AIRCASTLE LTD
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 10-Q
_______________________________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended August 31, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File number 001-32959
_______________________________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
| (Address of Principal Executive Offices) | |||||
Registrant’s telephone number, including area code: (203 ) 504-1020
_______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
| N/A | ||||||||||||||
| N/A | ||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☑ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on August 31, 2022 (the last business day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was $0 because the Registrant’s Common Shares were not publicly traded as of that date. For purposes of the foregoing calculation, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and executive officers and shareholders owning 10% or more of the outstanding common shares of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.
As of October 7, 2022, there were 14,048 outstanding shares of the registrant’s common shares, par value $0.01 per share.
Aircastle Limited and Subsidiaries
Form 10-Q
Table of Contents
| Page No. | ||||||||
| Item 1. | Consolidated Financial Statements | |||||||
| Consolidated Balance Sheets as of August 31, 2022 and February 28, 2022 | ||||||||
| Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and six months ended August 31, 2022 and 2021 | ||||||||
| Consolidated Statements of Cash Flows for the six months ended August 31, 2022 and 2021 | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
PART I. — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
| August 31, 2022 | February 28, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
| Accounts receivable | |||||||||||
| Flight equipment held for lease, net | |||||||||||
| Net investment in leases, net | |||||||||||
| Unconsolidated equity method investments | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Borrowings from secured financings, net | $ | $ | |||||||||
| Borrowings from unsecured financings, net | |||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
| Lease rentals received in advance | |||||||||||
| Security deposits | |||||||||||
| Maintenance payments | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
Preference shares, $ | |||||||||||
Common shares, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Aircastle Limited and Subsidiaries
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Dollars in thousands)
(Unaudited)
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Lease rental revenue | $ | $ | $ | $ | |||||||||||||||||||
| Direct financing and sales-type lease revenue | |||||||||||||||||||||||
| Amortization of lease premiums, discounts and incentives | ( | ( | ( | ( | |||||||||||||||||||
| Maintenance revenue | |||||||||||||||||||||||
| Total lease revenue | |||||||||||||||||||||||
| Gain on sale of flight equipment | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Interest, net | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||
| Impairment of flight equipment | |||||||||||||||||||||||
| Maintenance and other costs | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Loss on extinguishment of debt | ( | ( | ( | ||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total other income | |||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments | ( | ( | ( | ||||||||||||||||||||
| Income tax provision (benefit) | ( | ( | ( | ||||||||||||||||||||
| Earnings of unconsolidated equity method investments, net of tax | |||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Preference share dividends | ( | ( | ( | ( | |||||||||||||||||||
| Net income (loss) available to common shareholders | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Total comprehensive income (loss) available to common shareholders | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Amortization of lease premiums, discounts and incentives | |||||||||||
| Deferred income taxes | |||||||||||
| Collections on net investment in leases | |||||||||||
| Security deposits and maintenance payments included in earnings | ( | ( | |||||||||
| Gain on sale of flight equipment | ( | ( | |||||||||
| Loss on extinguishment of debt | |||||||||||
| Impairment of flight equipment | |||||||||||
| Provision for credit losses | |||||||||||
| Other | ( | ( | |||||||||
| Changes in certain assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ( | |||||||||
| Lease rentals received in advance | ( | ||||||||||
| Net cash and restricted cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition and improvement of flight equipment | ( | ( | |||||||||
| Proceeds from sale of flight equipment | |||||||||||
| Aircraft purchase deposits and progress payments, net of deposits returned and aircraft sales deposits | |||||||||||
| Other | ( | ||||||||||
| Net cash and restricted cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net proceeds from preference share issuance | |||||||||||
| Proceeds from secured and unsecured debt financings | |||||||||||
| Repayments of secured and unsecured debt financings | ( | ( | |||||||||
| Debt extinguishment costs | ( | ( | |||||||||
| Deferred financing costs | ( | ( | |||||||||
| Security deposits and maintenance payments received | |||||||||||
| Security deposits and maintenance payments returned | ( | ( | |||||||||
| Dividends paid | ( | ||||||||||
| Net cash and restricted cash provided by (used in) financing activities | ( | ||||||||||
| Net increase in cash and restricted cash: | ( | ||||||||||
| Cash and restricted cash at beginning of period | |||||||||||
| Cash and restricted cash at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
(Unaudited)
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Reconciliation to Consolidated Balance Sheets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
| Unrestricted and restricted cash and cash equivalents | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for interest, net of amounts capitalized | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Supplemental disclosures of non-cash investing activities: | |||||||||||
| Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions | $ | $ | |||||||||
| Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment | $ | $ | |||||||||
Transfers from flight equipment held for lease to Net investment in leases and Other assets | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
Aircastle Limited and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except share amounts)
(Unaudited)
| Common Shares | Preference Shares | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Balance, February 28, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Balance, May 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Preference share dividends | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Balance, August 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Common Shares | Preference Shares | Additional Paid-In Capital | Retained Earnings | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance, May 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of preference shares | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preference share dividends | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Balance, August 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 1. Summary of Significant Accounting Policies
Organization
Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business consists of acquiring, leasing, managing and selling commercial jet aircraft.
The Company is controlled by affiliates of Marubeni Corporation (“Marubeni”) and Mizuho Leasing Company, Limited (“Mizuho Leasing”). Aircastle is a holding company and conducts its business through subsidiaries that are wholly-owned, either directly or indirectly, by Aircastle.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. However, we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2022.
The consolidated financial statements include the accounts of Aircastle and all its subsidiaries, including any Variable Interest Entity (“VIE”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We manage and analyze our business and report on our results of operations based on one operating segment: leasing, financing, selling and managing commercial flight equipment. Our Chief Executive Officer is the chief operating decision maker.
The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of August 31, 2022, through the date on which the consolidated financial statements included in this Form 10-Q were issued.
Risk and Uncertainties
In the normal course of business, Aircastle encounters several significant types of economic risk including credit, market, aviation industry and capital market risks. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments and to fulfill its other contractual obligations to Aircastle. Market risk reflects the change in the value of financings due to changes in interest rate spreads or other market factors, including the value of collateral underlying financings. Aviation industry risk is the risk of a downturn in the commercial aviation industry which could adversely impact a lessee’s ability to make payments, increase the risk of early lease terminations and depress lease rates and the value of the Company’s aircraft. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of its business or to refinance existing debt facilities.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While
8
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Lease Revenue Recognition
We lease flight equipment under net operating leases with lease terms typically ranging from to seven years . We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals.
In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement. We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within other assets.
Should we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we will recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue.
Impairment of Flight Equipment
We perform an annual recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis. A recoverability assessment is also performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in an aircraft type’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates and maintenance payments, transition costs, estimated down time, and estimated residual or scrap values for an aircraft. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 in the Notes to Unaudited Consolidated Financial Statements.
Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors, such as the location of the aircraft and accessibility to records and technical documentation.
We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform Topic 848 (“ASC 848”), in response to the market transition from the London interbank
9
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 2. 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 the use of unobservable inputs.
The following tables set forth our financial assets as of August 31, 2022 and February 28, 2022 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
Fair Value Measurements at August 31, 2022 Using Fair Value Hierarchy | |||||||||||||||||||||||||||||
Fair Value as of August 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Valuation Technique | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | Market | ||||||||||||||||||||||||
| Restricted cash and cash equivalents | Market | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
Fair Value Measurements at February 28, 2022 Using Fair Value Hierarchy | |||||||||||||||||||||||||||||
Fair Value as of February 28, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Valuation Technique | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | Market | ||||||||||||||||||||||||
| Restricted cash and cash equivalents | Market | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
Our cash and cash equivalents and our restricted cash and cash equivalents consist largely of money market securities that are highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.
For the three and six months ended August 31, 2022, we had no
We measure the fair value of certain assets and liabilities on a non-recurring basis when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate the carrying amounts of these assets may not be recoverable. Assets subject to these measurements include our aircraft and investment in unconsolidated joint
10
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
venture. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.
We account for our investment in unconsolidated joint ventures under the equity method of accounting. Our investment is recorded at cost and is adjusted by undistributed earnings and losses and the distributions of dividends and capital. This investment is reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.
Aircraft Valuation
Impairment of Flight Equipment
Excluding asset write-offs related to Russia, during the three and six months ended August 31, 2022, the Company recorded impairment charges totaling $6.2 million related to the scheduled lease expiration of one narrow-body aircraft and other flight equipment. The Company recognized $6.1 million of maintenance revenue for this one aircraft during the three and six months ended August 31, 2022.
The Company wrote off the remaining book value of eight narrow-body and one freighter aircraft in Russia which have not been returned to us. As a result, the Company recorded impairment charges totaling $27.5 million and $31.9 million during the three and six months ended August 31, 2022, respectively – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. During the six months ended August 31, 2022, the Company recognized $9.5 million of maintenance and other revenue for these nine aircraft related to payments received on maintenance and general security letters of credit. No revenue was recognized for these nine aircraft during the three months ended August 31, 2022.
During the three months ended August 31, 2021, the Company recorded impairment charges totaling $21.2 million, of which $18.0 million were transactional impairments primarily related to two narrow-body aircraft resulting from early lease terminations. The Company recognized $16.1 million of maintenance revenue for these two aircraft.
During the six months ended August 31, 2021, the Company recorded impairment charges totaling $41.8 million, of which $38.6 million were transactional impairments, primarily related to four narrow-body aircraft resulting from three early lease terminations and one scheduled lease expiration. The Company recognized $37.1 million of maintenance revenue for these four aircraft.
Annual Recoverability Assessment
We plan to perform our annual recoverability assessment of all our aircraft during the third quarter of 2022.
We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.
The recoverability assessment is a comparison of the carrying value of each aircraft to its estimated undiscounted future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors, such as the location of the aircraft and accessibility to records and technical documentation.
11
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in our recoverability assessments are appropriate, actual results could differ from those estimates.
Financial Instruments
Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and amounts borrowed under financings. The fair value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.
The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of our financial instruments at August 31, 2022 and February 28, 2022 were as follows:
| August 31, 2022 | February 28, 2022 | ||||||||||||||||||||||
| Carrying Amount of Liability | Fair Value of Liability | Carrying Amount of Liability | Fair Value of Liability | ||||||||||||||||||||
| Credit Facilities | $ | $ | $ | $ | |||||||||||||||||||
| Unsecured Term Loan | |||||||||||||||||||||||
| Export Credit Agency (“ECA”) Financings | |||||||||||||||||||||||
| Bank Financings | |||||||||||||||||||||||
| Senior Notes | |||||||||||||||||||||||
All our financial instruments are classified as Level 2 except for our senior notes, which are classified as Level 1.
Note 3. Flight Equipment Held for Lease, Net
The following table summarizes the activities for the Company’s flight equipment held for lease for the six months ended August 31, 2022:
| Amount | ||||||||
Balance at February 28, 2022 | $ | |||||||
| Additions | ||||||||
| Depreciation | ( | |||||||
| Disposals and transfers to net investment in leases and held for sale | ( | |||||||
| Impairments | ( | |||||||
Balance at August 31, 2022 | $ | |||||||
Accumulated depreciation as of August 31, 2022 | $ | |||||||
Write-off of Russian Aircraft
As of August 31, 2022, nine of our aircraft that were previously leased to Russian airlines remain in Russia. Most of the operators of these aircraft have continued to fly the aircraft notwithstanding the sanctions imposed on Russia and leasing terminations. While we will continue to pursue repossession, it is unlikely we will regain possession of any of these nine aircraft. As a result, the Company wrote off the remaining book value of these nine aircraft, resulting in impairment charges totaling $4.4 million and $27.5 million during the three months ended May 31, 2022 and August 31,
12
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
2022, respectively. These nine aircraft have been removed from the Company’s owned fleet count. The Company is vigorously pursuing insurance claims to recover its losses relating to these aircraft, however, collection, timing and amounts of any insurance recoveries is uncertain.
We also had one freighter aircraft outside of Russia that we successfully repossessed during the three months ended August 31, 2022. Additionally, in response to a new wave of sanctions against Russia in the United Kingdom (“U.K.”), the Company terminated the lease of one freighter aircraft with a U.K.-based airline and successfully repossessed that aircraft during the three months ended August 31, 2022. We recognized $11.9 million of maintenance revenue as a result of this lease termination. Subsequent to August 31, 2022, these two freighter aircraft and one wide-body aircraft previously on lease to a Russian airline were sold for gains of approximately $53.0 million.
During the six months ended August 31, 2022, the Company recognized $25.4 million of maintenance and other revenue related to payments received on maintenance and general security letters of credit for our former Russian lessees. We are pursuing collection on remaining letters of credit totaling $24.1 million.
Note 4. Lease Rental Revenues
Minimum future lease rentals contracted to be received under our existing operating leases of flight equipment at August 31, 2022 were as follows:
| Year Ending February 28/29, | Amount(1) | |||||||
| 2023 (Remainder of fiscal year) | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
_______________
(1)Reflects impact of lessee lease rental deferrals.
At August 31, 2022 and February 28, 2022, the amounts of lease incentive liabilities recorded in maintenance payments on our consolidated balance sheets were $20.1 million and $16.5 million, respectively.
Note 5. Net Investment in Leases, Net
At August 31, 2022 and February 28, 2022, our net investment in leases consisted of nine and eleven aircraft, respectively. The components of our net investment in leases at August 31, 2022 and February 28, 2022, were as follows:
| August 31, 2022 | February 28, 2022 | ||||||||||
| Lease receivable | $ | $ | |||||||||
| Unguaranteed residual value of flight equipment | |||||||||||
| Net investment leases | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Net investment in leases, net | $ | $ | |||||||||
13
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The activity in the allowance for credit losses related to our net investment in leases for the six months ended August 31, 2022 was as follows:
| Amount | ||||||||
Balance at February 28, 2022 | $ | |||||||
| Provision for credit losses | ||||||||
| Write-offs | ( | |||||||
Balance at August 31, 2022 | $ | |||||||
At August 31, 2022, future lease payments on net investment in leases are as follows:
| Year Ending February 28/29, | Amount | |||||||
| 2023 (Remainder of fiscal year) | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total lease payments to be received | ||||||||
| Present value of lease payments - lease receivable | ( | |||||||
| Difference between undiscounted lease payments and lease receivable | $ | |||||||
Note 6. Concentration of Risk
The classification of regions in the tables below is based on our customers’ principal place of business.
The geographic concentration of the net book value of our fleet (flight equipment held for lease and net investment in direct financing and sales-type leases, or “Net Book Value”) as of August 31, 2022 and February 28, 2022 was as follows:
| August 31, 2022 | February 28, 2022 | ||||||||||||||||||||||
| Region | Number of Aircraft | Net Book Value % | Number of Aircraft | Net Book Value % | |||||||||||||||||||
| Asia and Pacific | % | % | |||||||||||||||||||||
| Europe | % | % | |||||||||||||||||||||
| Middle East and Africa | % | % | |||||||||||||||||||||
| North America | % | % | |||||||||||||||||||||
| South America | % | % | |||||||||||||||||||||
| Off-lease | (1) | % | (2) | % | |||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
_______________
(1)Of the fifteen off-lease aircraft at August 31, 2022, we have two narrow-body aircraft and six wide-body aircraft which we are currently marketing for lease or sale.
(2)Of the eleven off-lease aircraft at February 28, 2022, we have three wide-body aircraft which we are currently marketing for lease or sale.
14
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The following table sets forth individual countries representing at least 10% of our Net Book Value as of August 31, 2022 and February 28, 2022:
| August 31, 2022 | February 28, 2022 | ||||||||||||||||||||||
| Country | Net Book Value | Net Book Value % | Number of Lessees | Net Book Value | Net Book Value % | Number of Lessees | |||||||||||||||||
| India | $ | $ | |||||||||||||||||||||
The geographic concentration of our lease rental revenue earned from flight equipment held for lease was as follows:
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||
| Region | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Asia and Pacific | % | % | % | % | |||||||||||||||||||
| Europe | % | % | % | % | |||||||||||||||||||
| Middle East and Africa | % | % | % | % | |||||||||||||||||||
| North America | % | % | % | % | |||||||||||||||||||
| South America | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the periods indicated:
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Number of Lessees | Combined % of Lease Rental Revenue | Number of Lessees | Combined % of Lease Rental Revenue | Number of Lessees | Combined % of Lease Rental Revenue | Number of Lessees | Combined % of Lease Rental Revenue | ||||||||||||||||||||||||||||||||||||||||
| Largest lessees by lease rental revenue | |||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended August 31, 2022, total revenue attributable to the U.K, the United States, and India was 11 %, 11 %, and 10 %, respectively. Total revenue attributable to the U.K. included $11.9 million of maintenance revenue resulting from the lease termination of one freighter aircraft – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. For the three months ended August 31, 2021, total revenue attributable to India was 13 % and less than 10% for the U.K. and the United States.
For the six months ended August 31, 2022 and 2021, total revenue attributable to India was 11 % and 13 %, respectively.
Judicial Insolvency Proceedings or Similar Protection
As of October 7, 2022, three of our customers, to which we lease sixteen aircraft, are subject to judicial insolvency proceedings or similar protection. We have signed restructured lease agreements for fifteen of these aircraft, subject only to the lessees emerging from their respective judicial insolvency processes, and a restructured lease commitment for one of these aircraft.
15
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 7. Unconsolidated Equity Method Investments
We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $292.0 million at August 31, 2022.
| Amount | ||||||||
Investment in joint venture at February 28, 2022 | $ | |||||||
| Earnings from joint venture, net of tax | ||||||||
Investment in joint venture at August 31, 2022 | $ | |||||||
On June 30, 2022, the Company received full repayment of the unsecured loan facility it provided to the joint venture in the amount of $1.5 million.
Note 8. Borrowings from Secured and Unsecured Debt Financings
The outstanding amounts of our secured and unsecured debt financings were as follows:
At August 31, 2022 | At February 28, 2022 | ||||||||||||||||||||||||||||
| Debt Obligation | Outstanding Borrowings | Number of Aircraft | Interest Rate | Final Stated Maturity | Outstanding Borrowings | ||||||||||||||||||||||||
| Secured Debt Financings: | |||||||||||||||||||||||||||||
ECA Financings(1) | $ | N/A | $ | ||||||||||||||||||||||||||
Bank Financings(2) | 06/17/23 to 03/06/25 | ||||||||||||||||||||||||||||
| Less: Debt issuance costs and discounts | ( | ( | |||||||||||||||||||||||||||
| Total secured debt financings, net of debt issuance costs and discounts | |||||||||||||||||||||||||||||
| Unsecured Debt Financings: | |||||||||||||||||||||||||||||
| Senior 5.00% Notes due 2023 | 04/01/23 | ||||||||||||||||||||||||||||
| Senior 4.40% Notes due 2023 | 09/25/23 | ||||||||||||||||||||||||||||
| Senior Notes due 2024 | 05/01/24 | ||||||||||||||||||||||||||||
| Senior Notes due 2025 | 08/11/25 | ||||||||||||||||||||||||||||
| Senior Notes due 2026 | 06/15/26 | ||||||||||||||||||||||||||||
| Senior Notes due 2028 | 01/26/28 | ||||||||||||||||||||||||||||
| Unsecured Term Loans | 02/27/24 | ||||||||||||||||||||||||||||
| Revolving Credit Facilities | 02/28/23 to 05/24/25 | ||||||||||||||||||||||||||||
| Less: Debt issuance costs and discounts | ( | ( | |||||||||||||||||||||||||||
| Total unsecured debt financings, net of debt issuance costs and discounts | |||||||||||||||||||||||||||||
| Total secured and unsecured debt financings, net of debt issuance costs and discounts | $ | $ | |||||||||||||||||||||||||||
(1)In May 2022, the Company repaid the principal and accrued interest outstanding under our remaining ECA Financing and incurred early extinguishment costs of $0.5 million.
(2)The borrowings under these financings at August 31, 2022 have a weighted-average fixed rate of interest of 3.81 %.
16
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Unsecured Debt Financings:
Revolving Credit Facilities
On May 24, 2022, we entered into an amendment for one 230.0 280.0 35.0 245.0
On June 27, 2022, a $100.0 million commitment under one of our unsecured revolving credit facilities, with a total commitment of $1.0 billion, matured on its stated maturity date. On September 8, 2022, we entered into an amendment that expanded the size of the facility from $900.0 million to $1.0 billion and replaced LIBOR with Term Secured Overnight Financing Rate (“SOFR”) as the benchmark interest rate. The facility bears interest at Adjusted Term SOFR (as defined in the amendment to the credit agreement) plus a margin of 1.625 % per year and matures on April 26, 2025.
On July 30, 2022, a $50.0 million commitment under our revolving credit facility with Mizuho Bank Ltd., a related party, matured on its stated maturity date.
As of August 31, 2022, we had $95.0 million outstanding under our revolving credit facilities and had $1.2 billion available for borrowing.
As of August 31, 2022, we were in compliance with all applicable covenants in our financings.
Note 9. Shareholders' Equity
On March 15, 2022, the Company paid a quarterly dividend in the amount of $10.5 million for its Preference Shares, which was approved by the Company’s Board of Directors on January 6, 2022, and accrued as of February 28, 2022.
On September 15, 2022, the Company paid a quarterly dividend in the amount of $10.5 million for its Preference Shares, which was approved by the Company’s Board of Directors on July 6, 2022, and accrued as of August 31, 2022.
Note 10. Related Party Transactions
Note 11. Income Taxes
17
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three and six months ended August 31, 2022 and 2021 were as follows:
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| U.S. operations | $ | $ | $ | $ | |||||||||||||||||||
| Non-U.S. operations | ( | ( | ( | ||||||||||||||||||||
| Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Our aircraft-owning subsidiaries generally earn income from sources outside the U.S. and typically are not subject to U.S. federal, state or local income taxes. The aircraft owning subsidiaries resident in the U.S. and Ireland are subject to tax in those respective jurisdictions.
We have a U.S.-based subsidiary which provides management services to our subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
The Company’s effective tax rates (“ETRs”) for the three months ended August 31, 2022 and 2021 were 30.3 % and 45.1 % , and for the six months ended August 31, 2022 and 2021 were 25.2 % and 47.4 %, respectively. The movement in the ETR is primarily caused by changes in the mix of the Company’s pre-tax earnings/(losses) in its taxable and non-tax jurisdictions. The six months ended August 31, 2022 included net non-cash impairment charges, which were recorded in a low tax jurisdiction. Further, the three and six months ended August 31, 2021 included income from the sale of unsecured claims filed by the Company against LATAM Airlines Group S.A. and certain of its subsidiaries (“LATAM”) in respect of LATAM’s Chapter 11 filing (the “LATAM Bankruptcy”), which was recorded in a low tax jurisdiction.
Note 12. Interest, Net
The following table shows the components of interest, net:
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Interest on borrowings and other liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of deferred financing fees and debt discount | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Less: Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Less: Capitalized interest | ( | ( | ( | ( | |||||||||||||||||||
| Interest, net | $ | $ | $ | $ | |||||||||||||||||||
18
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 13. Commitments and Contingencies
Rent expense for the corporate offices and sales and marketing offices was $0.4 million and $0.4 million, and $0.9 million and $0.8 million, for the three and six months ended August 31, 2022 and 2021, respectively.
As of August 31, 2022, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows:
| Year Ending February 28/29, | Amount | |||||||
| 2023 (Remainder of fiscal year) | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
At August 31, 2022, we had commitments to acquire 21 aircraft for $748.1 million.
At August 31, 2022, commitments, including $54.4 million of remaining progress payments, contractual price escalations and other adjustments for these aircraft, net of amounts already paid, are as follows:
| Year Ending February 28/29, | Amount | |||||||
| 2023 (Remainder of fiscal year) | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Note 14. Other Assets
The following table describes the principal components of other assets on our consolidated balance sheets as of August 31, 2022 and February 28, 2022:
| August 31, 2022 | February 28, 2022 | ||||||||||
| Deferred income tax asset | $ | $ | |||||||||
Lease incentives and lease premiums, net of amortization of $ | |||||||||||
| Flight equipment held for sale | |||||||||||
| Aircraft purchase deposits and Embraer E-2 progress payments | |||||||||||
Right-of-use asset(1) | |||||||||||
| Deferred rent receivable | |||||||||||
| Other assets | |||||||||||
| Total other assets | $ | $ | |||||||||
______________
(1)Net of lease incentives and tenant allowances.
19
Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 15. Accounts Payable, Accrued Expenses and Other Liabilities
The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded our consolidated balance sheets as of August 31, 2022 and February 28, 2022:
| August 31, 2022 | February 28, 2022 | ||||||||||
| Accounts payable, accrued expenses and other liabilities | $ | $ | |||||||||
| Deferred income tax liability | |||||||||||
| Accrued interest payable | |||||||||||
| Lease liability | |||||||||||
Lease discounts, net of amortization of $ | |||||||||||
| Total accounts payable, accrued expenses and other liabilities | $ | $ | |||||||||
Note 16. Subsequent Event
On September 8, 2022, we expanded the size of one of our unsecured revolving credit facilities by $100.0 million to $1.0 billion – see Note 8 in the Notes to Unaudited Consolidated Financial Statements.
In September 2022, we sold two freighter aircraft and one wide-body aircraft for gains of approximately $53.0 million – see Note 3 in the Notes to Unaudited Consolidated Financial Statements.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended February 28, 2022. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “report”), other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA and Adjusted EBITDA and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the Securities and Exchange Commission (the “SEC”) and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s Annual Report on Form 10-K for the year ended February 28, 2022. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
WEBSITE AND ACCESS TO THE COMPANY’S REPORTS
Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S. taxpayers are available free of charge through our website at www.aircastle.com under “Investors — Tax Information (PFIC).”
The information on the Company’s Internet website is not part of, nor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.
21
OVERVIEW
Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs. However, in many cases we are obligated to pay a specified portion of maintenance or modification costs. During the six months ended August 31, 2022, we purchased eight aircraft and sold nine aircraft and other flight equipment. As of August 31, 2022, we owned and managed on behalf of our joint ventures 252 aircraft leased to 74 lessees located in 45 countries. As of August 31, 2022, the Net Book Value of our fleet was $6.5 billion. The weighted average age of our fleet was 10.3 years and the weighted average remaining lease term was 5.0 years. As of August 31, 2022, we have commitments to acquire 21 aircraft for $748.1 million, which includes estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.
Our total revenues, net loss and Adjusted EBITDA were $173.6 million and $349.1 million, $8.7 million $1.0 million, and $159.1 million, and $312.0 million, respectively, for the three and six months ended August 31, 2022. Cash flow provided by operating activities was $215.6 million and $179.7 million for the six months ended August 31, 2022 and 2021, respectively. Our business and financial results, customers, and the aviation industry has and will continue to be impacted by the COVID-19 pandemic and the Russian invasion of Ukraine. We believe our platform and personnel position us to effectively manage through these crises and will enable us to take advantage of new investment opportunities when they arise.
While the industry continues to recover from the impact of COVID-19, according to the International Air Transit Association (“IATA”), as of August 31, 2022, air travel was still down to approximately 74% compared to normal levels. We continue to believe long-term demand for air travel will gradually return to historical trends over time.
Historically, growth in commercial air traffic has been correlated with world economic activity. Prior to the COVID-19 pandemic, commercial air traffic growth expanded at a rate of approximately 1 to 2 times that of global GDP growth. This expansion of air travel has driven growth in the world aircraft fleet; and there are approximately 25,000 commercial mainline passenger and freighter aircraft in the world fleet today. Aircraft leasing companies own approximately 50% of the world’s commercial jet aircraft. Under normal circumstances, we would expect the global fleet to continue expanding at a two to three percent average annual rate.
We believe that our long-standing business strategy of maintaining conservative leverage, limiting long-term financial commitments, and focusing our portfolio on more liquid narrow-body aircraft will enable us to manage through recent crises, such as the COVID-19 pandemic and the Russian invasion of Ukraine. Our portfolio of primarily mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins.
We believe that we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of October 1, 2022, total liquidity of $2.1 billion includes $1.4 billion of undrawn credit facilities, $0.3 billion of unrestricted cash and $0.4 billion of projected adjusted operating cash flows through October 1, 2023.
Update on Russian Invasion of Ukraine
As of August 31, 2022, nine of our aircraft that were previously leased to Russian airlines remain in Russia. Most of the operators of these aircraft have continued to fly the aircraft notwithstanding the sanctions imposed on Russia and leasing terminations. While will continue to pursue repossession, it is unlikely we will regain possession of any of these nine aircraft. As a result, the Company wrote off the remaining book value of these nine aircraft, resulting in impairment charges totaling $4.4 million and $27.5 million during the three months ended May 31, 2022 and August 31, 2022, respectively. These nine aircraft have been removed from the Company’s owned fleet count. The Company is vigorously pursuing insurance claims to recover its losses relating to these aircraft, however, collection, timing and amounts of any insurance recoveries is uncertain.
We also had one freighter aircraft outside of Russia that we successfully repossessed during the three months ended August 31, 2022. Additionally, in response to a new wave of sanctions in the U.K., the Company terminated the lease of one freighter aircraft with a U.K.-based airline and successfully repossessed that aircraft during the three months ended August 31, 2022. We recognized $11.9 million of maintenance revenue as a result of this lease termination. Subsequent
22
to August 31, 2022, these two freighter aircraft and a wide-body aircraft previously on lease to a Russian airline were sold for gains of approximately $53.0 million.
During the six months ended August 31, 2022, the Company recognized $25.4 million of maintenance and other revenue related to payments received on maintenance and general security letters of credit for our former Russian lessees. We are pursuing collection on remaining letters of credit totaling $24.1 million.
Fiscal Year 2022 Lease Expirations and Lease Placements
As of October 7, 2022, we had ten off-lease aircraft and five aircraft with leases expiring in fiscal year 2022, which combined account for less than 6% of our Net Book Value at August 31, 2022, still to be placed or sold.
Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the fiscal years 2023-2026, representing the percentage of our Net Book Value at August 31, 2022, specified below:
•2023: 33 aircraft, representing 9%;
•2024: 41 aircraft, representing 15%;
•2025: 28 aircraft, representing 12%; and
•2026: 17 aircraft, representing 6%.
Acquisitions and Sales
During the six months ended August 31, 2022, we acquired eight aircraft for $320.0 million. As of August 31, 2022, we had commitments to acquire 21 aircraft for $748.1 million, with delivery through the fourth quarter of 2024, which includes estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments. As of October 7, 2022, we have acquired two additional aircraft and have commitments to acquire nineteen aircraft for $674.2 million.
During the six months ended August 31, 2022, we sold nine aircraft and other flight equipment for net proceeds of $171.1 million and recognized a net gain on sale of $13.7 million. As of October 7, 2022, we have sold five additional aircraft.
Finance
We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital from debt and equity investors. Since our inception in late 2004, we have raised $2.1 billion in equity capital from private and public investors. We also raised $19.0 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.
We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured and unsecured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.
See “Liquidity and Capital Resources — Secured Debt Financings” and “Liquidity and Capital Resources — Unsecured Debt Financings” below.
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AIRCASTLE AIRCRAFT INFORMATION
The following table sets forth certain information with respect to the aircraft owned by us as of August 31, 2022 and 2021 (dollars in millions):
| Owned Aircraft | As of August 31, 2022 | As of August 31, 2021 | |||||||||
| Net Book Value of Flight Equipment | $ | 6,493 | $ | 6,761 | |||||||
| Net Book Value of Unencumbered Flight Equipment | $ | 5,447 | $ | 5,593 | |||||||
Number of Aircraft(1) | 243 | 255 | |||||||||
Number of Unencumbered Aircraft(1) | 212 | 223 | |||||||||
| Number of Lessees | 74 | 76 | |||||||||
| Number of Countries | 45 | 42 | |||||||||
Weighted Average Age (Years)(2) | 10.3 | 10.6 | |||||||||
Weighted Average Remaining Lease Term (Years)(2) | 5.0 | 4.6 | |||||||||
Weighted Average Fleet Utilization during the three months ended August 31, 2022 and 2021(3) | 94.9 | % | 94.1 | % | |||||||
Weighted Average Fleet Utilization during the six months ended August 31, 2022 and 2021(3) | 94.8 | % | 93.6 | % | |||||||
Portfolio Yield for the three months ended August 31, 2022 and 2021(4) | 9.2 | % | 8.7 | % | |||||||
Portfolio Yield for the six months ended August 31, 2022 and 2021(4) | 9.2 | % | 8.5 | % | |||||||
| Managed Aircraft on behalf of Joint Venture | |||||||||||
| Net Book Value of Flight Equipment | $ | 292 | $ | 305 | |||||||
| Number of Aircraft | 9 | 9 | |||||||||
(1)Excludes nine aircraft that remain in Russia with zero net book value – see Note 3 in the Notes to Unaudited Consolidated Financial Statements
(2)Weighted by net book value.
(3)Aircraft on-lease days as a percent of total days in period weighted by net book value.
(4)Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percent of the average Net Book Value for the period; quarterly information is annualized.
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PORTFOLIO DIVERSIFICATION
Owned Aircraft as of August 31, 2022 | Owned Aircraft as of August 31, 2021 | ||||||||||||||||||||||
| Number of Aircraft | % of Net Book Value | Number of Aircraft | % of Net Book Value | ||||||||||||||||||||
| Aircraft Type | |||||||||||||||||||||||
| Passenger: | |||||||||||||||||||||||
Narrow-body - new technology(1) | 31 | 21 | % | 19 | 13 | % | |||||||||||||||||
| Narrow-body - current technology | 186 | 61 | % | 210 | 66 | % | |||||||||||||||||
| Wide-body - current technology | 21 | 15 | % | 22 | 17 | % | |||||||||||||||||
| Total Passenger | 238 | 97 | % | 251 | 96 | % | |||||||||||||||||
| Freighter - current technology | 5 | 3 | % | 4 | 4 | % | |||||||||||||||||
| Total | 243 | 100 | % | 255 | 100 | % | |||||||||||||||||
| Manufacturer | |||||||||||||||||||||||
| Airbus | 159 | 66 | % | 171 | 65 | % | |||||||||||||||||
| Boeing | 72 | 29 | % | 77 | 33 | % | |||||||||||||||||
| Embraer | 12 | 5 | % | 7 | 2 | % | |||||||||||||||||
| Total | 243 | 100 | % | 255 | 100 | % | |||||||||||||||||
| Regional Diversification | |||||||||||||||||||||||
| Asia and Pacific | 65 | 29 | % | 74 | 33 | % | |||||||||||||||||
| Europe | 90 | 29 | % | 96 | 29 | % | |||||||||||||||||
| Middle East and Africa | 10 | 4 | % | 10 | 4 | % | |||||||||||||||||
| North America | 37 | 19 | % | 33 | 15 | % | |||||||||||||||||
| South America | 26 | 13 | % | 25 | 13 | % | |||||||||||||||||
| Off-lease | 15 | (2) | 6 | % | 17 | (3) | 6 | % | |||||||||||||||
| Total | 243 | 100 | % | 255 | 100 | % | |||||||||||||||||
(1) Includes Airbus A320-200neo and A321-200neo, Boeing 737-MAX8 and Embraer E2 aircraft.
(2) Of the fifteen off-lease aircraft at August 31, 2022, we have two narrow-body aircraft and six wide-body aircraft which we are currently marketing for lease or sale.
(3) Of the seventeen off-lease aircraft at August 31, 2021, we have two wide-body aircraft which we are currently marketing for lease or sale.
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The top ten customers for aircraft we owned at August 31, 2022 are as follows:
| Customer | Country | Percent of Net Book Value | Number of Aircraft | |||||||||||||||||
| IndiGo | India | 7.5% | 11 | |||||||||||||||||
LATAM(1) | Chile | 7.3% | 13 | |||||||||||||||||
| American Airlines | United States | 3.9% | 9 | |||||||||||||||||
| KLM | Netherlands | 3.5% | 7 | |||||||||||||||||
| Air Canada | Canada | 3.5% | 5 | |||||||||||||||||
| Viva Aerobus | Mexico | 3.5% | 6 | |||||||||||||||||
| Iberia | Spain | 3.4% | 14 | |||||||||||||||||
| Frontier Airlines | United States | 3.0% | 4 | |||||||||||||||||
| Aerolineas Argentinas | Argentina | 2.8% | 5 | |||||||||||||||||
| easyJet | United Kingdom | 2.7% | 11 | |||||||||||||||||
| Total top ten customers | 41.1% | 85 | ||||||||||||||||||
| All other customers | 58.9% | 158 | ||||||||||||||||||
| Total all customers | 100.0% | 243 | ||||||||||||||||||
(1) LATAM filed for Chapter 11 in May 2020. We have signed restructured leases for all thirteen of the LATAM aircraft, subject only to LATAM emerging from the Chapter 11 process.
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RESULTS OF OPERATIONS
Comparison of the three months ended August 31, 2022 to the three months ended August 31, 2021:
| Three Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues: | |||||||||||
| Lease rental revenue | $ | 146,508 | $ | 137,589 | |||||||
Direct financing and sales-type lease revenue | 2,265 | 2,776 | |||||||||
| Amortization of lease premiums, discounts and incentives | (5,518) | (5,835) | |||||||||
Maintenance revenue | 20,114 | 21,218 | |||||||||
| Total lease revenue | 163,369 | 155,748 | |||||||||
| Gain on sale of flight equipment | 10,049 | 1,502 | |||||||||
| Other revenue | 161 | 402 | |||||||||
| Total revenues | 173,579 | 157,652 | |||||||||
| Operating expenses: | |||||||||||
| Depreciation | 82,106 | 83,391 | |||||||||
| Interest, net | 50,587 | 55,413 | |||||||||
| Selling, general and administrative | 17,393 | 15,990 | |||||||||
| Provision for credit losses | 109 | 6 | |||||||||
| Impairment of flight equipment | 33,671 | 21,232 | |||||||||
| Maintenance and other costs | 5,212 | 8,087 | |||||||||
| Total operating expenses | 189,078 | 184,119 | |||||||||
| Other income (expense): | |||||||||||
| Loss on extinguishment of debt | — | (14,132) | |||||||||
| Other | 2,072 | 57,609 | |||||||||
| Total other income | 2,072 | 43,477 | |||||||||
| Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments | (13,427) | 17,010 | |||||||||
| Income tax provision (benefit) | (4,068) | 7,665 | |||||||||
| Earnings of unconsolidated equity method investments, net of tax | 666 | 458 | |||||||||
| Net income (loss) | $ | (8,693) | $ | 9,803 | |||||||
Revenues
Total revenues increased $15.9 million for the three months ended August 31, 2022 as compared to the three months ended August 31, 2021.
Lease rental revenue increased $8.9 million as a result of:
•a $15.8 million increase in revenue as the three months ended August 31, 2022 included a lower amount of customers for which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method as compared to the three months ended August 31, 2021 – see Note 1 in the Notes to Unaudited Consolidated Financial Statements for our lease revenue recognition policy; and
•a $15.6 million increase related to 24 aircraft purchased since June 1, 2021.
These increases were partially offset by:
•a $15.2 million decrease due to lease terminations, of which $12.4 million relates to aircraft for which the leases were terminated as a result of sanctions against Russia;
•a $5.4 million decrease related to the sale of thirteen aircraft since June 1, 2021; and
•a $1.9 million decrease due to lease extensions, amendments, transitions and other changes.
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Direct financing and sales-type lease revenue decreased $0.5 million, primarily related to the sales of five aircraft since June 1, 2021, partially offset by the reclassification of two aircraft to sales-type leases.
Amortization of lease premiums, discounts and lease incentives:
| Three Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Amortization of lease premiums | $ | (2,723) | $ | (3,597) | |||||||
| Amortization of lease discounts | 126 | 227 | |||||||||
| Amortization of lease incentives | (2,921) | (2,465) | |||||||||
| Amortization of lease premiums, discounts and incentives | $ | (5,518) | $ | (5,835) | |||||||
Maintenance revenue. For the three months ended August 31, 2022, we recorded $20.1 million of maintenance revenue, comprised primarily of $7.5 million related to the scheduled lease expirations of two narrow-body aircraft and $11.9 million related to the early lease termination of one freighter aircraft as a result of a new wave of sanctions against Russia in the U.K. – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. For the three months ended August 31, 2021, we recorded $21.2 million of maintenance revenue, comprised primarily of $17.0 million related to the early lease terminations of three narrow-body aircraft.
Gain on sale of flight equipment. During the three months ended August 31, 2022 we sold five aircraft for a gain of $10.0 million as compared to the sale of one aircraft during the three months ended August 31, 2021 for a gain of $1.5 million.
Operating expenses
Total operating expenses increased $5.0 million for the three months ended August 31, 2022 as compared to the three months ended August 31, 2021.
Depreciation expense decreased $1.3 million primarily attributable to $10.3 million resulting from fourteen aircraft sold since June 1, 2021 and lower depreciation related to aircraft subject to impairments, including aircraft that were previously leased to Russian airlines. This was partially offset by an increase of $7.3 million related to 24 aircraft acquired since June 1, 2021.
Interest, net consisted of the following:
| Three Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Interest on borrowings and other liabilities | $ | 48,392 | $ | 51,807 | |||||||
| Amortization of deferred financing fees and debt discount | 3,498 | 4,193 | |||||||||
| Interest expense | 51,890 | 56,000 | |||||||||
| Less: Interest income | (748) | (382) | |||||||||
| Less: Capitalized interest | (555) | (205) | |||||||||
| Interest, net | $ | 50,587 | $ | 55,413 | |||||||
Interest, net decreased $4.8 million, primarily due to $408.3 million in lower weighted average debt outstanding.
Selling, general and administrative expenses increased $1.4 million, primarily due to due to an increase in Russia-related legal costs and travel expenses due to increased business travel.
Impairment of aircraft. During the three months ended August 31, 2022, the Company wrote off the remaining book value of one freighter aircraft in Russia, which has not been returned to us, in the amount of $27.5 million. While we maintain title to the aircraft and will continue to pursue repossession, we determined that it is unlikely we will regain possession of this aircraft – see Note 3 in the Notes to Unaudited Consolidated Financial Statements.
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The Company also recorded impairment charges totaling $6.2 million related to the scheduled lease expiration of one narrow-body aircraft and other flight equipment during the three months ended August 31, 2022. The Company recognized $6.1 million of maintenance revenue for this one aircraft.
During the three months ended August 31, 2021, the Company recorded impairment charges totaling $21.2 million, of which $18.0 million were transactional impairments primarily related to two narrow-body aircraft resulting from early lease terminations. The Company recognized $16.1 million of maintenance revenue for these two aircraft.
Maintenance and other costs were $5.2 million and $8.1 million for the three months ended August 31, 2022 and 2021, respectively, which related to aircraft that have transitioned or will transition to new lessees as a result of lease terminations or scheduled lease expirations. The Company incurred higher maintenance costs during the three months ended August 31, 2021 and continues to incur higher costs compared to historical levels, resulting from extended transition periods driven by supply chain issues and manpower shortages.
Other income (expense)
Total other income decreased $41.4 million for the three months ended August 31, 2022 as compared to the three months ended August 31, 2021. During the three months ended August 31, 2021, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to the LATAM Bankruptcy into other income. This was partially offset by a $14.1 million loss on extinguishment of debt related to the early redemption in full of $500.0 million outstanding aggregate principal amount of our 5.5% Senior Notes due 2022.
Income tax provision (benefit)
Our income tax benefit for the three months ended August 31, 2022 was a $4.1 million benefit as compared to a provision of $7.7 million for the three months ended August 31, 2021. The decrease in our income tax provision of $11.7 million was primarily attributable to changes in the mix of pre-tax book income/(loss) in Bermuda, Ireland and the United States. The three months ended August 31, 2022 included certain net non-cash impairment charges, which were recorded in a low tax jurisdiction. Further, the three months ended August 31, 2021 included income from the sale of unsecured claims related to the LATAM Bankruptcy, which was recorded in a low tax jurisdiction.
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RESULTS OF OPERATIONS
Comparison of the six months ended August 31, 2022 to the six months ended August 31, 2021:
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues: | |||||||||||
| Lease rental revenue | $ | 290,652 | $ | 269,714 | |||||||
| Direct financing and sales-type lease revenue | 4,863 | 5,653 | |||||||||
| Amortization of lease premiums, discounts and incentives | (10,906) | (11,159) | |||||||||
| Maintenance revenue | 47,213 | 47,694 | |||||||||
| Total lease revenue | 331,822 | 311,902 | |||||||||
| Gain on sale of flight equipment | 13,736 | 10,524 | |||||||||
| Other revenue | 3,585 | 1,036 | |||||||||
| Total revenues | 349,143 | 323,462 | |||||||||
| Operating expenses: | |||||||||||
| Depreciation | 163,424 | 165,782 | |||||||||
| Interest, net | 100,881 | 113,450 | |||||||||
| Selling, general and administrative | 37,309 | 31,573 | |||||||||
| Provision for credit losses | 689 | 12 | |||||||||
| Impairment of flight equipment | 38,099 | 41,815 | |||||||||
| Maintenance and other costs | 13,277 | 15,615 | |||||||||
| Total operating expenses | 353,679 | 368,247 | |||||||||
| Other income (expense): | |||||||||||
| Loss on extinguishment of debt | (463) | (14,156) | |||||||||
| Other | 2,072 | 57,619 | |||||||||
| Total other income | 1,609 | 43,463 | |||||||||
| Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments | (2,927) | (1,322) | |||||||||
| Income tax benefit | (739) | (627) | |||||||||
| Earnings of unconsolidated equity method investments, net of tax | 1,177 | 745 | |||||||||
| Net income (loss) | $ | (1,011) | $ | 50 | |||||||
Revenues
Total revenues increased $25.7 million for the six months ended August 31, 2022 as compared to the six months ended August 31, 2021.
Lease rental revenue increased $20.9 million as a result of:
•a $30.5 million increase related to 26 aircraft purchased since March 1, 2021;
•a $22.4 million increase in revenue as the six months ended August 31, 2022 included a lower amount of customers for which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method as compared to the six months ended August 31, 2021 – see Note 1 in the Notes to Unaudited Consolidated Financial Statements for our lease revenue recognition policy; and
•a $6.5 million increase due to lease extensions, amendments, transitions and other changes.
30
These increases were partially offset by:
•a $28.2 million decrease due to lease terminations, of which $21.3 million relates to aircraft for which the leases were terminated as a result of sanctions against Russia; and
•a $10.3 million decrease related to the sale of sixteen aircraft since March 1, 2021.
Direct financing and sales-type lease revenue decreased $0.8 million, primarily related to the sales of five aircraft since March 1, 2021, partially offset by the reclassification of two aircraft to sales-type leases.
Amortization of lease premiums, discounts and lease incentives:
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Amortization of lease premiums | $ | (5,278) | $ | (6,500) | |||||||
| Amortization of lease discounts | 255 | 457 | |||||||||
| Amortization of lease incentives | (5,883) | (5,116) | |||||||||
| Amortization of lease premiums, discounts and incentives | $ | (10,906) | $ | (11,159) | |||||||
Maintenance revenue. For the six months ended August 31, 2022, we recorded $47.2 million of maintenance revenue, of which $23.9 million related to payments received on maintenance letters of credit for our former Russian lessees and $11.9 million related to the early termination of one freighter aircraft as a result of a new wave of sanctions against Russia in the U.K. – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. In addition, we recorded maintenance revenue of $9.6 million related to the scheduled lease expirations of three narrow-body aircraft.
For the six months ended August 31, 2021, we recorded $47.7 million of maintenance revenue, comprised primarily of $41.9 million related to the scheduled lease expirations of four narrow-body aircraft and the early lease terminations of three narrow-body and one wide-body aircraft. In addition, we recorded $5.4 million of maintenance revenue related to one narrow-body and one wide-body aircraft for which the customers were previously subject to judicial insolvency proceedings or similar protection.
Gain on sale of flight equipment. During the six months ended August 31, 2022, we sold nine aircraft for a gain of $13.7 million as compared to the sale of four aircraft during the six months ended August 31, 2021 for a gain of $10.5 million.
Other revenue increased $2.5 million to $3.6 million for the six months ended August 31, 2022 attributable to $1.5 million of payments received on general security letters of credit for our former Russian lessees and $1.8 million of security deposits retained by us in connection with an aircraft lease amendment.
Operating expenses
Total operating expenses decreased $14.6 million for the six months ended August 31, 2022 as compared to the six months ended August 31, 2021.
Depreciation expense decreased $2.4 million primarily attributable to $19.9 million resulting from seventeen aircraft sold since March 1, 2021 and lower depreciation related to aircraft subject to impairments, including aircraft that were previously leased to Russian airlines. This was partially offset by an increase of $14.1 million related to 26 aircraft acquired since March 1, 2021.
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Interest, net consisted of the following:
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Interest on borrowings and other liabilities | $ | 95,633 | $ | 106,135 | |||||||
| Amortization of deferred financing fees and debt discount | 7,095 | 8,384 | |||||||||
| Interest expense | 102,728 | 114,519 | |||||||||
| Less: Interest income | (1,007) | (712) | |||||||||
| Less: Capitalized interest | (840) | (357) | |||||||||
| Interest, net | $ | 100,881 | $ | 113,450 | |||||||
Interest, net decreased $12.6 million, primarily due to $518.9 million in lower weighted average debt outstanding.
Selling, general and administrative expenses increased $5.7 million, primarily due to an increase in personnel costs, as well as Russia-related legal costs and travel expenses due to increased business travel.
Impairment of aircraft. During the six months ended August 31, 2022, the Company wrote off the remaining book value of eight narrow-body and one freighter aircraft in Russia, which have not been returned to us, totaling $31.9 million. While we maintain title to the aircraft and will continue to pursue repossession, we determined that it is unlikely we will regain possession of these nine aircraft – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. The Company recognized $9.5 million of maintenance and other revenue for these nine aircraft related to payments received on maintenance and general security letters of credit.
The Company also recorded impairment charges totaling $6.2 million related to the scheduled lease expiration of one narrow-body aircraft and other flight equipment during the six months ended August 31, 2022. The Company recognized $6.1 million of maintenance revenue for this one aircraft.
During the six months ended August 31, 2021, the Company recorded impairment charges totaling $41.8 million, of which $38.6 million were transactional impairments, primarily related to four narrow-body aircraft resulting from three early lease terminations and one scheduled lease expiration. The Company recognized $37.1 million of maintenance revenue for these four aircraft.
Maintenance and other costs were $13.3 million and $15.6 million for the six months ended August 31, 2022 and 2021, respectively, which related to aircraft that have transitioned or will transition to new lessees as a result of lease terminations or scheduled lease expirations. The Company incurred higher maintenance costs during the six months ended August 31, 2021 and continues to incur higher costs compared to historical levels, resulting from extended transition periods driven by supply chain issues and manpower shortages.
Other income (expense)
Total other income decreased by $41.9 million for the six months ended August 31, 2022 as compared to the six months ended August 31, 2021. During the six months ended August 31, 2021, the Company recognized $55.2 million of proceeds from the sales of unsecured claims related to the LATAM Bankruptcy into other income. This was partially offset by a $14.1 million loss on extinguishment of debt related to the early redemption in full of $500.0 million outstanding aggregate principal amount of our 5.5% Senior Notes due 2022.
Income tax benefit
Our income tax benefit for the six months ended August 31, 2022 and 2021 was $0.7 million and $0.6 million, respectively. The six months ended August 31, 2022 included net non-cash impairment charges, which were recorded in a low tax jurisdiction. Further, the six months ended August 31, 2021 included income from the sale of unsecured claims related to the LATAM Bankruptcy, which was recorded in a low tax jurisdiction.
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Aircraft Valuation
Annual Recoverability Assessment
We plan to perform our annual recoverability assessment of all our aircraft during the third quarter of 2022.
We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.
The recoverability assessment is a comparison of the carrying value of each aircraft to its estimated undiscounted future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors, such as the location of the aircraft and accessibility to records and technical documentation.
If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in our recoverability assessments are appropriate, actual results could differ from those estimates.
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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 – “Summary of Significant Accounting Policies – Organization and Basis of Presentation” in the Notes to Unaudited Consolidated Financial Statements above.
RECENT UNADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 – “Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the Notes to Unaudited Consolidated Financial Statements above.
LIQUIDITY AND CAPITAL RESOURCES
Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio. Our operations have historically generated a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including:
•various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions;
•unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;
•asset sales; and
•sales of common and preference shares.
Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.
During the six months ended August 31, 2022, we met our liquidity and capital resource needs with $215.6 million of cash flows from operations and $171.1 million of cash from the sale of aircraft and other flight equipment.
As of August 31, 2022, the weighted-average maturity of our secured and unsecured debt financings was 2.6 years and we were in compliance with all applicable covenants.
While the industry continues to recover from the impact of COVID-19, according to IATA, as of August 31, 2022, air travel was still down to approximately 74% compared to normal levels. If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, government or other sources, we may need to provide lease concessions to certain customers in the form of deferrals or broader lease restructurings. We may ultimately be unable to collect some or all amounts that we have deferred or may defer in future periods. As of August 31, 2022, we hold $65.4 million in security deposits, $498.8 million in maintenance payments and $109.9 million in letters of credit from our lessees, of which $24.1 million relates to our former Russian lessees and for which we are pursuing collection.
We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of October 1, 2022, total liquidity of $2.1 billion includes $1.4 billion of undrawn credit facilities, $0.3 billion of unrestricted cash and $0.4 billion of projected adjusted operating cash flows through October 1, 2023. In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, borrowings secured by our aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments.
34
Cash Flows
| Six Months Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Net cash flow provided by operating activities | $ | 215,616 | $ | 179,714 | |||||||
| Net cash flow used in investing activities | (195,405) | (282,348) | |||||||||
| Net cash flow provided by (used in) financing activities | 56,470 | (137,769) | |||||||||
Operating Activities:
Cash flow provided by operating activities was $215.6 million and $179.7 million for the six months ended August 31, 2022 and 2021, respectively. The increase of $35.9 million was primarily attributable to:
•$25.4 million of payments received on maintenance and general security letters of credit for our former Russian lessees;
•a $22.4 million increase in lease rental revenue as the six months ended August 31, 2022 included a lower number of customers for which lease rental revenue was recognized using a cash basis of accounting rather than an accrual method; and
•an $18.5 million increase in cash related to accounts receivable and other assets, primarily due to an increase in customer collections, including the repayment of lease deferrals, as global air traffic recovers from the COVID-19 pandemic.
These inflows were offset by a decrease in cash of $21.1 million resulting from the termination of our Russian leases.
Investing Activities:
Cash flow used in investing activities was $195.4 million and $282.3 million for the six months ended August 31, 2022 and 2021, respectively. The decrease of $86.9 million was primarily attributable to a $93.2 million increase in proceeds from the sale of flight equipment.
Financing Activities:
Cash flow provided by financing activities was $56.5 million for the six months ended August 31, 2022 as compared to cash flow used in financing activities of $137.8 million for the six months ended August 31, 2021. The net cash increase of $194.2 million was primarily attributable to a $563.5 million decrease in repayments of secured and unsecured debt financings, net of proceeds. In addition, security deposits and maintenance payments received, net of payments returned, increased $18.6 million for the six months ended August 31, 2022 as compared to the six months ended August 31, 2021.
These inflows were partially offset by a $393.4 million decrease in net proceeds from the issuance of preference shares.
Debt Obligations
For complete information on our debt obligations, refer to Note 8 – “Secured and Unsecured Debt Financings” in the Notes to Unaudited Consolidated Financial Statements.
Contractual Obligations
Our contractual obligations consist of principal and interest payments on debt financings, aircraft acquisitions and rent payments related to our office leases. Total contractual obligations decreased to $5.8 billion at August 31, 2022 from $6.0 billion at February 28, 2022, due to lower outstanding debt and the related interest thereon resulting from principal repayments, partially offset by higher aircraft purchase commitments.
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Capital Expenditures
From time to time, we make capital expenditures to maintain or improve our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the six months ended August 31, 2022 and 2021, we incurred a total of $49.4 million and $17.6 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.
As of August 31, 2022, the weighted average age by net book value of our aircraft was approximately 10.3 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft. Maintenance reserves are generally paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, such as in the event of a lessee default or a lessee fails to meet its maintenance obligations under the lease agreement.
Actual maintenance payments to us by lessees in the future may be less than projected as a result of several factors, such as in the event of a lessee default. Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. See Item 1A. “Risk Factors – Risks Related to Our Business – Risks related to our leases – If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease” in our Annual Report on Form 10-K for the year ended February 28, 2022.
Off-Balance Sheet Arrangements
We entered into a joint venture arrangement in order to help expand our base of new business opportunities. This joint venture does not qualify for consolidated accounting treatment. The assets and liabilities of this entity are not included in our consolidated balance sheets and we record our net investment under the equity method of accounting. See Note 7 in the Notes to Unaudited Consolidated Financial Statements.
We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of August 31, 2022, the net book value of its nine aircraft was $292.0 million.
Foreign Currency Risk and Foreign Operations
At August 31, 2022, all our leases are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the six months ended August 31, 2022, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately $9.6 million in U.S. dollar equivalents and represented 25.8% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, our international operations and our exposure to foreign currency risk will likely increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk. For the six months ended August 31, 2022 and 2021, we incurred insignificant net gains and losses on foreign currency transactions.
Inflation
Inflation affects our lease rentals, asset values and costs, including operating expenses and maintenance and other costs. We do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.
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Management’s Use of EBITDA and Adjusted EBITDA
We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.
This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.
EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.
The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and six months ended August 31, 2022 and 2021:
| Three Months Ended August 31, | Six Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | (8,693) | $ | 9,803 | $ | (1,011) | $ | 50 | |||||||||||||||
| Depreciation | 82,106 | 83,391 | 163,424 | 165,782 | |||||||||||||||||||
| Amortization of lease premiums, discounts and incentives | 5,518 | 5,835 | 10,906 | 11,159 | |||||||||||||||||||
| Interest, net | 50,587 | 55,413 | 100,881 | 113,450 | |||||||||||||||||||
| Income tax provision (benefit) | (4,068) | 7,665 | (739) | (627) | |||||||||||||||||||
| EBITDA | 125,450 | 162,107 | 273,461 | 289,814 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Impairment of flight equipment | 33,671 | 21,232 | 38,099 | 41,815 | |||||||||||||||||||
| Loss on extinguishment of debt | — | 14,132 | 463 | 14,156 | |||||||||||||||||||
| Adjusted EBITDA | $ | 159,121 | $ | 197,471 | $ | 312,023 | $ | 345,785 | |||||||||||||||
Limitations of EBITDA and Adjusted EBITDA
An investor or potential investor may find EBITDA and Adjusted EBITDA important measures in evaluating our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of earnings (loss). Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA and Adjusted EBITDA, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include:
•depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures;
•the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results; and
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•adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes which may not be comparable to similarly titled measures used by other companies.
EBITDA and Adjusted EBITDA are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S. GAAP. You should not rely on these non-U.S. GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations to U.S. GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, EBITDA and Adjusted EBITDA as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our floating rate debt obligations. Rent payments under our aircraft lease agreements typically do not vary during the term of the lease according to changes in interest rates. However, our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR or an alternative reference rate. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our securities. If LIBOR is no longer available or in certain other circumstances as described in the borrowing agreements, the applicable borrowing agreements provide a mechanism for determining an alternative rate of interest. There is no assurance that any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, LIBOR.
Sensitivity Analysis
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.
As of August 31, 2022, a hypothetical 100-basis point increase/decrease in interest rates on our variable rate borrowings would result in an interest expense increase/decrease of $3.6 million and $3.6 million, respectively, over the next twelve months.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as of August 31, 2022. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of August 31, 2022.
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Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), that occurred during the quarter ended August 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal or adverse regulatory proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes to the disclosure related to the risk factors described in our Annual Report on Form 10-K for the year ended February 28, 2022, as filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Environmental, Social and Governance (“ESG”)
Information on our ESG initiatives can be found on our website at www.aircastle.com under “About – ESG.” The information on the Company’s website regarding our ESG initiatives is not part of, nor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.
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ITEM 6. EXHIBITS
| Exhibit No. | Description of Exhibit | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 3.3 | |||||||||||
| 4.1 | |||||||||||
| 4.2 | |||||||||||
| 4.3 | |||||||||||
| 4.4 | |||||||||||
| 4.5 | |||||||||||
| 4.6 | |||||||||||
| 4.7 | |||||||||||
| 4.8 | |||||||||||
| 4.9 | |||||||||||
| 10.1 | |||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 32.2 | |||||||||||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of August 31, 2022 and February 28, 2022; (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and six months ended August 31, 2022 and 2021; (iii) Consolidated Statements of Cash Flows for the six months ended August 31, 2022 and 2021; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended August 31, 2022 and 2021; and (v) Notes to Unaudited Consolidated Financial Statements.* | ||||||||||
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| Exhibit No. | Description of Exhibit | ||||||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | ||||||||||
* Filed herewith.
** Certain attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
ØØ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 12, 2022
| AIRCASTLE LIMITED | ||||||||
| (Registrant) | ||||||||
| By: | /s/ Dane Silverman | |||||||
| Dane Silverman | ||||||||
| Chief Accounting Officer and Authorized Officer | ||||||||
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Consolidated Financial StatementsNote 1. Summary Of Significant Accounting PoliciesNote 2. Fair Value MeasurementsNote 3. Flight Equipment Held For Lease, NetNote 4. Lease Rental RevenuesNote 5. Net Investment in Leases, NetNote 6. Concentration Of RiskNote 7. Unconsolidated Equity Method InvestmentsNote 8. Borrowings From Secured and Unsecured Debt FinancingsNote 9. Shareholders' EquityNote 10. Related Party TransactionsNote 11. Income TaxesNote 12. Interest, NetNote 13. Commitments and ContingenciesNote 14. Other AssetsNote 15. Accounts Payable, Accrued Expenses and Other LiabilitiesNote 16. Subsequent EventItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits