FTAI Aviation Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand FTAI Aviation Ltd. (the “Company,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We own, lease and sell aviation equipment. We also develop and manufacture through a joint venture, and repair and sell, through our maintenance facility and exclusivity arrangements, aftermarket components for aircraft engines. Additionally, we own and lease offshore energy equipment. We target assets that, on a combined basis, generate strong cash flows with potential for earnings growth and asset appreciation. We believe that there is a large number of acquisition opportunities in our markets and that our 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 Economic sanctions and export controls against Russia and Russia’s aviation industry were imposed due to its invasion of Ukraine during the three months ended March 31, 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines. We determined that it is unlikely that we will regain possession of the aircraft and engines that had not yet been recovered from Ukraine and Russia. As a result 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, 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. We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. The insured value of the aircraft and engines that remain in Russia is approximately $210.7 million. We intend to pursue all of our claims under these policies. However, the timing and amount of any recoveries under these policies are uncertain. The extent of the impact of Russia’s invasion of Ukraine and the related sanctions on our operational and financial performance, including the ability for us to recover our leasing equipment in the region, will depend on future developments, including the duration of the conflict, sanctions and restrictions imposed by Russian and international governments, all of which remain uncertain. 35 Operating Segments The key factors used to identify the reportable segments are the organization and alignment of our internal operations and the nature of our products and services. Our two reportable segments are (i) Aviation Leasing and (ii) Aerospace Products. The Aviation Leasing segment owns and manages aviation assets, including aircraft and aircraft engines, which it leases and sells to customers. The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through our maintenance facility and exclusivity arrangements, aircraft engines and aftermarket components for aircraft engines. During the fourth quarter of 2023, the Company changed the composition of its operating segments to include product offerings for V2500 engines within the Aerospace Products segment. Prior periods have been restated to reflect the change in accordance with the requirements of ASC 280, Segment Reporting . Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, shared services costs, and management fees. Additionally, Corporate and Other also includes offshore energy related assets, which consist of vessels and equipment that support offshore oil and gas activities and production which are typically subject to operating leases. Results of Operations Adjusted EBITDA (Non-GAAP) The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance and make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. 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. 36 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 June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Revenues Lease income $ 70,754 $ 59,541 $ 11,213 $ 123,915 $ 115,519 $ 8,396 Maintenance revenue 51,187 42,065 9,122 96,977 77,206 19,771 Asset sales revenue 72,433 76,836 (4,403) 111,040 185,527 (74,487) Aerospace products revenue 245,200 92,725 152,475 434,257 177,838 256,419 Other revenue 4,020 3,178 842 4,099 10,973 (6,874) Total revenues 443,594 274,345 169,249 770,288 567,063 203,225 Expenses Cost of sales 205,857 104,532 101,325 348,661 250,202 98,459 Operating expenses 29,099 24,797 4,302 54,416 47,331 7,085 General and administrative 2,969 3,188 (219) 6,652 7,255 (603) Acquisition and transaction expenses 8,019 2,672 5,347 14,198 5,934 8,264 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 Asset impairment — — — 962 1,220 (258) Interest expense 55,196 38,499 16,697 102,903 77,791 25,112 Total expenses 661,385 217,765 443,620 942,852 477,733 465,119 Other (expense) income Equity in losses of unconsolidated entities (694) (380) (314) (1,361) (1,715) 354 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) Less: Dividends on preferred shares 8,335 8,335 — 16,670 15,126 1,544 Net (loss) income attributable to shareholders $ (228,205) $ 46,418 $ (274,623) $ (196,918) $ 69,024 $ (265,942) 37 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Net (loss) income attributable to shareholders $ (228,205) $ 46,418 $ (274,623) $ (196,918) $ 69,024 $ (265,942) Add: (Benefit from) provision for income taxes (13,033) 1,855 (14,888) (7,461) 3,881 (11,342) Add: Equity-based compensation expense 638 510 128 1,148 618 530 Add: Acquisition and transaction expenses 8,019 2,672 5,347 14,198 5,934 8,264 Add: Losses on the modification or extinguishment of debt and capital lease obligations 13,920 — 13,920 13,920 — 13,920 Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — 962 1,220 (258) Add: Incentive allocations 3,148 5,324 (2,176) 7,456 8,266 (810) Add: Depreciation and amortization expense (1) 65,809 48,934 16,875 124,931 97,704 27,227 Add: Interest expense and dividends on preferred shares 63,531 46,834 16,697 119,573 92,917 26,656 Add: Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (617) 150 (767) (1,165) (546) (619) Less: Equity in losses of unconsolidated entities 694 380 314 1,361 1,715 (354) Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 213,904 $ 153,077 $ 60,827 $ 378,005 $ 280,733 $ 97,272 ________________________________________________________ (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. 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. 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. Revenues 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. 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. 38 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. Expenses 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 $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. 39 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 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 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 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 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. The table below provides additional information on the assets in our Aviation Leasing segment: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2024 5 91 96 Purchases — 24 24 Sales — — — Transfers — (21) (21) Assets at June 30, 2024 5 94 99 Engines Assets at January 1, 2024 32 235 267 Purchases 2 48 50 Sales (9) (1) (10) Transfers — (15) (15) Assets at June 30, 2024 25 267 292 40 The following table presents our results of operations for our Aviation Leasing segment: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Revenues Lease income $ 60,759 $ 48,167 $ 12,592 $ 111,605 $ 96,997 $ 14,608 Maintenance revenue 51,187 42,065 9,122 96,977 77,206 19,771 Asset sales revenue 72,433 76,836 (4,403) 111,040 185,527 (74,487) Other revenue 58 313 (255) 125 6,691 (6,566) Total revenues 184,437 167,381 17,056 319,747 366,421 (46,674) Expenses Cost of sales 58,969 49,598 9,371 90,858 141,832 (50,974) Operating expenses 8,782 7,578 1,204 16,989 14,666 2,323 Acquisition and transaction expenses 1,969 1,169 800 4,730 2,631 2,099 Depreciation and amortization 52,672 35,713 16,959 98,756 73,853 24,903 Asset impairment — — — 962 1,220 (258) Total expenses 122,392 94,058 28,334 212,295 234,202 (21,907) Other (expense) income Equity in losses of unconsolidated entities (61) (35) (26) (207) (134) (73) 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) Provision for income taxes 8,293 1,087 7,206 11,326 2,082 9,244 Net income attributable to shareholders $ 52,780 $ 72,609 $ (19,829) $ 95,377 $ 130,419 $ (35,042) 41 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: 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) Add: Provision for income taxes 8,293 1,087 7,206 11,326 2,082 9,244 Add: Equity-based compensation expense 128 105 23 233 127 106 Add: Acquisition and transaction expenses 1,969 1,169 800 4,730 2,631 2,099 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — 962 1,220 (258) Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense (1) 61,790 46,133 15,657 117,076 92,117 24,959 Add: Interest expense and dividends on preferred shares — — — — — — Add: Internalization fee to affiliate — — — — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (40) 28 (68) (123) (8) (115) Less: Equity in losses of unconsolidated entities 61 35 26 207 134 73 Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 124,981 $ 121,166 $ 3,815 $ 229,788 $ 228,722 $ 1,066 ________________________________________________________ (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. 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. 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. Revenues 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. 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. 42 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. 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 $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 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 in creased $3.8 million and $1.1 million primarily due to the changes noted above. Aerospace Products Segment The Aerospace Products segment develops and manufactures through a joint venture, repairs and sells through our maintenance facility and exclusivity arrangements, aircraft engines and aftermarket components primarily for the CFM56-7B, CFM56-5B and V2500 commercial aircraft engines. Our engine and module sales are facilitated through The Module Factory, a dedicated commercial maintenance program, designed to focus on modular repair and refurbishment of CFM56-7B and CFM56-5B engines, performed by a third party. Used serviceable material is sold through our exclusive partnership with AAR Corp, who is responsible for the teardown, repair, marketing and sales of spare parts from our CFM56 engine pool. In December 2023, we acquired the remaining interest in Quick Turn Engine Center LLC or “QuickTurn” (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the CFM56 engine. Refer to Note 3 “Acquisition of QuickTurn”, for additional information. We also hold a 25% interest in the Advanced Engine Repair JV which focuses on developing new cost savings programs for engine repairs. 43 The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Aerospace products revenue $ 245,200 $ 92,725 $ 152,475 $ 434,257 $ 177,838 $ 256,419 Expenses Cost of sales 146,888 54,934 91,954 257,803 108,370 149,433 Operating expenses 6,423 3,236 3,187 13,893 6,891 7,002 Acquisition and transaction expenses 525 272 253 771 1,027 (256) Depreciation and amortization 938 97 841 1,871 183 1,688 Total expenses 154,774 58,539 96,235 274,338 116,471 157,867 Other expense Equity in losses of unconsolidated entities (633) (345) (288) (1,154) (1,581) 427 Total other expense (633) (345) (288) (1,154) (1,581) 427 Income before income taxes 89,793 33,841 55,952 158,765 59,786 98,979 Provision for income taxes 4,918 584 4,334 7,457 1,500 5,957 Net income attributable to shareholders $ 84,875 $ 33,257 $ 51,618 $ 151,308 $ 58,286 $ 93,022 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Net income attributable to shareholders $ 84,875 $ 33,257 $ 51,618 $ 151,308 $ 58,286 $ 93,022 Add: Provision for income taxes 4,918 584 4,334 7,457 1,500 5,957 Add: Equity-based compensation expense (72) 70 (142) (2) 85 (87) Add: Acquisition and transaction expenses 525 272 253 771 1,027 (256) Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — — — Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations — — — — — — Add: Depreciation and amortization expense 938 97 841 1,871 183 1,688 Add: Interest expense and dividends on preferred shares — — — — — — Add: Internalization fee to affiliate — — — — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) (577) 122 (699) (1,042) (538) (504) Less: Equity in losses of unconsolidated entities 633 345 288 1,154 1,581 (427) Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ 91,240 $ 34,747 $ 56,493 $ 161,517 $ 62,124 $ 99,393 ________________________________________________________ (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. Revenues 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. 44 Expenses 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 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 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 $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. 45 Corporate and Other The following table presents our results of operations: Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2024 2023 2024 2023 Revenues Lease income $ 9,995 $ 11,374 $ (1,379) $ 12,310 $ 18,522 $ (6,212) Other revenue 3,962 2,865 1,097 3,974 4,282 (308) Total revenues 13,957 14,239 (282) 16,284 22,804 (6,520) Expenses Operating expenses 13,894 13,983 (89) 23,534 25,774 (2,240) General and administrative 2,969 3,188 (219) 6,652 7,255 (603) Acquisition and transaction expenses 5,525 1,231 4,294 8,697 2,276 6,421 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 Interest expense 55,196 38,499 16,697 102,903 77,791 25,112 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 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) (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) Less: Dividends on preferred shares 8,335 8,335 — 16,670 15,126 1,544 Net loss attributable to shareholders $ (365,860) $ (59,448) $ (306,412) $ (443,603) $ (119,681) $ (323,922) 46 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: 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) Add: (Benefit from) provision for income taxes (26,244) 184 (26,428) (26,244) 299 (26,543) Add: Equity-based compensation expense 582 335 247 917 406 511 Add: Acquisition and transaction expenses 5,525 1,231 4,294 8,697 2,276 6,421 Add: Losses on the modification or extinguishment of debt and capital lease obligations 13,920 — 13,920 13,920 — 13,920 Add: Changes in fair value of non-hedge derivative instruments — — — — — — Add: Asset impairment charges — — — — — — Add: Incentive allocations 3,148 5,324 (2,176) 7,456 8,266 (810) Add: Depreciation and amortization expense 3,081 2,704 377 5,984 5,404 580 Add: Interest expense and dividends on preferred shares 63,531 46,834 16,697 119,573 92,917 26,656 Add: Internalization fee to affiliate 300,000 — 300,000 300,000 — 300,000 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — — — Less: Equity in losses (earnings) of unconsolidated entities — — — — — — Less: Non-controlling share of Adjusted EBITDA — — — — — — Adjusted EBITDA (non-GAAP) $ (2,317) $ (2,836) $ 519 $ (13,300) $ (10,113) $ (3,187) Revenues 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. Expenses 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, 47 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 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 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 We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during various environments. This includes limiting discretionary spending across the organization and re-prioritizing our investments as necessary. 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 $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. 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 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 48 Manager. 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. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction or related financing. Historical Cash Flow Comparison of the 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 Cash Flow Data: Net cash (used in) provided by operating activities $ (187,636) $ 67,241 Net cash used in investing activities (219,383) (101,846) 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 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 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. During the last twelve months, we declared cash dividends of $120.1 million and $33.3 million on our ordinary shares and preferred shares, respectively. We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required. Critical Accounting Estimates and Policies There were no material changes to our critical accounting estimates described in our Annual Report on Form 10-K for the year ended December 31, 2023. 49 Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements.