.

• Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities.

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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 the principal collections on finance leases and maintenance reserve collections were $9.4 million and $48.8 million during the three months ended March 31, 2024 and 2023, respectively.

• During the three months ended March 31, 2024, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $210.0 million and $35.0 million, 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.

• Proceeds from the sale of assets were $128.4 million and $153.7 million during the three months ended March 31, 2024 and 2023, respectively.

• Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs, were $61.7 million during the three months ended March 31, 2023.

We are currently evaluating several potential transactions and related financings, including, but not limited to, certain additional debt and equity financings, which could occur within the next 12 months.

• Cash flows used in operating activities, plus the principal collections on finance leases and maintenance reserve collections were $165.3 million during the six months ended June 30, 2024.

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

• During the six months ended June 30, 2024, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $360.0 million and $360.0 million, respectively.

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.

• Proceeds from the sale of assets were $333.7 million and $273.2 million during the six months ended June 30, 2024 and 2023, respectively.

• Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs, were $61.7 million during the six months ended June 30, 2023.

On May 28, 2024, we entered into definitive agreements with the Former Manager and Master GP to internalize our management function.

As part of the termination of the Management Agreement, we agreed to pay $150.0 million to the Former

Following the internalization of management on May 28, 2024, we no longer pay a management fee or incentive distribution to the Former Manager or Master GP.

Consequently, we have assumed general and administrative, and compensation and benefit expenses directly.

We anticipate a savings in operation costs as a result of the Internalization.

We are currently evaluating several potential transactions and related financings, including, but not limited to, certain additional acquisitions of assets and operating companies in the aviation section or debt and equity 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.

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Historical Cash Flow

Comparison of the three months ended March 31, 2024 and 2023

The following table compares the historical cash flow for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Comparison of the six months ended June 30, 2024 and 2023

The following table compares the historical cash flow for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(in thousands) 2024 2023

2 unchanged sentences

Net cash used in investing activities (219,383) (101,846)

Net cash provided by (used in) financing activities 144,026 (38,445)

Net cash provided by operating activities decreased $39.0 million, which primarily reflects certain adjustments to reconcile net income to cash provided by operating activities including (i) Changes in net working capital of $44.7 million and an increase in (ii) Gain on sale of assets, net of $26.4 million, partially offset by an increase in (iii) Depreciation and amortization of $9.0 million, a decrease in (iv) Security deposits and maintenance claims included in earnings of $7.4 million, and increases in (v) net income of $10.2 million, (vi) Change in deferred income taxes of $2.9 million, and (vii) Change in fair value of guarantees of $1.5 million.

Net cash used in investing activities increased $156.9 million, primarily due to (i) an increase in Acquisitions of leasing equipment of $149.5 million, (ii) lower Proceeds from the sale of leasing equipment of $25.3 million, (iii) higher Purchase deposits for acquisitions of $15.6 million, partially offset by (iv) a decrease in Investment in unconsolidated entities of $19.5 million and (v) a decrease in Acquisitions of lease intangibles of $9.5 million.

Net cash provided by financing activities increased $182.5 million, primarily due to (i) a decrease in Repayment of debt of $185.0 million and (ii) an increase in Proceeds from debt of $65.0 million, partially offset by (iii) a decrease in proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs of $61.7 million and (iv) and increase in Release of maintenance deposits of $3.1 million.

Net cash provided by financing activities 485,748 2,674

Net cash used in operating activities increased $254.9 million, which primarily reflects an increase in (i) Net loss of $264.4 million and certain adjustments to reconcile net income to cash provided by operating activities including a decrease in (ii) Changes in net working capital of $106.9 million, an increase in (iii) Gain on sale of net assets of $70.1 million, and a decrease in (iv) Change in deferred income taxes of $12.9 million, partially offset by increases in (v) Non-cash termination fee to affiliate of $150.0 million, (vi) Depreciation and amortization of $27.2 million, (vii) Loss on extinguishment of debt of $13.9 million, and (viii) Security deposits and maintenance claims included in earnings of $6.9 million.

Net cash used in investing activities increased $117.5 million, primarily due to increases in (i) Acquisitions of leasing equipment of $110.7 million, (ii) Purchase deposits for acquisitions of $93.5 million, and (iii) Investments in notes and financing receivable of $19.8 million partially offset by higher (iv) Proceeds from the sale of net assets of $60.4 million, decreases in (v) Investment in unconsolidated entities of $19.5 million, (vi) Acquisitions of lease intangibles of $12.0 million, and (vii) Investment in promissory notes of $11.5 million and higher (viii) Proceeds for deposit on sale of aircraft and engine of $2.8 million.

Net cash provided by financing activities increased $483.1 million, primarily due to increases in (i) Proceeds from debt of $1.5 billion and (ii) Receipt of maintenance deposits of $3.4 million, partially offset by an increase in (iii) Repayment of debt of $957.4 million, a decrease in (iv) Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs of $61.7 million, and increases in (v) Payment of deferred financing costs of $8.8 million and (vi) Release of maintenance deposits of $3.9 million.

Contractual Obligations

Our material cash requirements include the following contractual and other obligations:

Debt Obligations — As of March 31, 2024, we had outstanding principal and interest payment obligations of $2.7 billion and $0.7 billion, respectively, of which only interest payments of $191.6 million are due in the next twelve months.

Debt Obligations — As of June 30, 2024, we had outstanding principal and interest payment obligations of $3.1 billion and $1.3 billion, respectively, of which only interest payments of $208.3 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, 2024, we had outstanding operating and finance lease obligations of $2.2 million, of which $0.9 million is due in the next twelve months.

Lease Obligations —As of June 30, 2024, we had outstanding operating and finance lease obligations of $1.9 million, of which $0.9 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