FTAI Aviation Ltd. 10-Q

Item 1. Financial Statements FTAI AVIATION LTD. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share data) (Unaudited) Notes September 30, 2024 December 31, 2023 Assets Cash and cash equivalents 2 $ 111,888 $ 90,756 Restricted cash 150 150 Accounts receivable, net 2 166,338 115,156 Leasing equipment, net 5 2,066,337 2,032,413 Property, plant, and equipment, net 2 103,605 45,175 Investments 6 19,448 22,722 Intangible assets, net 7 38,001 50,590 Assets held for sale 2 119,012 — Goodwill 4 31,533 4,630 Inventory, net 2 490,997 316,637 Other assets 2 591,601 286,456 Total assets $ 3,738,910 $ 2,964,685 Liabilities Accounts payable and accrued liabilities $ 196,660 $ 112,907 Debt, net 8 3,218,343 2,517,343 Maintenance deposits 2 75,606 65,387 Security deposits 2 42,863 41,065 Other liabilities 86,906 52,100 Total liabilities $ 3,620,378 $ 2,788,802 Commitments and contingencies 15 Equity Ordinary shares ($ 0.01 par value per share; 2,000,000,000 shares authorized; 102,549,679 and 100,245,905 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively) $ 1,025 $ 1,002 Preferred shares ($ 0.01 par value per share; 200,000,000 shares authorized; 15,920,000 and 15,920,000 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively) 159 159 Additional paid in capital 292,899 255,973 Accumulated deficit ( 175,551 ) ( 81,785 ) Shareholders' equity 118,532 175,349 Non-controlling interest in equity of consolidated subsidiaries — 534 Total equity 118,532 175,883 Total liabilities and equity $ 3,738,910 $ 2,964,685 See accompanying notes to consolidated financial statements. 5 FTAI AVIATION LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Dollars in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, Notes 2024 2023 2024 2023 Revenues Lease income $ 65,450 $ 45,622 $ 189,365 $ 161,141 Maintenance revenue 59,917 63,925 156,894 141,131 Asset sales revenue 34,953 61,400 145,993 246,927 Aerospace products revenue 303,469 118,675 737,726 296,513 Other revenue 2,005 1,474 6,104 12,447 Total revenues 13 465,794 291,096 1,236,082 858,159 Expenses Cost of sales 219,496 116,707 568,157 366,909 Operating expenses 2 26,858 33,887 81,274 81,218 General and administrative 4,045 3,015 10,697 10,270 Acquisition and transaction expenses 9,341 4,261 23,539 10,195 Management fees and incentive allocation to affiliate 12 — 4,577 8,449 13,137 Internalization fee to affiliate 16 — — 300,000 — Depreciation and amortization 5, 7 56,775 43,959 163,386 123,399 Asset impairment — — 962 1,220 Total expenses 316,515 206,406 1,156,464 606,348 Other (expense) income Equity in (losses) earnings of unconsolidated entities 6 ( 438 ) 46 ( 1,799 ) ( 1,669 ) Interest expense ( 57,937 ) ( 40,185 ) ( 160,840 ) ( 117,976 ) Loss on extinguishment of debt — — ( 13,920 ) — Other income 2,909 461 3,045 877 Total other expense ( 55,466 ) ( 39,678 ) ( 173,514 ) ( 118,768 ) Income (loss) before income taxes 93,813 45,012 ( 93,896 ) 133,043 Provision for (benefit from) income taxes 11 7,331 3,705 ( 130 ) 7,586 Net income (loss) 86,482 41,307 ( 93,766 ) 125,457 Less: Dividends on preferred shares 8,335 8,334 25,005 23,460 Net income (loss) attributable to shareholders $ 78,147 $ 32,973 $ ( 118,771 ) $ 101,997 Earnings (loss) per share: 14 Basic $ 0.76 $ 0.33 $ ( 1.17 ) $ 1.02 Diluted $ 0.76 $ 0.33 $ ( 1.17 ) $ 1.02 Weighted average shares outstanding: Basic 102,380,659 99,927,594 101,199,356 99,796,736 Diluted 103,395,348 100,482,309 101,199,356 100,269,203 See accompanying notes to consolidated financial statements. 6 FTAI AVIATION LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited) (Dollars in thousands) Three and Nine Months Ended September 30, 2024 Ordinary Shares Preferred Shares Additional Paid In Capital Accumulated Deficit Non-Controlling Interest in Equity of Consolidated Subsidiaries Total Equity Equity - December 31, 2023 $ 1,002 $ 159 $ 255,973 $ ( 81,785 ) $ 534 $ 175,883 Net loss ( 180,248 ) ( 180,248 ) Total comprehensive loss ( 180,248 ) ( 180,248 ) Purchase of non-controlling interest ( 534 ) ( 534 ) Dividends declared - ordinary shares ( 60,148 ) ( 60,148 ) Dividends declared - preferred shares ( 16,670 ) ( 16,670 ) Issuance of ordinary shares 20 150,116 150,136 Equity-based compensation 1,148 1,148 Equity - June 30, 2024 $ 1,022 $ 159 $ 330,419 $ ( 262,033 ) $ — $ 69,567 Net income 86,482 86,482 Total comprehensive income 86,482 86,482 Dividends declared - ordinary shares ( 30,661 ) ( 30,661 ) Dividends declared - preferred shares ( 8,335 ) ( 8,335 ) Issuance of ordinary shares 3 46 49 Equity-based compensation 1,430 1,430 Equity - September 30, 2024 $ 1,025 $ 159 $ 292,899 $ ( 175,551 ) $ — $ 118,532 See accompanying notes to consolidated financial statements. 7 FTAI AVIATION LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited) (Dollars in thousands) Three and Nine Months Ended September 30, 2023 Ordinary Shares Preferred Shares Additional Paid In Capital Accumulated Deficit Non-Controlling Interest in Equity of Consolidated Subsidiaries Total Equity Equity - December 31, 2022 $ 997 $ 133 $ 343,350 $ ( 325,602 ) $ 524 $ 19,402 Net income 84,150 84,150 Total comprehensive income 84,150 84,150 Contributions from non-controlling interest 10 10 Issuance of ordinary shares 389 389 Dividends declared - ordinary shares ( 59,854 ) ( 59,854 ) Issuance of preferred shares 26 61,703 61,729 Dividends declared - preferred shares ( 15,126 ) ( 15,126 ) Equity-based compensation 618 618 Equity - June 30, 2023 $ 997 $ 159 $ 331,080 $ ( 241,452 ) $ 534 $ 91,318 Net income 41,307 41,307 Total comprehensive income 41,307 41,307 Issuance of ordinary shares 5 178 183 Dividends declared - ordinary shares ( 29,922 ) ( 29,922 ) Dividends declared - preferred shares ( 8,334 ) ( 8,334 ) Equity-based compensation 510 510 Equity - September 30, 2023 $ 1,002 $ 159 $ 293,512 $ ( 200,145 ) $ 534 $ 95,062 See accompanying notes to consolidated financial statements. 8 FTAI AVIATION LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net (loss) income $ ( 93,766 ) $ 125,457 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Equity in losses of unconsolidated entities 1,799 1,669 Gain on sale of assets ( 244,353 ) ( 110,511 ) Security deposits and maintenance claims included in earnings ( 13,437 ) ( 34,458 ) Loss on extinguishment of debt 13,920 — Equity-based compensation 2,578 1,128 Non-cash termination fee to affiliate (issuance of ordinary shares) 150,000 — Depreciation and amortization 163,386 123,399 Asset impairment 962 1,220 Change in deferred income taxes ( 2,470 ) 5,974 Change in fair value of guarantees 1,340 ( 1,677 ) Amortization of lease intangibles and incentives 30,998 33,685 Amortization of deferred financing costs 7,996 6,429 Provision for credit losses 2,784 6,583 Other ( 158 ) ( 995 ) Change in: Accounts receivable ( 31,234 ) ( 34,358 ) Inventory ( 163,900 ) ( 4,845 ) Other assets ( 16,769 ) ( 3,727 ) Accounts payable and accrued liabilities 50,630 321 Management fees payable to affiliate ( 3,967 ) 824 Other liabilities ( 2,492 ) 648 Net cash (used in) provided by operating activities ( 146,153 ) 116,766 Cash flows from investing activities: Investment in unconsolidated entities — ( 19,500 ) Principal collections on finance leases 1,872 3,624 Principal collections on notes receivable 3,874 2,438 Acquisition of business, net of cash acquired ( 143,634 ) — Acquisition of leasing equipment ( 622,366 ) ( 506,923 ) Investments in financing receivables ( 63,857 ) — Acquisition of property, plant and equipment ( 2,968 ) ( 3,906 ) Acquisition of lease intangibles 1,174 ( 10,474 ) Investment in promissory notes — ( 11,500 ) Deposits for acquisitions of aircraft and engines ( 162,708 ) ( 10,533 ) Proceeds from sale of assets 542,938 366,065 Proceeds (refunds) from deposits on sale of aircraft and engines 2,414 ( 683 ) Return of deposits for acquisition of aircraft and engines 530 300 Net cash used in investing activities $ ( 442,731 ) $ ( 191,092 ) See accompanying notes to consolidated financial statements. 9 FTAI AVIATION LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Nine Months Ended September 30, 2024 2023 Cash flows from financing activities: Proceeds from debt $ 2,069,250 $ 430,000 Repayment of debt ( 1,367,304 ) ( 330,000 ) Payment of deferred financing costs ( 10,825 ) ( 1,805 ) Receipt of security deposits under operating lease agreements 6,120 7,355 Return of security deposits under operating lease agreements — ( 2,385 ) Receipt of maintenance deposits under operating lease agreements 35,583 22,747 Release of maintenance deposits under operating lease agreements ( 6,460 ) ( 275 ) Capital contributions from non-controlling interests ( 534 ) 10 Proceeds from issuance of preferred shares, net of underwriter's discount and issuance costs — 61,729 Cash dividends - ordinary shares ( 90,809 ) ( 89,776 ) Cash dividends - preferred shares ( 25,005 ) ( 23,460 ) Net cash provided by financing activities $ 610,016 $ 74,140 Net increase (decrease) in cash and cash equivalents and restricted cash 21,132 ( 186 ) Cash and cash equivalents and restricted cash, beginning of period 90,906 53,065 Cash and cash equivalents and restricted cash, end of period $ 112,038 $ 52,879 Supplemental disclosure of non-cash investing and financing activities (see Note 2 for additional non-cash information): Issuance of notes receivable in connection with the sale of aircraft and engines $ 69,826 $ 27,634 Acquisition of leasing equipment in accrued expenses ( 11,772 ) ( 8,825 ) Purchase deposits reclassified to leasing equipment from other assets ( 19,608 ) ( 6,371 ) Security deposits settled with accounts receivable ( 4,365 ) ( 2,851 ) Maintenance deposits settled with accounts receivable ( 38,795 ) ( 38,754 ) See accompanying notes to consolidated financial statements. 10 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 1. ORGANIZATION FTAI Aviation Ltd. (“we”, “us”, “our” or the “Company” and formerly “Fortress Transportation and Infrastructure Investors LLC”) is a Cayman Islands exempted company which through its subsidiaries owns, leases, and sells aviation equipment and also develops and manufactures, through a joint venture, and repairs and sells, through our maintenance facilities and exclusivity arrangements, aftermarket components for aircraft engines. Additionally, we own and lease offshore energy equipment. We have two reportable segments, (i) Aviation Leasing and (ii) Aerospace Products (see Note 13). Prior to May 28, 2024, FTAI Aviation Ltd. operated under a management agreement (the “Management Agreement”) with FIG LLC (the “Former Manager”), and Fortress Worldwide Transportation and Infrastructure Master GP LLC (the “Master GP”), each an affiliate of Fortress Investment Group LLC (“Fortress”). For their services, the Former Manager was entitled to management fees and the Master GP was entitled to certain incentive allocations, both defined in, and in accordance with the terms of, the Management Agreement. On May 28, 2024, the Company entered into an Internalization Agreement with the Former Manager and the Master GP (the “Internalization Agreement”), pursuant to which the Management Agreement was terminated effective May 28, 2024 (the “Effective Date”), except that certain indemnification and other obligations survive, and the Company internalized its management functions (such transactions, the “Internalization”). As a result of the Internalization, the Company ceased to be externally managed and operates as an internally managed company. In connection with 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) $ 150.0 million (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) 1,866,949 ordinary shares of the Company (the “Share Consideration”); and (iii) purchased from Master GP all of its partnership interests in FTAI Aviation Holdco Ltd., a subsidiary of the Company, in exchange for $ 30 . In addition, the Former Manager repaid to the Company certain annual bonus payments due to certain employees of the Former Manager or its affiliates who provide services to the Company with respect to the 2024 calendar year on a pro rata basis. The Company financed the cash payments through one or more debt financings, along with cash on hand. On May 28, 2024, the Company also entered into a Transition Services Agreement (the “Transition Services Agreement”) with the Former Manager. Under the Transition Services Agreement, the Former Manager was required to continue to provide the Company and its affiliates with all of the services provided by the Former Manager to the Company and its affiliates immediately prior to May 28, 2024 (the “Services”) for a transition period until October 31, 2024, during which the Company procured replacements for the Services. The Services were provided to the Company for a fee equal to the Former Manager’s cost of providing the Services, plus a mark-up of ten percent ( 10 %). 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 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting — The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of us and our subsidiaries. These financial statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Principles of Consolidation — We consolidate all entities in which we have a controlling financial interest and control over significant operating decisions. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The ownership interest of other investors in consolidated subsidiaries is recorded as non-controlling interest. We use the equity method of accounting for investments in entities in which we exercise significant influence but which do not meet the requirements for consolidation. Under the equity method, we record our proportionate share of the underlying net income (loss) of these entities. Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Restructuring Charges — The termination of the Management Agreement was a material change in the management structure of the business and is accounted for under ASC 420, Exit or Disposal Cost Obligations . The termination fee payment to the Former Manager under the Internalization Agreement is recorded within Internalization Fee to Affiliate in the Consolidated Statements of Operations. See Note 16 for additional discussion of the restructuring charges related to the Internalization. 11 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Reclassifications — Certain amounts from prior periods in the Company’s consolidated financial statements have been reclassified to align with the presentation in the current period. Risks and Uncertainties — In the normal course of business, we encounter several significant types of economic risk including credit, market, and capital market risks. Credit risk is the risk of the inability or unwillingness of a lessee or customer to make contractually required payments or to fulfill its other contractual obligations. Market risk reflects the risk of a downturn or volatility in the underlying industry segments in which we operate, which could adversely impact the pricing of the services offered by us or a lessee’s or customer’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of our leasing equipment or operating assets. Capital market risk is the risk that we are unable to obtain capital at reasonable rates to fund the growth of our business or to refinance existing debt facilities. We, through our subsidiaries, also conduct operations outside of the United States; such international operations are subject to the same risks as those associated with our United States operations as well as additional risks, including unexpected changes in regulatory requirements, heightened risk of political and economic instability, potentially adverse tax consequences and the burden of complying with foreign laws. We do not have significant exposure to foreign currency risk as all of our leasing arrangements are denominated in U.S. dollars. Cash and Cash Equivalents — We consider all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents. Inventory, net — We hold aircraft engines, engine modules, spare parts and used material inventory for trading, repairs and to support operations. Inventory is carried at the lower of cost or net realizable value. Revenues — We disaggregate our revenue by products and services. Revenues are within the scope of ASC 842, Leases, and ASC 606, Revenue from contracts with customers , unless otherwise noted. We have elected to exclude sales and other similar taxes from revenues. Operating Leases —We lease equipment pursuant to operating leases. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no renewals. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received. Generally, under our aircraft lease and engine agreements, the lessee is required to make periodic maintenance payments calculated based on the lessee’s utilization of the leased asset or at the end of the lease. Typically, under our aircraft lease agreements, the lessee is responsible for maintenance, repairs and other operating expenses throughout the term of the lease. These periodic maintenance payments accumulate over the term of the lease to fund major maintenance events, and we are contractually obligated to return maintenance payments to the lessee up to the cost of maintenance events paid by the lessee. In the event the total cost of maintenance events over the term of a lease is less than the cumulative maintenance payments, we are not required to return any unused or excess maintenance payments to the lessee. Maintenance payments received for which we expect to repay to the lessee are presented as Maintenance deposits. All excess maintenance payments received that we do not expect to repay to the lessee are recorded as Maintenance revenue. Estimates in recognizing revenue include mean time between removal, projected costs for engine maintenance and forecasted utilization of aircraft which are affected by historical usage patterns and overall industry, market and economic conditions. Significant changes to these estimates could have a material effect on the amount of revenue recognized in the period. For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the consideration paid based on the relative fair value of the aircraft and lease and other related assets/liabilities acquired. The fair value of the lease may include a lease premium or discount, which is recorded as a favorable or unfavorable lease intangible. Finance Leases —From time to time we enter into finance lease arrangements that include a lessee obligation to purchase the leased equipment at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value that equals or exceeds substantially all of the fair value of the leased equipment at the date of lease inception. Net investment in finance leases represents the minimum lease payments due from lessee, net of unearned income. The lease payments are segregated into principal and interest components similar to a loan. Unearned income is recognized on an effective interest method over the lease term and is recorded as lease income. The principal component of the lease payment is reflected as a reduction to the net investment in finance leases. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received. Asset sales revenue —Asset sales revenue primarily consists of the transaction price related to the sale of aircraft and aircraft engines from our Aviation Leasing segment. From time to time, the Company may also assign the related lease agreements to the customer as part of the sale of these assets. We routinely sell leasing equipment to customers and such transactions are considered recurring and ordinary in nature to our business. As such, these sales are accounted for within the scope of ASC 606. Revenue is recognized when a performance obligation is satisfied by transferring control over an asset to a customer. Revenue is recorded with corresponding costs of sales, presented on a gross basis. 12 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Aerospace products revenue —Aerospace products revenue primarily consists of the transaction price related to the sale of CFM56-7B, CFM56-5B and V2500 engines, engine modules, spare parts and used material inventory, and are accounted for within the scope of ASC 606. Revenue is recognized when a performance obligation is satisfied by transferring control over the related asset to a customer. Revenue is recorded with corresponding costs of sales, presented on a gross basis. Aerospace products revenue also consists of engine management service contracts, where the Company has a stand-ready obligation to provide replacement CFM56-7B and CFM56-5B engines to customers as they become unserviceable during the contract term. The Company recognizes revenue over time using a straight-line attribution method and the costs related to fulfilling the performance obligation are expensed as incurred. Concentration of Credit Risk — We are subject to concentrations of credit risk with respect to amounts due from customers. We attempt to limit our credit risk by performing ongoing credit evaluations. No single customer accounted for greater than 10% of total revenue during the three and nine months ended September 30, 2024 and September 30, 2023. As of September 30, 2024 and December 31, 2023, no single customer accounted for greater than 10% of total accounts receivable, net. We maintain cash and restricted cash balances, which generally exceed federally insured limits, and subject us to credit risk, in high credit quality financial institutions. We monitor the financial condition of these institutions and have not experienced any losses associated with these accounts. Allowance for Doubtful Ac counts and Credit Losses — For receivables related to operating lease arrangements, we determine the allowance for doubtful accounts based on our assessment of the collectability of our receivables on a customer-by-customer basis. The allowance for doubtful accounts was $ 74.9 million and $ 72.2 million as of September 30, 2024 and December 31, 2023, respectively . We determine the credit loss reserve for note receivables, receivables related to finance leases and inventory sales. There was provision for credit losses of $ 2.7 million for the three and nine months ended September 30, 2024. There was provision for credit losses of $ 5.6 million and $ 6.6 million for the three and nine months ended September 30, 2023. Comprehensive Income — Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. Our comprehensive income represents net income, as presented in the Consolidated Statements of Operations. Other Assets— Other assets is primarily comprised of lease incentives of $ 58.3 million and $ 43.5 million, purchase deposits of $ 46.5 million and $ 23.9 million, notes receivable for sales and exchanges of $ 152.2 million and $ 102.3 million, operating lease right-of-use assets, net of $ 12.2 million and $ 3.4 million, finance leases, net of $ 0.9 million and $ 3.0 million, maintenance right assets of $ 21.5 million and $ 16.3 million, financing receivable resulting from failed sale-leaseback transactions of $ 63.9 million and $ 0.0 million, and prepaid expenses including prepayments for maintenance that has not yet been incurred of $ 132.5 million and $ 7.8 million as of September 30, 2024 and December 31, 2023, respectively. Assets Held for Sale— We classify assets as held for sale when the Company commits to a plan to sell and it is probable that the sale will be completed within one year. These assets are recorded at the lower of their carrying value or fair market value, less costs to sell, starting from the period in which they meet the criteria for this classification. In September 2024, the Company committed to a formal plan to sell two vessels within Corporate and Other, which includes offshore energy related assets. Consequently, these vessels met the criteria to be classified as assets held for sale and have been presented separately. Any subsequent changes in our estimate of the fair value of these assets or costs to sell before their sale will be recorded as a gain or loss, with a corresponding adjustment to their carrying values. The disposal is expected to occur in the fourth quarter of 2024. As of September 30, 2024 the vessels had a net book value of $ 119.0 million. Dividends— Dividends are recorded if and when declared by the Board of Directors. For the three and nine months ended September 30, 2024 and 2023, the Board of Directors declared cash dividends of $ 0.30 and $ 0.90 per ordinary share, respectively. Additionally, for the quarter ended September 30, 2024, the Board of Directors declared cash dividends on the Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares of $ 0.50 , $ 0.52 and $ 0.59 per share, respectively. Cash Flow Presentation— Included in net cash (used in) provided by operating activities are inflows from the sale of engine modules and parts that were on engines originally purchased and reported as Leasing equipment, net on the Consolidated Balance Sheet. The purchase of the original engine was reported as an outflow in net cash used in investing activities at the time of purchase through the Acquisition of leasing equipment line item. As part of the Aerospace products business, the Company breaks down generally unserviceable engines with the intent to manufacture modules and parts for creation and sale of new assets. To manufacture the modules and parts and bring them into a salable condition, the Company spends significant costs, often over multiple reporting periods, for new inventory and capitalizable labor (e.g., engineering) that are included in net cash (used in) provided by operating activities as components of the changes in the related working capital accounts. 13 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Therefore, when the costs to manufacture the assets are greater than (predominant to) the estimated value transferred from Leasing equipment into inventory, the related cash receipt has been recorded as an inflow in net cash (used in) provided by operating activities. Additionally, the Company buys inventory from third parties with the intent to use the parts in the manufacturing of the items discussed above, which is reported as an outflow in net cash (used in) provided by operating activities. When rebuilding whole engines for resale, for which the cash inflow upon sale is reported as a cash inflow from investing activities, the Company will transfer modules and parts needed (those purchased from third parties as well as parts from engines previously transferred to inventory from leasing equipment and rebuilt as discussed above) in the rebuild from inventory to leasing equipment. The cash and noncash related activities described above during the nine months ended September 30, 2024 and 2023 are detailed below: Nine Months Ended September 30, (in thousands) 2024 2023 Cost of modules and parts sold sourced from engines originally within leasing equipment $ 33,663 $ 30,045 Transfers of engines from leasing equipment to inventory for manufacturing and sale 143,678 147,285 Transfers of inventory to leasing equipment for rebuilding and sale of engines ( 159,876 ) ( 53,533 ) Total outflows related to manufacturing modules and parts - included in net cash (used in) provided by operating activities ( 270,679 ) ( 81,109 ) Cash received for assets sold sourced from Leasing equipment - inflow included in cash (used in) provided by operating activities 56,670 59,115 Recent Accounting Pronouncements — In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures . This ASU modifies the disclosure and presentation requirements of reportable segments. The new guidance requires the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit and loss. In addition, the new guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. This standard is effective retrospectively for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact this guidance will have on our consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures . This ASU enhances the transparency and decision usefulness of income tax disclosures by expanding the disclosures of an entity’s income tax rate reconciliation and disaggregation of income taxes paid and income tax expense. Under the new guidance, public business entities must annually disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate. This standard is effective prospectively for all public entities for annual periods beginning after December 15, 2024, with early adoption and retrospective application permitted. We are currently assessing the impact this guidance will have on our consolidated financial statements and related disclosures. In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concept Statements. This ASU amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and we are currently assessing the impact this guidance will have on our consolidated financial statements and related disclosures. 3. ACQUISITION OF LOCKHEED MARTIN COMMERCIAL ENGINE SOLUTIONS On September 9, 2024, the Company, through its subsidiary FTAIC Aviation Inc. (“FTAIC”) created on April 25, 2024, acquired certain assets and assumed certain liabilities of Lockheed Martin Commercial Engine Solutions (“LMCES”) from Lockheed Martin Canada for a total cash consideration of $ 170.0 million. LMCES is a 526,000 -square-foot aircraft engine maintenance repair facility located in Montréal, Quebec. We acquired LMCES to further enhance our Maintenance, Repair, and Exchange business and establish permanent engine and module manufacturing capabilities in Canada. The facility operates within our Aerospace Products segment, providing extensive engine and piece-part repair capabilities for the CFM56 engines. See Note 13 for additional information. The results of operations at LMCES have been included in the Consolidated Statements of Operations as of the effective date of the acquisition. In connection with the acquisition, we recorded $ 4.8 million and $ 5.2 million of acquisition and transaction expense during the three and nine months ended September 30, 2024, respectively. 14 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The acquisition of LMCES was accounted for as a business combination and, as such, the following fair values were assigned to assets acquired and liabilities assumed based on management’s estimates and assumptions and are preliminary. The significant assumptions used to estimate the fair values of the property, plant, and equipment and inventory included replacement cost estimates and market data for similar assets where available. The final valuation and related allocation of the purchase price is subject to change as additional information is received and will be completed no later than 12 months after the closing date. The final acquisition accounting adjustments may be materially different and may include (i) changes in fair values of property, plant and equipment and associated salvage values; (ii) changes in fair values of inventory; (iii) changes in allocations to intangible assets, including goodwill; (iv) changes due to net working capital adjustments; (v) changes due to deferred taxes and (vi) changes to other assets and other liabilities. The following table summarizes the preliminary allocation of the net assets acquired: September 9, 2024 Fair value of assets acquired: Accounts receivable $ 12,273 Property, plant, and equipment 71,376 Leasing equipment 5,675 Inventory 47,445 Other assets (1) 12,804 Total assets 149,573 Fair value of liabilities assumed: Accounts payable and accrued liabilities 9,847 Other liabilities 22,996 Total liabilities 32,843 Goodwill (2) 26,904 Net assets acquired (3) $ 143,634 ________________________________________________________ (1) Acquired Other assets include a favorable off-market lease component with an estimated fair value of $ 2,340 . (2) Goodwill is primarily attributable to the assembled workforce of FTAIC and the synergies expected to be achieved. This goodwill is assigned to the Aerospace Products segment and is deductible for income tax purposes. (3) Total consideration is calculated as cash paid, adjusted for the settlement of pre-existing relationships. Cash consideration is also preliminary, as it is subject to net working capital adjustments. The following table presents preliminary fair values of the components of property, plant and equipment acquired and their estimated useful lives: Estimated useful life in years Estimated Fair value Buildings and improvements 25 $ 40,602 Machinery and equipment 2 - 21 29,973 Other N/A 801 Total $ 71,376 The results of operations for the acquired business are included in the accompanying Consolidated Statements of Operations from the acquisition date. The following table presents supplemental pro-forma information as if the acquisitions had occurred at the beginning of fiscal year 2023. The pro-forma information does not necessarily reflect the results of operations that would have occurred had the acquisitions had taken place as of January 1, 2023. Cost savings are also not reflected in the pro-forma amounts presented below. 15 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total revenue $ 479,277 $ 315,666 $ 1,283,520 $ 929,297 Net income (loss) attributable to shareholders $ 83,727 $ 34,753 $ ( 122,542 ) $ 89,716 4. ACQUISITION OF QUICKTURN On December 1, 2023, we completed the acquisition of the remaining equity interest of Quick Turn Engine Center LLC (“QuickTurn”) from Unical Aviation Inc. (“Unical”) for total cash consideration of $ 30.3 million to obtain full ownership. We acquired QuickTurn to better position the Company to have tighter integration over the development and delivery of aerospace products. QuickTurn is a hospital maintenance and testing facility dedicated to the CFM56 engine located in Miami, Florida that operates within our Aerospace Products segment. The results of operations at QuickTurn have been included in the Consolidated Statements of Operations beginning on the acquisition date. The acquisition of QuickTurn was accounted for as a business combination and, as such, the following fair values were assigned to assets acquired and liabilities assumed based on management’s estimates and assumptions and are preliminary. The significant assumptions used to estimate the fair value of the property, plant, and equipment included replacement cost estimates and market data for similar assets where available. The significant assumptions used to estimate the value of the customer relationship intangible assets included the discount rate and future revenues and operating expenses. The final valuation and related allocation of the purchase price is subject to change as additional information is received and will be completed no later than 12 months after the closing date. The final acquisition accounting adjustment may be materially different and may include changes in fair values of Inventory. The following table summarizes the preliminary allocation of the net assets acquired: December 1, 2023 Fair value of assets acquired: Cash and cash equivalents $ 518 Restricted cash 150 Accounts receivable 5,133 Property, plant, and equipment 30,559 Intangible assets 2,377 Inventory 9,332 Other assets 4,301 Total assets 52,370 Fair value of liabilities assumed: Accounts payable and accrued liabilities 3,994 Other liabilities 2,410 Total liabilities 6,404 Goodwill (1) 4,630 Net assets acquired $ 50,596 ________________________________________________________ (1) Goodwill is primarily attributable to the assembled workforce of QuickTurn and the synergies expected to be achieved. This goodwill is assigned to the Aerospace Products segment and is deductible for income tax purposes. The following table presents the identifiable intangible assets and their estimated useful lives: Estimated useful life in years Estimated Fair value Above market leases 4 $ 470 Customer relationships 5 $ 1,907 Total $ 2,377 16 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table presents the property, plant and equipment and their estimated useful lives: Estimated useful life in years Estimated Fair value Land N/A $ 2,840 Buildings and improvements 25 13,790 Machinery and equipment 6 - 23 13,631 Other 5 - 7 298 Total $ 30,559 The financial information in the table below summarizes the combined results of operations of FTAI and QuickTurn on a pro forma basis. These pro forma results were based on estimates and assumptions which we believe are reasonable. The pro forma adjustments are primarily comprised of the following: • The allocation of the purchase price and related adjustments, including adjustments to depreciation and amortization expense related to the fair value of property, plant and equipment and intangible assets acquired; • Associated tax-related impacts of adjustments. The following pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of January 1, 2023. Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 Total revenue $ 296,480 $ 875,066 Net income attributable to shareholders $ 31,350 $ 97,633 5. LEASING EQUIPMENT, NET Leasing equipment, net is summarized as follows: September 30, 2024 December 31, 2023 Leasing equipment $ 2,621,016 $ 2,574,394 Less: Accumulated depreciation ( 554,679 ) ( 541,981 ) Leasing equipment, net $ 2,066,337 $ 2,032,413 Due to specific transactions, we identified certain assets in our leasing equipment portfolio with indicators of impairment. As a result, we adjusted the carrying value of these assets to fair value and recognized transactional impairment charges of $ 1.0 million and $ 1.2 million, net of redelivery compensation, for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, no transactional impairment charges were recorded. Depreciation expense for leasing equipment is summarized as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Depreciation expense for leasing equipment $ 55,376 $ 43,765 159,936 122,867 6. INVESTMENTS The following table presents the ownership interests and carrying values of our investments: Carrying Value Investment Ownership Percentage September 30, 2024 December 31, 2023 Advanced Engine Repair JV Equity method 25 % $ 19,448 $ 21,040 Falcon MSN 177 LLC Equity method 50 % — 1,682 $ 19,448 $ 22,722 We did not recognize any other-than-temporary impairments for the three and nine months ended September 30, 2024 and 2023. 17 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table presents our proportionate share of equity in (losses) income: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Advanced Engine Repair JV $ ( 438 ) $ 1,063 $ ( 1,592 ) $ 1,336 Falcon MSN 177 LLC — ( 108 ) ( 207 ) ( 242 ) Quick Turn Engine Center LLC — ( 909 ) — ( 2,763 ) Total $ ( 438 ) $ 46 $ ( 1,799 ) $ ( 1,669 ) Equity Method Investments Advanced Engine Repair JV In December 2016, we invested $ 15 million for a 25 % interest in an advanced engine repair joint venture. This joint venture is focused on developing new cost savings programs for engine repairs. In August 2019, we expanded the scope of our joint venture and invested an additional $ 13.5 million and maintained a 25 % interest. We exercise significant influence over this investment and account for this investment as an equity method investment. Falcon MSN 177 LLC In November 2021, we invested $ 1.6 million for a 50 % interest in Falcon MSN 177 LLC (“Falcon”), an entity that consists of one Dassault Falcon 2000 aircraft. Falcon leases the aircraft to charter operators on aircraft, crew maintenance, and insurance contracts. We account for our investment in Falcon as an equity method investment as we have significant influence through our interest. On May 3, 2024, we purchased the remaining interest from S7 Aerospace for total cash consideration of $ 0.8 million and obtained full ownership of the aircraft with a 100 % equity interest. On the acquisition date, the Company accounted for the Falcon investment on a consolidated basis and derecognized it as an equity method investment. Quick Turn Engine Center LLC On January 4, 2023, we invested $ 19.5 million for a 50 % interest ( 45 % pro rata distribution of income until return of the JV partner’s initial investment) in Quick Turn Engine Center LLC (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the CFM56 engine. We account for our investment in QuickTurn as an equity method investment as we have significant influence through our interest. On December 1, 2023, we purchased the remaining interest in QuickTurn from the joint venture partner for total cash consideration of $ 30.3 million to obtain full ownership with a 100 % equity interest. On the acquisition date, the Company accounted for QuickTurn on a consolidated basis and derecognized it as an equity method investment. See Note 4 for additional information. 18 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 7. INTANGIBLE ASSETS AND LIABILITIES, NET Intangible assets and liabilities, net are summarized as follows: September 30, 2024 December 31, 2023 Intangible assets Acquired favorable lease intangibles $ 66,535 $ 68,041 Less: Accumulated amortization ( 30,123 ) ( 19,347 ) Acquired favorable lease intangibles, net 36,412 48,694 Acquired customer relationships 1,907 1,907 Less: Accumulated amortization ( 318 ) ( 11 ) Acquired customer relationships, net 1,589 1,896 Total intangible assets, net $ 38,001 $ 50,590 Intangible liabilities Acquired unfavorable lease intangibles $ 3,085 $ 3,151 Less: Accumulated amortization ( 1,040 ) ( 1,389 ) Acquired unfavorable lease intangibles, net $ 2,045 $ 1,762 Intangible liabilities relate to unfavorable lease intangibles and are included as a component of Other liabilities. Amortization of intangible assets and liabilities is recorded as follows: Classification in Consolidated Statements of Operations Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Lease intangibles Lease income $ 3,720 $ 3,726 $ 11,482 $ 11,325 Customer relationships Depreciation and amortization 95 — 307 — Total $ 3,815 3,726 $ 11,789 11,325 As of September 30, 2024, estimated net annual amortization of intangibles is as follows: Remainder of 2024 $ 3,849 2025 12,652 2026 9,356 2027 4,348 2028 3,759 Thereafter 1,992 Total $ 35,956 19 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 8. DEBT, NET Our debt, net is summarized as follows: September 30, 2024 December 31, 2023 Outstanding Borrowings Stated Interest Rate Maturity Date Outstanding Borrowings Loans payable Revolving Credit Facility (1) $ 150,000 (i) Base Rate + 1.75 %; or (ii) Adjusted Term SOFR Rate + 2.75 % 5/22/27 $ — Total loans payable 150,000 — Bonds payable Senior Notes due 2025 (2) — 6.50 % 10/1/25 652,043 Senior Notes due 2027 130,500 9.75 % 8/1/27 400,000 Senior Notes due 2028 (3) 1,001,475 5.50 % 5/1/28 1,001,746 Senior Notes due 2030 (4) 496,976 7.88 % 12/1/30 496,704 Senior Notes due 2031 700,000 7.00 % 5/1/31 — Senior Notes due 2032 800,000 7.00 % 6/15/32 — Total bonds payable 3,128,951 2,550,493 Debt 3,278,951 2,550,493 Less: Debt issuance costs ( 60,608 ) ( 33,150 ) Total debt, net $ 3,218,343 $ 2,517,343 Total debt due within one year $ — $ — ________________________________________________________ (1) Requires a quarterly commitment fee at a rate of 0.50 % on the average daily unused portion, as well as customary letter of credit fees and agency fees. (2) Includes an unamortized discount of $ 866 at December 31, 2023 and an unamortized premium of $ 2,908 at December 31, 2023. (3) Includes an unamortized premium of $ 1,475 and $ 1,746 at September 30, 2024 and December 31, 2023, respectively. (4) Includes unamortized discount of $ 3,024 and $ 3,296 at September 30, 2024 and December 31, 2023, respectively. Revolving Credit Facility — On May 23, 2024, the Company amended and restated its Revolving Credit Facility by executing a Third Amended and Restated Credit Agreement (the “Revolver Amendment”). The Revolver Amendment provides for revolving loans to be made available to the Company in an aggregate principal amount of up to $ 400.0 million, of which up to $ 25.0 million may be utilized for the issuance of letters of credit. Senior Notes due 2031 — On April 11, 2024, we issued $ 700.0 million aggregate principal amount of senior unsecured notes due 2031 (the “Senior Notes due 2031”). The Senior Notes due 2031 bear interest at a rate of 7.00 % per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2024. Using a portion of the net proceeds, the Company completed a cash tender offer for $ 324.6 million aggregate principal amount of 2025 Notes validly tendered on April 11, 2024. Holders whose notes were accepted for purchase received equal consideration per $1,000 principal amount of 2025 Notes, plus accrued and unpaid interest to, but not including, April 11, 2024. The Company used the remaining net proceeds to redeem the remaining $ 325.4 million aggregate principal amount of Senior Notes due 2025, plus accrued and unpaid interest, and recognized a loss on extinguishment of debt of $ 2.7 million . The remaining net proceeds were used for general corporate purposes, including the funding of acquisitions and investments. Senior Notes due 2032 — On June 17, 2024, we issued $ 800.0 million aggregate principal amount of senior unsecured notes due 2032 (the “Senior Notes due 2032”). These notes bear interest at a rate of 7.00 % per annum, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2024. The Company utilized the net proceeds from the issuance for several purposes: (i) to fully repay outstanding amounts under our Revolving Credit Facility provided under the Revolver Amendment, without reduction in commitments, (ii) to fund the cash termination fee for the previously announced management Internalization described in Note 12, (iii) to complete a cash tender offer for up to $ 300.0 million in aggregate principal amount of Senior Notes due 2027 validly tendered on June 18, 2024, plus accrued and unpaid interest, and recognized a loss on extinguishment of debt of $ 11.2 million , (iv) to cover fees and expenses related to the aforementioned transactions, and (v) for general corporate purposes. We were in compliance with all debt covenants as of September 30, 2024. 20 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 9. FAIR VALUE MEASUREMENTS Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: • Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs. • Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability. The valuation techniques that may be used to measure fair value are as follows: • Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. • Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts. • Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Our cash and cash equivalents and restricted cash consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy. Except as discussed below, our financial instruments other than cash and cash equivalents and restricted cash consist principally of accounts receivable, notes receivable, accounts payable and accrued liabilities, loans payable, security deposits, maintenance deposits and management fees payable, whose fair values approximate their carrying values based on an evaluation of pricing data, vendor quotes, and historical trading activity or due to their short maturity profiles. The fair values of our bonds payable are presented in the table below and classified as Level 2 within the fair value hierarchy: September 30, 2024 December 31, 2023 Senior Notes due 2025 $ — $ 649,383 Senior Notes due 2027 133,883 416,432 Senior Notes due 2028 997,080 963,630 Senior Notes due 2030 539,175 521,440 Senior Notes due 2031 736,162 — Senior Notes due 2032 840,312 — The Company has contingent obligations under ASC 460, Guarantees , in connection with certain sales of aircraft on lease, which are measured at fair value. The guarantees are valued at $ 8.1 million and $ 6.8 million as of September 30, 2024 and December 31, 2023, respectively, and are reflected as a component of Other liabilities. The fair values of the guarantees are determined based on the estim ated condition of the engines at the end of each lease term and the estimated cost of replacement and applicable discount rates and are classified as Level 3. During the three and nine months ended September 30, 2024, the Company recorded a $ 0.3 million and $ 1.3 million increase related to the change in fair value, which is recorded as Asset sales revenue. During the nine months ended September 30, 2023, the Company recorded a $ 4.9 million increase in guarantees related to the sale of seven aircrafts and a $ 1.7 million decrease related to the change in fair value, which is recorded as Asset sales revenue. During the three and nine months ended September 30, 2024 and 2023, there were no significant transfers into or out of Level 3 . We measure the fair value of certain assets on a non-recurring basis when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include intangible assets, property, plant and equipment and leasing equipment. We record such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include our assumptions as to future cash flows from operation of the l easing and eventual sale of assets. 10. EQUITY-BASED COMPENSATION We have a Nonqualified Stock Option and Incentive Award Plan (“Incentive Plan”) which provides for the ability to award equity compensation awards in the form of stock options to eligible employees, consultants, directors, and other individuals who provide services to us, each as determined by the Compensation Committee of the Board of Directors. 21 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) As of September 30, 2024, the Incentive Plan provides for the issuance of up to 29.8 million shares. Equity-based compensation expense is reported within operating expenses and general and administrative. The Consolidated Statements of Operations includes the following expense related to our stock-based compensation arrangements: Three Months Ended September 30, Nine Months Ended September 30, Remaining Expense To Be Recognized, If All Vesting Conditions Are Met Weighted Average Remaining Contractual Term (in years) 2024 2023 2024 2023 Stock Options $ 128 $ — $ 170 $ — $ 1,905 3.8 years Restricted Shares 1,302 510 2,408 1,128 16,112 2.9 years Total $ 1,430 $ 510 $ 2,578 $ 1,128 $ 18,017 Options During the nine months ended September 30, 2024, the Former Manager transferred 37,343 of its options to certain of the Former Manager’s employees. All of these options were issued prior to the Internalization. Additionally, the Company granted options to select employees of FTAI Aviation LLC (a wholly owned subsidiary of the Company) related to 60,000 ordinary shares at an exercise price of $ 79.13 , which had a grant date fair value of $ 2.1 million. The assumptions used in valuing the options were: a 4.52 % risk-free rate, a 1.50 % dividend yield, a 43.00 % volatility and a 6.8 year term. Restricted Shares During the nine months ended September 30, 2024, we issued the following restricted shares of the Company to select employees and officers of FTAI Aviation LLC: In May 2024, we issued restricted shares to (i) select officers with a grant date fair value of $ 5.5 million, vesting over 3.0 years and (ii) select employees with a grant date fair value of $ 5.7 million, vesting over 4.0 years. In September 2024, we issued restricted shares to select employees with a grant date fair value of $ 0.8 million, vesting over 3.0 years. All awards are subject to continued employment, with compensation expense recognized ratably over the vesting periods. The fair value was based on the closing price of FTAI Aviation Ltd.’s ordinary shares on the respective grant dates. 22 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 11. INCOME TAXES The current and deferred components of the income tax provision included in the Consolidated Statements of Operations are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Current: Cayman Islands $ — $ — $ — $ — Bermuda — — — — United States: — — — — Federal ( 296 ) ( 32 ) 888 ( 77 ) State and local ( 72 ) 39 217 20 Non-U.S. 446 851 1,235 1,669 Total current provision 78 858 2,340 1,612 Deferred: Cayman Islands — — — — Bermuda 4,738 — ( 3,088 ) — United States: — — — — Federal 1,422 1,521 2,733 2,344 State and local 317 ( 430 ) 584 68 Non-U.S. 776 1,756 ( 2,699 ) 3,562 Total deferred provision 7,253 2,847 ( 2,470 ) 5,974 Total provision for income taxes $ 7,331 $ 3,705 $ ( 130 ) $ 7,586 The Company is an exempted entity domiciled in the Cayman Islands where income taxes are not imposed. The Company is considered a Passive Foreign Investment Company for U.S. income tax purposes and certain income taxes are imposed on our owners. Taxable income or loss generated by our corporate subsidiaries is subject to corporate income tax in locations where they conduct business. Historically, the Company’s Bermuda operations have not been subject to Bermuda income tax. However, on December 27, 2023, the Government of Bermuda enacted a 15 percent corporate income tax regime (the “Bermuda CIT”) that applies to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750 million or more and is effective for tax years beginning on or after January 1, 2025. As a result of the Bermuda CIT, the exemption of certain of the Company’s Bermuda subsidiaries from Bermuda corporate income taxes will cease in 2025. For the year ended December 31, 2023, we recorded a deferred tax asset of $ 72.2 million in connection with the Bermuda law change. As of September 30, 2024, we project the Bermuda subsidiaries to generate a net operating loss for the year ended December 31, 2024. As such, the Company recorded a tax benefit of $ 3.1 million to increase its Bermuda deferred tax asset. Our effective tax rate differs from the U.S. federal tax rate of 21% primarily due to a significant portion of our income not being subject to U.S. corporate tax rates, or being deemed to be foreign sourced and thus either not taxable or taxable at effectively lower tax rates. As of and for the nine months ended September 30, 2024, we had not established a liability for uncertain tax positions as no such positions existed. In general, our tax returns and the tax returns of our corporate subsidiaries are subject to U.S. federal, state, local and foreign income tax examinations by tax authorities. Generally, we are not subject to examination by taxing authorities for tax years prior to 2020. We do not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date. 12. AFFILIATE TRANSACTIONS 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) paid 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; and (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. 23 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 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 was required to continue to provide the Company and its affiliates with all of the Services for a transition period through October 31, 2024, during which the Company procured replacements for the Services. The Services were provided to the Company for a fee equal to the Former Manager’s cost of providing the Services, plus a mark-up of ten percent ( 10 %). 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 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. Prior to the Internalization, the Former Manager was paid annual fees in exchange for advising us on various aspects of our business, formulating our investment strategies, arranging for the acquisition and disposition of assets, arranging for financing, monitoring performance, and managing our day-to-day operations, inclusive of all costs incidental thereto. In addition, the Former Manager was reimbursed for various expenses incurred by the Former Manager on our behalf, including the costs of legal, accounting and other administrative activities. Additionally, we entered into certain incentive allocation arrangements with Master GP, which owned approximately 0.01 % of FTAI Aviation Holdco Ltd. (a wholly owned subsidiary of the Company). The Former Manager was entitled to a management fee and reimbursement of certain expenses. The management fee was determined by taking the average value of total equity (excluding non-controlling interests) determined on a consolidated basis in accordance with U.S. GAAP at the end of the two most recently completed months multiplied by an annual rate of 1.50 %, and was payable monthly in arrears in cash. Prior to the Internalization and the termination of the Management Agreement on May 28, 2024, Master GP, was entitled to incentive allocations (comprised of income incentive allocation and capital gains incentive allocation, defined below). The income incentive allocation was calculated and distributable quarterly in arrears based on the pre-incentive allocation net income for the immediately preceding calendar quarter (the “Income Incentive Allocation”). For this purpose, pre-incentive allocation net income means, with respect to a calendar quarter, net income attributable to shareholders during such quarter calculated in accordance with U.S. GAAP excluding our pro rata share of (1) realized or unrealized gains and losses, and (2) certain non-cash or one-time items, and (3) any other adjustments as may be approved by our independent directors. Pre-incentive allocation net income did not include any Income Incentive Allocation or Capital Gains Incentive Allocation (described below) paid to Master GP during the relevant quarter. Prior to the Internalization, one of our subsidiaries allocated and distributed to Master GP an Income Incentive Allocation with respect to its pre-incentive allocation net income in each calendar quarter as follows: (1) no Income Incentive Allocation in any calendar quarter in which pre-incentive allocation net income, expressed as a rate of return on the average value of our net equity capital (excluding non-controlling interests) at the end of the two most recently completed calendar quarters, does not exceed 2 % for such quarter ( 8 % annualized); (2) 100 % of pre-incentive allocation net income with respect to that portion of such pre-incentive allocation net income, if any, that is equal to or exceeds 2 % but does not exceed 2.2223 % for such quarter; and (3) 10 % of the amount of pre-incentive allocation net income, if any, that exceeds 2.2223 % for such quarter. These calculations were prorated for any period of less than three months. Prior to the Internalization, Capital Gains Incentive Allocation was calculated and distributable in arrears as of the end of each calendar year and was equal to 10 % of our pro rata share of cumulative realized gains from the date of the IPO through the end of the applicable calendar year, net of our pro rata share of cumulative realized or unrealized losses, the cumulative non-cash portion of equity-based compensation expenses and all realized gains upon which prior performance-based Capital Gains Incentive Allocation payments were made to Master GP. The following table summarizes the management fees, income incentive allocation and capital gains incentive allocation prior to the Internalization on May 28, 2024: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Management fees $ — $ 303 $ 993 $ 597 Income incentive allocation — 4,274 7,456 12,540 Total $ — $ 4,577 $ 8,449 $ 13,137 24 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) We paid all of our operating expenses, except those specifically required to be borne by the Former Manager under the Management Agreement. The expenses required to be paid by us included, but were not limited to, issuance and transaction costs incident to the acquisition, disposition and financing of our assets, legal and auditing fees and expenses, the compensation and expenses of our independent directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of ours (including commitment fees, legal fees, closing costs, etc.), expenses associated with other securities offerings of ours, costs and expenses incurred in contracting with third parties (including affiliates of the Former Manager), the costs of printing and mailing proxies and reports to our shareholders, costs incurred by the Former Manager or its affiliates for travel on our behalf, costs associated with any computer software or hardware that was used by us, costs to obtain liability insurance to indemnify our directors and officers and the compensation and expenses of our transfer agent. We paid or reimbursed the Former Manager and its affiliates for performing certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, provided that such costs and reimbursements were no greater than those which would be paid to outside professionals or consultants. The Former Manager was responsible for all of its other costs incident to the performance of its duties under the Management Agreement, including compensation of the Former Manager’s employees, rent for facilities and other “overhead” expenses; we did not reimburse the Former Manager for these expenses. The following table summarizes our reimbursements to the Former Manager: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Classification in the Consolidated Statements of Operations: General and administrative $ 2,557 $ 1,592 $ 6,115 $ 5,096 Acquisition and transaction expenses 967 172 1,654 381 Total $ 3,524 $ 1,764 $ 7,769 $ 5,477 Upon the successful completion of an offering of our ordinary shares or other equity securities (including securities issued as consideration in an acquisition), we granted the Former Manager options to purchase ordinary shares in an amount equal to 10 % of the number of ordinary shares being sold in the offering (or if the issuance relates to equity securities other than our ordinary shares, options to purchase a number of ordinary shares equal to 10 % of the gross capital raised in the equity issuance divided by the fair market value of a ordinary share as of the date of issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a ordinary share as of the date of the equity issuance if it relates to equity securities other than our ordinary shares). Any ultimate purchaser of ordinary shares for which such options are granted may have been an affiliate of the Former Manager. The following table summarizes amounts due to the Former Manager, which are included within accounts payable and accrued liabilities in the Consolidated Balance Sheets: September 30, 2024 December 31, 2023 Accrued management fees $ — $ 224 Other payables 2,500 6,200 As of September 30, 2024 and December 31, 2023, there were no receivables from the Former Manager. 13. SEGMENT INFORMATION 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, through our maintenance facilities, equity method investment and exclusivity arrangements, develops and manufactures, repairs/refurbishes and sells aircraft engines and aftermarket components primarily for the CFM56-7B, CFM56-5B and V2500 commercial aircraft engines. During the fourth quarter of 2023, the Company changed the composition of its operating segments to include V2500 engines within the Aerospace Products segment. Prior periods have been restated to reflect the change in accordance with the requirements ASC 280, Segment Reporting . See Note 2 for additional information. Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, shared services costs, internalization fee and management fees and incentive compensation pursuant to the Management Agreement prior to the Internalization effective May 28, 2024. 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. 25 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The accounting policies of the segments are the same as those described in the summary of significant accounting policies; however, financial information presented by segment includes the impact of intercompany eliminations. Our Chief Executive Officer is our Chief Operating Decision Maker (“CODM”). Segment information is presented in the same manner that our CODM reviews the operating results in assessing performance and allocating resources. The CODM evaluates performance for each reportable segment primarily based on Adjusted EBITDA. Historically, the CODM’s assessment of segment performance included asset information. The CODM determined that segment asset information is not a key factor in measuring performance or allocating resources. Therefore, segment asset information is not included in the tables below as it is not provided to or reviewed by our CODM. 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. We believe that net income (loss) attributable to shareholders, as defined by U.S. GAAP, is the most appropriate earnings measurement with which to reconcile Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to shareholders as determined in accordance with U.S. GAAP. The following tables set forth certain information for each reportable segment: I. For the Three Months Ended September 30, 2024 Three Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Lease income $ 57,322 $ — $ 8,128 $ 65,450 Maintenance revenue 59,917 — — 59,917 Asset sales revenue 34,953 — — 34,953 Aerospace products revenue — 303,469 — 303,469 Other revenue 74 — 1,931 2,005 Total revenues $ 152,266 $ 303,469 $ 10,059 $ 465,794 Expenses Cost of sales 20,684 198,812 — 219,496 Operating expenses 9,995 2,617 14,246 26,858 General and administrative — — 4,045 4,045 Acquisition and transaction expenses 2,620 2,100 4,621 9,341 Depreciation and amortization 52,455 1,306 3,014 56,775 Total expenses 85,754 204,835 25,926 316,515 Other income (expense) Equity in losses of unconsolidated entities — ( 438 ) — ( 438 ) Interest expense — — ( 57,937 ) ( 57,937 ) Other income 1,982 — 927 2,909 Total other income (expense) 1,982 ( 438 ) ( 57,010 ) ( 55,466 ) Income (loss) before income taxes 68,494 98,196 ( 72,877 ) 93,813 Provision for (benefit from) income taxes 8,898 4,408 ( 5,975 ) 7,331 Net income (loss) 59,596 93,788 ( 66,902 ) 86,482 Less: Dividends on preferred shares — — 8,335 8,335 Net income (loss) attributable to shareholders $ 59,596 $ 93,788 $ ( 75,237 ) $ 78,147 26 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net income attributable to shareholders: Three Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Adjusted EBITDA $ 136,423 $ 101,814 $ ( 6,207 ) $ 232,030 Add: Non-controlling share of Adjusted EBITDA — Add: Equity in losses of unconsolidated entities ( 438 ) Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities 382 Less: Interest expense and dividends on preferred shares ( 66,272 ) Less: Depreciation and amortization expense ( 69,453 ) Less: Incentive allocations — Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments — Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 9,341 ) Less: Equity-based compensation expense ( 1,430 ) Less: Provision for income taxes ( 7,331 ) Net income attributable to shareholders $ 78,147 Summary information with respect to our geographic sources of revenue, based on location of customer, is as follows: Three Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Africa $ 1,266 $ — $ — $ 1,266 Asia 46,459 65,714 10,059 $ 122,232 Europe 56,750 84,136 — $ 140,886 North America 34,700 149,530 — $ 184,230 South America 13,091 4,089 — $ 17,180 Total revenues (1) $ 152,266 $ 303,469 $ 10,059 $ 465,794 _______________________________________________________ (1) The United States, included in North America, and Ireland, included in Europe, represent 35 % and 15 % of total revenues, respectively, based on the location of our customers and lessees. No other country represents more than 10% of total revenues. 27 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) II. For the Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Lease income $ 168,927 $ — $ 20,438 $ 189,365 Maintenance revenue 156,894 — — 156,894 Asset sales revenue 145,993 — — 145,993 Aerospace products revenue — 737,726 — 737,726 Other revenue 199 — 5,905 6,104 Total revenues $ 472,013 $ 737,726 $ 26,343 $ 1,236,082 Expenses Cost of sales 111,542 456,615 — 568,157 Operating expenses 26,984 16,510 37,780 81,274 General and administrative — — 10,697 10,697 Acquisition and transaction expenses 7,350 2,871 13,318 23,539 Management fees and incentive allocation to affiliate — — 8,449 8,449 Internalization fee to affiliate — — 300,000 300,000 Depreciation and amortization 151,211 3,177 8,998 163,386 Asset impairment 962 — — 962 Total expenses 298,049 479,173 379,242 1,156,464 Other income (expense) Equity in losses of unconsolidated entities ( 207 ) ( 1,592 ) — ( 1,799 ) Interest expense — — ( 160,840 ) ( 160,840 ) Loss on extinguishment of debt — — ( 13,920 ) ( 13,920 ) Other income 1,440 — 1,605 3,045 Total other income (expense) 1,233 ( 1,592 ) ( 173,155 ) ( 173,514 ) Income (loss) before income taxes 175,197 256,961 ( 526,054 ) ( 93,896 ) Provision for (benefit from) income taxes 20,224 11,865 ( 32,219 ) ( 130 ) Net income (loss) 154,973 245,096 ( 493,835 ) ( 93,766 ) Less: Dividends on preferred shares — — 25,005 25,005 Net income (loss) attributable to shareholders $ 154,973 $ 245,096 $ ( 518,840 ) $ ( 118,771 ) 28 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net loss attributable to shareholders: Nine Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Adjusted EBITDA $ 366,211 $ 263,331 $ ( 19,507 ) $ 610,035 Add: Non-controlling share of Adjusted EBITDA — Add: Equity in losses of unconsolidated entities ( 1,799 ) Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities 1,547 Less: Internalization fee to affiliate ( 300,000 ) Less: Interest expense and dividends on preferred shares ( 185,845 ) Less: Depreciation and amortization expense ( 194,384 ) Less: Incentive allocations ( 7,456 ) Less: Asset impairment charges ( 962 ) Less: Changes in fair value of non-hedge derivative instruments — Less: Losses on the modification or extinguishment of debt and capital lease obligations ( 13,920 ) Less: Acquisition and transaction expenses ( 23,539 ) Less: Equity-based compensation expense ( 2,578 ) Less: Benefit from income taxes 130 Net loss attributable to shareholders $ ( 118,771 ) Summary information with respect to our geographic sources of revenue, based on location of customer, is as follows: Nine Months Ended September 30, 2024 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Africa $ 3,389 $ 8,271 $ — $ 11,660 Asia 105,220 122,744 26,343 $ 254,307 Europe 235,367 256,752 — $ 492,119 North America 81,709 336,672 — $ 418,381 South America 46,328 13,287 — $ 59,615 Total revenues (1) $ 472,013 $ 737,726 $ 26,343 $ 1,236,082 ________________________________________________________ (1) The United States, included in North America, and Ireland, included in Europe, represent 32 % and 18 % of total revenues, respectively, based on the location of our customers and lessees. No other country represents more than 10% of total revenues. Presented below are the contracted minimum future annual revenues to be received under existing operating leases as of September 30, 2024: Operating Leases Remainder of 2024 $ 73,112 2025 203,217 2026 148,127 2027 111,158 2028 101,250 Thereafter 108,318 Total $ 745,182 29 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) III. For the Three Months Ended September 30, 2023 Three Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Lease income $ 35,981 $ — $ 9,641 $ 45,622 Maintenance revenue 63,925 — — 63,925 Asset sales revenue 61,400 — — 61,400 Aerospace products revenue — 118,675 — 118,675 Other revenue 82 — 1,392 1,474 Total revenues $ 161,388 $ 118,675 $ 11,033 $ 291,096 Expenses Cost of sales 46,511 70,196 — 116,707 Operating expenses 13,944 5,947 13,996 33,887 General and administrative — — 3,015 3,015 Acquisition and transaction expenses 2,329 110 1,822 4,261 Management fees and incentive allocation to affiliate — — 4,577 4,577 Depreciation and amortization 41,141 115 2,703 43,959 Total expenses 103,925 76,368 26,113 206,406 Other income (expense) Equity in (losses) earnings of unconsolidated entities ( 108 ) 154 — 46 Interest expense — — ( 40,185 ) ( 40,185 ) Other income 444 — 17 461 Total other income (expense) 336 154 ( 40,168 ) ( 39,678 ) Income (loss) before income taxes 57,799 42,461 ( 55,248 ) 45,012 Provision for income taxes 2,332 1,131 242 3,705 Net income (loss) 55,467 41,330 ( 55,490 ) 41,307 Less: Dividends on preferred shares — — 8,334 8,334 Net income (loss) attributable to shareholders $ 55,467 $ 41,330 $ ( 63,824 ) $ 32,973 30 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net income attributable to shareholders: Three Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Adjusted EBITDA $ 116,858 $ 43,289 $ ( 5,929 ) $ 154,218 Add: Non-controlling share of Adjusted EBITDA — Add: Equity in earnings of unconsolidated entities 46 Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 642 ) Less: Interest expense and dividends on preferred shares ( 48,519 ) Less: Depreciation and amortization expense ( 59,380 ) Less: Incentive allocations ( 4,274 ) Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments — Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 4,261 ) Less: Equity-based compensation expense ( 510 ) Less: Provision for income taxes ( 3,705 ) Net income attributable to shareholders $ 32,973 Summary information with respect to our geographic sources of revenue, based on location of customer, is as follows: Three Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Africa $ 154 $ — $ — $ 154 Asia 48,267 952 11,033 60,252 Europe 56,679 34,961 — 91,640 North America 44,369 77,213 — 121,582 South America 11,919 5,549 — 17,468 Total revenues (1) $ 161,388 $ 118,675 $ 11,033 $ 291,096 ________________________________________________________ (1) The United States, included in North America, and Ireland, included in Europe, represent 35 % and 10 % of total revenues, respectively, based on the location of our customers and lessees. No other country represents more than 10% of total revenues. 31 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) III. For the Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Lease income $ 132,978 $ — $ 28,163 $ 161,141 Maintenance revenue 141,131 — — 141,131 Asset sales revenue 246,927 — — 246,927 Aerospace products revenue — 296,513 — 296,513 Other revenue 6,773 — 5,674 12,447 Total revenues $ 527,809 $ 296,513 $ 33,837 $ 858,159 Expenses Cost of sales 188,343 178,566 — 366,909 Operating expenses 28,610 12,838 39,770 81,218 General and administrative — — 10,270 10,270 Acquisition and transaction expenses 4,960 1,137 4,098 10,195 Management fees and incentive allocation to affiliate — — 13,137 13,137 Depreciation and amortization 114,994 298 8,107 123,399 Asset impairment 1,220 — — 1,220 Total expenses 338,127 192,839 75,382 606,348 Other income (expense) Equity in losses of unconsolidated entities ( 242 ) ( 1,427 ) — ( 1,669 ) Interest expense — — ( 117,976 ) ( 117,976 ) Other income 860 — 17 877 Total other income (expense) 618 ( 1,427 ) ( 117,959 ) ( 118,768 ) Income (loss) before income taxes 190,300 102,247 ( 159,504 ) 133,043 Provision for income taxes 4,414 2,631 541 7,586 Net income (loss) 185,886 99,616 ( 160,045 ) 125,457 Less: Dividends on preferred shares — — 23,460 23,460 Net income (loss) attributable to shareholders $ 185,886 $ 99,616 $ ( 183,505 ) $ 101,997 32 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net income attributable to shareholders: Nine Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Adjusted EBITDA $ 345,580 $ 105,413 $ ( 16,042 ) $ 434,951 Add: Non-controlling share of Adjusted EBITDA — Add: Equity in losses of unconsolidated entities ( 1,669 ) Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 96 ) Less: Interest expense and dividends on preferred shares ( 141,436 ) Less: Depreciation and amortization expense ( 157,084 ) Less: Incentive allocations ( 12,540 ) Less: Asset impairment charges ( 1,220 ) Less: Changes in fair value of non-hedge derivative instruments — Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 10,195 ) Less: Equity-based compensation expense ( 1,128 ) Less: Provision for income taxes ( 7,586 ) Net income attributable to shareholders $ 101,997 Summary information with respect to our geographic sources of revenue, based on location of customer, is as follows: Nine Months Ended September 30, 2023 Aviation Leasing Aerospace Products Corporate and Other Total Revenues Africa $ 154 $ 875 $ — $ 1,029 Asia 81,285 2,737 33,837 117,859 Europe 188,498 84,547 — 273,045 North America 225,769 198,359 — 424,128 South America 32,103 9,995 — 42,098 Total revenues (1) $ 527,809 $ 296,513 $ 33,837 $ 858,159 ________________________________________________________ (1) The United States, included in North America, represents 46 % of total revenues based on the location of our customers and lessees. No other country represents more than 10% of total revenues. V. Location of Long-Lived Assets The following tables sets forth the geographic location of property, plant and equipment and leasing equipment, net: September 30, 2024 December 31, 2023 Property, plant and equipment and leasing equipment, net Africa $ 35,419 $ 18,380 Asia 446,744 478,120 Europe 939,380 934,817 North America 559,433 416,811 South America 188,966 229,460 Total property, plant and equipment and leasing equipment, net (1) $ 2,169,942 $ 2,077,588 ________________________________________________________ (1) The United States, included in North America, and Italy, included in Europe, represent 21 % and 14 % of property, plant and equipment and leasing equipment, net as of September 30, 2024, and 17 % as of December 31, 2023, respectively. No other country represents more than 10% of property, plant and equipment and leasing equipment, net. 33 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 14. EARNINGS PER SHARE AND EQUITY Basic earnings per ordinary share (“EPS”) is calculated by dividing net income attributable to shareholders by the weighted average number of ordinary shares outstanding, plus any participating securities. Diluted EPS is calculated by dividing net income attributable to shareholders by the weighted average number of ordinary shares outstanding, plus any participating securities and potentially dilutive securities. Potentially dilutive securities are calculated using the treasury stock method. The calculation of basic and diluted EPS is presented below: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2024 2023 2024 2023 Net income (loss) $ 86,482 $ 41,307 $ ( 93,766 ) $ 125,457 Less: Dividends on preferred shares 8,335 8,334 25,005 23,460 Net income (loss) attributable to shareholders $ 78,147 $ 32,973 $ ( 118,771 ) $ 101,997 Weighted Average Ordinary Shares Outstanding - Basic 102,380,659 99,927,594 101,199,356 99,796,736 Weighted Average Ordinary Shares Outstanding - Diluted 103,395,348 100,482,309 101,199,356 100,269,203 Earnings (loss) per share: Basic $ 0.76 $ 0.33 $ ( 1.17 ) $ 1.02 Diluted $ 0.76 $ 0.33 $ ( 1.17 ) $ 1.02 For both the three months ended September 30, 2024 and 2023, 0 shares, and for the nine months ended September 30, 2024 and 2023, 859,940 and 0 shares, respectively, were excluded from the calculation of diluted EPS due to an anti-dilutive impact. During the three months ended September 30, 2024 and 2023, 482 and 0 ordinary shares, respectively, and for the nine months ended September 30, 2024 and 2023, 4,852 and 18,457 ordinary shares, respectively, were issued to certain directors as compensation. 15. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company and its subsidiaries may be involved in various claims, legal proceedings, or may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. Within our offshore energy business, a lessee did not fulfill its obligation under its charter arrangement, therefore we are pursuing rights afforded to us under the charter and the range of potential losses against the obligation is $ 0.0 million to $ 3.3 million. Our maximum exposure under other arrangements is unknown as no additional claims have been made. We believe the risk of loss in connection with such arrangements is remote. The Company has contingent obligations under ASC 460, Guarantees , in connection with certain sales of aircraft on lease. Under the agreements, we provide certain guarantees at the end of the lease term for the condition of the aircraft engines that were sold to the buyer. The guarantees are valued at $ 8.1 million and $ 6.8 million as of September 30, 2024 and December 31, 2023, respectively, and are reflected as a component of Other liabilities. Given variability in the condition of the engines at the end of the lease terms, which range from 4 to 8 years, the maximum potential amount of undiscounted future payments that could be required under the guarantees at September 30, 2024 was $ 37.2 million, which is not reasonably expected. Internalization — During the second quarter of 2024, the Company entered into the Internalization Agreement with the Former Manager and Master GP. Pursuant to the Internalization Agreement, the Management Agreement was terminated effective May 28, 2024, except that certain indemnification and other obligations survive, and the Company was no longer required to pay management fees or incentive distributions with respect to any period thereafter. As a result of the Internalization, the Company ceased to be externally managed and operates as an internally managed company. In connection with 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; and (iii) purchased from Master GP all of its partnership interests in FTAI Aviation Holdco Ltd., a subsidiary of the Company, in exchange for $ 30 . 34 FTAI AVIATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 16. RESTRUCTURING CHARGES In connection with the Internalization and termination of the Management Agreement, the Company agreed to pay a total of $ 300.0 million to its Former Manager (for itself and on behalf of the Master GP, as applicable). At closing, the Company issued 1,866,949 ordinary shares valued at $ 150.0 million. The remaining balance was paid in cash on June 17, 2024. The restructuring charge paid in connection with the Internalization and termination of the Management Agreement is reflected in Internalization Fee to Affiliate expense in the Consolidated Statements of Operations for the three and nine months ended September 30, 2024. See Note 12 for additional discussion. There were no restructuring charges recorded for the three and nine months ended September 30, 2023. 17. SUBSEQUENT EVENTS Senior Notes due 2033 On October 9, 2024, we issued $ 500.0 million aggregate principal amount of senior unsecured notes due 2033 (the “Senior Notes due 2033”). The Senior Notes due 2033 bear interest at a rate of 5.875 % per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2025. Using a portion of the net proceeds, the Company redeemed the remaining $ 130.5 million aggregate principal amount of Senior Notes due 2027, plus accrued and unpaid interest. The Company used the remaining net proceeds to pay down in full the Company’s Revolving Credit Facility, with any excess proceeds intended for general corporate purposes, including funding acquisitions and investments. Series A Shares On October 29, 2024, the Company redeemed in full the outstanding 4,180,000 8.25 % Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Shares at a redemption price equal to $ 25.00 per share in cash, plus $ 1.6 million of accumulated and unpaid distributions thereon to, but not including, the redemption date of October 29, 2024. Dividends On October 30, 2024, our Board of Directors declared a cash dividend on our ordinary shares and eligible participating securities of $ 0.30 per share for the quarter ended September 30, 2024, payable on November 25, 2024 to the holders of record on November 14, 2024. Additionally, on October 30, 2024, our Board of Directors also declared cash dividends on the Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares of $ 0.50 , $ 0.52 and $ 0.59 per share, respectively, payable on December 16, 2024 to the holders of record on December 2, 2024. 35