FTAI Aviation Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand FTAI Aviation Ltd. (the “Company,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We specialize in the acquisition, lease, repair and sale of aviation equipment, primarily CFM56-5B, CFM56-7B and V2500 aircraft engines. We repair and sell or lease, through our maintenance facilities, commercial expertise and exclusivity arrangements, refurbished aircraft engines and aftermarket components of aircraft engines, including PMA parts developed and manufactured through a joint venture. We target assets which require maintenance repairs that can be performed through our proprietary Module Factory process of engineering. Refurbishing our own engines, modules and parts at significant scale incentivizes us to conduct repairs as efficiently as possible, which we believe creates a large opportunity to provide a low-cost, flexible, customer-driven alternative to engine maintenance for airlines and lessors worldwide. As of March 31, 2025, we had total consolidated assets of $4.3 billion and total equity of $28.3 million. Internalization of Management On May 28, 2024, the Company entered into definitive agreements with the Former Manager and Master GP to internalize the Company’s management function. As part of the termination of the Management Agreement, the Company (i) agreed to pay the Former Manager (for itself and on behalf of the Master GP, as applicable) the Cash Consideration, the compensation accrued and payable, but not yet paid, under the Management Agreement and the expenses that were reimbursable, but not yet reimbursed, under the Management Agreement; (ii) issued to the Former Manager (for itself and on behalf of the Master GP, as applicable) the Share Consideration; (iii) purchased from Master GP all of its partnership interests in FTAI Aviation Holdco Ltd., a subsidiary of the Company, in exchange for $30 thousand. Following the Internalization, the Company no longer pays management fees or incentive distributions to the Former Manager and Master GP. In connection with the termination of the Management Agreement, the Company also entered into a Transition Services Agreement with the Former Manager. Under the Transition Services Agreement, the Former Manager was required to continue to provide the Company and its affiliates with all of 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, including the allocated cost of, among other things, overhead, employee wages and compensation, rent and related real estate expenses and actually incurred out-of-pocket expenses, plus a mark-up of ten percent (10%). The Company was required to use commercially reasonable efforts to make available to the Former Manager certain employees of the Company who were previously employees of the Former Manager to provide the Reverse Services, subject to certain exceptions. In addition, the Former Manager is required to continue to provide the services that are reasonably required by the Company to prepare its quarterly and annual financial statements until May 31, 2025. The Company is required to continue to provide the Reverse Services until the later to occur of the dissolution or sale of the entities receiving Reverse Services. The Transition Services Agreement may be terminated earlier (x) by mutual agreement of the parties, (y) by either the Former Manager or the Company in the event of a material breach by the non-terminating party that is not cured within thirty (30) days following written notification thereof, or (z) by the Former Manager if the Company fails to pay any undisputed sum overdue and payable for a period of at least thirty (30) days. Impact of Russia’s Invasion of Ukraine Economic sanctions and export controls against Russia and Russia’s aviation industry were imposed due to its invasion of Ukraine during the three months ended March 31, 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines. We determined that it is unlikely that we will regain possession of the aircraft and engines that had not yet been recovered from U kraine and Russia. As a result, we recognized an impairment charge totaling $120.0 million, net of maintenance deposits for the year ended December 3 1, 2022, to write-off the entire carrying value of leasing equipment assets that we did not expect to recover from Ukraine and Russia. As of March 31, 2025, eight aircraft and seventeen engines were still located in Russia. Our lessees are required to provide insurance coverage with respect to leased aircraft and engines, and we are named as insureds under those policies in the event of a total loss of an aircraft or engine. We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. The insured value of the aircraft and engines that remain in Russia is $210.7 million. We intend to pursue all of our claims under these policies. However, the timing and amount of any recoveries under these policies are uncertain. The extent of the impact of Russia’s invasion of Ukraine and the related sanctions on our results, including the ability for us to recover our leasing equipment in the region, will depend on future developments, including the duration of the conflict, sanctions and restrictions imposed by Russian and international governments, all of which remain uncertain. Strategic Capital Initiative 30 On December 30, 2024, the Company announced the launch of a Strategic Capital Initiative in collaboration with third-party institutional investors. The first partnership under the initiative, the 2025 Partnership, will focus on acquiring 737NG and A320ceo aircraft. The Strategic Capital Initiative, and its related partnerships, will allow the Company to maintain an asset-light business model while the partnerships actively acquire on-lease narrowbody aircraft at scale. The Company has agreed that the 2025 Partnership, and follow-on partnerships, will be the primary buyer of on-lease 737NG and A320ceo aircraft. The Company, as the General Partner, will manage the aircraft in the 2025 Partnership, and the Company will receive customary, market-based compensation. The Company has also made a minority investment and will make future investments in the 2025 Partnership. The Company expects to manage the aircraft for and make minority investments in, future partnerships. Operating Segments The key factors used to identify the reportable segments are the organization and alignment of our internal operations and the nature of our products and services. Our two reportable segments are (i) Aviation Leasing and (ii) Aerospace Products. The Aviation Leasing segment owns and manages aviation assets, including aircraft and aircraft engines, which it leases and sells to lessees, directly and also through its equity method investment. 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 for the CFM56-5B, CFM56-7B and V2500 commercial aircraft engines. Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, 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 equipment that support offshore oil and gas activities and production. Results of Operations Adjusted EBITDA (Non-GAAP) Besides net income (loss), the chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as a key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance and make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. Adjusted EBITDA is defined as net income (loss) attributable to shareholders from continuing operations, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and preferred shares 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, if any. 31 Comparison of the three months ended March 31, 2025 and 2024 The following table presents our consolidated results of operations: Three Months Ended March 31, Change (in thousands) 2025 2024 Revenues Aerospace products revenue (1) $ 365,063 $ 189,057 $ 176,006 Lease income 68,471 53,240 15,231 Maintenance revenue 49,607 45,790 3,817 Asset sales revenue 18,939 38,607 (19,668) Total revenues 502,080 326,694 175,386 Expenses Cost of sales 248,714 142,804 105,910 Operating expenses 32,438 25,317 7,121 General and administrative 3,116 3,683 (567) Acquisition and transaction expenses 7,292 6,179 1,113 Management fees and incentive allocation to affiliate — 4,895 (4,895) Depreciation and amortization 59,562 49,920 9,642 Asset impairment — 962 (962) Total expenses 351,122 233,760 117,362 Other (expense) income Interest expense (62,040) (47,707) (14,333) Equity in losses of unconsolidated entities (2) (7,614) (667) (6,947) Other income (3) 43,941 634 43,307 Total other expense (25,713) (47,740) 22,027 Income before income taxes 125,245 45,194 80,051 Provision for income taxes 22,859 5,572 17,287 Net income 102,386 39,622 62,764 Less: Dividends on preferred shares 6,115 8,335 (2,220) Less: Loss on redemption of preferred shares 6,327 — 6,327 Net income attributable to shareholders $ 89,944 $ 31,287 $ 58,657 ______________________________________________________ (1) Includes revenue of $100,638 and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. See Note 11 for additional information. (2) Includes the profit elimination of $(6,950) and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. (3) Includes gain on sale of $10,870 and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. 32 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2025 2024 Net income attributable to shareholders $ 89,944 $ 31,287 $ 58,657 Add: Provision for income taxes 22,859 5,572 17,287 Add: Equity-based compensation expense 4,889 510 4,379 Add: Acquisition and transaction expenses 7,292 6,179 1,113 Add: Losses on the modification or extinguishment of debt and preferred shares and capital lease obligations 6,327 — 6,327 Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — 962 (962) Add: Incentive allocations — 4,308 (4,308) Add: Depreciation and amortization expense (1) 68,387 59,122 9,265 Add: Interest expense and dividends on preferred shares 68,155 56,042 12,113 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) 41 (548) 589 Less: Equity in losses of unconsolidated entities (3) 664 667 (3) Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 268,558 $ 164,101 $ 104,457 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2025 and 2024: (i) depreciation and amortization expense of $59,562 and $49,920, (ii) lease intangible amortization of $3,206 and $3,976 and (iii) amortization for lease incentives of $5,619 and $5,226, respectively. (2) Includes the following items for the three months ended March 31, 2025 and 2024: (i) net loss of $664 and $667 , (ii) depreciation and amortization expense of $158 and $119, and (iii) acquisition and transaction expenses of $547 and $0, respectively. (3) Excludes the profit elimination of $6,950 and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. Revenues Comparison of the three months ended March 31, 2025 and 2024 Total revenues increased by $175.4 million, driven by the following: • Aerospace products revenue increased by $176.0 million, prima rily due to a $165.2 million increase in CFM56-5B, CFM56-7B and V2500 engine and module sales including to the 2025 Partnership, as well as a $10.7 million increase in other revenues from QuickTurn and LMCES. • Lease income increased by $15.2 million, primarily due to an increase in aircraft lease revenue of $11.6 million and an increase in engine lease revenue of $6.0 million, driven by an increased number of aircraft and engines on lease in addition to higher rental rates. This was partially offset by a decrease of $2.3 million in the Offshore Energy business driven by the sale of the two vessels during Q4 2024. • Maintenance reve nue increased by $3.8 million, primarily due to an increase in aircraft maintenance revenue of $1.6 million and an increase in engine maintenance revenue of $2.2 million, driven by an increased number of aircraft and engines on lease in Q1 2025 as compared to Q1 2024. • Asset sales revenue decreased by $19.7 million, primarily due to an overall decrease in the number of sales transactions of commercial aircraft and engines. Specifically, there were no aircraft and no engines sold in Q1 2025 as compared to four engines sold in Q1 2024. Expenses Comparison of the three months ended March 31, 2025 and 2024 Total expenses increased by $117.4 million, driven by the following: • Cost of sales increased by $105.9 million, primarily due to increases in CFM56-5B, CFM56-7B and V2500 engine and module sales, and parts inventory sales, which directly corresponds to components of increases in Aerospace products revenue over the same period. This was partially offset by a decrease of $11.9 million, primarily due to an overall decrease in the number of sales transactions of engines, which is in line with an overall decrease in the corresponding asset sales revenue. • Operating expenses increased by $7.1 million, primarily due to higher compensation and benefits expense due to the increase in employee headcount primarily due to the acquisition of LMCES in the third quarter of 2024. 33 • Depreciation and amortization increased by $9.6 million, primarily driven by an increase in the number of assets owned and on lease during the quarter, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. • Acquisition and transaction expenses increased by $1.1 million, primarily due to higher professional fees incurred in evaluating and completing strategic transactions. • Management fees and incentive allocation to affiliate decreased by $4.9 million, due to a decrease in management and incentive fees to the Former Manager during 2024, with the Internalization effective May 28, 2024 . Other (expense) income Total other expense decreased by $22.0 million, due to the following: • Interest expense increased by $14.3 million, reflecting an increase in the average debt outstanding of approximately $955.7 million primarily due to increases in (i) the Senior Notes due 2031 of $700.0 million, which were issued in April 2024, (ii) the Senior Notes due 2032 of $800.0 million, which were issued in June 2024, (iii) the Senior Notes due 2033 of $497.6 million, which were issued in October 2024, and an increase in the (iv) Revolving Credit Facility of $10.0 million, partially offset by decreases in the (v) Senior Notes due 2025 of $651.9 million, which were redeemed in April 2024, and (vi) the Senior Notes due 2027 of $400.0 million, which were redeemed in October 2024. • Equity in losses of unconsolidated entities increased by $6.9 million, primarily driven by the profit elimination of $6.7 million for sales to the 2025 Partnership within the Aerospace Segment. • Other income increased by $43.3 million, primarily due to a $30.1 million insurance settlement, gain on sale of $10.9 million from the sale of aircraft to the 2025 Partnership, and a $2.4 million increase in interest income earned on financing receivables during 2025 within our Aviation Leasing Segment. Provision for income taxes The Provision for income taxes increased $17.3 million, primarily driven by higher income discussed above generated in the Aircraft Leasing and Aerospace Products segments within taxable jurisdictions. Net income Net income increased by $62.8 million, primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased by $104.5 million, primarily due to the changes noted above. 34 Aviation Leasing Segment As of March 31, 2025, in our Aviation Leasing segment, we own and manage 425 aviation assets, consisting of 107 commercial aircraft and 318 engines, including eight aircraft and seventeen engines that were still located in Russia. As of March 31, 2025, 88 of our commercial aircraft and 178 of our engines were leased to operators or other third parties. Aviation assets currently off lease are either undergoing repair and/or maintenance, being prepared to go on lease or held in short term storage awaiting a future lease. Our aviation equipment was approximately 78% utilized during the three months ended March 31, 2025, based on the percent of days on-lease in the quarter weighted by the monthly average equity value of our aviation leasing equipment, excluding airframes. Our aircraft currently have a weighted average remaining lease term of 44 months, and our engines currently on-lease have an average remaining lease term of 24 months. The table below provides additional information on the assets in our Aviation Leasing segment, including transfers which involve aircraft breakdowns, engine transfers from leasing equipment to inventory for manufacturing and sales, and engine transfers from inventory to leasing equipment for rebuilding and sales: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2025 5 104 109 Purchases — 13 13 Sales — (4) (4) Transfers — (11) (11) Assets at March 31, 2025 5 102 107 Engines Assets at January 1, 2025 23 289 312 Purchases — 22 22 Sales — — — Transfers — (16) (16) Assets at March 31, 2025 23 295 318 The following table presents our results of operations for our Aviation Leasing segment: 35 Three Months Ended March 31, Change (in thousands) 2025 2024 Revenues Lease income $ 68,467 $ 50,913 $ 17,554 Maintenance revenue 49,607 45,790 3,817 Asset sales revenue 18,939 38,607 (19,668) Total revenues 137,013 135,310 1,703 Expenses Cost of sales 19,959 31,889 (11,930) Operating expenses 7,426 8,207 (781) Acquisition and transaction expenses 2,905 2,761 144 Depreciation and amortization 55,061 46,084 8,977 Asset impairment — 962 (962) Total expenses 85,351 89,903 (4,552) Other income (expense) Equity in losses of unconsolidated entities (777) (146) (631) Other income (1) 43,489 369 43,120 Total other income 42,712 223 42,489 Income before income taxes 94,374 45,630 48,744 Provision for income taxes 17,348 3,033 14,315 Net income attributable to shareholders $ 77,026 $ 42,597 $ 34,429 ________________________________________________________ (1) Includes gain on sale of $10,870 and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. 36 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2025 2024 Net income attributable to shareholders $ 77,026 $ 42,597 $ 34,429 Add: Provision for income taxes 17,348 3,033 14,315 Add: Equity-based compensation expense 175 105 70 Add: Acquisition and transaction expenses 2,905 2,761 144 Add: Losses on the modification or extinguishment of debt and preferred shares and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — 962 (962) Add: Incentive allocations — — — Add: Depreciation and amortization expense (1) 63,886 55,286 8,600 Add: Interest expense and dividends on preferred shares — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) (128) (83) (45) Less: Equity in losses of unconsolidated entities 777 146 631 Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 161,989 $ 104,807 $ 57,182 ________________________________________________________ (1) Includes the follo wing items for the three months ended March 31, 2025 and 2024: (i) depreciation expense of $55,061 and $46,084, (ii) lease intangible amortization of $3,206 and $3,976 and (iii) amortization for lease incentives of $5,619 and $5,226, respec tively. (2) Includes th e following items for the three months ended March 31, 2025 and 2024: (i) net loss of $777 and $146, (ii) depreciation and amortization of $102 and $63, and (iii) acquisition and transaction expense of $547 and $0 , respectively. Comparison of the three months ended March 31, 2025 and 2024 Revenues Total revenues increased by $1.7 million, driven by the following: • Leas e in come increased by $17.6 million, due to an increase in aircraft lease revenue of $11.6 million and an increase in engine lease revenue of $6.0 million, driven by an increased number of aircraft and engines on lease in addition to higher rental rates. • Maintenance revenue increased by $3.8 million, primarily due to an increase in aircraft maintenance revenue of $1.6 million and an increase in engine maintenance revenue of $2.2 million, driven by an increased number of aircraft and engines on lease in Q1 2025 as compared to Q1 2024. • Asset sales revenue decreased by $19.7 million, primarily due to an overall decrease in the number of sales transactions of commercial aircraft and engines. Specifically, there were no aircraft and no engines sold in Q1 2025 as compared to four engines sold in Q1 2024. Expenses Total exp enses decreased by $4.6 million, driven by the following: • Cost of sales decreased by $11.9 million, prim arily due to an overall decrease in the number of sales transactions of commercial aircraft and engines, which is in line with an overall decrease in the corresponding asset sales revenue. Specifically, there were no aircraft and no engines sold in Q1 2025 as compared to four engines sold in Q1 2024. • Operating exp ense s decreased by $0.8 million, primarily dri ven by a decrease in repairs and maintenance expense of $0.8 million and professional fees of $0.6 million, partially offset by an increase in insurance expense of $0.6 million. • Depreciation and amor tization increased $9.0 million, primarily dri ven by an increase in the number of assets owned and on lease during the quarter, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. Other income (expense) Total other income increased by $42.5 million, primarily due to a $30.1 million insurance settlement, gain on sale of $10.9 million from the sale of aircraft to the 2025 Partnership, and a $2.4 million increase in interest income earned on financing receivables during 2025. 37 Provision for income taxes The provision for income taxes increased by $14.3 million, primarily due to the increase in income discussed above from leasing activities in jurisdictions subject to taxes. Net income Net income increased by $34.4 million, primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased by $57.2 million, prim arily due to the changes noted above. Aerospace Products Segment 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 CFM56-5B, CFM56-7B and V2500 commercial aircraft engines. Our engine, module and parts sales are facilitated through a dedicated commercial maintenance program, designed to focus on modular and parts repair and refurbishment of CFM56-5B, CFM56-7B and V2500 engines. On December 30, 2024, with the launch of the 2025 Partnership, the Company entered into an agreement with our MRE business to supply replacement aircraft engines and modules for the life of the 2025 Partnership. In September 2024, we acquired LMCES to further enhance this business and establish permanent engine and module manufacturing capabilities. Refer to Note 3 “Acquisition of Lockheed Martin Commercial Engine Solutions”, for additional information. In addition, other serviceable used modules and parts are sold through our exclusive partnership, who is responsible for the teardown, repair, marketing and sales of parts from our CFM56-5B and CFM56-7B engine pool. In December 2023, we acquired the remaining interest in Quick Turn Engine Center LLC or “QuickTurn” (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the CFM56-5B and CFM56-7B engine. We also hold a 25% interest in the Advanced Engine Repair JV which focuses on developing new cost savings programs for engine repairs. The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2025 2024 Revenues Aerospace products revenue (1) 365,063 189,057 176,006 Expenses Cost of sales 228,755 110,915 117,840 Operating expenses 5,687 7,470 (1,783) Acquisition and transaction expenses 1,132 246 886 Depreciation and amortization 3,584 933 2,651 Total expenses 239,158 119,564 119,594 Other expense Equity in earnings (losses) of unconsolidated entities 113 (521) 634 Total other income (expense) 113 (521) 634 Income before income taxes 126,018 68,972 57,046 Provision for income taxes 19,375 2,539 16,836 Net income 106,643 66,433 40,210 Net income attributable to shareholders $ 106,643 $ 66,433 $ 40,210 ________________________________________________________ (1) Includes revenue of $100,638 and $0 for the three months ended March 31, 2025 and 2024, respectively, for sales to the 2025 Partnership. See Note 11 for additional information. The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: 38 Three Months Ended March 31, Change (in thousands) 2025 2024 Net income attributable to shareholders $ 106,643 $ 66,433 $ 40,210 Add: Provision for income taxes 19,375 2,539 16,836 Add: Equity-based compensation expense 155 70 85 Add: Acquisition and transaction expenses 1,132 246 886 Add: Losses on the modification or extinguishment of debt and preferred shares and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — — — Add: Incentive allocations — — — Add: Depreciation and amortization expense 3,584 933 2,651 Add: Interest expense and dividends on preferred shares — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) 169 (465) 634 Less: Equity in (earnings) losses of unconsolidated entities (113) 521 (634) Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 130,945 $ 70,277 $ 60,668 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2025 and 2024: (i) net income (loss) of $113 and $(521), and (ii) depreciation and amortization expense of $56 and $56, respectively. Comparison of the three months ended March 31, 2025 and 2024 Revenues Tot al Aerospace Products revenue increased by $176.0 million, prima rily due to a $165.2 million increase in CFM56-5B, CFM56-7B and V2500 engine and module sales including to the 2025 Partnership, as well as a $10.7 million increase in other revenues from the QuickTurn and LMCES. Expenses Tota l expense s increased by $119.6 million, due to the following: • Cost of sales increased by $117.8 million, primarily due to increases in CFM56-5B, CFM56-7B and V2500 engine and module sales, and parts inventory sales, which directly corresponds to components of increases in Aerospace products revenue over the same period. • Operating expenses increased by $1.8 million, primarily due to higher compensation and benefits expense due to the increase in employee headcount from the acquisitions of LMCES in the third quarter of 2024. • Depreciation and amortization increased by $2.7 million due to the acquisitions of LMCES in the third quarter of 2024. • Acquisition and transaction expenses increased by $0.9 million, primarily driven by higher professional fees incurred in evaluating and completing strategic transactions. Provision for income taxes The Provision for income taxes increased by $16.8 million, primarily due to the increase in income discussed above from Aerospace Products activities in jurisdictions subject to taxes. Net income Net income increased by $40.2 million, primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITD A increased by $60.7 million, primarily due to the changes noted above. 39 Corporate and Other The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2025 2024 Revenues Lease income 4 2,327 (2,323) Total revenues 4 2,327 (2,323) Expenses Operating expenses 19,325 9,640 9,685 General and administrative 3,116 3,683 (567) Acquisition and transaction expenses 3,255 3,172 83 Management fees and incentive allocation to affiliate — 4,895 (4,895) Depreciation and amortization 917 2,903 (1,986) Total expenses 26,613 24,293 2,320 Other income (expense) Interest expense (62,040) (47,707) (14,333) Other income 452 265 187 Total other expense (61,588) (47,442) (14,146) Loss before income taxes (88,197) (69,408) (18,789) Benefit from income taxes (13,864) — (13,864) Net loss (74,333) (69,408) (4,925) Less: Dividends on preferred shares 6,115 8,335 (2,220) Less: Loss on redemption of preferred shares 6,327 — 6,327 Net loss attributable to shareholders $ (86,775) $ (77,743) $ (9,032) The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2025 2024 Net loss attributable to shareholders $ (86,775) $ (77,743) $ (9,032) Add: Benefit from income taxes (13,864) — (13,864) Add: Equity-based compensation expense 4,559 335 4,224 Add: Acquisition and transaction expenses 3,255 3,172 83 Add: Losses on the modification or extinguishment of debt and capital lease obligations 6,327 — 6,327 Add: Changes in fair value of non-hedge derivative instruments — — — Add: Asset impairment charges — — — Add: Incentive allocations — 4,308 (4,308) Add: Depreciation and amortization expense 917 2,903 (1,986) Add: Interest expense and dividends on preferred shares 68,155 56,042 12,113 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — Less: Equity in losses of unconsolidated entities — — — Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ (17,426) $ (10,983) $ (6,443) Comparison of the three months ended March 31, 2025 and 2024 Revenues Total revenues decreased by $2.3 million, primarily due to the sale of the two vessels within the Offshore Energy business during the fourth quarter of 2024. 40 Expenses Total exp enses increased by $2.3 million, due to the following: • Operating expenses increased $9.7 million primarily due to higher compensation and benefits expense due to the increase in employee headcount and increased overall compensation. • Management fees and incentive allocation to affiliate decreased by $4.9 million, due to a decrease in management and incentive fees to the Former Manager with the Internalization effective May 28, 2024. • Depreciation and amortization decreased by $2.0 million, due to the sale of the two vessels within the Offshore Energy business during the fourth quarter of 2024. Other income (expense) Total other expense increased by $14.1 million, due to the following: • Interest expense increased by $14.3 million, reflecting an increase in the average debt outstanding of approximately $955.7 million primarily due to increases in (i) the Senior Notes due 2031 of $700.0 million, which were issued in April 2024, (ii) the Senior Notes due 2032 of $800.0 million, which were issued in June 2024, (iii) the Senior Notes due 2033 of $497.6 million, which were issued in October 2024, and an increase in the (iv) Revolving Credit Facility of $10.0 million, partially offset by a decreases in the (v) Senior Notes due 2025 of $651.9 million, which were redeemed in April 2024, and (vi) the Senior Notes due 2027 of $400.0 million, which were redeemed in October 2024. Benefit from income taxes The benefit from income taxes increased by $13.9 million. This increase was primarily attributable to a tax benefit arising from an increase in corporate overhead expenses, which reduced taxable income from leasing and aerospace activities and led to a more favorable tax position for the company. Net loss Net loss decreased by $4.9 million, primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased by $6.4 million, primarily due to the changes noted above. Liquidity and Capital Resources We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during various environments. This includes limiting discretionary spending across the organization and re-prioritizing our investments as necessary. On December 30, 2024, the Company announced the launch of a Strategic Capital Initiative in collaboration with third-party institutional investors. The first partnership under the initiative, the 2025 Partnership, will focus on acquiring 737NG and A320ceo aircraft. The Strategic Capital Initiative, and its related partnerships, will allow the Company to maintain an asset-light business model while the partnerships actively acquire on-lease narrowbody aircraft at scale. The Company has agreed that the 2025 Partnership, and follow-on partnerships, will be the primary buyer of on-lease 737NG and A320ceo aircraft. The Company, as the General Partner, will manage the aircraft in the 2025 Partnership, and the Company will receive customary, market-based compensation. The Company has also made a minority investment and will make future investments in the 2025 Partnership. The Company expects to manage the aircraft for and make minority investments in, future partnerships. Our principal uses of liquidity have been and continue to be (i) acquisitions of aircraft and engines, (ii) dividends to our ordinary and preferred shareholders, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments. In the future, instead of acquiring on-lease aircraft directly, as part of the Strategic Capital Initiative, we will invest in the related partnerships and such partnerships will acquire on-lease aircraft. • Cash used for the purpose of making investments was $339.4 million and $303.0 million during the three months ended March 31, 2025 and 2024, respectively. • Distributions to shareholders, including cash dividends, were $36.9 million and $38.4 million during the three months ended March 31, 2025 and 2024, respectively. • Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. 41 Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our aviation assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales. • Cash flows from operating activities, plus the principal collections on finance leases and maintenance reserve collections were $11.0 million and $9.4 million during the three months ended March 31, 2025 and 2024, respectively. • During the three months ended March 31, 2025, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $290.0 million and $90.0 million, respectively. During the three months ended March 31, 2024, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $210.0 million and $35.0 million, respectively. • Proceeds from the sale of assets were $263.1 million and $128.4 million during the three months ended March 31, 2025 and 2024, respectively. • In February 2025, the Company redeemed in full the outstanding Series B preferred shares at a redemption price equal to $25.00 per share in cash, plus $2.4 million of accumulated and unpaid distributions thereon to, but not including, the redemption date of February 16, 2025. We are currently evaluating several potential transactions and related financings, including, but not limited to, certain additional debt and equity financings, which could occur within the next 12 months. None of these potential transactions, negotiations, or financings are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction or related financing. Historical Cash Flow Comparison of the three months ended March 31, 2025 and 2024 The following table compares the historical cash flow for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, (in thousands) 2025 2024 Cash Flow Data: Net cash used in operating activities $ (25,966) $ (345) Net cash used in investing activities (27,627) (169,213) Net cash provided by financing activities 50,610 144,026 Net cash used in operating activities increased $25.6 million, which primarily reflects certain adjustments to reconcile net income to cash provided by operating activities including (i) Changes in net working capital of $132.8 million and an increase in (ii) Gain on insurance recoveries of $30.1 million, partially offset by an increase in (iii) Net income of $62.8 million, a decrease in (iv) Gain on sale of assets, net of $38.6 million, and increases in (v) Deferred income taxes of $16.1 million, (vi) Depreciation and amortization of $9.6 million, (vii) Equity in losses of unconsolidated entities of $6.9 million and (viii) Equity-based compensation of $4.4 million. Net cash used in investing activities decreased $141.6 million, primarily due to increases in (i) Proceeds from the sale of assets of $104.6 million, (ii) Return of deposits for acquisition of leasing equipment of $43.8 million, (iii) Proceeds from settlement of insurance claims of $30.1 million and a decrease in (iv) Acquisitions of leasing equipment of $9.6 million, partially offset by increases in (v) Deposits for acquisition of leasing equipment of $20.8 million and (vi) Investment in unconsolidated entities of $20.0 million. Net cash provided by financing activities decreased $93.4 million, primarily due to increases in (i) Redemption of preferred shares of $124.2 million and (ii) Repayment of debt of $55.0 million, partially offset by increases in (iii) Proceeds from debt of $80.0 million and (iv) Receipt of maintenance deposits under operating lease agreements of $6.1 million. Contractual Obligations Our material cash requirements include the following contractual and other obligations: Debt Obligations — As of March 31, 2025, we had outstanding principal and interest payment obligations of $3.7 billion and $1.4 billion, respectively, of which only interest payments of $248.9 million are due in the next twelve months. See Note 7 to the consolidated financial statements for additional information about our debt obligations. Lease Obligations —As of March 31, 2025, we had outstanding operating and finance lease obligations of $37.0 million, of which $3.2 million is due in the next twelve months. Other Cash Requirements —In addition to our contractual obligations, we pay quarterly cash dividends on our ordinary shares and preferred shares, which are subject to change at the discretion of our Board of Directors. During the last twelve months, we declared cash dividends of $122.3 million and $30.5 million on our ordinary shares and preferred shares, respectively. We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future 42 financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required. Critical Accounting Estimates and Policies There were no material changes to our critical accounting estimates described in our Annual Report on Form 10-K for the year ended December 31, 2024. Recent Accounting Pronouncements There have been no developments to recently issued accounting pronouncements, nor any changes to expected adoption dates or estimated effects on the Company’s consolidated financial statements and related footnote disclosures, from those previously reported on the Form 10-K for the year ended December 31, 2024.