FLY 20-F DEF-14A Report Dec. 31, 2019

FLY LEASING LTD

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20-F 1 form20f.htm 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-33701

FLY LEASING LIMITED

(Exact name of Registrant as specified in its charter)

Bermuda

(Jurisdiction of incorporation or organization)

West Pier Business Campus

Dun Laoghaire

County Dublin, A96 N6T7, Ireland

(Address of principal executive office)

Vincent Cannon, West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland

Telephone number: +353 1 231 1900, Facsimile number: +353 1 231 1901

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares	FLY	New York Stock Exchange
Common Shares, par value of $0.001 per share		New York Stock Exchange*

*	Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

30,898,410 Common Shares, par value of $0.001 per share.

100 Manager Shares, par value of $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark, if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

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 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, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐
		Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒

International Financial Reporting Standards as issued by the International Accounting Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

PRELIMINARY NOTE

This Annual Report should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and are presented in U.S. Dollars. These statements and discussion below contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, objectives, expectations and intentions and other statements contained in this Annual Report that are not historical facts, as well as statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning. Such statements address future events and conditions concerning matters such as, but not limited to, our earnings, cash flow, liquidity and capital resources, compliance with debt and other restrictive financial and operating covenants, interest rates, dividends, and acquisitions and dispositions of aircraft and other aviation assets. These statements are based on current beliefs or expectations and are inherently subject to significant uncertainties and changes in circumstances, many of which are beyond our control. Actual results may differ materially from these expectations due to changes in political, economic, business, competitive, market and regulatory factors. We believe that these factors include, but are not limited to those described under Item 3 “Key Information — Risk Factors” and elsewhere in this Annual Report.

Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward looking statements to reflect events, developments or circumstances after the date of this document, a change in our views or expectations, or to reflect the occurrence of future events.

Unless the context requires otherwise, when used in this Annual Report, (1) the term “Fly” refers to Fly Leasing Limited; (2) the terms “Company,” “we,” “our” and “us” refer to Fly and its subsidiaries; (3) the term “B&B Air Funding” refers to our subsidiary, Babcock & Brown Air Funding I Limited; (4) all references to our shares refer to our common shares held in the form of American Depositary Shares, or ADSs; (5) the term “BBAM LP” refers to BBAM Limited Partnership and its subsidiaries and affiliates; (6) the terms “BBAM” and “Servicer” refer to BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, BBAM Aviation Services Limited and BBAM US LP collectively; (6) the term “Manager” refers to Fly Leasing Management Co. Limited, the Company’s manager; (7) the term “Summit” refers to Summit Aviation Partners II LLC and its affiliates; (8) the term “Onex” refers to Onex Corporation and its affiliates, including its managed investment funds; and (9) the term “GIC” refers to GIC Private Limited and its affiliates.

Unless indicated otherwise, all percentages and weighted average characteristics of the aircraft in our portfolio have been calculated using net book values as of December 31, 2019 .

TABLE OF CONTENTS

	Page

PART I

Item 1. Identity of Directors, Senior Management and Advisers — Not Applicable	3
Item 2. Offer Statistics and Expected Timetable — Not Applicable	3
Item 3. Key Information	3
Item 4. Information on the Company	28
Item 4A. Unresolved Staff Comments — Not Applicable	37
Item 5. Operating and Financial Review and Prospects	37
Item 6. Directors, Senior Management and Employees	56
Item 7. Major Shareholders and Related Party Transactions	59
Item 8. Financial Information	68
Item 9. The Offer and Listing	69
Item 10. Additional Information	69
Item 11. Quantitative and Qualitative Disclosures About Market Risk	82
Item 12. Description of Securities Other Than Equity Securities	83

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies — Not Applicable	84
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	84
Item 15. Controls and Procedures	84
Item 16A. Audit Committee Financial Expert	85
Item 16B. Code of Ethics	85
Item 16C. Principal Accountant Fees and Services	85
Item 16D. Exemptions from the Listing Standards for Audit Committees — Not Applicable	86
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	86
Item 16F. Change in Registrant’s Certifying Accountant — Not Applicable	86
Item 16G. Corporate Governance	86
Item 16H. Mine Safety Disclosure	86

PART III

Item 17. Financial Statements	F - 1
Item 18. Financial Statements	F - 2
Item 19. Exhibits	F - 41

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PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

Fly Leasing Limited is a Bermuda exempted company that was incorporated on May 3, 2007, under the provisions of Section 14 of the Companies Act 1981 of Bermuda. We are principally engaged in purchasing commercial aircraft, which we lease under multi-year contracts to a diverse group of airlines throughout the world . Although we are organized under the laws of Bermuda, we are a resident of Ireland for tax purposes and are subject to Irish corporation tax on our income in the same way, and to the same extent, as if we were organized under the laws of Ireland . We completed our initial public offering on October 2, 2007. We are listed on the New York Stock Exchange under the ticker symbol “FLY .”

Selected Financial Data

The following selected financial data should be read in conjunction with Item 5 “Operating and Financial Review and Prospects” and our audited consolidated financial statements and notes related thereto included in Item 18 “Financial Statements” in this Annual Report. The selected financial data presented below are our operating results for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

	(Dollars in thousands, except per share data) Years ended
	2019		2018		2017		2016			2015
Statement of income data:
Operating lease revenue	$	464,399	$	399,514	$	346,894	$	313,582		$	429,691
Gain on sale of aircraft	$	97,323	$	13,398	$	3,926	$	27,195		$	28,959
Total revenues	$	575,024	$	418,299	$	353,251	$	345,039		$	462,397
Total expenses	$	328,620	$	322,650	$	339,321	$	381,428		$	434,200
Net income (loss)	$	225,877	$	85,723	$	2,598	$	(29,112	)	$	22,798
Earnings (loss) per share:
Basic	$	7.15	$	2.88	$	0.09	$	(0.88	)	$	0.52
Diluted	$	7.12	$	2.88	$	0.09	$	(0.88	)	$	0.52
Dividends declared and paid per share	$	—	$	—	$	—	$	—		$	1.00

	(Dollars in thousands) As of December 31,
	2019		2018		2017		2016		2015
Balance sheet data:
Total assets	$	3,665,159	$	4,226,472	$	3,595,615	$	3,447,009	$	3,424,480
Total liabilities	$	2,786,882	$	3,524,362	$	3,051,906	$	2,853,774	$	2,767,516
Total shareholders’ equity	$	878,277	$	702,110	$	543,709	$	593,235	$	656,964
Number of shares outstanding		30,898,410		32,650,019		27,983,352		32,256,440		35,671,400

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Risk Factors

The risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and the trading price of our shares. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and the trading price of our shares .

Risks Related to Our Business

Factors that increase the risk of decline in aircraft and aircraft equipment values and achievable lease rates could have an adverse effect on our financial results and growth prospects and on our ability to meet our debt obligations .

Aircraft and aircraft equipment values and achievable lease rates have from time to time experienced sharp decreases due to several factors including, but not limited to, decreases in passenger and air cargo demand, increases in fuel costs, government regulation and increases in interest rates. Operating leases place the risk of realization of residual values on aircraft lessors because only a portion of the equipment’s value is covered by contractual cash flows at lease inception. In addition to factors linked to the aviation industry generally, factors that may affect the value and achievable lease rates of our aircraft and engines include :

•

the maintenance, damage and operating history of the airframes and engines;

•

the number of operators using a type of aircraft or engine;

•

whether an aircraft or engine is subject to a lease and, if so, whether the lease terms are favorable to the lessor;

•

the age of our aircraft and engines;

•

airworthiness directives and service bulletins;

•

aircraft noise and emission standards ;

•

any tax, customs, regulatory and other legal requirements that must be satisfied when an aircraft or engine is purchased, sold or re-leased ;

•

grounding orders or other regulatory action that could prevent or limit utilization of our aircraft;

•

compatibility of our aircraft configurations or specifications with other aircraft owned by operators of that type ;

•

any renegotiation of an existing lease on less favorable terms;

•

the negotiability of clear title free from mechanics’ liens and encumbrances;

•

the availability of spare parts; and

•

the creditworthiness of our lessees.

Any decrease in the values of and achievable lease rates for commercial aircraft or engines that may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results and growth prospects and our ability to meet our debt obligation s.

Our business model depends on the continual leasing and re-leasing of our aircraft and engines, and we may not be able to do so on favorable terms, which would negatively affect our financial condition, cash flows and financial results .

Our business model depends on the continual leasing and re-leasing of our aircraft and engines to generate sufficient cash flows to finance our growth and operations, make payments on our debt, and meet our other corporate and contractual obligations. Our ability to lease and re-lease our aircraft and engines will depend on general market and competitive conditions at the time the leases are entered into and expire. Our ability to lease and re-lease aircraft and engines on favorable terms, without significant off-lease time and costs, could be negatively affected by a number of factors, including general business, economic and financial conditions, market conditions in the airline industry, airline bankruptcies, restructurings and mergers, the effects of terrorism and other global conflicts, and other factors, including those described in these “Risk Factors” and elsewhere in this Annual Report, and unanticipated risks, many of which are outside of our control. If we are unable to lease and re-lease our aircraft on favorable terms, our financial condition, cash flows and financial results may be negatively impacted .

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The variability of supply and demand for aircraft could depress lease rates and the value of our leased assets, which could have a material adverse effect on our financial results, our growth prospects and our ability to meet our debt obligations .

The aviation industry has experienced periods of aircraft oversupply and weak demand. The economic downturn and the slowdown in air travel between 2008 and early 2010 contributed to a decrease in the demand for aircraft. More recently, the airline industry has committed to a significant number of aircraft deliveries through order placements with manufacturers, and manufacturers have increased production rates of some aircraft types in response. The increase in production levels could result in an oversupply of these aircraft types if growth in airline traffic does not meet expectations. The oversupply of a specific type of aircraft in the market is likely to depress lease rates for, and the value of, that aircraft type. Any oversupply of new aircraft also could depress lease rates for, and the value of, used aircraft .

The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are not under our control, including :

•

passenger air travel and air cargo demand;

•

geopolitical and other events, including war, acts of terrorism, civil unrest, outbreaks of epidemic diseases and natural disasters;

•

airline operating costs, including fuel costs, and general economic conditions affecting our lessees’ operations;

•

governmental regulation, including new airworthiness directives, statutory limits on age of aircraft, and restrictions in certain jurisdictions on the age of aircraft for import, climate change initiatives and environmental regulation, and other factors leading to obsolescence of aircraft models;

•

tariffs and other restrictions on trade;

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interest and foreign exchange rates;

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airline restructurings and bankruptcies;

•

increased supply due to the sale of aircraft portfolios;

•

availability and cost of credit;

•

changes in control of, or restructurings of, other aircraft leasing companies;

•

manufacturer production levels and technological innovation;

•

new-entrant manufacturers producing additional aircraft models, or existing manufacturers producing new aircraft models, in competition with existing aircraft models;

•

retirement, obsolescence or marketability of aircraft models;

•

manufacturers merging or exiting the industry or ceasing to produce aircraft or engine types;

•

accuracy of estimates relating to future supply and demand made by manufacturers and lessees;

•

reintroduction into service of aircraft or engines previously in storage; and

•

airport and air traffic control infrastructure constraints.

Any of these factors may produce sharp and prolonged decreases in aircraft values and achievable lease rates, which would have a negative impact on the value of our fleet and may prevent our aircraft from being leased or re-leased on favorable terms, or at all. Any of these factors could have a material adverse effect on our financial results, our growth prospects and our ability to meet our debt obligations .

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We will need additional capital to finance our growth, fund potential aircraft and aircraft equipment purchase commitments, and refinance our existing debt, and we may not be able to obtain it on acceptable terms, or at all, which may adversely affect our financial condition, cash flows and financial results, and inhibit our ability to grow and compete in the commercial aircraft leasing market .

We will need additional capital to finance our growth, fund potential aircraft and aircraft equipment purchase commitments and refinance our existing debt. Our ability to acquire additional aircraft and aircraft equipment and to refinance our existing debt depends to a significant degree on our ability to access debt and equity capital markets. Our access to capital markets will depend on several factors including our historical and expected performance, compliance with the terms of our debt agreements, general market conditions, interest rate fluctuations and the relative attractiveness of alternative investments. In addition, volatility or disruption in the capital markets or a downgrade in our credit ratings could cause lenders to be reluctant or unable to provide us with financing on terms acceptable to us, or to increase the costs of such financing.

In particular, we will need additional capital to finance our forward purchase and leaseback commitments to AirAsia Group Berhad (“AAGB”), and our acquisition of option aircraft from AAGB. We have committed to purchase and leaseback a total of 21 Airbus A320neo family aircraft to AAGB and its affiliated airlines (the “AirAsia Group”) as the aircraft deliver from the manufacturer (“Portfolio B”), the first of which was delivered in the fourth quarter of 2019. We also have acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease, as the aircraft deliver through at least 2023 (“Portfolio C”), eight of which we exercised in 2019. We will need additional capital to finance our acquisition of these aircraft. If we are unable to source financing, we may not be able to close on the purchase of some or all of these aircraft and may fail to realize the full benefits of the AirAsia transactions. In addition, we will be subject to several risks, including potential monetary damages, and legal, accounting and other expenses related to our failure to perform our contractual obligations, potential damage to our reputation, and potential damage to our relationship with the AirAsia Group. These risks could negatively affect our financial condition, cash flows and results of operations.

We compete with other lessors and airlines when acquiring aircraft and our ability to grow our portfolio is dependent on our ability to access attractive financing. The terms of our debt facilities include significant restrictions on our ability to incur additional indebtedness. Depending on the terms of these facilities and market conditions at the time, we may have to rely more heavily on additional equity issuances, or on less efficient forms of debt financing that require a larger portion of our cash flows from operations, thereby reducing funds available for our operations, future business opportunities and other purposes. If we are unable to raise additional funds or obtain capital on attractive terms, our ability to finance growth opportunities and fund potential aircraft purchase commitments will be limited, and our ability to refinance our existing debt could be adversely affected. Any of the foregoing could have a material adverse effect on our financial condition, cash flows and financial results, and inhibit our ability to grow and compete in the commercial aircraft leasing market.

We have entered into residual value guarantees that may require us to make significant cash disbursements, which would reduce our cash flows and may negatively impact our financial results.

We have entered into residual value guarantees (“RVGs”) in which we agreed to guarantee the residual value of certain wide-body aircraft leased to commercial airlines by third parties. In an RVG, the third-party lessor agrees to pay us an upfront fee in exchange for our commitment to purchase the aircraft for a specified price at the expiry of the lease term if the third-party lessor elects to exercise the guarantee. We may enter into additional RVGs, if we perceive the economic benefit of the upfront payment to exceed the risk of payout.

We continuously re-evaluate our risk related to the RVGs based on several factors, including the estimated future base value of the aircraft based on third-party appraisals and information on similar aircraft remarketing in the secondary market. If we were required to pay the full aggregate amount of our outstanding RVGs and were unable to remarket any of the aircraft to offset our obligations, our maximum exposure as of December 31, 2019 would have been $82.5 million.

The RVGs contain covenants requiring us to post cash collateral as security for our obligations upon the occurrence of certain corporate events, including a change in control, a downgrade in our corporate family rating beyond a specified threshold, or a sale of all or substantially all our assets. If we were required to post the full aggregate amount of the cash collateral at December 31, 2019, it would have been $23.0 million.

If we are required to pay amounts, or post cash collateral, under the RVGs, we may not have sufficient cash or other financial resources available to do so and may need to seek financing to fund these payments. Moreover, any unexpected decrease in the market value of the aircraft covered by RVGs would decrease our ability to recover the amounts payable to satisfy our obligations and cause us to incur additional charges to net income. We cannot assure you that the then-prevailing market conditions would allow us to lease the underlying aircraft at their anticipated fair values or in a timely manner. Honoring our RVGs could require us to make significant cash disbursements in a given year, which, in turn, would reduce our cash flow, and may negatively impact our financial results in that year.

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Our future growth and profitability will depend on our ability to acquire aircraft and aircraft equipment and make other strategic investments.

Growth through future acquisitions of additional commercial aircraft and aircraft equipment requires the availability of capital. The availability and pricing of capital in the commercial bank market and in the unsecured bond market remain susceptible to global events, including, for example, political changes in the United States and abroad, rising interest rates, fluctuating currency rates, the rate of international economic growth and implications from changes in oil prices. If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition or results of operations could be materially adversely affected. Additionally, such inability to obtain capital on satisfactory terms, or at all, could prevent us from pursuing attractive future growth opportunities.

Even if capital were available, the market for commercial aircraft is cyclical, sensitive to economic instability and extremely competitive, and we may encounter difficulties in acquiring aircraft on favorable terms, or at all. A significant increase in our cost to acquire aircraft or aircraft equipment may make it more difficult for us to make accretive acquisitions. Any acquisition of aircraft or aircraft equipment may not be profitable to us. In addition, acquisition of additional aircraft, aircraft equipment and other investments that we may make, may expose us to risks that may harm our business, financial condition, cash flows and financial results, including risks that we may :

•

impair our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions and investments ;

•

significantly increase our interest expense and financial leverage to the extent we incur additional debt to finance acquisitions and investments ;

•

incur or assume unanticipated liabilities, losses or costs associated with the aircraft that we acquire, or investments we may make ; or

•

incur other significant charges, including asset impairment or restructuring charges .

We operate in a highly competitive market for investment opportunities in aircraft.

The leasing and remarketing of commercial jet aircraft is highly competitive. We compete with other aircraft leasing companies, including AerCap Holdings N.V., Air Lease Corp., Aircastle Limited, Aviation Capital Group, Bank of China Aviation, Boeing Capital Corporation, Bohai Leasing (which acquired Avolon Holdings Limited, and CIT Aerospace), Castlelake, Dubai Aerospace Enterprise (which, in 2017, acquired AWAS), GE Commercial Aviation Services Limited (GECAS), ICBC Leasing, Jackson Square Aviation, Macquarie Bank Limited, ORIX, SMBC Aviation Capital and Voyager Aviation Holdings, among others. We also may encounter competition from other entities that selectively compete with us, including :

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airlines;

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aircraft manufacturers;

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financial institutions (including those seeking to dispose of repossessed aircraft at distressed prices);

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aircraft brokers;

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special purpose vehicles formed for the purpose of acquiring, leasing and selling aircraft; and

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public and private partnerships, investors and funds, including private equity and hedge funds.

Competition for a leasing transaction is based principally upon lease rates, delivery dates, lease terms, reputation, management expertise, aircraft condition, specifications and configuration and the availability of the types of aircraft necessary to meet the needs of the customer. Some of our competitors have significantly greater operating and financial resources than we have. In addition, some competing aircraft lessors have a lower overall cost of capital and may provide financial services, maintenance services or other inducements to potential lessees that we cannot provide.

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Competition in the purchase and sale of used aircraft is based principally on the availability of used aircraft, price, the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee.

Many of our competitors have order positions with Boeing and Airbus that guarantee them the delivery of new, highly desirable aircraft in the future. We do not currently have any order positions with aircraft manufacturers.

We rely on our lessees’ continuing performance of their lease obligations.

We operate as a supplier to airlines and are indirectly impacted by the risks facing airlines today. Our success depends upon the financial strength of our lessees, our ability to assess the credit risk of our lessees and the ability of lessees to perform their contractual obligations to us. The ability of each lessee to perform its obligations under its lease will depend primarily on the lessee’s financial condition and cash flow, which may be affected by factors beyond our control, including :

•

competition;

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fare levels;

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air cargo rates;

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passenger air travel and air cargo demand;

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geopolitical and other events, including war, acts of terrorism, civil unrest, outbreaks of epidemic diseases and natural disasters ;

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increases in operating costs, including the availability and cost of jet fuel and labor cost s;

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labor difficulties;

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economic and financial conditions and currency fluctuations in the countries and regions in which the lessee operates ; and

•

governmental regulation of, or affecting, the air transportation business, including noise and emissions regulations, climate change initiatives and age limitations .

We expect that some lessees may encounter financial difficulties or suffer liquidity problems and, as a result, will struggle to make lease payments under our operating leases. For example, in 2019, two of our lessees, Jet Airways and Thomas Cook Airlines, ceased operations and we repossessed and redeployed the aircraft that had been leased to them. We are aware of other global airlines that are experiencing financial difficulties, and we expect that lessees experiencing financial difficulties may seek a reduction in their lease rates or other concessions in lease terms. We could experience increased delinquencies, particularly in any future downturns in the airline industry, which could worsen the financial condition and liquidity problems of these lessees. In addition, many airlines are exposed to currency risk because they earn revenues in their local currencies and certain of their liabilities and expenses are denominated in U.S. dollars, including lease payments to us. A delayed, missed or reduced rental payment from a lessee decreases our revenues and cash flows and may adversely affect our ability to make payments on our indebtedness.

Lease defaults could result in significant expenses and loss of revenues.

We have experienced, and may in the future experience, lessee defaults. Repossession, re-registration and flight and export permissions after a lessee default typically result in greater costs than those incurred when an aircraft is redelivered at the end of a lease. These costs may include legal and other expenses of court or other governmental proceedings, including the cost of posting surety bonds or letters of credit necessary to effect repossession of an aircraft which could be significant, particularly if the lessee is contesting the proceedings or is in bankruptcy. Delays resulting from repossession proceedings also would increase the period of time during which an aircraft does not generate lease revenue. In addition, we may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to pay and that are necessary to put the aircraft in a condition suitable for re-lease or sale. We may incur storage costs associated with any aircraft that we repossess and are unable to immediately place with another lessee. In addition, it may be necessary to pay off liens, taxes and governmental charges on the aircraft to obtain clear possession and to remarket the aircraft effectively, including liens that a defaulting lessee may have incurred in connection with the operation of its other aircraft.

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It is likely that our rights upon a lessee default will vary significantly depending upon the jurisdiction of operation and the applicable law, including the need to obtain a court order for repossession of the aircraft and/or consents for deregistration or re-export of the aircraft. We anticipate that when a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply. Certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or entitle the lessee or another third party to retain possession of the aircraft without paying lease rentals or performing all or some of the obligations under the relevant lease. In addition, certain of our lessees are owned in whole, or in part, by government-related entities, which could make it difficult to repossess our aircraft in that lessee’s domicile. Accordingly, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing the affected aircraft.

If we repossess an aircraft, we may not be able to export or deregister and profitably redeploy the aircraft. For instance, where a lessee or other operator flies only domestic routes in the jurisdiction in which an aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist deregistration. Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the aircraft and obtaining a certificate of airworthiness for the aircraft or engine. In addition, we may not be able to re-lease a repossessed aircraft at a similar lease rate.

Lessee defaults and related expenses could result in significant expenses and loss of revenues, which may materially and adversely affect our financial condition, cash flows and financial results.

Our lessees’ failure to comply with their maintenance obligations on our aircraft could significantly harm our financial condition, cash flows and financial results.

The standards of maintenance observed by our lessees and the condition of aircraft at the time of sale or lease may affect the market values and rental rates of our aircraft. Under each of our leases, the lessee is primarily responsible for maintaining the aircraft and complying with all governmental requirements applicable to the lessee and to the aircraft, including operational, maintenance, government agency oversight, registration requirements and airworthiness directives. A lessee’s failure to perform required maintenance during the term of a lease could result in a diminution in the value of an aircraft, an inability to re-lease the aircraft at favorable rates or at all, or a potential grounding of the aircraft.

We are typically not in possession of our aircraft while they are on lease to our lessees. Consequently, our ability to determine the condition of the aircraft or whether the lessees are properly maintaining the aircraft is limited to periodic inspections that we perform or that are performed on our behalf by third-party inspectors. A lessee’s failure to meet its maintenance obligations under a lease could :

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result in a grounding of the aircraft;

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cause us to incur costs in restoring the aircraft to an acceptable maintenance condition to re-lease the aircraft;

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adversely affect lease terms in the re-lease of the aircraft; and

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adversely affect the value of the aircraft.

We cannot assure you that, in the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee will be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance expenses or be sufficient to discharge liens that may have attached to our aircraft.

Failure by a lessee to maintain an aircraft would also likely require us to incur maintenance and modification costs upon the termination of the applicable lease, which could be substantial, to restore the aircraft to an acceptable condition prior to re-leasing or sale. Even if we are entitled to receive maintenance payments, these payments may not cover the entire cost of actual maintenance required. If we are unable to re-lease an aircraft when it comes off-lease because we need to make repairs or conduct maintenance, we may realize a substantial loss of cash flow without any corresponding decrease in our debt service obligations with respect to that aircraft. Any failure by our lessees to maintain our aircraft may have a material and adverse effect on our financial condition, cash flows and financial results.

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The advent of superior aircraft and engine technology or the introduction of a new line of aircraft could cause our existing aircraft portfolio to become outdated and therefore less desirable, which could adversely affect our financial results and growth prospects.

As manufacturers introduce technological innovations and new types of aircraft and engines, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees or purchasers. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by our management or accounted for in our accounting policy. For example, the Boeing 787 and the Airbus A350, provide improved fuel consumption and operating economics as compared to earlier aircraft types. In addition, Airbus has launched the A320neo family, and Boeing has launched the 737 MAX family of aircraft. These “next generation” narrow-body aircraft are expected to improve fuel consumption and to reduce noise, emissions and maintenance costs as compared to current models. In addition, Embraer, Bombardier Inc., Commercial Aircraft Corporation of China Ltd and PJSC United Aircraft Corporation in Russia could develop aircraft models that will compete with existing Airbus and Boeing aircraft. It is not certain how these new aircraft offerings will impact the demand and liquidity of existing equipment. In addition, the imposition of more stringent noise or emissions standards and the development of more fuel-efficient engines could make aircraft in our portfolio less attractive for potential lessees and less valuable in the marketplace. Any of these risks could adversely affect our ability to lease or sell our aircraft on favorable terms or at all or our ability to charge rental amounts that we would otherwise seek to charge, all of which could have an adverse effect on our financial results and growth prospects.

The older age, or older technology, of some of our aircraft may expose us to higher than anticipated maintenance related expenses.

As of December 31, 2019, the weighted average age of our portfolio (excluding aircraft held for sale) was 7.5 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. In addition, older aircraft typically are less fuel-efficient than newer aircraft and may be more difficult to re-lease or sell, particularly if, due to increasing production rates by aircraft manufacturers or airline insolvencies or other distress, older aircraft are competing with newer aircraft in the lease or sale market. Expenses like fuel, aging aircraft inspections, maintenance or modification programs and related airworthiness directives could make the operation of older aircraft less economically feasible and may result in increased lessee defaults. We may also incur some of these increased maintenance expenses and regulatory costs upon acquisition or re-leasing of our aircraft. Re-leasing larger wide-body aircraft may result in higher reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.

The concentration of aircraft types in our portfolio could harm our business and financial results should any difficulties specific to these types of aircraft occur .

As of December 31, 2019 , our aircraft portfolio (excluding aircraft held for sale) contained a mix of aircraft types, including Airbus A320ceo family aircraft, A320neo family aircraft and A330 aircraft, and Boeing 737NG aircraft, Boeing 737 MAX aircraft, Boeing 757 aircraft, Boeing 777 aircraft and Boeing 787 aircraft. 69% of these aircraft are single-aisle, narrow-body aircraft, and 31% of these aircraft are wide-body aircraft, as measured by net book value. Our business and financial results could be negatively affected if the market demand for any of these aircraft types (or other types that we acquire in the future) declines, if any of them is redesigned or replaced by its manufacturer. Out-of-production aircraft, such as the Boeing 757, and current models of the A320ceo family and Boeing 737NG may have shorter useful lives or lower residual values due to obsolescence. In addition, if any of these aircraft types (or other types that we acquire in the future) should encounter technical or other difficulties, such affected aircraft types may be subject to grounding or diminution in value, and we may be unable to lease such affected aircraft types on favorable terms or at all. The inability to lease the affected aircraft types may harm our business and financial results to the extent the affected aircraft types comprise a significant percentage of our aircraft portfolio.

We have written down the value of some of our assets and we may be required to record further write-downs or losses.

We test our assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts for such assets may not be recoverable. A recoverability assessment is performed for assets identified for further testing. This recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected 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 from information received from third party sources .

No impairment charge was recognized in the year ended December 31, 2019 or 2018. In the year ended December 31, 2017, we recognized an impairment charge of $22.0 million. The impairment charge in 2017 related to a wide-body aircraft. In the future, if expected cash flows related to any of our aircraft are adversely affected by factors including credit deterioration of a lessee, declines in rental rates, shortened economic life, residual value risk and other market conditions, then we may be required to recognize additional impairment charges that would reduce our total assets and shareholders’ equity. For example, as aircraft approach the end of their economic useful lives, their carrying values may be more susceptible to non-recoverable declines in value because such assets will have a shorter opportunity in which to benefit from a market recovery.

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Our financial performance, and our ability to meet our potential aircraft purchase commitments, will depend in part in our ability to sell aircraft, and we may not be able to do so on favorable terms, or at all.

Our financial performance will depend in part in our ability to sell aircraft profitably. When we decide to dispose of an aircraft, BBAM, as our servicer, will arrange the disposition pursuant to the terms of the relevant servicing agreement. In doing so, BBAM will compete with other aircraft leasing companies, as well as with other types of entities with which we compete. Our ability to sell our aircraft profitably, or at all, will depend on conditions in the airline industry and general market and competitive conditions at the time we seek to sell. In addition, our ability to sell our aircraft will be affected by the maintenance, damage and operating history of the aircraft and its engines. Failure to sell aircraft regularly and profitably could have a material adverse effect on our financial condition, cash flows and financial results, and our ability to meet our potential aircraft purchase commitments.

Aircraft liens could impair our ability to repossess, re-lease or sell the aircraft in our portfolio.

In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges, landing charges, crew wages, maintenance charges, salvage or other obligations are likely, depending on the laws of the jurisdictions where aircraft operate, to attach to the aircraft in our portfolio (or, if applicable, to the engines separately). The liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens (particularly fleet liens), exceed the value of the aircraft to which the liens have attached. Until they are discharged, the liens described above could impair our ability to repossess, re-lease or sell our aircraft.

If our lessees fail to fulfill their financial obligations, liens may attach to our aircraft. In some jurisdictions, aircraft liens or separate engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft (or, if applicable, the engines separately). We cannot assure you that the lessees will comply with their obligations under the leases to discharge liens arising during the terms of the leases. We may, in some cases, find it necessary to pay the claims secured by such liens in order to repossess or sell the aircraft or obtain the aircraft or engines from a creditor thereof. In some jurisdictions, an engine affixed to an aircraft may become an accession to the aircraft, whereby the ownership rights of the owner of the aircraft supersede the ownership rights of the owner of the engine. Such restrictions, payments, and associated legal and other expenses, would be required expenses for us, and would negatively impact our cash flows and financial results.

We cannot assure you that lessees and governmental authorities will comply with the registration and deregistration requirements in the jurisdictions where our lessees operate.

All our aircraft are required to be registered at all times with appropriate governmental authorities. Generally, in jurisdictions outside the United States, failure by a lessee to maintain the registration of a leased aircraft would be a default under the applicable lease, entitling us to exercise our rights and remedies thereunder. If an aircraft were to be operated without a valid registration, the lessee or, in some cases, the owner or lessor might be subject to penalties, which could result in a lien being placed on such aircraft. Failure to comply with registration requirements also could have other adverse effects, including inability to operate the aircraft and loss of insurance. We cannot assure you that all lessees will comply with these requirements.

An aircraft cannot be registered in two countries at the same time. Before an aviation authority will register an aircraft that has previously been registered in another country, it must receive confirmation that the aircraft has been deregistered by that country’s aviation authority. In order to deregister an aircraft, the lessee must comply with applicable laws and regulations, and the relevant governmental authority must enforce these laws and regulations. Failure by lessees and governmental authorities to comply with or enforce deregistration requirements in the jurisdictions in which they operate could impair our ability to repossess, re-lease or sell our aircraft, and cause us to incur associated legal and other expenses, which would negatively impact our cash flows and financial results.

Our lessees may have inadequate insurance coverage or fail to fulfill their respective indemnity obligations, which could result in us not being covered for claims asserted against us and may negatively affect our business, financial condition and financial results.

Although we do not expect to control the operation of our leased aircraft, our ownership of the aircraft could give rise, in some jurisdictions, to strict liability for losses resulting from their operation. Our lessees are required to indemnify us for, and insure against, liabilities arising out of the use and operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we may be deemed liable. Lessees are also required to maintain public liability, property damage and hull all risks and hull war risks insurance on the aircraft at agreed upon levels. However, they are not generally required to maintain political risk insurance. There may be circumstances under which it would be desirable for us to maintain “top-up” and/or political risk coverage at our expense, which would add to our operating expenses.

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Following the terrorist attacks of September 11, 2001, aviation insurers significantly reduced the amount of insurance coverage available to airlines for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events. At the same time, they significantly increased the premiums for such third-party war risk and terrorism liability insurance and coverage in general. As a result, the amount of such third-party war risk and terrorism liability insurance that is available at any time may be below the amount required under the initial leases and required by the market in general.

We cannot assure you that the insurance maintained by our lessees will be sufficient to cover all types of claims that may be asserted against us. Any inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations, as well as the lack of available insurance, could reduce the proceeds upon an event of loss and could subject us to uninsured liabilities, either of which could adversely affect our business, financial condition and financial results .

Risks associated with the concentration of our lessees in certain geographical regions could harm our business.

In addition to global economic conditions, our business is exposed to local economic and political conditions that can influence the performance of lessees located in a particular region. Such conditions can be adverse to us, and may include regional recession and financial or political emergencies, additional regulation or, in extreme cases, seizure of our aircraft. The effect of these conditions on payments to us will be more or less pronounced, depending on the concentration of lessees in the region with adverse conditions. In the year ended December 31, 2019, we had our largest concentration of total revenues in Asia and the South Pacific (58%), followed by Europe (28%), the Middle East and Africa (8%), North America (5%), and Mexico, South and Central America (1%). Severe recession in any of these regions, or the inability to resolve financial, political or other emergencies in any particular region where we have many customers, could result in additional failures of airlines and could have a material adverse effect on our business, financial condition and financial results. In addition, the recent outbreak of a novel strain of coronavirus disease, COVID-19, in Wuhan, China, is expected to have an adverse effect on travel, primarily affecting China and the surrounding region. The COVID-19 outbreak has led to government-imposed travel restrictions, flight cancellations, and a marked decline in passenger demand for air travel, especially in Asia. We cannot currently predict the impact that the COVID-19 outbreak will have on air travel and how that may impact the ability of our lessees to satisfy their payment obligations to us. The risks associated with the geographical concentration of our lessees may become exacerbated as our aircraft are re-leased to lessees or subleased to sublessees in other regions or as we acquire additional aircraft.

The risks associated with the geographical concentration of our lessees may become exacerbated as our aircraft are re-leased to lessees or subleased to sublessees in other regions or as we acquire additional aircraft.

We derived approximately 70% of our total revenues for the year ended December 31, 2019 from airlines in emerging markets. Emerging markets have less developed economies and infrastructure and are often more vulnerable to business and political disturbances. The emerging markets in which our lessees were based have included China, Ethiopia, India, Indonesia, Korea, Malaysia, Mexico, Moldova, Oman, the Philippines, Romania, Russia, Slovak Republic, Thailand and the United Arab Emirates. These countries may experience significant fluctuations in GDP, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of unexpected taxes or other charges by government authorities. The occurrence of any of these events in markets served by our lessees and the resulting economic instability may adversely affect our ownership interest in aircraft or the ability of lessees which operate in these markets to meet their lease obligations. As a result, lessees that operate in emerging market countries may be more likely to default than lessees that operate in developed countries. In addition, legal systems in emerging market countries may be less developed, which could make it more difficult for us to enforce our legal rights in such countries. For example, certain countries may not have fully implemented the Cape Town Convention on International Interests in Mobile Equipment, a treaty that, among other things, established international standards for the registration, protection and enforcement of lessors’ and financiers’ rights in aircraft. These matters may not be resolved on terms favorable to us, or in a timely fashion.

Furthermore, some countries restrict, or in the future might restrict, foreign investments in a manner adverse to us. These restrictions and controls have limited, and may in the future restrict or preclude, our investment in joint ventures or the acquisition of businesses in certain jurisdictions or may increase the cost to us of entering into such transactions. Various governments, particularly in the Asia/Pacific region, require governmental approval before foreign persons may make investments in domestic businesses and also limit the extent of any such investments. Furthermore, various governments may reserve the right to approve the repatriation of capital by, or the payment of dividends to, foreign investors. Restrictive policies regarding foreign investments may increase our costs of pursuing growth opportunities in foreign jurisdictions, which could materially and adversely affect our financial results.

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and in reductions in our cash flow or adversely affect our financial results.

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When a lessee is late in making payments, fails to make payments in full or in part under the lease or has otherwise advised us that it will in the future fail to make payments in full or in part under the lease, we may elect to or be required to restructure the lease. Restructuring may involve anything from a simple rescheduling of payments to the termination of a lease without receiving all or any of the past due amounts. If requests for payment restructuring or rescheduling are made and granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the lease, and the terms of any revised payment schedules may be unfavorable or such payments may not be made. We may be unable to agree upon acceptable terms for any requested restructurings and as a result may be forced to exercise our remedies under those leases and we may be unable to repossess our aircraft on a timely basis. If we, in the exercise of our remedies, repossess the aircraft, we may not be able to re-lease the aircraft promptly at favorable rates, or at all.

The terms and conditions of payment restructurings or reschedulings, particularly involving lessees where we have significant exposure or concentration risk, may result in significant reductions of rental payments, which may adversely affect our cash flows or our financial results. We lease a number of aircraft to the AirAsia Group. It has been reported that Malaysian authorities have opened investigations into certain of AirAsia Group’s senior executives following the recent settlement entered into by Airbus S.E. and governmental authorities in the United States and Europe. Should these investigations or their resolution affect the business strength of the AirAsia Group, we could be adversely effected.

Risks Related to the Aviation Industry

Airline reorganizations could impair our lessees’ ability to comply with their lease payment obligations to us.

In recent years, multiple airlines have sought to reorganize and seek protection from creditors under their local laws and certain airlines have gone into liquidation. Bankruptcies have led to the grounding of significant numbers of aircraft, rejection of leases and negotiated reduction in aircraft lease rentals, with the effect of depressing aircraft market values. Additional reorganizations or liquidations by airlines under applicable bankruptcy or reorganization laws or further rejection or abandonment of aircraft by airlines in bankruptcy proceedings may depress aircraft values and aircraft lease rates. Additional grounded aircraft and lower market values would adversely affect our ability to sell our aircraft or re-lease our aircraft at favorable rates.

Changes in fuel prices can adversely affect the profitability of the airline industry and our lessees’ ability to meet their lease payment obligations to us.

Fuel costs represent a major expense to airlines, significantly impacting the profitability of the airline industry and our lessees’ operating results. Fuel prices fluctuate widely, driven primarily by international market conditions, geopolitical and environmental events, regulatory changes and currency exchange rates. In recent years, fuel prices have been volatile, increasing and decreasing rapidly due to factors outside of airlines’ control.

Higher fuel costs may have a material adverse impact on airline profitability, including the profitability of our lessees. Due to the competitive nature of the airline industry, airlines may not be able to pass on increases in fuel prices to their customers by increasing fares. If they pass on the higher costs, it may adversely affect demand for air travel, which would reduce revenues to our customers. In addition, airlines may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations.

A sustained period of lower fuel costs may adversely affect regional economies that depend on oil revenue, including those in which our lessees operate.

Government regulations could require substantial expenditures, reduce our profitability and limit our growth.

Certain aspects of our business are subject to regulation by state, federal and foreign governmental authorities. Aircraft are subject to regulations imposed by aviation authorities regarding aircraft maintenance and airworthiness. Laws affecting the airworthiness of aircraft generally are designed to ensure that all aircraft and related equipment are continuously maintained in proper condition to enable safe operation of the aircraft. Aircraft manufacturers also may issue their own recommendations. Airworthiness directives and similar requirements typically set forth special maintenance actions or modifications to certain aircraft types or models that the owners or operators of aircraft must implement.

Each lessee generally is responsible for complying with airworthiness directives with respect to its aircraft and is required to maintain the aircraft’s airworthiness. To the extent that a lessee fails to comply with airworthiness directives required to maintain its certificate of airworthiness or other manufacturer requirements in respect of an aircraft or if the aircraft is not currently subject to a lease, we may have to bear the cost of such compliance. Under many leases, we have agreed to share with our lessees the cost of obligations under airworthiness directives (or similar requirements). These expenditures can be substantial and, to the extent we are required to pay them, our financial condition and cash flows could be materially and adversely affected.

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In addition to these expenditures, which may be substantial, significant new requirements with respect to noise standards, emission standards and other aspects of our aircraft or their operation could cause our costs to increase and could cause the value of our aircraft portfolio to decrease. Other governmental regulations relating to noise and emissions levels may be imposed not only by the jurisdictions in which the aircraft are registered, possibly as part of the airworthiness requirements, but also by other jurisdictions where the aircraft operate. In addition, most countries’ aviation laws require aircraft to be maintained under an approved maintenance program having defined procedures and intervals for inspection, maintenance and repair. To the extent that our aircraft are off-lease or a lessee defaults in effecting such compliance, we are required to comply with such requirements at our expense.

We are exposed to certain risks relating to the grounding of the Boeing 737 MAX aircraft

On March 13, 2019, the Federal Aviation Administration issued an order to suspend operations of all Boeing 737 MAX aircraft in the U.S. and by U.S. aircraft operators following two recent fatal accidents involving Boeing 737 MAX aircraft. Non-U.S. civil aviation authorities have issued directives to similar effect. Boeing has suspended deliveries of the Boeing 737 MAX until clearance is granted by the appropriate regulatory authorities. Prior to the grounding, we had delivered two Boeing 737 MAX aircraft that are currently on lease to one airline customer. It is uncertain when and under what conditions the Boeing 737 MAX will return to service and when Boeing will resume making deliveries of these aircraft.

Our direct exposure to Boeing 737 MAX aircraft is limited, as we own and lease only two Boeing 737 MAX aircraft and have no commitments for future deliveries of this aircraft type; however, we are exposed to certain risks relating to the grounding of the Boeing 737 MAX aircraft and its eventual return to service. Concerns around the Boeing 737 MAX aircraft may adversely affect our ability to lease our two Boeing 737 MAX aircraft when they are redelivered to us, resulting in lower lease rates relative to our expectations, or may depress the residual values of these aircraft. Moreover, as the grounding continues, our lessees who rely on the Boeing 737 MAX aircraft for revenue service may be adversely impacted and may have difficulty fulfilling their obligations under their leases with us. Finally, when the Boeing 737 MAX aircraft returns to service and Boeing resumes deliveries, market lease rates for competing current generation narrow-body aircraft may be adversely impacted. Any decrease in market rates for leases or reduction in the residual value of our aircraft, or in our lessees’ financial health, which may result from the above factors, would have a negative impact on our financial condition, cash flows and results of operations.

The effects of various environmental regulations may negatively affect the airline industry. This may cause lessees to default on their lease payment obligations to us.

The airline industry is subject to increasingly stringent federal, state, local and international environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, safe drinking water, aircraft noise, the management of hazardous substances, oils and waste materials, and other regulations affecting aircraft operations. Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is registered and operated.

Jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. In addition to the current requirements, the United States and the International Civil Aviation Organization (“ICAO”) adopted set of standards for noise levels which applies to engines manufactured or certified on or after January 1, 2006. Currently, U.S. regulations do not require any phase-out of aircraft that qualify with the older standards applicable to engines manufactured or certified prior to January 1, 2006, but the European Union imposes operating limitations on aircraft that do not comply with the new standards and incorporates aviation-related emissions into the European Union’s Emissions Trading Scheme (“ETS”). ICAO has also adopted new, more stringent noise level standards to apply to new airplane type design with a maximum certificated takeoff weight of 55,000 kg or more on or after December 31, 2017; or with maximum certificated takeoff weight of less than 55,000 kg on or after December 31, 2020. The United States has adopted new noise regulations, effective November 3, 2017, to harmonize with the new ICAO standards. These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell the non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to bring them into compliance.

In addition to more stringent noise restrictions, the United States and other jurisdictions are beginning to impose more stringent limits on nitrogen oxide, carbon monoxide and carbon dioxide emissions from engines, consistent with current ICAO standards. These limits generally apply only to engines manufactured after 1999. Because aircraft engines are replaced from time to time in the normal course, it is likely that the number of such replacements would increase over time.

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The potential impact on costs of the E.U. ETS and the ICAO’s new Carbon Offset and Reduction Scheme for International Aviation (known as “CORSIA”), which calls for a carbon offsetting measure to help the aviation industry meet its goal of carbon neutral growth after 2020, has not been completely identified. Schemes to reduce emissions such as the E.U. ETS and CORSIA could favor younger, more fuel efficient aircraft since they generally produce lower levels of emissions per passenger, which could adversely affect our ability to remarket or otherwise dispose of less efficient aircraft on a timely basis, at favorable terms, or at all. Concerns over global warming also could result in more stringent limitations on the operation of aircraft. Any of these regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell the non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to make them compliant. In addition, compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel, thereby generating lower net revenues and resulting in an adverse impact on the financial condition of our lessees.

Failure to obtain certain required licenses, consents and approvals could negatively affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and financial results.

Aircraft leases often require specific licenses, consents or approvals. These include consents from governmental or regulatory authorities for certain payments under the leases and for the import, re-export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase or otherwise modify these requirements. In addition, a governmental consent, once given, might be withdrawn. Any of these events could adversely affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and financial results.

We are subject to data security and privacy risks, including evolving laws and regulations and associated compliance efforts, which could negatively affect our results, operations or reputation.

We must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018. GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR) and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information also could result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.

If the effects of terrorist attacks and geopolitical conditions adversely impact the financial condition of the airlines, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and growth prospects.

War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase the operating costs of our customers. The situations in Iraq, Afghanistan, Syria, Iran, North Africa and Ukraine remain unsettled, and other international incidents, such as terrorist attacks in Belgium, France, Germany and Turkey, tension over North Korea’s nuclear program and territorial disputes in East Asia, may lead to regional or broader international instability. Future terrorist attacks, war or armed hostilities, large protests or government instability, or the fear of such events, could further negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results and growth prospects.

Terrorist attacks and geopolitical conditions have negatively affected the airline industry, and concerns about geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees) for the foreseeable future, depending upon various factors, including: (i) higher costs to the airlines due to the increased security measures; (ii) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security measures; (iii) the price and availability of jet fuel; (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all; (v) the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available; (vi) the ability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.

Epidemic diseases, severe weather conditions, natural disasters or their perceived effects may negatively impact the airline industry and our lessees’ ability to meet their lease payment obligations to us, which, in turn, could have an adverse effect on our financial results and growth prospects.

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Over the past several years, there have been several outbreaks of epidemic diseases. If an outbreak of epidemic diseases were to occur, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease. Even if restrictions are not implemented, it is likely that passengers would voluntarily choose to reduce travel. Outbreaks of epidemic diseases, or the fear of such events, could result in travel bans or a reduction in travel demand, which could have an adverse effect on our financial results. Similarly, demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to make their lease payment obligations to us. In addition, such events could impact global manufacturing and related services, including the production and maintenance of commercial jet aircraft. Any of these incidents could negatively impact our financial results and growth prospects.

In December 2019, a novel strain of coronavirus disease, COVID-19, was reported to have surfaced in Wuhan, China, resulting in restrictions on air travel and a decrease in passenger demand primarily affecting China and the surrounding region, but increasingly having an impact worldwide. In February 2020, Airbus announced that its Tianjin final assembly line would be closed temporarily due to the COVID-19 outbreak, which likely will mean delayed aircraft deliveries, possibly including some deliveries included in our Portfolios B and/or C. At this point, the extent to which the COVID-19 outbreak may impact our aircraft delivery schedule, financial results or growth prospects is unknown.

We are subject to various risks and requirements associated with transacting business in multiple countries which could have a material adverse effect on our business, financial condition and financial results.

Our international operations expose us to trade and economic sanctions and other restrictions imposed by the United States, the European Union (the “EU”) and other governments or organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt Practices Act (“FCPA”), and other federal statutes and regulations, including those established by the Office of Foreign Assets Control (“OFAC”). In addition, the U.K. Bribery Act of 2010 (the “Bribery Act”) prohibits both domestic and international bribery, as well as bribery across both private and public sectors. An organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the Bribery Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery. Under these laws and regulations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities, and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could adversely impact our business, financial condition and financial results.

The European Union and the United States have imposed sanctions on Russia and certain businesses, sectors and individuals in Russia, including the airline industry. The European Union and the United States have also suspended the granting of certain types of export licenses to Russia. Russia has imposed its own sanctions on certain individuals in the United States and may impose other sanctions on the United States and the European Union and/or certain businesses or individuals from these regions. We cannot assure you that the current sanctions or any further sanctions imposed by the European Union, the United States or other international interests will not materially adversely affect our business, financial condition and financial results.

In May 2018, the United States announced its decision to withdraw from the Joint Comprehensive Plan of Action with Iran, and to re-impose U.S. nuclear-related sanctions on Iran. The re-imposition of sanctions was effective November 4, 2018. The sale or lease of civil passenger aircraft to Iranian airlines is prohibited under U.S. sanctions.

We and our Manager have implemented and maintain policies and procedures designed to ensure compliance with FCPA, OFAC, the Bribery Act and other export control, anti-corruption, anti-terrorism and anti-money laundering laws and regulations. We cannot assure you, however, that our directors, officers, consultants and agents will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners will not engage in conduct which could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Moreover, while we believe that we have been in compliance with all applicable sanctions laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to change. Violations of FCPA, OFAC, the Bribery Act and other export control, anti-corruption, anti-terrorism and anti-money laundering laws and regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition and financial results.

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Adverse conditions and disruptions in European economies could have a material adverse effect on our business.

Our business can be affected by several factors that are beyond our control, such as general geopolitical, economic and business conditions. Political uncertainty has created financial and economic uncertainty, most recently as a result of the United Kingdom’s June 2016 referendum (commonly referred to as “Brexit”) to withdraw from the European Union (the “EU”). The economic consequences of Brexit, including the possible repeal of open-skies agreements, could have a material adverse effect on our business, such as instability in financial markets, deterioration in economic conditions, volatility in currency exchange rates or adverse changes in regulation of the aviation industry or bilateral agreements governing air travel, which could negatively affect our financial condition, cash flow and results of operations. These impacts may include increased costs of financing; downward pressure on demand for our aircraft and reduced market lease rates and lease margins; and a higher incidence, in the U.K. in particular and the E.U. generally, of lessee defaults or other events resulting in our lessees’ failing to perform under our lease agreements. Further, many of the structural issues facing the EU following the global financial crisis of 2008 and Brexit remain, and problems could resurface that could affect market conditions, and, possibly, our business, financial results and liquidity, particularly if they lead to the exit of one or more countries from the European Monetary Union (the “EMU”) or the exit of additional countries from the EU. If one or more countries exited the EMU, there would be significant uncertainty with respect to outstanding obligations of counterparties and debtors in any exiting country, whether sovereign or otherwise, and it would likely lead to complex and lengthy disputes and litigation.

We depend on aircraft and engine manufacturers’ success in remaining financially stable and producing aircraft that meet customers’ expectations.

The supply of commercial aircraft is dominated by a few airframe manufacturers, including Boeing, Airbus, Embraer, ATR and Bombardier, and a limited number of engine manufacturers, such as GE Aircraft Engines, Rolls-Royce plc, Pratt & Whitney, a division of United Technologies Corporation, IAE International Aero Engines AG and CFM International, Inc. As a result, we will be dependent on the success of these manufacturers in remaining financially stable, producing products and related components which meet the airlines’ demands, providing customer support and fulfilling any contractual obligations they may have to us.

If in the future the manufacturers bring aircraft to market that do not meet customers’ expectations, or do not respond appropriately to changes in the market environment, we may experience, among other things:

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an inability to acquire aircraft and engines and related components on terms that will allow us to lease those aircraft and engines to customers at a profit, resulting in lower growth rates or a contraction in our aircraft portfolio ;

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a market environment with too many aircraft and engines available, creating downward pressure on demand for the aircraft and engines in our fleet and reduced market lease rates and sale prices ;

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poor customer support or reputational damage from the manufacturers of aircraft, engines and components resulting in reduced demand for a particular manufacturer’s product, creating downward pressure on demand for those aircraft and engines in our fleet and reduced market lease rates and sale prices for those aircraft and engines ;

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reduction in our competitiveness due to deep discounting by the manufacturers, which may lead to reduced market lease rates and sale prices and may affect our ability to remarket or sell some of the aircraft and engines in our portfolio; and

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technical or other difficulties with aircraft after delivery that subject such aircraft to operating restrictions or groundings, resulting in a decline in value and lease rates of such aircraft and impairing our ability to lease or dispose of such aircraft on favorable terms.

If the manufacturers provide deep discounts with respect to certain aircraft, that could affect our ability to effectively compete in the market, we may not be able to remarket similar aircraft in our fleet at a profit or at all. This could also lead to reduced market lease rates and aircraft values .

Risks Related to Our Relationship with BBAM LP

BBAM has conflicts of interest with us and may favor their own business interest and those of their other managed entities to our detriment.

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Conflicts of interest will arise between us and BBAM LP with respect to our operations and business opportunities. BBAM LP acquires, manages and remarkets aircraft for lease or sale for us and for other entities, including entities in which the owners of BBAM LP, Summit Aviation Partners II LLC and its affiliates (“Summit”), Onex Corporation and its affiliates (“Onex”), and GIC Private Limited (“GIC”) may have an economic interest. We may compete directly with such other managed entities for investment opportunities. For example, BBAM performs aircraft acquisition, disposition and management services pursuant to a joint marketing agreement with Nomura Babcock & Brown Co., Ltd, referred to as NBB, and manages or services other investment vehicles, including the Incline Aviation Fund, Horizon Aircraft Finance I Limited, Horizon Aircraft Finance II Limited and Horizon Aircraft Finance III Limited and their respective affiliates, pursuant to long-term, exclusive agreements. BBAM has arranged a significant number of aircraft acquisitions and dispositions pursuant to these agreements. We expect that BBAM will continue to arrange acquisition and disposition opportunities with NBB, and for other investment vehicles, and that we may compete with these parties for such opportunities. A conflict of interest will arise if BBAM identifies an aircraft acquisition opportunity that would meet our investment objectives as well as those of another vehicle managed or serviced by BBAM. BBAM, Onex and GIC also may participate in other ventures that acquire and lease commercial jet aircraft. We do not have an exclusive or first right to participate in aircraft acquisition opportunities originated or identified by BBAM. Under our agreements with BBAM LP, our Manager has agreed to act in the best interests of our shareholders. However, neither BBAM nor any other BBAM LP affiliate will be restricted from pursuing, or offering to another party, any investment or disposal opportunity, or will be required by Fly to establish any investment protocol in relation to prioritization of any investment or disposal opportunity. We may purchase aircraft from, or sell aircraft to, entities managed by BBAM, or entities in which Summit, Onex or GIC has an ownership interest. Although such purchases will require approval by our independent directors, the pricing and other terms of these transactions may be less advantageous to us than if they had been the result of transactions among unaffiliated third parties.

Under our servicing agreements with BBAM, if a conflict of interest arises as to our aircraft and other aircraft managed by BBAM, BBAM must perform the services in good faith, and, to the extent that our aircraft or other aircraft managed by BBAM have substantially similar characteristics that are relevant for purposes of the particular services to be performed, BBAM has agreed not to discriminate among our aircraft or between any of our aircraft and any other managed aircraft on an unreasonable basis. Nevertheless, despite these contractual undertakings, BBAM as Servicer may favor its own interests and the interests of other managed entities over our interests. Conflicts may arise when our aircraft are leased to entities that also lease other aircraft managed by BBAM and decisions affecting some aircraft may have an adverse impact on others. For example, when a lessee in financial distress seeks to return some of its aircraft, BBAM may be required to decide which aircraft to accept for return and may favor its or another managed entity’s interest over ours. Conflicts also may arise, for example, when our aircraft are being marketed for re-lease or sale at a time when other aircraft managed by BBAM are being similarly marketed.

Under the terms of our servicing agreements, we are not entitled to be informed of all conflicts of interest involving BBAM and are limited in our right to replace BBAM because of conflicts of interest. Any replacement Servicer may not provide the same quality of service or may not afford us terms as favorable as the terms currently offered by BBAM. If BBAM, as the servicer, makes a decision that is adverse to our interests, our business, financial condition, financial results and cash flows could suffer.

Even if we were to become dissatisfied with BBAM LP’s performance, there are only limited circumstances under which we are able to terminate our management and servicing agreements and we may not terminate certain of our servicing agreements without the prior written consent of third parties, including insurance policy provider or lenders.

Our management agreement with our Manager expires on July 1, 2025. At that time, the management agreement will automatically renew for five years, unless we make a payment to the Manager equal to $6.0 million, plus, so long as the management expense amount does not exceed $12.0 million, 50% of the excess (if any) of the management expense amount over $6.0 million. We may terminate the management agreement sooner only if :

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at least 75% of our independent directors and holders of 75% or more of all of our outstanding common shares (measured by vote) determine by resolution that there has been unsatisfactory performance by our Manager that is materially detrimental to us ;

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our Manager materially breaches the management agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care ;

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any license, permit or authorization held by the Manager which is necessary for it to perform the services and duties under the management agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent the Manager from performing the services and the situation is not remedied within 90 days ;

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BBAM Aviation Services Limited or one of its affiliates ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in, the Manager ;

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our Manager becomes subject to bankruptcy or insolvency proceedings that are not discharged within 75 days, unless our Manager is withdrawn and replaced within 90 days of the initiation of such bankruptcy or insolvency proceedings with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the management agreement ;

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our Manager voluntarily commences any proceeding or files any petition seeking bankruptcy, insolvency, receivership or similar law, or makes a general assignment for the benefit of its creditors, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the management agreement ; or

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an order is made for the winding up of our Manager, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the management agreement .

We generally do not have the right to terminate our servicing agreements with BBAM without cause, and such agreements do not automatically terminate in the event of the termination or expiration of our managing agreement with our Manager.

The servicing agreements relating to our unencumbered aircraft, our aircraft financed by Secured Borrowings, and our engines generally can be terminated by us in the case of a material breach by the servicer that is not cured within 30 days of written notice, the bankruptcy or insolvency of the servicer or if the servicer ceases to be actively involved in the aircraft leasing business. The servicing agreement relating to the aircraft financed by the Fly Aladdin Acquisition Facility provides us with additional termination rights in the event of the acceleration of the loans due thereunder, the failure of the servicer or certain of its affiliates to make certain payments when due in respect of any recourse indebtedness and the acceleration of such indebtedness, or the servicer acting with gross negligence, willful misconduct, bad faith or reckless disregard under the servicing agreement or committing dishonest or fraudulent acts. Termination of the servicing agreements relating to our aircraft financed by Secured Borrowings and our engines requires the consent of the lender(s) providing financing for the relevant aircraft or engines prior to termination .

Our management and servicing agreements limit our remedies against BBAM LP for unsatisfactory performance and provide certain termination rights to the policy provider.

Under our management and servicing agreements with BBAM LP, in many cases we may not have the right to recover damages from BBAM LP for unsatisfactory performance. Moreover, we have agreed to indemnify our Manager, BBAM LP and their affiliates for broad categories of losses arising out of the performance of services, unless they are finally adjudicated to have been caused directly by our Manager’s or BBAM LP’s gross negligence, fraud, deceit or willful misconduct in respect of its obligation to apply its standard of care or, in the case of the servicing agreement for B&B Air Funding, conflicts of interest standard in the performance of its services. In addition, because of our substantial dependence on BBAM LP, our board of directors may be reluctant to initiate litigation against BBAM LP to enforce contractual rights under our management and servicing agreements.

BBAM may resign as Servicer under our servicing agreements under certain circumstances, which would significantly impair our ability to re-lease or sell aircraft and service our leases.

BBAM may resign under one or more of our servicing agreements under certain circumstances if it reasonably determines that directions given, or services required, would, if carried out, be unlawful under applicable law, be likely to lead to an investigation by any governmental authority having jurisdiction over BBAM or its affiliates, expose BBAM to liabilities for which, in BBAM’s good faith opinion, adequate bond or indemnity has not been provided or place BBAM in a conflict of interest with respect to which, in BBAM’s good faith opinion, BBAM could not continue to perform its obligations under the servicing agreement with respect to all serviced aircraft or any affected aircraft, as the case may be (but with respect to the foregoing circumstance, BBAM may resign only with respect to the affected aircraft). Whether or not it resigns, BBAM is not required to take any action of the foregoing kind. BBAM may also resign if it becomes subject to taxes for which we do not indemnify it. BBAM’s decision to resign would significantly impair our ability to re-lease or sell aircraft and service our leases.

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A cybersecurity incident involving BBAM’s information technology, or IT, security systems, or those of our airline customers, may disrupt our business and result in lost revenues, cash and additional costs.

We depend on the secure operation of BBAM’s computer systems, to manage, process, store, and transmit information associated with aircraft leasing. A cybersecurity incident at BBAM could adversely impact our daily operations and lead to the loss of funds or sensitive information, including our own proprietary information and that of our customers. While BBAM endeavors to maintain adequate levels of cybersecurity, its resources and technical sophistication may not be adequate to prevent all types of cybersecurity incidents. BBAM’s loss of funds or information in a cybersecurity incident could harm our reputation and result in competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liability, which may not be covered by or may exceed the amount of any insurance available.

In addition, our airline customers may fall victim to cyber-attacks or experience other cybersecurity incidents, including wire transfer fraud. Damage and claims arising from cybersecurity incidents affecting our airline customers may not be covered or may exceed the amount of any insurance available.

Risks Related to Our Indebtedness

We have indebtedness that imposes constraints on our operations.

As of December 31, 2019, our total consolidated indebtedness, net of unamortized debt discounts and loan costs, wa s $ 2.3 billion.

The terms of our debt facilities subject us to certain risks and operational restrictions, including :

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most of the aircraft and related leases in our portfolio secure debt obligations, the terms of which restrict our ability to sell aircraft and require us to use proceeds from sales of aircraft, in part, to repay outstanding debt;

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we are required to dedicate a portion of our cash flows from operations to debt service payments, thereby reducing the amount of our cash flows available to fund working capital, make capital expenditures and satisfy other needs ;

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restrictions on our subsidiaries’ ability to distribute excess cash flows to us under certain circumstances ;

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lessee, geographical and other concentration requirements limit our flexibility in leasing our aircraft ;

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requirements to obtain the consent of third parties including lenders, the insurance policy provider and rating agency confirmations for certain actions ; and

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restrictions on our subsidiaries’ ability to incur additional debt, pay dividends or make other restricted payments, create liens on assets, sell assets, enter into transactions with our affiliates, make freighter conversions and make certain investments or capital expenditures .

In addition, the indentures and agreements governing our indebtedness contain financial and operating covenants that, among other things, require us to maintain specified financial ratios and tests. Our ability to meet these financial and operating covenants can be affected by events beyond our control, and we may be unable to meet them. As a result of these restrictions, we may be limited in how we conduct and grow our business, or unable to compete effectively or to take advantage of new business opportunities.

A breach of the covenants or restrictions under the indentures and agreements governing certain of our indebtedness could result in an event of default under the applicable indebtedness. Such a default may allow holders of our debt securities or our lenders, as applicable, to accelerate the related indebtedness, which may result in the acceleration of other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, such lenders or debt holders could terminate commitments to lend money, if any. Furthermore, if we were unable to repay the indebtedness then due and payable, secured lenders could proceed against the aircraft, if any, securing such indebtedness. In the event our lenders or holders of our debt securities accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.

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The restrictions described above, as well as restrictions in our other financing facilities, may impair our ability to operate and to compete effectively with our competitors. Similar restrictions may be contained in the terms of future financings that we may enter into to finance our growth .

Our incurrence of additional indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our borrowings.

Subject to the limits contained in the agreements governing our existing and future indebtedness, we may be able to incur substantial additional debt from time to time to finance aircraft and other aviation assets, working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including the following :

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making it more difficult for us to satisfy our debt obligations with respect to the notes and our other debt ;

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limiting our ability to obtain additional financing to fund the acquisition of aircraft or other aviation assets or for other general corporate requirements ;

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requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for acquisitions of aircraft and other aviation assets and for other general corporate purposes ;

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increasing our vulnerability to general adverse economic and industry conditions ;

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exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our various credit facilities, are at variable rates of interest ;

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limiting our flexibility in planning for and reacting to changes in the aircraft industry;

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placing us at a disadvantage compared to other competitors ; and

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increasing our cost of borrowing .

We may not be able to generate sufficient cash to service all our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal of, premium, if any, or interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay aircraft purchases or to dispose of material assets, or seek additional debt or equity capital or to restructure or refinance our indebtedness. We may not be able to effect any such measures on commercially reasonable terms or at all and, even if successful, those actions may not allow us to meet our scheduled debt service obligations. Certain agreements governing our indebtedness restrict our ability to dispose of assets and use the proceeds from those dispositions. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet debt service obligations then due.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and financial results and our ability to satisfy our obligations.

If we cannot make scheduled payments on our indebtedness, we will be in default and holders of our debt securities or our lenders, as applicable, may be able to declare such indebtedness to be due and payable, terminate commitments to lend money, foreclose against the aircraft, if any, securing such indebtedness or pursue other remedies, including potentially forcing us into bankruptcy or liquidation.

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We are subject to risks relating to our outstanding non-recourse debt .

As of December 31, 2019, we had a total of $ 2.3 billion principal amount outstanding under our borrowings. Of this amount, $0.6 billion was non-recourse to Fly, except for certain limited obligations which typically include reimbursement for certain expenses and costs incurred by the lenders. These non-recourse loans may be provided through loan facilities that are typically cross-collateralized and contain cross-default provisions against all of the loans advanced within each facility, as well as through individual loans against individual aircraft. As of December 31, 2019, we had the following non-recourse debt facilities that provided financing against multiple aircraft :

Facility ⁽¹⁾	Principal Amount Outstanding at December 31, 2019 ⁽²⁾		Number of Aircraft Financed		Maturity Date
Nord LB Facility	$	65.3 million		3	May 2021
Fly Aladdin Acquisition Facility	$	272.3 million		15	June 2023

(1)	Excludes $301.4 million principal amount outstanding of non-recourse secured borrowings associated with six aircraft.

(2)	Excludes unamortized debt discounts and loan costs.

The maturity dates for non-recourse loans range from December 2020 to June 2028. In general, upon a default on a non-recourse loan, the lenders will have the ability to foreclose upon any or all available collateral (including aircraft, leases and shares of aircraft-owning and/or aircraft-leasing special purposes entities) to satisfy amounts due under the loan. However, the lenders cannot make a claim against us for payment of these outstanding obligations, except for the limited payment obligations described above. The non-recourse nature of these loans means that we may decide, for economic reasons, to default on a non-recourse loan if and when we believe that the aircraft and other assets securing such loan are worth less than the amount outstanding under the loan. Although the direct financial impact to us under such a default on a non-recourse loan is limited, these defaults may impact our reputation as a borrower and impair our ability to secure future borrowings, which could have a material adverse impact on our ability to grow our aircraft portfolio and earnings.

We are subject to risks relating to our outstanding recourse debt, including debt of our subsidiaries that we have guaranteed.

We had $1.7 billion of recourse debt outstanding as of December 31, 2019, including debt of our subsidiaries that we have guaranteed. We expect to incur additional recourse indebtedness in the future. Although these recourse loans may be secured by aircraft and their associated leases, we have guaranteed and will be responsible for timely payment of all debt service and other amounts due under these loans in the event that the underlying leases do not provide sufficient cash flows to meet required debt payments. In this case, we will be required to make payments from our unrestricted cash, which could have a materially adverse impact on our ability to grow through future acquisitions of aircraft. In addition, the Term Loan, the Magellan Acquisition Limited Facility, Fly Aladdin Engine Funding Facility, our 2021 Notes and 2024 Notes, and certain of our other recourse indebtedness contain cross-default provisions to other recourse indebtedness which if triggered could significantly increase the amount of indebtedness which is payable by us at the time of the cross-default.

We are primarily a holding company and currently rely on our subsidiaries to provide us with funds necessary to meet our financial obligations.

We are primarily a holding company and our principal assets are the investments we hold in our subsidiaries, which own either directly or indirectly through their subsidiaries, the aircraft in our portfolio. As a result, we depend on cash flows from our subsidiaries to generate the funds necessary to meet our financial obligations. Our existing subsidiaries are legally distinct from us and may be significantly restricted from paying dividends, making payments on shareholders loans advanced by us, or otherwise making funds available to us pursuant to the agreements governing their financing arrangements. If we are unable to comply with the covenants contained in these agreements, then the amounts outstanding under these debt facilities may become immediately due and payable, cash generated by aircraft financed through these facilities may be unavailable to us and/or we may be unable to draw additional amounts under these facilities. The events that could cause some of our subsidiaries to be noncompliant under their loan agreements, such as a lessee default, may be beyond our control, but they nevertheless could have a substantial adverse impact on the amount of our cash flows available to fund working capital, make capital expenditures and satisfy other cash needs. For a description of the operating and financial restrictions in our debt facilities, see the section titled “Operating and Financial Review and Prospects—Financing.”

We are subject to interest rate risk.

Certain of our debt facilities have floating interest rates, creating the risk of an increase in interest rates and the risk that cash flows may be insufficient to make scheduled interest payments if interest rates were to increase. To limit this risk, we have entered into interest rate swap contracts with one or more counterparties. We remain exposed, however, to changes in interest rates to the extent that our interest rate swap contracts are not correlated to our financial liabilities. In addition, if any counterparty were to default on its obligations, then a mismatch in the floating rate interest obligations and fixed rate lease payments may arise, which could impair our ability to meet our financial obligations. If any of our interest rate swap contracts were terminated early, we could be obligated to make a material payment to our counterparties .

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We may be affected by the discontinuation or modification of LIBOR interest rate benchmarks.

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the London Interbank Offered Rate (“LIBOR”). Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021.

Certain of our aircraft lease agreements require the lessee to pay a floating rent amount to us based on LIBOR, and certain of our floating rate indebtedness requires us to pay variable interest to our lenders based on LIBOR. It is not possible to predict the effect that any discontinuance or modification of LIBOR will have on these payments, or on any of our future floating rate leases or indebtedness. Regulatory and/or industry action may cause LIBOR interest rate benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could negatively impact our financial condition, cash flows and results of operations.

Our ability to obtain debt financing and our cost of debt financing is, in part, dependent upon our credit ratings and a credit downgrade or being put on negative watch could adversely impact our financial results.

Maintaining our credit ratings depends in part on strong financial results and in part on other factors, including the outlook of the ratings agencies on our sector and on the market generally. A credit rating downgrade or being put on negative watch may make it more difficult or costly for us to raise debt financing in the unsecured bond market, or may result in higher pricing or less favorable terms under other financings. Credit rating downgrades or being put on negative watch may make it more difficult and/or more costly to satisfy our funding requirements. In addition, any future tightening or regulation of financial institutions (such as Basel 4), including increasing capital reserves, could impact our ability to raise funds in the commercial bank loan market in the future.

Risks Related to Taxation

We expect that we will be treated as a passive foreign investment company, or a “PFIC,” for the current taxable year and for the foreseeable future, which could have adverse U.S. federal income tax consequences to a U.S. shareholder.

We expect that we will be treated as a PFIC for U.S. federal income tax purposes for the current taxable year and for the foreseeable future. Assuming we are a PFIC, a U.S. holder of our shares will be subject to the PFIC rules, with a variety of potentially adverse tax consequences under the U.S. federal income tax laws. Such consequences depend in part on whether such shareholder elects to treat us as a qualified electing fund (a “QEF”). Absent a QEF election or mark-to-market election, a U.S. shareholder who disposes or is deemed to dispose of our shares at a gain, or who receives or is deemed to receive certain distributions with respect to our shares, generally will be required to treat such gain or distributions as ordinary income and to pay an interest charge on the tax imposed. If a U.S. shareholder makes a QEF election in the first taxable year in which the U.S. shareholder owns our shares, then such U.S. shareholder will be required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gains as long-term capital gain, subject to a separate voluntary election to defer payment of taxes, which deferral is subject to an interest charge. Such inclusion of taxable income is required even if the amount exceeds cash distributions, if any. Moreover, our distributions, if any, will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. taxpayers.

It is also possible that one or more of our subsidiaries or investments is or will become a PFIC. Such determination is made annually after the close of each taxable year and is dependent upon several factors, some of which are beyond our control, including the amount and nature of a subsidiary’s income, as well as the market valuation and nature of a subsidiary’s assets. In such case, assuming a U.S. shareholder does not receive from us the information it needs to make a QEF election with respect such a subsidiary, a U.S. shareholder generally will be deemed to own a portion of the shares of such lower-tier PFIC and may incur liability for a deferred tax and interest charge if we receive a distribution from, or dispose of all or part of our interest in, or the U.S. shareholder otherwise is deemed to have disposed of an interest in, the lower-tier PFIC (including through a sale of our shares).

The determination whether or not we (or any of our subsidiaries) is a PFIC is a factual determination that is made annually based on the types of income we (or any of our subsidiaries) earn and the value of our (or our subsidiaries’) assets, and because certain aspects of the PFIC rules are not entirely certain, there can be no assurance that we (or any of our subsidiaries) will or will not be considered a PFIC in the current or future years or that the IRS will agree with our conclusion regarding our (or our subsidiaries’) PFIC status. Investors should consult with their own tax advisors about the PFIC rules, including the advisability of making a QEF election or the mark-to-market election. (See Item 10, “Additional Information — Taxation — U.S. Federal Income Tax Considerations”).

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We may face increased tax costs.

We and our subsidiaries could face increased tax costs for various reasons, including our failure to qualify for treaty benefits under the Irish Treaty, the assertion of a permanent establishment within the United States, or the deduction of withholding taxes from rent payments. Any increase in our tax costs, directly or indirectly, would adversely affect our net income and cash flows.

Because Ireland does not have tax treaties with all jurisdictions, we may find it necessary to establish subsidiaries in other jurisdictions to lease or sublease aircraft to customers in those jurisdictions. Such subsidiaries may be subject to taxation in the jurisdictions in which they are organized, which would reduce our net income and have an adverse impact on our cash flows. In addition, any increase in Irish corporate tax rates could have an adverse impact on us.

OECD Multilateral Instrument

Since June 7, 2017, representatives from over 90 jurisdictions have signed up to the Organisation for Economic Co-operation and Development (“OECD”) Multilateral Instrument (“MLI”). The MLI seeks to implement agreed tax treaty-related measures combating tax avoidance into bilateral existing tax treaties without the need to renegotiate a new treaty. Changes to Ireland’s treaties under the MLI will include:

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A statement in the preamble to the treaty, confirming that the treaty is not being used for treaty-shopping purposes; and

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Inclusion of a principal purpose test (“PPT”), which will disallow treaty benefits where the main purpose or one of the main purposes of structuring the transaction is to obtain the benefits of the treaty. Given the subjectivity of the PPT, there is a risk that each counterparty jurisdiction will interpret it differently, which creates uncertainty in its application to leasing and other arrangements. Until such time as countries develop guidance on how the test will be applied, it will be difficult to determine its effect on us. However, the MLI will likely make it more challenging for intermediary lessors to claim treaty benefits (including any intermediary lessors forming part of the transaction), though this will ultimately depend on local interpretation and practice. For certain other lessee jurisdictions, the MLI may strengthen the jurisdiction’s existing anti-avoidance and/or beneficial ownership provisions or result in an increased threshold for claiming treaty benefits.

The MLI may apply to double tax treaties entered into by other countries in which we have operations. The MLI also includes provisions aiming to reduce the “dependent agent” permanent establishment threshold. While this change will not necessarily be inserted into Ireland’s tax treaties under the MLI, there is a possibility that some countries could seek a bilateral renegotiation on the point to change the dependent agent provisions in their tax treaty with Ireland. Any such change could take some time to be agreed and subsequently ratified before it could come into effect.

Multilateral Instrument - Impact on Fly

The MLI will only enter into effect for a specific tax treaty once both jurisdictions have ratified the MLI and a certain time period has passed. The specific entry into effect dates vary depending on the specific article/provision in the treaty.

The MLI generally allows participating countries to opt in or out of various measures which are not a “minimum standard”. It remains to be seen, therefore, precisely which options participating countries will choose and there are various reasons why countries may not implement the proposed amendments in an identical manner and/or to the same extent. It is worth noting however that the Principal Purpose Test (“PPT”) noted above is a minimum standard under the MLI and so will become relevant in the context of Ireland’s treaties with other MLI signee jurisdictions as ratification of the MLI continues in the various jurisdictions.

Broadly, a change in the application or interpretation of double tax treaties under the MLI might result in Fly being treated as having a taxable permanent establishment outside of Ireland resulting from marketing efforts in jurisdictions where it conducts its business, in denying Fly the benefit of Ireland’s network of double tax treaties or in other tax consequences for Fly. In each case, this could have a material adverse effect on Fly’s business, tax and financial position.

EU Anti-Tax Avoidance Directive

Council Directive (EU) 2016/1164 (“EU ATAD”) lays down measures to combat tax avoidance practices that directly affect the functioning of the internal market. Many of these measures are ultimately derived from the OECD’s Base Erosion and Profit Shifting (“BEPS”) initiative and there are a number of similarities between the OECD proposals and EU ATAD. The BEPS recommendations relating to interest limitations, hybrid instruments and entities and controlled foreign corporation (CFC) legislation, all of which were not mandatory, are addressed in the EU ATAD and are mandatory for EU Member States. However, even where there are common concepts between the OECD BEPS initiative and EU ATAD, there are a number of differences in detail.

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While the EU ATAD has been adopted by the EU Member States, additional details on the operation of the provisions and how Member States will adopt them into local law are required. A number of measures were due to be implemented with effect from January 1, 2019 though some can be deferred at the discretion of the relevant Member State. In addition, it has been signaled that some further initiatives are likely.

EU ATAD contemplates the introduction of a net interest restriction based on 30% of EBITDA. However, Member States will have the option of applying a “group ratio rule” whereby the percentage of EBITDA that would be allowed as a deduction in respect of interest could be increased to reflect the group’s overall third-party interest payments (as a percentage of group EBITDA). Further relief would be available to the extent that the individual entity’s equity to assets ratio is 98% or higher of the group’s equivalent ratio. It is possible these rules could be introduced in Ireland as early as 2021. The implementation of these rules may be deferred until 2024 where a Member State has measures in place which are equally effective to address base erosion through financing and a derogation is received from the European Commission (“EC”) on that basis. While the Irish Government applied for this derogation, this has not yet been received from the EC and so the timing of implementation for these rules in Ireland is uncertain.

It should be noted also that the EU ATAD provides for the net interest restriction to apply after the end of the first full fiscal year following the publication by the OECD of an agreement between OECD members to adopt these rules as a minimum standard. This may be sooner than 2024. To the extent that an interest restriction is ultimately implemented in Ireland in a manner that sees the restriction applied to the gross interest expense, in an operating lease company, this could have a material impact on the effective tax rate in Fly.

EU ATAD also contemplates the introduction by all EU Member States of “controlled foreign company” rules. These rules would mean that in certain circumstances a parent or head office would be subject to tax on the undistributed income of foreign branches (but only where the foreign branch profits are not taxed or are exempt from tax in the parent or head office jurisdiction) or 50%+ subsidiaries where the actual corporate tax paid on its profits by the subsidiary or foreign branch is lower than the difference between the corporate tax that would have been charged on the subsidiary or foreign branch under the applicable corporate tax system in the EU Member State of the parent or head office and the actual corporate tax paid on its profits by the subsidiary or foreign branch. These rules have been implemented in Ireland and apply for accounting periods beginning on/after 1 January 2019. While the new rules require assessment and consideration in the context of Fly, it appears unlikely the rules will have material impact on the group.

Finally, EU ATAD contemplates the introduction of anti-avoidance measures in respect of certain “hybrid” entities and financial instruments which result in either tax deductions arising in two jurisdictions for the same expense or a tax deduction arising in one jurisdiction for a payment where the receipt of that payment is not taxable in the other jurisdiction. EU ATAD contemplates a denial of one of the tax deductions in the former instance and a denial of the (only) tax deduction in the latter case, or where the deduction is not denied, inclusion in income in the Member State of the payee. EU ATAD originally contained provisions which only applied to hybrids between Member States, however in February 2017 the EU ATAD was amended (“ATAD 2”) and the scope of the hybrid provisions was widened to target all hybrid mismatches where at least one of the parties involved is a corporate tax payer in a Member State.

Hybrid legislation was implemented in Ireland from January 1, 2020 with legislation passed in late 2019. However, we await further guidance on how the rules will operate in practice and on certain technical points. While the new rules warrant consideration and analysis in the context of Fly, it appears unlikely the rules will have material impact on the group. Where there was a denial of a tax deduction in respect of interest expenses under the hybrid provisions, this could have an impact on the Group’s effective tax rate.

The tax rate applicable to us would be higher than we expect if we were considered not to be carrying on a trade in Ireland for the purposes of Irish law.

We are subject to Irish corporation tax on our net trading income at the rate of 12.5%. Under Irish tax law, non-trading income is taxed at the rate of 25% and capital gains are taxed at the rate of 33%. We believe that we carry on sufficient activity in Ireland, directly through our board of directors and indirectly through the services of our Manager, BBAM LP and our Servicer, to be treated as carrying on a trade in Ireland for the purposes of Irish tax law. If we or any of our Irish tax-resident subsidiaries were considered not to be carrying on a trade in Ireland, we or they may be subject to additional Irish tax liabilities. The application of a higher tax rate (25% instead of 12.5%) on taxable income could negatively impact our cash flows. In addition, we cannot assure you that the 12.5% tax rate applicable to trading income, the 33% tax rate applicable to capital gains or the 25% tax rate applicable to non-trading income will not be changed in the future.

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Risks Related to the Ownership of Our Shares

The price of our shares has been volatile. This volatility may negatively affect the price of our shares.

Our shares have experienced substantial price volatility. This volatility may negatively affect the price of our shares at any point in time. Our share price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including :

•

announcements concerning our competitors, the airline industry (including the creditworthiness of airlines) or the economy in general ;

•

announcements concerning the availability of the type of aircraft we own ;

•

general and industry-specific economic conditions ;

•

changes in the price of aircraft fuel ;

•

changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations ;

•

any increased indebtedness we may incur in the future ;

•

speculation or reports by the press or investment community with respect to us or our industry in general ;

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announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments ;

•

changes or proposed changes in laws or regulations affecting the airline industry or enforcement of these laws and regulations, or announcements relating to these matters ; and

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general market, political and economic conditions, including any such conditions and local conditions in the markets in which our lessees are located .

Broad market and industry factors may decrease the market price of our shares, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including periods of sharp decline. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources .

Provisions in our bye-laws, our management agreement , the indentures governing our 2021 Notes and 2024 Notes, and our voting agreement with AirAsia Group Berhad may discourage a change of control.

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These include :

•

provisions that permit us to require any competitor of BBAM LP that acquires beneficial ownership of more than 15% of our common shares either to tender for all of our remaining common shares for no less than their fair market value, or sell such number of common shares to us or to third parties as to reduce its beneficial ownership to less than 15%, in either case within 90 days of our request to so tender or sell ;

•

provisions that reduce the vote of each common share held by a competitor of BBAM LP that beneficially owns 15% or more, but less than 50%, of our common shares to three-tenths of one vote per share on all matters upon which shareholders may vote ;

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provisions that permit our board of directors to determine the powers, preferences and rights of any preference shares we may issue and to issue any such preference shares without shareholder approval ;

•

advance notice requirements by shareholders for director nominations and actions to be taken at annual meetings ; and

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no provision for cumulative voting in the election of directors, such that all the directors standing for election may be elected by our shareholders by a plurality of votes cast at a duly convened annual general meeting, the quorum for which is two or more persons present in person or by proxy at the start of the meeting and representing in excess of 25% of all votes attaching to all shares in issue entitling the holder to vote at the meeting .

These provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and/or our board of directors. Public shareholders who might desire to participate in these types of transactions may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control of our company or change our board of directors and, as a result, may adversely affect the market price of our shares and your ability to realize any potential change of control premium.

Provisions in our management agreement could make it more difficult for a third party to acquire our company without the consent of our board of directors or BBAM. Upon a change of control, our management agreement requires us to pay a fee equal to 1.5% of our enterprise value to our Manager. In addition, if the directors in office on December 28, 2012 and any successor to any such director who was nominated or selected by a majority of the current directors and our Manager appointed directors, cease to constitute at least a majority of the board (excluding directors appointed by our Manager), our Manager may terminate the management agreement, and we will pay our Manager a fee as follows: (i) during the first five year term, an amount equal to three times the aggregate management expense amount in respect of the last complete fiscal year prior to the termination date; (ii) during the second five year term, an amount an amount equal to two times the aggregate management expense amount in respect of the last complete fiscal year prior to the termination date; (iii) during the third five year term, an amount an amount equal to the aggregate management expense amount in respect of the last complete fiscal year prior to the termination date. Neither our management agreement nor our servicing agreements automatically terminate upon a change of control.

Furthermore, the indentures governing our 2021 Notes and 2024 Notes contain provisions that permit our noteholders to require us to redeem their notes before maturity at a premium to par upon a change of control of our company.

Finally, as a result of the AirAsia transactions, AirAsia Group Berhad currently owns approximately 10.8% of our common shares. AirAsia Group Berhad has agreed to vote these common shares in favor of any proposal recommended by our Board for approval by our shareholders and against any proposal that is not recommended by our Board, including any proposal by a third party to acquire us. This voting agreement will make it more difficult for any proposal to be approved by our shareholders that is not recommended for approval by our Board.

Shareholders may have greater difficulties in protecting their interests than they would have as shareholders of a U.S. corporation .

The Companies Act 1981 of Bermuda, as amended, which we refer to as the “Companies Act,” applies to our company and differs in material respects from laws generally applicable to U.S. corporations and their shareholders. Taken together with the provisions of our bye-laws, some of these differences may result in shareholders having greater difficulties in protecting their interests as a shareholder of our company than they would have as a shareholder of a U.S. corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with our company, what approvals are required for business combinations by our company with a large shareholder or a wholly-owned subsidiary, what rights shareholders may have to enforce specified provisions of the Companies Act or our bye-laws, and the circumstances under which we may indemnify our directors and officers.

We are a Bermuda company that is managed and controlled in Ireland. It may be difficult for you to enforce judgments against us or against our directors and executive officers.

We are incorporated under the laws of Bermuda and are managed and controlled in Ireland. Our business is based outside the United States, a majority of our directors and officers reside outside the United States and a majority of our assets and some or all the assets of such persons are located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon us or those persons, or to recover against us or them on judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Further, no claim may be brought in Bermuda or Ireland against us or our directors and officers in the first instance for violation of U.S. federal securities laws because these laws have no extraterritorial application under Bermuda or Irish law and do not have force of law in Bermuda or Ireland. However, a Bermuda or Irish court may impose civil liability, including the possibility of monetary damages, on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda or Irish law.

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There is doubt as to whether the courts of Bermuda or Ireland would enforce judgments of U.S. courts obtained in actions against us or our directors and officers, predicated upon the civil liability provisions of the U.S. federal securities laws, or entertain actions brought in Bermuda or Ireland against us or such persons predicated solely upon U.S. federal securities laws. Further, there is no treaty in effect between the United States and Bermuda or Ireland providing for the enforcement of judgments of U.S. courts in civil and commercial matters, and there are grounds upon which Bermuda or Irish courts may decline to enforce the judgments of U.S. courts. Some remedies available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, may not be allowed in Bermuda or Irish courts as contrary to public policy in Bermuda or Ireland. Because judgments of U.S. courts are not automatically enforceable in Bermuda or Ireland, it may be difficult for you to recover against us or our directors and officers based upon such judgments.

Future offerings of debt or equity securities by us may adversely affect the market price of our shares.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional common shares or offering debt or additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes or preference shares. Issuing additional common shares or other additional equity offerings may dilute the economic and voting rights of our existing shareholders or reduce the market price of our common shares, or both. Upon liquidation, holders of such debt securities and preference shares, if issued, and lenders with respect to other borrowings, would receive a distribution of our available assets prior to the holders of our common shares. Preference shares, if issued, may have rights, preferences or privileges senior to existing shareholders, including with respect to liquidating distributions, dividend payments or share repurchases. Because our bye-laws permit the issuance of common and preference shares, if our board of directors approves the issuance of such shares in a future financing transaction, our existing shareholders will not have the ability to approve such a transaction. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common shares bear the risk of our future offerings reducing the market price of our common shares and diluting their share holdings in us.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NYSE requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.

As a foreign private issuer, we are not required to comply with all of the rules that apply to listed U.S. companies. Nevertheless, we have generally chosen to comply with the corporate governance rules of the New York Stock Exchange (“NYSE”) as though we were a U.S. company. Accordingly, we do not believe there are any significant differences between our corporate governance practices and those that would typically apply to a U.S. domestic issuer under the NYSE corporate governance rules.

However, we intend to follow the practices of our home country, Bermuda, in connection with certain matters, including shareholder approval requirements. Under Bermuda law, we are not required to obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, certain transactions other than a public offering involving issuances of a 20% or greater interest in our company and certain acquisitions of the stock or assets of another company. Following our home country practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on the NYSE may provide less protection than is accorded to investors under the NYSE rules applicable to domestic issuers.

In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

ITEM 4.

INFORMATION ON THE COMPANY

Our registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. Although we are organized under the laws of Bermuda, we are resident in Ireland for Irish tax purposes and thus are subject to Irish corporation tax on our income in the same way, and to the same extent, as if we were organized under the laws of Ireland. Our principal executive offices are located at West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland. Our telephone number at that address is +353-1-231-1900. Our agent for service of process in the United States is Puglisi & Associates located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

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The SEC maintains an internet site (www.sec.gov), which contains reports, proxy and information statements, and other information regarding us that we file electronically with the SEC.

Our web address is: www.flyleasing.com. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 20-F and should not be considered part of this or any other report filed with the SEC .

Our Relationship with BBAM

BBAM LP is a leading commercial jet aircraft servicer. BBAM LP assists us in acquiring, leasing, remarketing and selling aircraft and aircraft equipment, manage our day-to-day operations and affairs and act as Servicer for our portfolio of aircraft, engines and related leases.

We engage our Manager as Manager of our company and BBAM as Servicer for our aircraft and engine portfolio under management and servicing agreements. Our Manager manages our company under the direction of its chief executive officer and chief financial officer, who are exclusively dedicated to our business. BBAM assists us in acquiring and disposing of our aircraft and engines, marketing our aircraft and engines for lease and re-lease, collecting rents and other payments from the lessees of our aircraft and engines, monitoring maintenance, insurance and other obligations under our leases and enforcing our rights against lessees. BBAM LP is among the largest aircraft leasing companies in the world, as measured by the number of aircraft it owns and manages .

BBAM LP is owned by Summit, Onex and GIC. As of February 15, 2020, Summit and Onex beneficially owned an aggregate of 5,371,357 of our common shares in the form of ADSs.

Our Portfolio

We originate aircraft through BBAM LP’s well-established relationships with airlines, financial investors and other aircraft leasing and finance companies. We primarily acquire aircraft by entering into purchase and leaseback transactions with airlines for new aircraft, purchasing portfolios consisting of aircraft of varying types and ages, and opportunistically acquiring individual aircraft that we believe are being sold at attractive prices. In addition, we actively consider opportunities to sell our aircraft, individually or in portfolio sales of various sizes, when we believe that selling will maximize our returns, or to manage the composition of our portfolio .

As of December 31, 2019, we had 89 aircraft and seven engines in our portfolio. Of the 89 aircraft, 81 were held for operating lease, one was classified as an investment in finance lease, six were classified as flight equipment held for sale and one aircraft was off-lease . Subsequent to December 31, 2019, the off-lease aircraft was re-leased. In addition, as of December 31, 2019, we classified two additional engines as flight equipment held for sale as the result of an aircraft part out. These two engines were sold in January 2020. Our aircraft portfolio (excluding aircraft held for sale) was comprised of 74 narrow-body passenger aircraft (including one freighter) and nine wide-body passenger aircraft (including two freighters).

As of December 31, 2019 , we had 46 Boeing aircraft and 37 Airbus aircraft in our portfolio (excluding aircraft held for sale). These aircraft were manufactured between 1990 and 2019 and had a weighted average age of 7.5 years as of December 31, 2019 . We estimate that the useful life of our aircraft is generally 25 years from the date of manufacture. In the case of a freighter, the remaining useful life is determined based on the date of conversion and in such case, the total useful life may extend beyond 25 years from the date of manufacture.

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The following table presents the aircraft in our portfolio (excluding aircraft held for sale) as of December 31, 2019 :

Lessee		Aircraft Type	Airframe Type	Date of Manufacture
1.	Aeromexico	B737-700	Narrow-body	2005
2.	Aeromexico	B737-700	Narrow-body	2005
3.	Air China	B737-800	Narrow-body	2007
4.	Air Europa	B787-8	Wide-body	2017
5.	Air India	B787-8	Wide-body	2015
6.	Air India	B787-8	Wide-body	2014
7.	Air India	B787-8	Wide-body	2014
8.	Air Moldova	A319-100	Narrow-body	2006
9.	AirAsia Berhad	A320-200	Narrow-body	2013
10.	AirAsia Berhad	A320-200	Narrow-body	2013
11.	AirAsia Berhad	A320-200	Narrow-body	2012
12.	AirAsia Berhad	A320-200	Narrow-body	2012
13.	AirAsia Berhad	A320-200	Narrow-body	2012
14.	AirAsia Berhad	A320-200	Narrow-body	2011
15.	AirAsia Berhad	A320-200	Narrow-body	2011
16.	AirAsia Berhad	A320-200	Narrow-body	2010
17.	AirAsia Berhad	A320-200	Narrow-body	2010
18.	AirAsia Berhad	A320-200	Narrow-body	2010
19.	AirAsia Berhad	A320-200	Narrow-body	2009
20.	AirAsia India	A320-200	Narrow-body	2014
21.	AirAsia India	A320-200	Narrow-body	2014
22.	Alaska Airlines	A320-200	Narrow-body	2007
23.	American Airlines	B737-800	Narrow-body	2013
24.	American Airlines	A319-100	Narrow-body	2000
25.	American Airlines	A319-100	Narrow-body	2000
26.	American Airlines	A319-100	Narrow-body	2000
27.	American Airlines	A319-100	Narrow-body	2000
28.	Chang’An Airlines	B737-800	Narrow-body	2006
29.	Condor	A321-200	Narrow-body	2015
30.	easyJet	A319-100	Narrow-body	2007
31.	Ethiopian Airlines	B777-200LRF ⁽¹⁾	Wide-body	2015
32.	Ethiopian Airlines	B777-200LRF ⁽¹⁾	Wide-body	2015
33.	Finnair	A320-200 ⁽²⁾	Narrow-body	2003
34.	flydubai	B737-800	Narrow-body	2010
35.	flydubai	B737-800	Narrow-body	2010
36.	Fly Gangwon	B737-800	Narrow-body	2012
37.	Garuda Indonesia	B737-800	Narrow-body	2010
38.	Go2Sky	B737-800	Narrow-body	2007
39.	Go2Sky	B737-800	Narrow-body	1998
40.	Icelandair	B757-200SF ⁽¹⁾	Narrow-body	1990
41.	Indigo	A320-200	Narrow-body	2005
42.	Indigo	A320-200	Narrow-body	2005
43.	Indonesia AirAsia	A320-200	Narrow-body	2013
44.	Indonesia AirAsia	A320-200	Narrow-body	2012
45.	Lucky Air Airlines	B737-800	Narrow-body	2007
46.	Lucky Air Airlines	B737-800	Narrow-body	2007
47.	Malaysian Airlines	B737-800	Narrow-body	2012
48.	Malaysian Airlines	B737-800	Narrow-body	2012
49.	Malaysian Airlines	B737-800	Narrow-body	2012
50.	Malaysian Airlines	B737-800	Narrow-body	2011
51.	Malaysian Airlines	B737-800	Narrow-body	2011
52.	Malaysian Airlines	B737-800	Narrow-body	2011
53.	Malaysian Airlines	B737-800	Narrow-body	2011
54.	Nordavia Airline	B737-700	Narrow-body	2006
55.	Oman Air S.A.O.C.	B737-800	Narrow-body	2009
56.	Philippine Airlines	A321-200	Narrow-body	2014

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Lessee		Aircraft Type	Airframe Type	Date of Manufacture
57.	Philippine Airlines	A321-200	Narrow-body	2014
58.	Philippine Airlines	A330-300	Wide-body	2013
59.	Philippine Airlines	A330-300	Wide-body	2013
60.	Philippines AirAsia	A320-200	Narrow-body	2007
61.	PT Batik Air	A320-200	Narrow-body	2017
62.	PT Lion Mentari	B737 MAX 8	Narrow-body	2017
63.	PT Lion Mentari	B737 MAX 8	Narrow-body	2017
64.	Shandong Airlines	B737-800	Narrow-body	2013
65.	Shandong Airlines	B737-800	Narrow-body	2013
66.	SpiceJet Ltd	B737-800	Narrow-body	2011
67.	SpiceJet Ltd	B737-800	Narrow-body	2010
68.	SpiceJet Ltd	B737-800	Narrow-body	2007
69.	TAROM S.A.	B737-800	Narrow-body	2017
70.	Tata SIA Airlines Limited (Vistara)	B737-800	Narrow-body	2014
71.	Tata SIA Airlines Limited (Vistara)	B737-800	Narrow-body	2014
72.	Thai AirAsia	A321neo	Narrow-body	2019
73.	Thai AirAsia	A320-200	Narrow-body	2010
74.	Transavia France	B737-800	Narrow-body	2008
75.	Transavia France	B737-800	Narrow-body	2008
76.	Transavia France	B737-800	Narrow-body	2007
77.	Transavia France	B737-800	Narrow-body	2007
78.	TUI Travel Aviation Finance	B737-800	Narrow-body	2010
79.	Virgin Atlantic	A330-200	Wide-body	2001
80.	Vueling Airlines	A320-200	Narrow-body	2007
81.	Vueling Airlines	A320-200	Narrow-body	2007
82.	Yakutia	B737-800	Narrow-body	2002
83.	Off-lease ⁽³⁾	B737-800	Narrow-body	2014

(1)	Freighter.

(2)	Classified as an investment in finance lease.

(3)	Re-leased to EL AL Israel in February 2020.

The following table presents the aircraft held for sale as of December 31, 2019 :

Lessee		Aircraft Type	Airframe Type	Date of Manufacture
1.	Malaysian Airlines ⁽¹⁾	B737-800	Narrow-body	2011
2.	Oman Air S.A.O.C.	B737-800	Narrow-body	2009
3.	SpiceJet Ltd	B737-800	Narrow-body	2010
4.	SpiceJet Ltd	B737-800	Narrow-body	2007
5.	Sunwing Airlines ⁽¹⁾	B737-800	Narrow-body	2006
6.	Thai AirAsia ⁽¹⁾	A320-200	Narrow-body	2012

(1)	Sold subsequent to December 31, 2019 .

The following table presents the engines in our portfolio as of December 31, 2019 :

Lessee		Engine Type	Date of Manufacture
1.	AirAsia Berhad	CFM56-5B4/3	2011
2.	AirAsia Berhad	CFM56-5B6/3	2011
3.	AirAsia Berhad	CFM56-5B4/3	2008
4.	AirAsia Berhad	CFM56-5B6/3	2008
5.	AirAsia Berhad	CFM56-5B6/P	2006
6.	AirAsia Japan	CFM56-5B6/3	2009
7.	Indonesia AirAsia	CFM56-5B6/3	2015

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The following table summarizes the composition of our aircraft portfolio (excluding aircraft held for sale) by manufacturer and aircraft type as of December 31, 2019 :

Aircraft Manufacturer	Aircraft Type		Number of Aircraft
Airbus		A319-100		6
		A320-200 ⁽¹⁾		24
		A321-200		3
		A321neo		1
		A330-200		1
		A330-300		2
		Total		37
Boeing		B737-700		3
		B737 MAX 8		2
		B737-800		34
		B757-200SF		1
		B777-200LRF		2
		B787-8		4
		Total		46
Total				83

(1)	Includes one aircraft classified as an investment in finance lease.

Our aircraft portfolio (excluding aircraft held for sale) is composed of 69% narrow-body aircraft and 31% wide-body aircraft, based on net book values as of December 31, 2019. Our narrow-body aircraft include Airbus A319, Airbus A320, Airbus A321, Airbus A321neo, Boeing 737 MAX 8, and next generation Boeing 737 and Boeing 757 aircraft families, which enjoy high worldwide demand due to their fuel-efficient design, relatively low maintenance costs, and an increase in customer demand for point-to-point destination service. These aircraft are based on more routes around the world than any other airframe and thus have the largest installed base. Our wide-body aircraft include Airbus A330 and next generation Boeing 777 (freighter) and Boeing 787 aircraft families .

The following table presents the composition of our aircraft portfolio (excluding aircraft held for sale) based on airframe type as of December 31, 2019 :

Airframe Type	Number of Aircraft
Narrow-body ^{(1) (2)}		74
Wide-body ⁽³⁾		9
Total		83

(1)

Includes one aircraft classified as an investment in finance lease.

(2)

Includes one freighter.

(3)

Includes two freighters.

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Our Markets

Our aircraft and engines are leased under multi-year contracts to a diverse group of airlines throughout the world. The following table presents the distribution of our lease revenue from our portfolio by geographic region (dollars in thousands):

	Years ended
	2019					2018				2017
Europe:
Spain	$	17,475	4	%		$	17,267	4	%	$	11,199	3	%
United Kingdom		79,022	17	%	⁽¹⁾		31,259	8	%		29,182	8	%
Turkey		2,041	—				12,114	3	%		17,103	5	%
Germany		951	—				—	0	%		26,457	8	%
Other ⁽²⁾		31,815	7	%			32,670	8	%		29,911	9	%
Europe — Total		131,304	28	%			93,310	23	%		113,852	33	%
Asia and South Pacific:
India		103,422	22	%			87,492	22	%		64,381	18	%
Malaysia		55,189	12	%			26,748	7	%		8,767	3	%
Philippines		34,217	7	%			35,009	9	%		29,825	9	%
Indonesia		32,882	7	%			32,336	8	%		16,308	5	%
China		23,320	5	%			21,103	5	%		22,611	6	%
Other		18,550	5	%			18,756	4	%		10,496	3	%
Asia and South Pacific — Total		267,580	58	%			221,444	55	%		152,388	44	%
Mexico, South and Central America — Total		5,425	1	%			11,415	3	%		17,565	5	%
North America:
United States		16,267	4	%			20,147	5	%		17,647	5	%
Other		4,991	1	%			6,242	2	%		6,237	2	%
North America — Total		21,258	5	%			26,389	7	%		23,884	7	%
Middle East and Africa:
Ethiopia		30,019	6	%			30,019	8	%		30,018	9	%
Other		9,431	2	%			17,612	4	%		9,918	2	%
Middle East and Africa — Total		39,450	8	%			47,631	12	%		39,936	11	%
Total Lease Revenue	$	465,017	100	%		$	400,189	100	%	$	347,625	100	%

(1)	Includes end of lease income of $52.8 million from four lessees.

(2)	Includes $0.6 million, $0.7 million and $0.7 million of finance lease revenue in 2019, 2018 and 2017, respectively.

Our Leases

Lease Terms

All of our leases are on a “net” basis with the lessee generally responsible for all operating expenses, which customarily include maintenance, fuel, crews, airport and navigation charges, taxes, licenses, aircraft registration and insurance . At December 31, 2019 , we had 82 aircraft lease agreem ents (excluding lease agreements associated with aircraft held for sale) and seven engine lease agreements. 83 of these lease agreements had fixed lease rates and six had floating lease rates. Because all our lease agreements provide for regular payments over a period of years, we generally do not expect significant seasonality in our business.

Our portfolio (excluding aircraft held for sale) is leased to 40 airlines in 23 countries, in both developed and emerging markets. Under our leases, the lessees agree to lease the aircraft or engines for a fixed term, although in some cases the lessees may have early termination or lease extension options. Our leases are scheduled to expire between 2020 and 2031 and have a weighted average remaining lease term of 5.4 years as of December 31, 2019 .

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The following table presents the scheduled lease maturity of the flight equipment in our portfolio (excluding aircraft held for sale) as of December 31, 2019:

Year of Scheduled Lease Expiration	Narrow-body			Wide-body			Engines		Total
Off-lease		1			—			—		1
2020		9			—			—		9
2021		12			1			—		13
2022		18			—			6		24
2023		8			—			1		9
2024		5	⁽¹⁾		—			—		5
2025		4	⁽²⁾		2			—		6
2026		4			—			—		4
2027		1			2	⁽³⁾		—		3
2028		3			3			—		6
2029		7			1			—		8
2030		—			—			—		—
2031		2			—			—		2
Total		74			9			7		90

(1)	Includes one freighter.

(2)	Includes one aircraft classified as an investment in finance lease .

(3)	Includes two freighters.

At December 31, 2019 , we had nine leases in our portfolio (excluding aircraft held for sale) scheduled to expire in 2020, two of which were committed to a new lessee and two were subject to a letter of intent for a re-lease. We also had one aircraft off-lease at December 31, 2019 , which was subsequently delivered to a new lessee. Subsequent to year end, three aircraft are subject to a letter of intent for a re-lease or lease extension and two aircraft remain to be remarketed in 2020. W e may have additional remarketings in 2020 if other leases are terminated prior to their scheduled expiry dates.

Most lease rentals are payable monthly in advance, but some lease rentals are payable in arrears. In addition, some of our leases require quarterly lease payments. Most of our leases provide that the lessee’s payment obligations are absolute and unconditional under any and all circumstances. Lessees are generally required to make payment without deduction of any amounts that we may owe the lessee or any claims that the lessee may have against us. Most of our leases also require lessees to gross up lease payments where they are subject to withholdings and other taxes .

The cost of an aircraft typically is not fully recovered over the term of the initial lease. We therefore assume the risk that we will not be able to recover our investment in the aircraft upon expiration or early termination of the lease and of the ultimate residual value. Operating leases allow airlines greater fleet and financial flexibility than outright ownership because of the relatively shorter-term nature of operating leases, the relatively small initial capital outlay necessary to obtain use of the aircraft and the significant reduction in aircraft residual value risk .

Security Deposits and Letters of Credit. The majority of our leases provide for cash security deposits and/or letters of credit which may be drawn in the event that a lessee defaults under its respective lease. Security deposits and/or letters of credit may mitigate losses we may incur while attempting to re-lease the aircraft. Under certain circumstances, the lessee may be required to obtain guarantees or other financial support from an acceptable financial institution or other third parties .

Maintenance Obligations. Under our leases, the lessee is generally responsible for all maintenance and repairs and compliance with return conditions of aircraft on lease. In connection with the lease of a used aircraft we sometimes agree to contribute specific additional amounts to the cost of certain major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives .

Our portfolio includes leases pursuant to which we collect maintenance reserve payments that are determined based on passage of time or usage of the aircraft or engine measured by hours flown or cycles operated. These payments may be paid in cash or letters of credit which can be drawn if maintenance obligations are not otherwise paid. Under these leases, we are obligated to make reimbursements to the lessee for expenses incurred for certain major maintenance, up to a maximum amount that is typically determined based on maintenance reserves paid by the lessee. Certain leases also require us to make maintenance contributions for costs associated with certain major maintenance events in excess of any maintenance reserve payments. Major maintenance includes heavy airframe, off-wing engine, landing gear and auxiliary power unit overhauls and replacements of engine life limited parts. We are not obligated to make maintenance contributions under any lease pursuant to which a lessee default has occurred and is continuing. We also have leases that provide for lease-end maintenance adjustment payments based on the usage of the aircraft or engine during the lease term and its condition upon redelivery. Typically, payments are made by the lessee to us, although in some cases, we have been required to make such payments to the lessee .

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Compliance with Laws. The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. We generally require our lessees to comply with the standards of either the U.S. Federal Aviation Administration or its non-U.S. equivalent .

General. Each aircraft or engine generally must remain in the possession of the applicable lessee and any sublessees of the aircraft generally must be approved by the lessor unless, in some leases, certain conditions are met. Under most of our leases, the lessees may enter into charter or “wet lease” arrangements in respect of the aircraft (i.e., a lease with crew and services provided by the lessor under the lease), provided the lessee does not part with operational control of the aircraft. Under some of our leases, the lessee is permitted to enter into subleases with specified operators or types of operators without the lessor’s consent, provided certain conditions are met . As of December 31, 2019 , there were no subleases.

Our leases also generally permit the lessees to subject the equipment or components to removal or replacement and, in certain cases, to pooling arrangements (temporary borrowing of equipment), without the lessor’s consent but subject to conditions and criteria set forth in the applicable lease. Under our leases, the lessee may deliver possession of the aircraft, engines and other equipment or components to the relevant manufacturer for testing or similar purposes, or to a third party for service, maintenance, repair or other work required or permitted under the lease .

Some foreign countries have currency and exchange laws regulating the international transfer of currencies. When necessary, we will require as a condition to any foreign transaction, that the lessee or purchaser in a foreign country obtain the necessary approvals of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed in U.S. dollars. We attempt to minimize our currency and exchange risks by negotiating most of our aircraft leases and all of our sales transactions in U.S. dollars .

Lease Restructurings. During the term of a lease, a lessee’s business circumstances may change to the point where it is economically sensible for us to consider restructuring the terms of the lease. Restructurings may involve the voluntary termination of leases prior to the scheduled lease expiration, the arrangement of subleases from the primary lessee to another airline, the rescheduling of lease payments, the forgiveness and/or reduction of lease obligations and the extension of the lease terms.

Aircraft Repossessions. On a lease default, we may seek to terminate the lease and gain possession of the aircraft for remarketing. Although the majority of repossessions are accomplished through negotiation, if we cannot obtain the lessee’s cooperation we would have to take legal action in the appropriate jurisdiction. This legal process could delay the ultimate return of the aircraft. In addition, in connection with the repossession of an aircraft, we may be required to pay outstanding mechanics, airport, navigation and other liens on the repossessed aircraft. These charges could relate to other aircraft that we do not own but were operated by the defaulting lessee. In contested repossessions, we likely would incur substantial additional costs for maintenance, refurbishment and remarketing of the aircraft .

In September 2019, Thomas Cook ceased operations. At that time, we had one aircraft on lease to Thomas Cook. The aircraft was re-leased in October 2019.

In April 2019, Jet Airways ceased operations. At that time, we had three aircraft on lease to Jet Airways. We repossessed these aircraft and re-leased two of the aircraft during the second quarter of 2019. The third aircraft, which was off-lease at December 31, 2019, was re-leased in February 2020.

In August 2017, Air Berlin commenced insolvency proceedings in Germany and the United States. At that time, we had two aircraft on lease to Air Berlin. These leases were terminated and both aircraft were returned to us during the fourth quarter of 2017. These aircraft were delivered to new lessees during the first half of 2018.

Lease Management and Remarketing

We outsource our lease management and aircraft remarketing activities to BBAM. Pursuant to our servicing agreements with BBAM, BBAM provides us with services related to leasing our fleet, including marketing aircraft and engines for lease and re-lease or sale, collecting rents and other payments from our lessees, monitoring maintenance, insurance and other obligations under our leases and enforcing our rights against lessees .

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From time to time, we may decide to dispose of our aircraft or engines at or before the expiration of their leases. In 2019, we sold 35 aircraft.

Competition

The leasing and remarketing of commercial jet aircraft is highly competitive. We face competition from airlines, aircraft manufacturers, financial institutions, aircraft brokers, special purpose vehicles formed for the purpose of acquiring, leasing and selling aircraft, and public and private partnerships, investors and funds, including private equity firms and hedge funds. Competition for leasing transactions is based on a number of factors including delivery dates, lease rates, lease terms, aircraft condition and the availability in the marketplace of the types of aircraft to meet the needs of the customers. See the risk factor “ We operate in a highly competitive market for investment opportunities in aircraft. ”

Insurance

We require our lessees to obtain those types of insurance and, as appropriate, reinsurance coverage which are customary in the air transportation industry. These include aircraft all-risk hull insurance covering the aircraft and its engines and spares and hull and spares war and allied perils insurance covering risks such as hijacking, terrorism, confiscation, expropriation, seizure and nationalization to the extent normally available in the international market. Coverage under aircraft hull insurance policies generally is subject to standard deductible levels in respect of partial damage to the aircraft, in some instances and under certain circumstances the lessee has the right to self-insure some or all of the risk. The lessee is required to pay all deductibles, and also would be responsible for payment of amounts self-insured .

We also require our lessees to carry comprehensive aviation liability insurance, including war and allied perils coverage, provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations. Coverage under liability policies generally is not subject to deductibles except as to baggage and cargo that are standard in the airline insurance industry .

In general, we are named as an additional insured and loss payee on the hull all risks and hull and spares war policies for the sum of the stipulated loss value or agreed value of the aircraft and our own contingent coverage in place is at least equal to the appraised value of the aircraft. In cases where the Servicer believes that the agreed value stated in the lease is not sufficient, the Servicer will purchase additional coverage, either in the form of hull and hull war total loss only or hull and hull war excess hull insurance for the deficiency and as an additional insured on the liability policies carried by our lessees .

The Servicer will obtain certificates of insurance/reinsurance from the lessees’ brokers to evidence the existence of such coverage. These certificates generally include, in addition to the information above, (i) a breach of warranty endorsement so that, subject to certain standard exceptions, our interests are not prejudiced by any act or omission of the lessee, (ii) confirmation that the liability coverage is primary and not contributory, (iii) agreement that insurers waive rights of subrogation against us and (iv) in respect to all policies, a 30-day notice of cancellation or material change; however, war and allied perils policies customarily provide seven days advance written notice for cancellation and may be subject to lesser notice under certain market conditions .

The insurance market imposes a sub limit on each operator’s primary liability policy applicable to third-party war risk liability. This limit customarily does not exceed $150 million, upon which additional excess third party war liability coverage is then obtained in the London and the International Markets. U.S., Canadian and certain other non-European Community-based airlines have government war-risk insurance programs available in which they currently participate .

Although we currently require each lessee to purchase third party war risk liability in amounts greater than such sublimits, or obtain an indemnity from their government, the market or applicable governments may discontinue to make such excess coverage available for premiums that are acceptable to carriers. As a result, it is possible that we may be required to permit lessees to operate with considerably less third-party war risk liability coverage than currently carried, which could have a material adverse effect on the financial condition of our lessees and on us in the event of an uncovered claim .

In addition to the coverage maintained by our lessees, we maintain both contingent hull, hull war and liability insurance and possession hull, hull war and liability insurance with respect to our aircraft. Such contingent insurance is intended to provide coverage in the event that the insurance maintained by any of our lessees should not be available for our benefit as required pursuant to the terms of the contract. Such possession insurance is intended to provide coverage for any periods in which an aircraft is not subject to a lease agreement with a lessee. Consistent with industry practice, our possession insurance policies are subject to commercially reasonable deductibles or self-retention amounts .

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We have made every reasonable effort to insure against all customary risks, including that lessees will at all times comply with their obligations to maintain insurance, that any particular claim will be paid, and that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Government Regulation

The air transportation industry is highly regulated. Because we do not operate aircraft, we generally are not directly subject to most of these laws. However, our lessees are subject to extensive regulation under the laws of the jurisdiction in which they are registered or under which they operate. These laws govern, among other things, the registration, operation, maintenance and condition of our aircraft. See the risk factor , “We cannot assure you that lessees and governmental authorities will comply with the registration and deregistration requirements in the jurisdictions where our lessees operate.”

Most of our aircraft are registered in the jurisdictions in which the lessees of our aircraft are certified as air operators. As a result, our aircraft are subject to the airworthiness and other standards imposed by these jurisdictions. See the risk factor , “Government regulations could require substantial expenditures, reduce our profitability and limit our growth .”

Properties

We have no physical facilities. Our executive offices are located on our Manager’s premises in Dublin, Ireland.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. The consolidated financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. dollars. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. See “Preliminary note” and Item 3 “Key Information — Risk factors .”

Overview

Although we are organized under the laws of Bermuda, we are a resident of Ireland for tax purposes and are subject to Irish corporation tax on our income in the same way, and to the same extent, as if we were organized under the laws of Ireland .

For the year ended December 31, 2019 , we had net income of $ 225.9 million, or diluted earnings per share of $ 7.12 . Net cash provided by operating activities for the year ended December 31, 2019 totaled $ 272.2 million. Net cash provided by investing activities was $ 481.4 million and net cash used in financing activities was $ 696.3 million for the year ended December 31, 2019 .

AirAsia Transactions

On February 28, 2018, we agreed to acquire 21 Airbus A320neo family aircraft to be leased to AirAsia Group Berhad (“AirAsia”) and its affiliated airlines as the aircraft deliver from the manufacturer (“Portfolio B”). The first of these aircraft delivered in the fourth quarter of 2019. We also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease (“Portfolio C”). We did not exercise our options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, we exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. We have options remaining to purchase up to nine Portfolio C aircraft delivering between 2021 and 2025.

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Sale of 12 Aircraft to Horizon I

On November 30, 2018, we agreed to sell 12 aircraft to Horizon Aircraft Finance I Limited and Horizon Aircraft Finance I LLC (together, “Horizon I”) for an aggregate base purchase price of $294.6 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (“Horizon I Transaction”) . As of June 30, 2019 , all of these aircraft were delivered to Horizon I. The aircraft in Horizon I’s portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio. We also purchased $5.7 million, or 4%, of the equity certificates issued by Horizon I Limited in connection with the Horizon I Transaction, which are subject to a seven-year lock-up agreement.

Sale of 12 Aircraft to Horizon II

On July 2, 2019, we agreed to sell 12 aircraft to Horizon Aircraft Finance II Limited and Horizon Aircraft Finance II LLC (together, “Horizon II”) for an aggregate base purchase price of $359.6 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (the “Horizon II Transaction”). We delivered these aircraft to Horizon II during the second half of 2019. The aircraft in Horizon II’s portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio. We also purchased $7.4 million, or 6%, of the equity certificates issued by Horizon II Limited in connection with the Horizon II Transaction, which are subject to a seven-year lock-up agreement.

Sale of Six Aircraft to Horizon III

On October 31, 2019, we agreed to sell six aircraft to Horizon Aircraft Finance III Limited and Horizon Aircraft Finance III LLC (together, “Horizon III”) for an aggregate base purchase price of $150.5 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (the “Horizon III Transaction”). We delivered one of these aircraft to Horizon III during the fourth quarter of 2019 and expect to deliver the remaining aircraft during the first quarter of 2020. The aircraft in Horizon III’s portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio. We also purchased $3.1 million, or 3%, of the equity certificates issued by Horizon III Limited in connection with the Horizon III Transaction, which are subject to a seven-year lock-up agreement.

Market Conditions

The airline industry has been profitable every year since 2012. Global passenger air traffic grew by approximately 4.2% in 2019 and load factors were at record levels for the year. Long term, we believe the overall positive trends in world air traffic and airlines’ need to renew their fleets will fuel demand for commercial aircraft and will continue to drive growth in the aircraft leasing market.

The airline industry is cyclical, and subject to macroeconomic, geopolitical and other risks which may negatively impact airline profitability or create volatility in the aircraft leasing market. The global grounding of the B737 MAX aircraft since March 2019 has impacted operations of certain airlines, which have had to adjust flight schedules or cancel flights, backfill with B737 - 800s or other aircraft types or keep older aircraft in service longer. These operational impacts and the uncertainty of when the B737 MAX aircraft will return to service and when Boeing will resume deliveries have adversely affected the profitability of certain airlines. In addition, in December 2019, a novel strain of coronavirus disease, COVID-19, was reported to have surfaced in Wuhan, China, resulting in restrictions on air travel and a decrease in passenger demand primarily affecting China and the surrounding region, but increasingly having an impact worldwide. The COVID-19 outbreak also has impacted global manufacturing, which likely will result in further delays in new aircraft deliveries. Furthermore, uncertainty about geopolitical events and pressures such as Brexit, environmental impact concerns and ongoing U.S.-China trade tensions could affect the economic health of airlines and the aircraft leasing market. These and other factors, known and unknown, may adversely affect the airline industry and the airline leasing market in 2020.

Critical Accounting Policies and Estimates

Fly prepares its consolidated financial statements in accordance with U.S. GAAP, which requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The use of estimates is a significant factor affecting the reported carrying values of flight equipment, investments, deferred assets, accruals and reserves. We utilize third party appraisers and industry valuation professionals, where possible, to support estimates, particularly with respect to flight equipment. Despite our best efforts to accurately estimate such amounts, actual results could differ from those estimates. The following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application .

Flight Equipment

Flight equipment held for operating lease is stated at cost less accumulated depreciation and impairment. Flight equipment is depreciated to their residual values on a straight-line basis over their estimated remaining useful life, generally 25 years from the date of manufacture. Residual values are generally estimated to be 15% of the original manufacturer’s estimated realized price for the flight equipment when new. Estimated residual values and useful lives of flight equipment are reviewed and adjusted, if appropriate, during each reporting period.

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Management may, at its discretion, make policy exceptions on a case by case basis when, in its judgment, the residual value calculated pursuant to policy does not appear to reflect current expectations of residual values. Examples of such situations include, but are not limited to :

●

F light equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions .

●

Flight equipment that is out of production and may have a shorter useful life or lower residual value due to obsolescence .

●

The remaining life of a converted freighter is determined based on the date of conversion, in which case, the total useful life may extend beyond 25 years from the date of manufacture .

●

F light equipment which management believes will be disposed of prior to the end of its estimated useful life .

Changes in the expected lives or residual values of aircraft could have a significant impact on our results of operations .

Held for Sale . We classify flight equipment as held for sale when we commit to and commence a plan of sale that is reasonably expected to be completed within one year and satisfies other criteria provided by the FASB. Aircraft classified as held for sale are not depreciated. Flight equipment held for sale is recorded at the lesser of carrying value or fair value, less estimated cost to sell. An impairment loss is recorded for an asset held for sale when the carrying value of the asset exceeds its fair value, less estimated cost to sell.

Impairment. Impairment analyses require the use of assumptions and estimates, including the level of future rents, the residual value of the flight equipment to be realized upon sale at some future date, estimated downtime between re-leasing events and the amount of re-leasing costs.

We evaluate flight equipment for impairment when circumstances indicate that the carrying amounts of such assets may not be recoverable. Our evaluation of impairment indicators include, but are not limited to, recent transactions for similar aircraft, adverse changes in market conditions for specific aircraft types, third party appraisals of aircraft, published values for similar aircraft, any occurrence of adverse changes in the aviation industry and the overall market conditions that could impact the fair value of our aircraft. The review for recoverability includes an assessment of currently contracted leases, future projected lease rates, transition costs, estimated down time and estimated residual or scrap values of the aircraft on its eventual disposition.

Future cash flows are assumed to occur under current market conditions and assume adequate time for a sale between a willing and able buyer and a willing seller. Expected future lease rates are based on all relevant information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends. Residual value assumptions generally reflect an aircraft’s salvage value, except where more recent industry information indicates a different value is appropriate.

If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will assess whether the carrying values of the flight equipment exceed the fair values. An impairment loss is recognized equal to the excess of the carrying amount of the impaired asset over its fair value. Fair value reflects the present value of the cash expected to be generated in the future, including its expected residual value, discounted at a rate commensurate with the associated risk.

Changes to expected future cash flows could result in impairment charges which could have a significant impact on our results of operations .

Maintenance Rights

We identify, measure and account for maintenance right assets and liabilities associated with our acquisitions of aircraft or aircraft equipment with in-place leases. A maintenance right asset represents the fair value of our contractual right under a lease to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. A maintenance right liability represents our obligation to pay the lessee for the difference between the contractual maintenance condition of the aircraft at lease expiry and the actual maintenance condition of the aircraft or aircraft equipment on the acquisition date.

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Our aircraft and aircraft equipment are typically subject to triple-net leases pursuant to which the lessee is responsible for maintenance, which is accomplished through one of two types of provisions in our leases: (i) end of lease return conditions (EOL Leases) or (ii) periodic maintenance payments (MR Leases) .

EOL Leases

Under EOL Leases, the lessee is obligated to comply with certain return conditions which require the lessee to perform lease end maintenance work or make cash compensation payments at the end of the lease to bring the aircraft or aircraft equipment into a specified maintenance condition.

Maintenance right assets in EOL Leases represent the difference in value between the contractual right to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. Maintenance right liabilities exist in EOL Leases if, on the acquisition date, the maintenance condition of the aircraft or aircraft equipment is greater than the contractual return condition in the lease at lease expiry and we are required to pay the lessee in cash for the improved maintenance condition.

When we have recorded maintenance right assets with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment to us by the lessee, the maintenance right asset is relieved and an aircraft improvement is recorded to the extent the improvement is substantiated and deemed to meet our capitalization policy; (ii) the lessee pays us cash compensation at lease expiry in excess of the value of the maintenance right asset, the maintenance right asset is relieved and any excess is recognized as end of lease income; or (iii) the lessee pays us cash compensation at lease expiry that is less than the value of the maintenance right asset, the cash is applied to the maintenance right asset and the balance of such asset is relieved and recorded as an aircraft improvement to the extent the improvement is substantiated and meets our capitalization policy. Any aircraft improvement will be depreciated over a period to the next scheduled maintenance event in accordance with our policy with respect to major maintenance.

When we have recorded maintenance right liabilities with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment by us to the lessee, the maintenance right liability is relieved and end of lease income is recognized; (ii) we pay the lessee cash compensation at lease expiry of less than the value of the maintenance right liability, the maintenance right liability is relieved and any difference is recognized as end of lease income; or (iii) we pay the lessee cash compensation at lease expiry in excess of the value of the maintenance right liability, the maintenance right liability is relieved and the excess amount is recorded as an aircraft improvement to the extent the improvement is substantiated and deemed to meet our capitalization policy .

MR Leases

Under MR Leases, the lessee is required to make periodic maintenance payments to us based upon usage of the aircraft or aircraft equipment. When qualified major maintenance is performed during the lease term, we are required to reimburse the lessee for the costs associated with such maintenance. At the end of lease, we are entitled to retain any cash receipts in excess of the required reimbursements to the lessee.

Maintenance right assets in MR Leases represent the right to receive an aircraft or aircraft equipment in an improved condition relative to the actual condition on the acquisition date. The aircraft or aircraft equipment is improved by the performance of qualified major maintenance paid for by the lessee who is reimbursed by us from the periodic maintenance payments that we receive.

When we have recorded maintenance right assets with respect to MR Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry and no qualified major maintenance has been performed by the lessee since the acquisition date, the maintenance right asset is offset by the amount of the associated maintenance payment liability and any excess is recorded as end of lease income; or (ii) we have reimbursed the lessee for the performance of qualified major maintenance, the maintenance right asset is relieved and an aircraft improvement is recorded.

There are no maintenance right liabilities for MR Leases.

When flight equipment is sold, maintenance rights are released from the balance sheet as part of the disposition gain or loss .

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to interest rate and foreign currency risks. All derivatives are recognized on the balance sheet at their fair values. Pursuant to U.S. GAAP, changes in the fair value of the item being hedged are recognized into earnings in the same period and in the same income statement line as the change in the fair value of the derivative instrument. On the date that we enter into a derivative contract, we typically document all relationships between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.

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Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either a freestanding asset or liability. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive income, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that are not effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge accounting treatment are recognized directly into income.

At the hedge’s inception and at least every reporting period thereafter, a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future. We discontinue hedge accounting prospectively when (i) we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; or (iii) we determine that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the derivative instrument is carried at its fair market value on the balance sheet with changes in fair value recognized into current-period earnings. The remaining balance in accumulated other comprehensive income associated with the derivative that has been discontinued is not recognized in the income statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in earnings when earnings are affected by the hedged transaction .

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to Fly and the revenue can be reliably measured. Where revenue amounts do not meet these recognition criteria, recognition is delayed until the criteria are met .

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Operating lease revenue. We receive lease revenue from flight equipment under operating leases. Rental income from aircraft and aircraft equipment is recognized on a straight-line basis over the initial term of the respective lease. The operating lease agreements generally do not provide for purchase options, however, the leases may allow the lessee to exercise an option to extend the lease for an additional term. Contingent rents are recognized as revenue when the contingency is resolved. Revenue is not recognized when collection is not reasonably assured .

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End of lease income. The amount of end of lease income we recognize in any reporting period is inherently volatile and depends upon a number of factors, including the timing of both scheduled and unscheduled lease expiries, and the timing of maintenance performed on the aircraft or aircraft equipment by the lessee, among others .

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Lease incentives. Our leases may contain provisions which require us to contribute a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives, which are amortized as a reduction of lease revenue over the life of the lease .

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Lease premium and discount. Lease premiums and lease discounts are amortized into operating lease revenue over the lease term. Amortization of lease premiums decreases rental revenue and amortization of lease discounts increases rental revenue.

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Finance lease income. Revenue from finance leases is recognized using the interest method to produce a level yield over the life of the finance lease .

We place a lessee on non-accrual status once we determine that it is no longer probable that we will receive the economic benefits of the lease. We recognize revenue from a lessee on non-accrual status to the extent cash is received.

Income Taxes

We provide for income taxes by tax jurisdiction. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statements and tax basis of existing assets and liabilities at the enacted tax rates expected to apply when the assets are recovered or liabilities are settled. A valuation allowance is used to reduce deferred tax assets to the amount which management ultimately expects to be more likely than not realized.

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We recognize an uncertain tax benefit only to the extent that it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We have elected to classify interest on unpaid income taxes and penalties as a component of the provision for income taxes. No interest on unpaid income taxes and penalties were incurred during each of the years ended December 31, 2019, 2018 and 2017.

New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued its new lease accounting guidance, ASU 2016-02, Leases (Topic 842) . Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The FASB has decided that lessors will be precluded from recognizing selling profit and revenue at lease commencement for any finance lease that does not transfer control of the underlying asset to the lessee. In addition, the new guidance will require lessors to capitalize, as initial direct costs, only those costs that are incurred in connection with the execution of a lease. Any other costs incurred, including allocated indirect costs, will no longer be capitalized and instead will be expensed as incurred.

In July 2018, the FASB issued new guidance to provide entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases (Topic 842) . Under a new transition method, entities can elect to not restate comparative periods presented in financial statements in the period of adoption. The FASB also issued new practical expedients that allow lessors to elect not to separate lease and associated non-lease components within a contract if the following conditions are met:

•

The timing and pattern of transfer for the non-lease component and the associated lease component are the same; and

•

The stand-alone lease component would be classified as an operating lease if accounted for separately.

We adopted the guidance effective January 1, 2019 and elected the practical expedients and transition relief, which does not require us to restate comparative periods. Accordingly, the adoption did not result in any adjustment to our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). ASU 2017-12 is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. We adopted the guidance effective January 1, 2019. The adoption of the standard did not have a material effect on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which amends its guidance on the impairment of financial instruments. The standard adds to U.S. GAAP an impairment model, known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes its estimate of lifetime expected credit losses as an allowance for most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, investment in finance leases and off-balance sheet credit exposures. The FASB believes the new accounting standard will result in more timely recognition of losses. The standard is applied on a modified retrospective approach. ASU 2016-13 does not apply to operating lease receivables. We adopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the following disclosure requirements from Topic 820:

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The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

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The policy for timing of transfers between levels; and

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The valuation processes for Level 3 fair value measurements.

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The following disclosure requirements were added to Topic 820:

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The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements at the end of the reporting period; and

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The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 will be effective for fiscal years (including interim periods) beginning after December 15, 2019, and early adoption will be permitted. We adopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on our consolidated financial statements.

Operating Results

As of December 31, 2019, we had 89 aircraft and seven engines in our portfolio. Of the 89 aircraft, 81 were held for operating lease, one was classified as an investment in finance lease, six were classified as flight equipment held for sale and one aircraft was off-lease . Subsequent to December 31, 2019, the off-lease aircraft was re-leased. In addition, as of December 31, 2019, we classified two additional engines as flight equipment held for sale as the result of an aircraft part out. These two engines were sold in January 2020. As of December 31, 2018, we had 113 aircraft and seven engines in our portfolio. Of the 113 aircraft, 100 were held for operating lease, one was classified as an investment in finance lease and 12 were classified as flight equipment held for sale .

In 2019 , we acquired 11 aircraft and sold 35 aircraft.

As of December 31, 2019, we had three lessees, which leased a total of four aircraft , on non-accrual status, as we had determined that it was not probable that we would receive the economic benefits of the leases, principally due to (i) the lessees’ failure to pay rent and overhaul payments and (ii) our evaluation of the lessees’ payment history. During the year ended December 31, 2019, we recognized $13.6 million of operating lease revenue from these lessees. At December 31, 2018, we had two lessees, which leased a total of three aircraft, on non-accrual status. During the year ended December 31, 2018, we recognized $9.3 million of operating lease revenue from these lessees.

We classify flight equipment as held for sale when we commit to and commence a plan of sale that is reasonably expected to be completed within one year and satisfies other criteria. We recognize revenue from each aircraft until the date that such aircraft is delivered to the purchaser and cease to recognize depreciation as of the date the aircraft is classified as flight equipment held for sale. During the year ended December 31, 2019 , we sold 25 aircraft classified as flight equipment held for sale.

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Management’s discussion and analysis of operating results presented below pertain to the consolidated statements of income of Fly for the years ended December 31, 2019, 2018 and 2017.

Consolidated Statements of Income of Fly for the years ended December 31, 2019 and 2018

	Years ended					Increase/ (Decrease)
	2019		2018			Increase/ (Decrease)
	(Dollars in thousands)
Revenues
Operating lease revenue	$	464,399	$	399,514		$	64,885
Finance lease revenue		618		675			(57	)
Equity earnings (loss) from unconsolidated subsidiary		2,717		(54	)		2,771
Gain on sale of aircraft		97,323		13,398			83,925
Interest and other income		9,967		4,766			5,201
Total revenues		575,024		418,299			156,725
Expenses
Depreciation		140,798		144,084			(3,286	)
Interest expense		137,133		144,742			(7,609	)
Selling, general and administrative		35,304		31,185			4,119
Loss (gain) on derivatives		2,720		(2,382	)		5,102
Loss on modification and extinguishment of debt		9,590		2,474			7,116
Maintenance and other costs		3,075		2,547			528
Total expenses		328,620		322,650			5,970
Net income before provision for income taxes		246,404		95,649			150,755
Provision for income taxes		20,527		9,926			10,601
Net income	$	225,877	$	85,723		$	140,154

	Years ended						Increase/ (Decrease)
	2019			2018			Increase/ (Decrease)
	(Dollars in thousands)
Operating lease revenue:
Operating lease rental revenue	$	391,142		$	389,350		$	1,792
End of lease income		78,781			20,333			58,448
Amortization of lease incentives		(5,590	)		(9,738	)		4,148
Amortization of lease premiums, discounts & other		66			(431	)		497
Total operating lease revenue	$	464,399		$	399,514		$	64,885

For the year ended December 31, 2019 , operating lease revenue totaled $ 464.4 million, an increase of $ 64.9 million compared to the year ended December 31, 2018 . The increase was primarily due to (i) an increase of $ 58.4 million from end of lease income , (ii) an increase of $48.6 million in lease revenue from aircraft and engines purchased in 2019 and 2018 , (iii) a decrease of $ 4.1 million in lease incentive amortization, (iv) an increase of $2.2 million from lessees on non-accrual status and (v) an increase of $0.8 million related to leases with floating rate rents . The increase was partially offset by (i) $37.6 million in decreased lease revenue from aircraft sold in 2018 and 2019 and (ii) $12.4 million from lower lease rates on lease extensions and remarketings .

Equity earnings from unconsolidated subsidiary were $ 2.7 million for the year ended December 31, 2019, primarily due to our unconsolidated subsidiary recognizing a gain on sale of its last aircraft. The unconsolidated subsidiary is expected to wind down its operations in 2020.

During the year ended December 31, 2019 , we sold 35 aircraft and recognized an aggregate gain on sale of aircraft of $ 97.3 million. During the year ended December 31, 2018 , we sold six aircraft and recognized an aggregate gain on sale of aircraft of $ 13.4 million.

Interest and other income totaled $10.0 million for the year ended December 31, 2019 , an increase of $ 5.2 million compared to the year ended December 31, 2018 . The increase was primarily due to (i) higher interest earned on bank deposits due to higher cash balances related to aircraft sales and (ii) income recognized from equity certificates. The increase was partially offset by lower miscellaneous income in 2019.

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Depreciation expense was $ 140.8 million for the year ended December 31, 2019 , a decrease of $ 3.3 million compared to the year ended December 31, 2018. The decrease was primarily due to a reduction in depreciation on aircraft sold in 2018 and 2019, and stoppage of depreciation on aircraft classified as flight equipment held for sale. This decrease was partially offset by depreciation on aircraft acquired in 2019 and 2018.

Interest expense totaled $ 137.1 million for the year ended December 31, 2019, a decrease of $ 7.6 million compared to the year ended December 31, 2018 . The decrease was primarily due to (i) a reduction in interest due to debt repayments, largely due to aircraft sales, redemption of the Securitization Notes and repayment of the Fly Acquisition III Facility and (ii) termination of the Fly Acquisition III Facility commitment fees . This decrease was partially offset by interest expense incurred in 2019 related to additional secured borrowings committed in 2018.

Selling, general and administrative expense was $ 35.3 million for the year ended December 31, 2019, an increase of $4.1 million compared to the year ended December 31, 2018 . The increase was primarily due to (i) an increase of $2.1 million in legal fees, primarily due to fleet activity and lease costs that are being expensed in 2019 in accordance with the new lease accounting guidance and (ii) an increase of $1.9 million in servicing and management fees paid to BBAM and our Manager due to fleet growth.

For the year ended December 31, 2019, we recognized a loss on derivatives of $2.7 million, primarily due to interest rate swap contracts that no longer qualify for hedge accounting treatment due to debt repayments associated with aircraft sales and the early repayment of the Fly Acquisition III Facility. For the year ended December 31, 2018 , we recognized a gain on derivatives of $2.4 million , primarily due to (i) a gain of $1.8 million from swap terminations and (ii) a gain of $0.6 million associated with interest rate swaps that were undesignated.

During the year ended December 31, 2019 , we incurred debt extinguishment costs totaling $ 9.6 millio n, of which $8.4 million were non-cash write-offs, due to (i) debt repayments associated with aircraft sales, (ii) repayment of the Fly Acquisition III Facility, (iii) the redemption of the Securitization Notes and (iv) the repricing and extension of the Term Loan. During the year ended December 31, 2018, we incurred debt extinguishment costs totaling $ 2.5 million due to (i) debt repayments associated with aircraft sales and (ii) the repayment of the CBA Facility and one other aircraft secured borrowing .

Provision for income taxes was $ 20.5 million and $ 9.9 million for the years ended December 31, 2019 and 2018 , respectively. T he effective tax rate was 8.3% and 10.4% for the years ended December 31, 2019 and 2018 , respectively. In 2018, we had a deferred tax liability of $2.1 million in connection with unrepatriated earnings from Australia, which we reduced by $0.9 million in 2019. In 2019, we recorded a benefit of $6.7 million, which we intend to utilize as group relief to offset taxable income. During the years ended December 31, 2019 and 2018, we recorded net valuation allowance reversals of $3.4 million and $1.3 million, respectively.

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Consolidated Statements of Income of Fly for the years ended December 31, 2018 and 2017

	Years ended						Increase/
	2018			2017			(Decrease)
	(Dollars in thousands)
Revenues
Operating lease revenue	$	399,514		$	346,894		$	52,620
Finance lease revenue		675			731			(56	)
Equity (loss) earnings from unconsolidated subsidiary		(54	)		496			(550	)
Gain on sale of aircraft		13,398			3,926			9,472
Interest and other income		4,766			1,204			3,562
Total revenues		418,299			353,251			65,048
Expenses
Depreciation		144,084			133,227			10,857
Aircraft impairment		—			22,000			(22,000	)
Interest expense		144,742			127,782			16,960
Selling, general and administrative		31,185			30,671			514
Gain on derivatives		(2,382	)		(192	)		(2,190	)
Loss on modification and extinguishment of debt		2,474			23,309			(20,835	)
Maintenance and other costs		2,547			2,524			23
Total expenses		322,650			339,321			(16,671	)
Net income before provision for income taxes		95,649			13,930			81,719
Provision for income taxes		9,926			11,332			(1,406	)
Net income	$	85,723		$	2,598		$	83,125

As of December 31, 2018, we had 113 aircraft and seven engines in our portfolio. Of the 113 aircraft, 100 were held for operating lease, one was classified as an investment in finance lease and 12 were classified as flight equipment held for sale . As of December 31, 2017 , we had 85 aircraft in our portfolio, 84 of which were held for operating lease and one was recorded as an investment in finance lease. In 2018 , we purchased 34 aircraft and seven engines and sold six aircraft.

	Years ended						Increase/
	2018			2017			(Decrease)
	(Dollars in thousands)
Operating lease revenue:
Operating lease rental revenue	$	389,350		$	337,137		$	52,213
End of lease income		20,333			17,837			2,496
Amortization of lease incentives		(9,738	)		(7,668	)		(2,070	)
Amortization of lease premiums, discounts & other		(431	)		(412	)		(19	)
Total operating lease revenue	$	399,514		$	346,894		$	52,620

For the year ended December 31, 2018 , operating lease revenue totaled $ 399.5 million, an increase of $ 52.6 million compared to the year ended December 31, 2017 . The increase was primarily due to increases of (i) $68.3 million from aircraft and engines purchased in 2017 and 2018, (ii) $5.4 million related to leases with floating rate rents and (iii) $ 2.5 million from end of lease income recognized. These increases were partially offset by (i) a decrease of $10.8 million primarily from lower lease rates on lease extensions and remarketings, (ii) a decrease of $10.7 million in lease revenue from aircraft sold in 2017 and 2018 and (iii) an increase of $ 2.1 million in lease incentive amortization.

During the year ended December 31, 2018 , we sold six aircraft and recognized a gain on sale of aircraft of $ 13.4 million. During the year ended December 31, 2017 , we sold one aircraft and recognized a gain on sale of aircraft of $ 3.9 million.

For the year ended December 31, 2018, interest and other income totaled $4.8 million, an increase of $3.6 million compared to the year ended December 31, 2017. During the third quarter of 2018, we sold a spare engine and miscellaneous engine parts for a gain of $2.0 million.

Depreciation expense for the year ended December 31, 2018 was $ 144.1 million, an increase of $ 10.9 million compared to the year ended December 31, 2017. The increase was primarily due to depreciation on aircraft acquired in 2017 and 2018. This increase was partially offset by a reduction in depreciation on aircraft sold in 2017 and 2018 and stoppage of depreciation on aircraft classified as flight equipment held for sale.

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No aircraft impairment was recognized during the year ended December 31, 2018 . During the year ended December 31, 2017 , we recognized aircraft impairment totaling $ 22.0 million related to one Airbus A330-200 aircraft that had been leased to Air Berlin. The lease was terminated, and this aircraft was returned to us and re-leased to another airline in January 2018 .

Interest expense totaled $ 144.7 million for the year ended December 31, 2018 , an increase of $ 17.0 million compared to the year ended December 31, 2017 . The increase was primarily due to additional secured borrowings and increases in LIBOR. This increase was partially offset by a reduction in interest due to debt repayments , including the redemption of the 2020 Notes, and refinancings which lowered the applicable interest rate on the refinanced debt .

Selling, general and administrative expense was $ 31.2 million for the year ended December 31, 2018, an increase of $0.5 million compared to the year ended December 31, 2017 . The increase was primarily due to an increase in servicing and management fees paid to BBAM and our Manager of $3.8 million due to fleet growth. This increase was partially offset by an unrealized foreign exchange gain of $0.7 million during the year ended December 31, 2018, compared to an unrealized foreign exchange loss of $2.3 million during the year ended December 31, 2017.

Gain on derivatives totaled $2.4 million and $0.2 million for the years ended December 31, 2018 and 2017 , respectively. The increase of $ 2.2 million was primarily due to gains recognized in 2018 in connection with the termination of the interest rate lock derivative instruments which were used to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia transactions.

During the year ended December 31, 2018 , we incurred debt extinguishment costs totaling $2.5 millio n due to (i) debt repayments associated with aircraft sales and (ii) the repayment of the CBA Facility and one other aircraft secured borrowing. During the year ended December 31, 2017, we incurred debt extinguishment costs totaling $23.3 million, primarily consisting of (i) $19.7 million in connection with the redemption of the 2020 Notes and (ii) $3.0 million in connection with amendments to the Term Loan in April and November 2017.

Provision for income taxes was $ 9.9 million and $ 11.3 million for the years ended December 31, 2018 and 2017 , respectively. In 2018 and 2017, we had a deferred tax liability of $2.1 million and $1.8 million, respectively, in connection with unrepatriated earnings from Australia. During the year ended December 31, 2018, we recorded a net valuation allowance reversal of $1.3 million. During the year ended December 31, 2017, we recorded a net valuation allowance provision of $8.4 million .

Liquidity and Capital Resources

Overview

Our business is very capital intensive, requiring significant investment to maintain and expand our fleet. We have pursued a strategy of disciplined fleet growth. In 2019, we spent $331.5 million to acquire flight equipment. In 2018, we spent approximately $1.1 billion to acquire 34 aircraft and seven engines.

We also have pursued opportunistic aircraft sales to rejuvenate our fleet. In 2019 and 2018, we sold 35 aircraft and six aircraft, respectively.

We finance our business with unrestricted cash, cash generated from flight equipment leases, aircraft sales and debt financings. At December 31, 2019 , we had $ 285.6 million of unrestricted cash. We also had 21 u nencumbered aircraft with an aggregate book valu e of $639.2 m illion .

In recent years, our debt financing strategy has been to diversify our lending sources and to utilize both secured and unsecured debt financing. Unsecured borrowings provide us with greater operational flexibility. Secured, recourse debt financing enables us to take advantage of favorable pricing and other terms compared to secured non-recourse debt, which we also continue to utilize.

On October 22, 2019, we repaid in full the outstanding principal balance under the Fly Acquisition III Facility.

On November 22, 2019, we reduced the interest payable on the Term Loan Facility from three-month LIBOR plus 2.00% to three-month LIBOR plus 1.75% and extended the maturity date from February 2023 to August 2025.

On December 16, 2019, we extended the maturity date of the Nord LB Facility from January 2020 to May 2021.

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Our 2021 Notes will mature on October 15, 2021. We intend to refinance these notes in advance of their maturity date.

Our sources of operating cash flows are principally distributions and interest payments made to us by our subsidiaries. These payments by our subsidiaries may be restricted by applicable local laws and debt covenants.

We expect that these funds, together with our cash on hand, cash from operations, and cash from other financing activities, including aircraft sales, will satisfy our liquidity needs through at least the next twelve months.

Our liquidity plans are subject to a number of risks and uncertainties, including those described under Item 3 “Key Information — Risk Factors” in this report .

Cash Flows of Fly for the years ended December 31, 2019 and 2018

We generated cash from operations of $ 272.2 million and $ 241.1 million for the years ended December 31, 2019 and 2018 , respectively, an increase of $ 31.1 million.

Cash provided by investing activities was $ 481.4 million for the year ended December 31, 2019. Cash used in investing activities was $ 853.5 million for the year ended December 31, 2018 . In 2019, we used (i) $ 320.0 million of cash to purchase flight equipment and $10.5 million to purchase equity certificates. In 2018, we (i) used $ 934.5 million of cash to purchase flight equipment, (ii) paid a deposit of $80.5 million on aircraft purchases and (iii) used $5.7 million to purchase equity certificates . In 2019, we sold 35 aircraft for net cash proceeds of $ 824.1 million. In 2018, we sold six aircraft for net cash proceeds of $ 177.7 million. Payments for aircraft improvement totaled $ 8.1 million and $ 6.8 million for the years ended December 31, 2019 and 2018 , respectively. Payments for lessor maintenance obligations totaled $ 2.1 million and $ 8.6 million for the years ended December 31, 2019 and 2018 , respectively.

Cash used in financing activities for the year ended December 31, 2019 totaled $696.3 million. Cash provided by financing activities for the year ended December 31, 2018 totaled $436.7 million. In 2019, we (i) made repayments on our secured borrowings totaling $699.0 million, largely in connection with aircraft sales, redemption of the Securitization Notes and repayment of the Fly Acquisition III Facility and (ii) used $32.9 million to repurchase 2,010,437 shares . These payments were partially offset by net maintenance reserve receipts of $38.2 million. In 2018, we received (i) net proceeds from secured borrowings of $826.4 million, (ii) net maintenance reserves of $68.6 million, (iii) net proceeds of $19.6 million from shares issued and sold in private placement transactions and (iv) net security deposits from our lessees of $6.3 million. These receipts were partially offset by (i) repayments on our secured borrowings totaling $482.7 million primarily in connection with aircraft sales and early repayment of debt and (ii) debt issuance costs of $3.6 million.

Cash Flows of Fly for the years ended December 31, 2018 and 2017

We generated cash from operations of $ 241.1 million and $ 179.1 million for the years ended December 31, 2018 and 2017 , respectively, an increase of $ 62.0 million.

Cash used in investing activities was $ 853.5 million and $ 430.4 million for the years ended December 31, 2018 and 2017, respectively . In 2018, we (i) used $ 934.5 million of cash to purchase flight equipment , (ii) paid a deposit of $80.5 million on aircraft purchases and (iii) used $5.7 million to purchase equity certificates. In 2017, we used $ 434.1 million of cash to purchase flight equipment . In 2018, we sold six aircraft for net cash proceeds of $ 177.7 million. In 2017, we sold one aircraft for net cash proceeds of $ 21.8 million. Payments for lessor maintenance obligations totaled $ 8.6 million and $ 12.6 million for the years ended December 31, 2018 and 2017 , respectively.

Cash provided by financing activities for the years ended December 31, 2018 and 2017, totaled $436.7 million and $95.7 million, respectively. In 2018, we received (i) net proceeds from secured borrowings of $826.4 million, (ii) net maintenance reserves of $68.6 million, (iii) net proceeds of $19.6 million from shares issued and (iv) net security deposits from our lessees of $6.3 million. These receipts were partially offset by (i) repayments on our secured borrowings totaling $482.7 million primarily in connection with aircraft sales and early repayment of debt and (ii) debt issuance costs of $3.6 million. In 2017, we received (i) net proceeds from secured borrowings of $513.5 million, (ii) net proceeds from unsecured borrowings of $295.2 million and (iii) net maintenance reserves of $61.5 million. These receipts were partially offset by (i) repayments on our unsecured borrowings totaling $375.0 million, (ii) repayments on our secured borrowings totaling $326.9 million, and (iii) $57.3 million to repurchase 4,274,569 shares.

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Maintenance Cash Flows

Under our leases, the lessee is generally responsible for maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of aircraft on lease. In connection with the lease of a used aircraft we may agree to contribute additional amounts to the cost of certain major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives.

Maintenance reserve payments we collect from our lessees are based on passage of time or usage of the aircraft measured by hours flown or cycles operated. Under these leases, we are obligated to make reimbursements to the lessee for expenses incurred for certain planned major maintenance, up to a maximum amount that is typically determined based on maintenance reserves paid by the lessee.

Certain leases also require us to make maintenance contributions for costs associated with certain major maintenance events in excess of any maintenance reserve payments received. Major maintenance includes heavy airframe, off-wing engine, landing gear and auxiliary power unit overhauls and replacements of engine life limited parts. We are not obligated to make maintenance contributions under any lease pursuant to which a lessee default has occurred and is continuing. We also have leases that provide for lease-end maintenance adjustment payments based on the usage of the aircraft during the lease term and its condition upon redelivery. Typically, payments are made by the lessee to us, although in some cases, we have been required to make such payments to the lessee.

We expect that the aggregate maintenance reserve and lease end adjustment payments we receive from lessees will meet the aggregate maintenance contributions and lease end adjustment payments that we will be required to make . In 2019 , we received $ 60.7 million of maintenance payments from lessees and made maintenance payment disbursements of $ 22.6 million.

Share Repurchases

In November 2018, our board of directors approved a $50.0 million share repurchase program expiring in December 2019. In August 2019, our board of directors approved a new $50.0 million share repurchase program to replace our then existing program, expiring in September 2020 . Under this program, Fly may make share repurchases from time to time in the open market or in privately negotiated transactions. As of December 31, 2019, there was $50.0 million remaining under the current authorization .

During the year ended December 31, 2019, Fly repurchased 2,010,437 shares at an average price of $16.29 per share, or $32.8 million, before commissions and fees. During the year ended December 31, 2018, Fly did not repurchase any shares.

Financing

We finance our business with unsecured and secured borrowings . As of December 31, 2019, we were not in default under any of our borrowings .

Unsecured Borrowings

On December 11, 2013, we sold $300.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (together with the Additional 2020 Notes (as defined below), the “2020 Notes”). In connection with the issuance, we paid underwriting discounts totaling $8.5 million.

On October 3, 2014, we sold $75.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (the “Additional 2020 Notes”) and $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”). The Additional 2020 Notes were issued as additional notes under the 2020 Notes indenture, and were sold at a price equal to 104.75% of the principal amount thereof. The 2021 Notes were issued under an indenture containing substantially similar terms as the indenture governing the 2020 Notes and were sold at par. In connection with these issuances, we paid a net underwriting discount totaling $3.4 million.

On October 16, 2017, we sold $300.0 million aggregate principal amount of unsecured 5.250% Senior Notes due 2024 (the “2024 Notes”). The net proceeds to us were approximately $294.2 million, after deducting the underwriters’ discounts and commissions and offering expenses paid by us. We used the net proceeds from the sale of the 2024 Notes, together with cash on hand, to redeem all $375.0 million of our outstanding 2020 Notes on December 15, 2017. In connection with the redemption, we incurred debt extinguishment costs totaling $19.7 million.

The 2021 Notes and 2024 Notes are senior unsecured obligations of ours and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of ours. The 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes have a maturity date of October 15, 2024.

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Interest on the 2021 Notes and 2024 Notes is payable semi-annually on April 15 and October 15 of each year. As of each of December 31, 2019 and 2018, accrued interest on unsecured borrowings totaled $7.7 million .

2021 Notes

We may redeem the 2021 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date .

If redeemed during the 12-month period commencing on October 15 of the years set forth below:	Redemption Price
2019		101.594	%
2020 and thereafter		100.000	%

2024 Notes

At any time prior to October 15, 2020, we may redeem up to 35% of the original principal amount of the 2024 Notes with the proceeds of certain equity offerings at a redemption price of 105.250% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption. On and after October 15, 2020, we may redeem the 2024 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.

If redeemed during the 12-month period commencing on October 15 of the years set forth below :	Redemption Price
2020		102.625	%
2021		101.313	%
2022 and thereafter		100.000	%

At any time prior to October 15, 2020, we may also redeem all or a portion of the 2024 Notes at par, plus accrued and unpaid interest to the redemption date and a “make-whole premium” equal to the present value of all future interest payments called for under the indenture .

Pursuant to the indentures governing the 2021 Notes and 2024 Notes, we are subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of our company and transactions with affiliates. We are also subject to certain operating covenants, including reporting requirements. Our failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating.

The indentures governing the 2021 Notes and the 2024 Notes contain customary events of default with respect to the notes of each series, including (i) default in payment when due and payable of principal or premium, (ii) default for 30 days or more in payment when due of interest, (iii) failure by us or any restricted subsidiary for 60 days after receipt of written notice given by the trustee or the holders of at least 25% in aggregate principal amount of the notes of such series then issued and outstanding to comply with any of the other agreements under the indenture, (iv) default in any of the aircraft owning entities in respect of obligations in excess of $50.0 million, which holders of such obligation accelerate or demand repayment of amounts due thereunder, (v) failure by us or any significant subsidiary to pay final judgments aggregating in excess of $50.0 million for 60 days after such judgment becomes final, subject to certain non-recourse exceptions, and (vi) certain events of bankruptcy or insolvency with respect to us or a significant subsidiary. As of December 31, 2019, we were not in default under the indentures governing the 2021 Notes or the 2024 Notes .

Secured Borrowings

As of December 31, 2019 , we had $1.7 billion aggregate principal amount outstanding on our secured borrowings.

We are subject to restrictive covenants under our secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of our aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.

Our loan agreements include events of default that are customary for these types of secured borrowings. Our failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of our loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement .

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Securitization Notes

On March 14, 2019, B&B Air Funding redeemed all remaining aircraft lease-backed Class G-1 notes (the “Securitization Notes”) issued on October 2, 2007 and with an original maturity date of November 14, 2033, in the aggregate principal amount then-outstanding of $63.8 million. In connection with the redemption, we expensed approximately $1.9 million of debt extinguishment costs.

Nord LB Facility

As of December 31, 2019, we had $65.3 million principal amount outstanding under our non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by three aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning and leasing subsidiaries, the related leases, and certain deposits.

Prior to November 14, 2018, the loans bore interest at one-month LIBOR plus a margin of 3.30%. Effective on November 14, 2018, we amended the loans under the Nord LB Facility to (i) extend the maturity date from November 14, 2018 to January 14, 2020 and (ii) reduce the margin to 1.85%. The blended weighted average interest rate for the Nord LB Facility was 3.59% as of December 31, 2019, excluding the amortization of debt discount and loan cost . Effective on December 16, 2019, we amended the remaining loans under the Nord LB Facility to further extend the maturity date to May 14, 2021.

Under the terms of the Nord LB Facility, we apply 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan .

In the event we sell any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by us will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.

Upon termination or expiration of a lease other than by sale, no payments are due with respect to the outstanding loan associated with that aircraft until the earlier of (i) six months from such termination or expiration and (ii) the date on which the aircraft is re-leased. Interest during this period increases the outstanding balance under the facility. We must pay interest with respect to any aircraft that remains off-lease after six months, and if such aircraft continues to be off-lease after twelve months, we must pay debt service equal to 85% of the lease rate under the prior lease agreement. The lenders may require payment in full or foreclose on an aircraft that remains off-lease after 24 months but may not foreclose on any other aircraft in the facility.

The Nord LB Facility does not contain any financial covenants. However, the borrowers in the Nord LB Facility are subject to certain servicer termination events. BBAM may be terminated as the servicer upon the occurrence of certain events of default under the loan agreement.

An event of default with respect to the loan on any aircraft will trigger an event of default on the loans with respect to every other financed aircraft. A default by any of the aircraft owning entities in respect of obligations in excess of $10.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder would constitute an event of default.

Term Loan

As of December 31, 2019, we had $385.4 million principal amount outstanding under our senior secured term loan (the “Term Loan”), which was secured by 27 aircraft. Fly has guaranteed all payments under the Term Loan. T he final maturity date of the Term Loan is August 9, 2025. Until May 2020, the Term Loan can be prepaid in whole or in part for an amount equal to 101% of the outstanding principal amount being repaid. Thereafter, the Term Loan can be prepaid in whole or in part at par.

Prior to November 22, 2019, the Term Loan bore interest at three-month LIBOR plus a margin of 2.00%. Effective on November 22, 2019, we amended the Term Loan to (i) reduce the margin to 1.75% and (ii) extend the maturity date from February 9, 2023 to August 9, 2025. The weighted average interest rate on all outstanding amounts was 4.15% as of December 31, 2019, excluding the amortization of debt discounts and debt issuance costs. The Term Loan requires quarterly principal payments of $5.6 million.

In connection with the amendment completed in November 2019, we paid a one-time fee of 0.25% on the then outstanding principal amount to the Term Loan lenders and there was no prepayment penalty associated with this repricing.

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On April 28, 2017, we had amended the Term Loan to (i) reduce the margin from 2.75% to 2.25%, (ii) eliminate the LIBOR floor of 0.75% and (iii) extend the maturity date from February 2022 to February 2023. We had also upsized the Term Loan by $50.0 million. On November 1, 2017, we had further amended the Term Loan to reduce the margin to 2.00%. During the year ended December 31, 2017, we incurred debt extinguishment costs totaling $3.0 million in connection with these amendments.

The Term Loan requires that we maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers. The Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.

An event of default under the Term Loan includes any of the aircraft owning entities defaulting in respect of obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.

Magellan Acquisition Limited Facility

As of December 31, 2019, we had $278.7 million principal amount outstanding in loans and notes under our term loan facility (the “Magellan Acquisition Limited Facility”), which was secured by nine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025.

The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum. The weighted average interest rate on all outstanding amounts was 4.11% as of December 31, 2019 , excluding the amortization of debt discounts and debt issuance costs. The facility requires monthly principal payments of $2.2 million.

The facility contains financial and operating covenants, including a covenant that Fly maintain a tangible net worth of at least $325.0 million, as well as customary reporting requirements. The borrower is required to maintain an initial loan-to-value ratio of less than or equal to 75% based on the lower of the average half-life adjusted current market value and base value of all aircraft financed under the facility as determined by three independent appraisers. A violation of any of these covenants could result in a default under the Magellan Acquisition Limited Facility. In addition, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit certain amounts of maintenance reserves and security deposits received into accounts pledged to the security trustee.

Upon the sale of an aircraft, the borrower may substitute aircraft into the Magellan Acquisition Limited Facility subject to certain conditions. The substitute aircraft must be equal to or greater than the appraised value of the aircraft being substituted. The borrower must be in compliance with the concentration limits after such substitution.

An event of default under the Magellan Acquisition Limited Facility includes a default in respect of Fly’s recourse obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder .

Fly Acquisition III Facility

On October 22, 2019, we paid in full the outstanding principal balance under a revolving credit facility (the “Fly Acquisition III Facility”). The availability period under the Fly Acquisition III Facility expired on February 26, 2019. We paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of their commitments from February 26, 2016 until February 26, 2019. The facility had a maturity date of February 26, 2022 and all payments were guaranteed by Fly.

The interest rate under the facility was based on one-month LIBOR plus an applicable margin of (i) 2.00%, from February 26, 2016 through February 26, 2019 and (ii) 2.50%, from February 27, 2019 through the repayment date of the facility.

Fly Aladdin Acquisition Facility

As of December 31, 2019, we had an aggregate of $272.3 million principal amount outstanding of Series B loans under our term loan facility (the “Fly Aladdin Acquisition Facility”), which were secured by 15 aircraft. Series B loans have a final maturity date of June 15, 2023 . During the year ended December 31, 2019, we repaid Series A loans in full and a portion of Series B loans and expensed approximately $2.6 million of debt extinguishment costs.

We paid aggregate arrangement and commitment fees of approximately $9.5 million to the lenders in 2018.

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During the fourth quarter of 2018, we prepaid $81.1 million of debt and wrote off approximately $0.9 million of unamortized loan costs and debt discounts as debt extinguishment costs. The aircraft associated with the debt prepayment were sold during the first quarter of 2019.

The interest rate on Series A loans was based on three-month LIBOR, plus an applicable margin of 1.50% per annum. The interest rate on Series B loans is based on three-month LIBOR, plus an applicable margin of 1.80 % per annum. The weighted average interest rate on all outstanding amounts was 4.85% as of December 31, 2019 , excluding the amortization of debt discounts and debt issuance costs. We make scheduled quarterly payments of principal and interest on the loans in accordance with a fixed amortization schedule.

Borrowings are secured by the aircraft and related leases, and the equity and beneficial interests in the aircraft owning and leasing subsidiaries. In addition, Fly has provided a guaranty of certain of the representations, warranties and covenants under the Fly Aladdin Acquisition Facility (including, without limitation, the borrowers’ special purpose covenants), as well as the obligations, upon the occurrence of certain conditions, to deposit maintenance reserves and security deposits received into pledged accounts .

The borrowers are required to maintain (i) a debt service coverage ratio of at least 1.15:1.00, (ii) a loan-to-value ratio equal to 71% and (iii) that 85% of aircraft financed under the facility (a) are on lease, (b) have been subject to a lease in the previous six months or (c) are subject to a letter of intent for a re-lease or sale. The tests in (ii) and (iii) are based on the average of the most recent half-life adjusted current market value of all aircraft financed under the facility, as determined by three independent appraisers on a semi-annual basis. Upon the occurrence of (i) a breach of the debt service coverage ratio continuing for two consecutive quarterly payment dates, (ii) an event of default that is continuing under the Fly Aladdin Acquisition Facility, or (iii) a default under any mortgage, indenture or instrument under which there is issued, or which secures or evidences, any recourse indebtedness of ours in an aggregate principal amount exceeding $50.0 million, Fly will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received under the associated leases into pledged accounts. Upon the occurrence of a breach, on any payment date, of the loan-to-value ratio or the utilization test described above, and certain other events, all cash collected will be applied to repay the outstanding principal balance of the Series B loans until such breach is cured.

The Fly Aladdin Acquisition Facility contains geographic and single lessee concentration limits, which apply upon the acquisition, sale, removal or substitution of an aircraft, as well as aircraft type eligibility for any aircraft substitution. Upon the sale of an aircraft, the borrowers may substitute an Airbus A320 or A321 model aircraft on operating lease to the AirAsia Group into the Fly Aladdin Acquisition Facility subject to certain conditions. The facility also includes certain customary covenants, including reporting requirements. A violation of any of these covenants could result in a default under the Fly Aladdin Acquisition Facility .

Fly Aladdin Engine Funding Facility

As of December 31, 2019, we had $42.3 million principal amount outstanding under a term loan facility (the “Fly Aladdin Engine Funding Facility”), which was secured by seven engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.

In October 2018, we drew down $43.9 million under the Fly Aladdin Engine Funding Facility and paid up-front fees of approximately $0.4 million.

The interest rate for the borrowings is based on an applicable margin of 1.90% per annum over a fixed swap rate and ranges from 4.94% to 4.96% per annum, per engine. The weighted average interest rate on all outstanding amounts was 4.95% as of December 31, 2019, excluding the amortization of debt discounts and debt issuance costs. We are required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule.

The loans are secured by the engines and related leases and our equity and beneficial interests in the engine owning entities. The Fly Aladdin Engine Funding Facility contains customary covenants, including various reporting requirements. A violation of any of these covenants could result in a default under the Fly Aladdin Engine Funding Facility.

Other Aircraft Secured Borrowings

We have entered into other aircraft secured borrowings to finance the acquisition of aircraft, one of which is denominated in Euros. As of December 31, 2019, we had $673.5 million principal amount outstanding of other aircraft secured borrowings, which were secured by 14 aircraft. Of this amount, $372.1 million was recourse to Fly. The weighted average interest rate on all outstanding amounts was 4.07% as of December 31, 2019 , excluding the amortization of debt discounts and debt issuance costs.

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These borrowings are structured as individual loans secured by pledges of our rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020 to June 2028 .

During the third quarter of 2018, we entered into a recourse secured borrowing in the amount of $122.5 million to finance an unencumbered aircraft.

Capital Expenditures

During the year ended December 31, 2019, we purchased flight equipment for an aggregate of $331.5 million. During the year ended December 31, 2018, we purchased flight equipment for an aggregate of $1.1 billion, including an allocated portion of such purchase price to the Portfolio B orderbook value. During the year ended December 31, 2017, we purchased flight equipment for an aggregate of $456.0 million.

We expect to make capital expenditures from time to time in connection with improvements to our aircraft. These expenditures include the cost of major overhauls and modifications. In general, the costs of operating an aircraft, including capital expenditures, increase with the age of the aircraft . As of December 31, 2019, the weighted average age of our aircraft portfolio (excluding aircraft held for sale) was 7.5 years.

On February 28, 2018, we agreed to acquire 21 Airbus A320neo family aircraft to be leased to AirAsia Group Berhad and its affiliated airlines as the aircraft deliver from the manufacturer. The first of these aircraft was delivered in the fourth quarter of 2019. We also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease (“Portfolio C”). We did not exercise our options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, we exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. We have options remaining to purchase up to nine Portfolio C aircraft delivering between 2021 and 2025. We expect to fund aircraft acquisitions using cash on hand and secured borrowings.

Inflation

The effects of inflation on our operating expenses have been minimal. We do not consider inflation to be a significant risk to direct expenses in the current economic environment .

Research and Development, Patents and Licenses, etc.

Not applicable.

Off-Balance Sheet Arrangements

In 2016, we entered into residual value guarantees (“RVGs”) in which we agreed to guarantee the residual value of three aircraft subject to twelve-year leases. We received residual value guarantee fees totaling $6.6 million, which are being amortized over a twelve-year period. The third-party lessors may exercise their rights under the RVGs by issuing a notice to us eleven months before each lease expiry date requiring us to purchase the aircraft on such date. The RVGs will terminate if not exercised accordingly.

We continuously reevaluate our risk related to the RVGs based on several factors, including the estimated future base value of the aircraft based on third-party appraisals and information on similar aircraft remarketing in the secondary market. If we were required to pay the full aggregate amount of our outstanding RVGs and were unable to remarket any of the aircraft to offset our obligations, our maximum exposure as of December 31, 2019 would have been $82.5 million.

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Contractual Obligations

Our long-term contractual obligations as of December 31, 2019 consisted of the following (in thousands):

	2020		2021		2022		2023		2024		Thereafter		Total
Principal payments:
Principal payment under the 2021 Notes	$	—	$	325,000	$	—	$	—	$	—	$	—	$	325,000
Principal payment under the 2024 Notes		—		—		—		—		300,000		—		300,000
Principal payments under the Nord LB Facility		5,177		60,113		—		—		—		—		65,290
Principal payments under the Term Loan		22,404		22,404		22,404		22,404		22,404		273,344		385,364
Principal payments under the Magellan Acquisition Limited Facility		26,542		26,542		26,542		26,542		26,542		145,974		278,684
Principal payments under the Aladdin Acquisition Facility		23,874		25,057		26,262		197,150		—		—		272,343
Principal payments under the Aladdin Engine Funding Facility		1,565		32,240		8,534		—		—		—		42,339
Principal payments under Other Aircraft Secured Borrowings		93,122		75,079		85,667		162,206		64,787		192,602		673,463
Total principal payments		172,684		566,435		169,409		408,302		413,733		611,920		2,342,483
Interest payments:
Interest payments under the 2021 Notes and 2024 Notes		36,469		32,152		15,750		15,750		12,469		—		112,590
Interest payments under secured borrowings ⁽¹⁾		62,812		55,268		46,487		35,350		25,750		23,524		249,191
Total interest payments		99,281		87,420		62,237		51,100		38,219		23,524		361,781
Purchase price of Portfolio B aircraft in the AirAsia transactions ⁽²⁾		351,500		571,198		99,000		—		—		—		1,021,698
Acquisition fees related to Portfolio B in the AirAsia transactions ⁽²⁾		5,273		8,568		1,485		—		—		—		15,326
Disposition fees on flight equipment held for sale		2,768		—		—		—		—		—		2,768
Payments to our Manager under our management agreement ⁽³⁾		7,840		7,840		7,840		7,840		7,840		43,121		82,321
Payments to BBAM under our servicing agreements ⁽⁴⁾		12,656		11,358		9,640		7,906		7,259		18,188		67,007
Total	$	652,002	$	1,252,819	$	349,611	$	475,148	$	467,051	$	696,753	$	3,893,384

(1)	For variable rate borrowings based on LIBOR plus the applicable margin, LIBOR is assumed to remain at the current rate in effect at year end through the term of the loan.

(2)	Based on number of aircraft expected to be purchased.

(3)	Assumes automatic extension for one additional term of five years to June 30, 2030. Also assumes the net book value of aircraft at December 31, 2019 remains constant in future periods.

(4)	Amounts in the table reflect the application of these servicing fees to our aircraft at December 31, 2019.

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ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

The following table presents information about our directors and executive officers. The business address of each of our directors and executive officers listed below is West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland. Our telephone number at that address is +353 1 231-1900 .

Name	Age	Position
Colm Barrington	74	Chief Executive Officer and Director
Julie Ruehl	54	Chief Financial Officer
Joseph M. Donovan	65	Director and Chairman
Erik G. Braathen	64	Director
Eugene McCague	61	Director
Robert S. Tomczak	58	Director
Susan M. Walton	59	Director
Steven Zissis	60	Director

Colm Barrington has been our chief executive officer and a member of our board of directors since May 2007. Mr. Barrington has over 40 years of experience in the global aviation industry, having started his aviation career in 1967 at Ireland’s national airline, Aer Lingus. In 1979, he joined GPA Group plc where he held various senior positions, including chief operating officer. In 1993, Mr. Barrington oversaw the successful integration of GPA Group plc and GE Capital Aviation Services (GECAS). In 1994, he joined Babcock & Brown Limited working in aircraft and lease management and arranging cross border lease financings of commercial aircraft. In September 2015, Mr. Barrington retired after seven years as the non-executive Chairman of the Board of Directors of Aer Lingus plc, following the sale of Aer Lingus to International Consolidated Airlines Group (IAG). Mr. Barrington is a non-executive director of Hibernia REIT plc and is Vice Chairman and a non-executive director of Finnair plc. Mr. Barrington received a BA and an MA in Economics from University College Dublin and a public administration degree from the Institute of Public Administration, also in Dublin.

Julie Ruehl has been our chief financial officer since August 2017. Prior to joining FLY, Ms. Ruehl previously served as the Vice President and Chief Accounting Officer for Big Heart Pet Brands and for its predecessor, Del Monte Corporation. Prior to that she was in a senior financial position with Sanmina Corporation, a global provider of electronics manufacturing services, and previously served as an Audit Partner at Arthur Andersen LLP. Ms. Ruehl graduated cum laude from Louisiana State University with a bachelor of science degree in Accounting.

Joseph M. Donovan was appointed Chairman in April 2010 and has been a member of our board of directors since June 2007. Prior to his retirement in January 2007, Mr. Donovan was chairman of Credit Suisse’s Asset-Backed Securities and Debt Financing Group, which he led for nearly seven years. Prior thereto, Mr. Donovan was a managing director and head of Asset Finance at Prudential Securities (1998-2000) and Smith Barney (1995-1997). Mr. Donovan began his banking career at The First Boston Corporation in 1983, ultimately becoming a managing director at CS First Boston, where he served as Chief Operating Officer of the Investment Banking Department from 1992 to 1995. Mr. Donovan is a director of STORE Capital Corporation. Mr. Donovan received his MBA from The Wharton School of the University of Pennsylvania and has a degree in Accountancy from the University of Notre Dame.

Erik G. Braathen has been a member of our board of directors since June 2007. Mr. Braathen has been the chief executive of Ojada AS, a privately owned investment company, since 1999. Prior to joining Ojada AS, Mr. Braathen was the chief executive officer of Braathens ASA where he gained extensive experience in the airline industry from 1986 to 1999. Mr. Braathen is a member of the boards of directors of Northsea PSV AS and Cenzia AS. Mr. Braathen is Chairman of the Board of Directors of Holmen Fondsforvaltning, Sayonara AS, Ojada AS, Okana AS and Onida AS. Mr. Braathen has a Master of International Management from AGSIM, Phoenix Arizona, and a Bachelor of Arts & Economics from the University of Washington, Seattle, Washington.

Eugene McCague has been a member of our board of directors since November 2014. Mr. McCague was a partner of Arthur Cox, a leading Irish law firm, from 1988 to his retirement from the firm in June 2017. He served as managing partner of Arthur Cox from 1999 to 2003, and as its chairman from 2006 to 2013. Mr. McCague is the chair of the Governing Authority of University College, Dublin and has served on the boards of a number of not-for-profit organizations, and as President of the Dublin Chamber of Commerce. Mr. McCague is a non-executive director of ICON plc. Mr. McCague holds a Bachelor of Civil Law degree and a Diploma in European Law from University College, Dublin.

Robert S. Tomczak has been a member of our board of directors since April 2010. Mr. Tomczak is a Senior Vice President and the Chief Financial Officer of BBAM LP and leads BBAM’s accounting, finance and contract management teams and has over 25 years of experience in the aircraft leasing industry. From 1987 to 2010, Mr. Tomczak was a Finance Director at Babcock & Brown. Prior to joining Babcock & Brown in 1987, Mr. Tomczak worked for Arthur Andersen & Co. He graduated from California State University East Bay with a degree in Finance and Accounting.

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Susan M. Walton has been a member of our board of directors since June 2007. Ms. Walton is currently a Director and Company Secretary of the Pestalozzi International Foundation, a charity registered in England and Director of Pestalozzi Enterprises Limited. Until September 2010, Ms. Walton was a Sub-Regional Director of the environmental charity Groundwork London. Prior thereto, Ms. Walton was the Chief Executive of Hampshire & Isle of Wight Wildlife Trust (“HWT”), a leading wildlife conservation charity in England, where she was responsible for biodiversity projects in two counties and developing partnerships with key stakeholder groups. Prior to joining HWT in 2006, she served as General Manager — Structured Finance and Export Credit, for Rolls-Royce Capital Limited for nine years. Ms. Walton was also a Principal at Babcock & Brown from 1989 to 1997 where she was responsible for producing and implementing Babcock & Brown’s annual European Aerospace marketing plan. Ms. Walton is a trustee for the Sussex East Area Meeting of Quakers, a trustee of Raystede Animal Sanctuary and a member of the Finance Committee of the East Sussex College Group. Ms. Walton holds a degree in Environmental Conservation from Birkbeck College, University of London.

Steven Zissis was previously our chairman and has been a member of our board of directors since June 2007. Mr. Zissis is the President and Chief Executive Officer of BBAM LP. Mr. Zissis was the Head of Aircraft Operating Leasing at Babcock & Brown and has over 30 years of experience in the aviation industry. Prior to joining Babcock & Brown in 1990, Mr. Zissis was a vice president of Citibank, where he was also a founder and manager of the Portfolio Acquisition and Divestiture team. Mr. Zissis graduated from Rhodes College with a degree in Finance and International Studies.

Compensation of Directors

Each independent member of our board of directors receives an annual cash retainer of $125,000 payable in equal quarterly installments. Our chairman receives an additional $60,000 per year. Each independent director who is a chairman of a committee of the board of directors receives an additional $10,000 per year. Our Manager-appointed directors receive no additional compensation for their service as directors .

We paid to our directors aggregate cash compensation of $0.6 million for services rendered in 2019 . We do not have a retirement plan for our directors .

Executive Compensation

We do not have any employees. Pursuant to the management agreement we have with our Manager, we have the dedicated services of our Manager’s chief executive officer and chief financial officer, who serve as our chief executive officer and chief financial officer by appointment of our board of directors but who remain employees of BBAM LP. The services performed by our chief executive officer and chief financial officer are provided at the cost of our Manager or an affiliate of our Manager. Our Manager or an affiliate of our Manager, in consultation with the compensation committee of our board of directors, determines and pays the compensation of our chief executive officer and chief financial officer. We do not provide retirement benefits to any officer or employee.

We have a 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) stock appreciation rights (“SARs”); (ii) restricted stock units (“RSUs”); (iii) nonqualified stock options; and (iv) other stock-based awards. We have issued all shares available under the 2010 Plan. At December 31, 2019, there were 14,025 SARs outstanding and exercisable. The Company satisfies SAR exercises with newly issued ADSs.

Board of Directors

Our board of directors currently consists of seven members. Our bye-laws provide that the board of directors is to consist of a minimum of two and a maximum of 15 directors as the board of directors may from time to time determine. Pursuant to our management agreement and our bye-laws, so long as the Manager holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors. These directors are not required to stand for election by shareholders.

A majority of our directors are “independent” as defined under the applicable rules of the New York Stock Exchange. In accordance with our bye-laws, the independent directors are elected at each annual general meeting of shareholders and shall hold office until the next annual general meeting following his or her election or until his or her successor is elected or appointed or their office is otherwise vacated.

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Committees of the Board

The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. These committees are described below. Our board of directors may also establish various other committees to assist it in its responsibilities.

Audit Committee

Our Audit Committee is concerned primarily with the accuracy and effectiveness of the audits of our financial statements by our independent auditors. Its duties include :

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selecting independent auditors for approval by our shareholders ;

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reviewing the scope of the audit to be conducted by our independent auditors, as well as the results of their audit ;

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approving audit and non-audit services provided to us by the independent auditors ;

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reviewing the organization and scope of our internal system of audit, financial and disclosure controls ;

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overseeing internal controls and risk management ;

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overseeing our financial reporting activities, including our annual report, and the accounting standards and principles followed ;

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reviewing and approving related-party transactions and preparing reports for the board of directors on such related-party transactions ;

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conducting other reviews relating to compliance with applicable laws and our policies, including reviewing at least annually our decision to enter into swaps, and our hedging policy; and

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overseeing our internal audit function.

Each of the members of the Audit Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Mr. Donovan and Mr. Braathen have served on the Audit Committee since June 2007. Mr. McCague has served on the Audit Committee since November 2014. Mr. Donovan serves as chairperson.

Compensation Committee

Our Compensation Committee will be consulted by our Manager regarding the remuneration of our chief executive and chief financial officers and will be responsible for determining the compensation of our independent directors. Each of the members of the Compensation Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Mr. Braathen and Ms. Walton have served on the Compensation Committee since June 2007. Mr. McCague has served on the Compensation Committee since November 2014. Mr. Braathen serves as chairperson.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee’s responsibilities include the selection of potential candidates for our board of directors and the development and annual review of our governance principles. This committee also makes recommendations to our board of directors concerning the structure and membership of the other board committees. Each of the members of the Nominating and Corporate Governance Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Ms. Walton and Mr. Braathen have served on the Nominating and Corporate Governance Committee since June 2007. Mr. McCague has served on the Nominating and Corporate Governance Committee since November 2014. Ms. Walton serves as chairperson.

Our Management

Pursuant to a management agreement, we have appointed Fly Leasing Management Co. Limited, a wholly owned subsidiary of BBAM LP, as our Manager to provide management services to us. In discharging its duties under the management agreement, our Manager uses the resources provided to it by BBAM LP and its affiliates. These resources include the dedicated services of Mr. Colm Barrington and Ms. Julie Ruehl, who serve as our chief executive officer and chief financial officer, respectively, but who also remain employees of BBAM LP, the dedicated services of other members of our Manager’s core management team, and the non-exclusive services of other personnel employed by BBAM LP.

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Our chief executive officer and chief financial officer manage our day-to-day operations and affairs on a permanent and wholly dedicated basis. Our board of directors, chief executive officer and chief financial officer have responsibility for overall corporate strategy, acquisitions, dispositions, financing and investor relations.

Share Ownership

Other than as disclosed in Item 7 below, none of our directors or executive officers beneficially own more than 1% of our outstanding common shares .

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

The table below sets forth certain information regarding the beneficial ownership of our ADSs by each person known by us to be a beneficial owner of more than 5% of our ADSs as of February 15, 2020 :

	Shares Beneficially Owned
Name	Number		Percent
AirAsia Group Berhad ⁽¹⁾		3,333,333		10.8	%
Onex Corporation ⁽²⁾		3,110,143		10.1	%
Summit Aviation Partners LLC ⁽³⁾		2,261,214		7.3	%
Morgan Stanley ⁽⁴⁾		2,242,234		7.3	%
Donald Smith & Co., Inc. ⁽⁵⁾		2,068,405		6.7	%

(1)	The information above and in this footnote is based on information taken from the Schedule 13G filed by AirAsia Group Berhad with the SEC on September 4, 2018. AirAsia Group Berhad has sole voting and dispositive power over 3,333,333 ADSs.

(2)

The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Onex Corporation, Onex Partners III GP LP, Onex Partners GP Inc., Onex US Principals LP, Onex American Holdings GP LLC, Onex Private Equity Holdings LLC, Onex Partners III PV LP, Onex Partners III Select LP, Onex Partners III LP, Meridian Aviation Partners Limited, Onex ATR S.a.r.l., ATR Aviation Holdings I Corporation, Onex Partners III International LP, Onex Partners III International GP LP, Onex Partners III International GP LLC, Onex Partners Canadian GP Inc., New PCo II Investments Ltd., and Gerald W. Schwartz (collectively, the “Onex Reporting Persons”) with the SEC on February 13, 2020. Onex Corporation has shared voting and dispositive power over 3,094,399 ADSs. Onex Partners III GP LP has shared voting and dispositive power over 1,806,537 ADSs. Onex Partners GP Inc. has shared voting and dispositive power over 1,806,537 ADSs. Onex US Principals LP has shared voting and dispositive power over 5,241 ADSs. Onex American Holdings GP LLC has shared voting and dispositive power over 5,241 ADSs. Onex Private Equity Holdings LLC has shared voting and dispositive power over 5,241 ADSs. Onex Partners III PV LP has shared voting and dispositive power over 21,746 ADSs. Onex Partners III Select LP has shared voting and dispositive power over 5,517 ADSs. Onex Partners III LP has shared voting and dispositive power over 1,715,470 ADSs. Meridian Aviation Partners Limited has shared voting and dispositive power over 666,667 ADSs. Onex ATR S.a.r.l. has shared voting and dispositive power over 666,667 ADSs. ATR Aviation Holdings I Corporation has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International LP has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International GP LP has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International GP LLC has shared voting and dispositive power over 666,667 ADSs. Onex Partners Canadian GP Inc. has shared voting and dispositive power over 666,667 ADSs. New PCo II Investments Ltd. has shared voting and dispositive power over 15,744 ADSs. Gerald W. Schwartz has shared voting and dispositive power over 3,110,143 ADSs.

(3)

The information above and in this footnote is based on information taken from the Schedule 13D/A filed by Steven Zissis, Zissis Family Trust, Summit Aviation Partners LLC and SZ Services Puerto Rico LLC with the SEC on July 20, 2018, and from information independently provided to us by Mr. Zissis. Mr. Zissis and Zissis Family Trust have shared voting and dispositive power over 2,261,214 ADSs. Summit Aviation Partners LLC has shared voting and dispositive power over 1,610,717 ADSs. SZ Services Puerto Rico LLC has shared voting and dispositive power over 487,708 ADSs.

(4)

The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Morgan Stanley with the SEC on February 12, 2020. Morgan Stanley has shared voting power over 2,188,325 ADSs and shared dispositive power over 2,242,234 ADSs . Morgan Stanley Capital Services LLC has shared voting power and shared dispositive power over 2,154,345 ADSs.

(5)

The information above and in this footnote is based on information taken from the Schedule 13G filed by Donald Smith & Co., Inc., DSCO Value Fund, L.P., Jon Hartsel, Kamal Shah, and John D. Piermont with the SEC on February 10, 2020. Donald Smith & Co., Inc. has sole voting power over 2,035,186 ADSs and sole dispositive power over 2,049,886 ADSs. DSCO Value Fund, L.P. has sole voting power over 10,019 ADSs and sole dispositive power over 10,019 ADSs. Jon Hartsel has sole voting power over 4,000 ADSs and sole dispositive power over 4,000 ADSs. Kamal Shah has sole voting power over 2,500 ADSs and sole dispositive power over 2,500 ADSs. John D. Piermont has sole voting power over 2,000 ADSs and sole dispositive power over 2,000 ADSs.

All ADS holders have the same voting rights.

As of February 21, 2020, 7,390,795 of our ADSs were held by 20 holders of record in the United States, not including ADSs held of record by Depository Trust Company, or DTC. As of February 21, 2020, DTC was the holder of record of 23,495,603 ADSs. To the best of our knowledge, 1,631,91 0 ADSs were beneficially owned by holders with U.S. addresses.

We are not aware of any arrangements, the operation of which may at a subsequent date result in a change of control .

Manager Shares

Our Manager owns 100 manager shares that are entitled to director appointment rights and the right to vote on amendments to the provision of our bye-laws relating to termination of our management agreement with them. Manager shares will not convert into common shares. Upon a termination of our management agreement, the manager shares will cease to have any appointment and voting rights and, to the extent permitted under Section 42 of Companies Act 1981 (Bermuda), will be automatically redeemed for their par value. Manager shares are not entitled to receive any dividends and, other than with respect to director appointment rights, holder of manager shares have no voting rights .

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Related Party Transactions

We have entered into agreements with BBAM LP and its affiliates that effect the transactions relating to our ongoing operations and business. Although the pricing and other terms of these agreements were reviewed by our management and the independent directors of our board of directors, they were determined by entities affiliated with BBAM LP. As a result, provisions of these agreements may be less favorable to us than they might have been had they been the result of transactions among unaffiliated third parties.

In connection with the redemption of the Securitization Notes in March 2019, B&B Air Funding terminated its servicing agreement with respect to aircraft financed by the Securitization Notes. See “ Servicing Agreements — B&B Air Funding — Servicing Agreement .” Also in connection with the redemption of the Securitization Notes in March 2019, we terminated the management agreement with the Manager relating to the aircraft financed by the Securitization Notes. See “Management Agreement.”

MANAGEMENT AGREEMENT

General

We have a management agreement with our Manager (the “Management Agreement”). In discharging its duties under the Management Agreement, our Manager uses the resources provided to it by BBAM LP. These resources include the dedicated services of Colm Barrington and Julie Ruehl, who serve as our chief executive officer and chief financial officer, respectively, but also remain employees of BBAM LP, the dedicated services of other members of our Manager’s core management team and the non-exclusive services of other personnel employed by BBAM LP.

Our Manager’s core management team consists of the Manager’s chief executive officer, chief financial officer and that level of dedicated or shared support personnel, such as corporate counsel, company secretary, financial controller and other accounting staff and risk and compliance personnel, as our Manager reasonably determines is necessary to provide the management and administrative services described below.

Services

Our Manager’s duties and responsibilities under the Management Agreement include the provision of the services described below. The Management Agreement requires our Manager to manage our business and affairs in conformity with the policies and investment guidelines that are approved and monitored by our board of directors. Our Manager may delegate the provision of all or any part of the services to any person affiliated or associated with BBAM.

Management and Administrative Services. Our Manager provides us with the following management and administrative services:

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managing our portfolio of aircraft and other aviation assets and the administration of our cash balances;

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if requested by our board, making available a member of the core management team of our Manager as our nominee on the board of directors of any of our subsidiaries (provided that each such member must be agreed between us and our Manager);

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assisting with the implementation of our board’s decisions;

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providing us suitably qualified and experienced persons to perform the management and administrative services for us and our subsidiaries, including persons to be appointed by our board to serve as our dedicated chief executive and chief financial officers (who shall remain employees of, and be remunerated by, our Manager or an affiliate of our Manager while serving in such capacities);

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performing or procuring the performance of all reasonable accounting, tax, corporate secretarial, information technology, reporting and compliance services for us and our subsidiaries, including the preparation and maintenance of our accounts and such financial statements and other reports and filings as we are required to make with any governmental agency (including the SEC) or stock exchange;

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supervising financial audits of us by an external auditor as required;

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managing our relations with our investors and the public, including:

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preparing our annual reports and any notices of meeting, papers, reports and agendas relating to meetings of our shareholders; and

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assisting in the resolution of any complaints by or disputes with our investors and any litigation involving us (other than litigation in which our interests are adverse to those of our Manager or BBAM); and

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using commercially reasonable efforts to cause us to comply with all applicable laws.

Origination and Disposition Services. Our Manager also provides us with the following origination and disposition services:

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sourcing opportunities relating to aircraft and other aviation assets, including using its commercially reasonable efforts to notify us of potential aviation asset investment opportunities that come to the attention of our Manager and which our Manager acting reasonably believes may be of interest to us as investments;

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in relation to identified potential opportunities to purchase or sell aircraft and other aviation assets, investigating, researching, evaluating, advising and making recommendations on or facilitating such opportunities;

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with respect to prospective purchases and sales of aircraft and other aviation assets, conducting negotiations with sellers and purchasers and their agents, representatives and financial advisors; and

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otherwise providing advice and assistance to us in relation to the evaluation or pursuit of aviation asset investment or disposition opportunities as we may reasonably request from time to time.

We are under no obligation to invest in or to otherwise pursue any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the Management Agreement. Neither BBAM nor any of its affiliates or associates are restricted from pursuing, or offering to a third party, including any party managed by, or otherwise affiliated or associated with BBAM, or are required to establish any aviation asset investment protocol in relation to prioritization of, any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the Management Agreement.

Ancillary Management and Administrative Services. Our Manager also provides us with ancillary management and administrative services upon such terms as may be agreed from time to time between us and our Manager, which may require, among other things if requested by our board of directors:

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the expansion of our Manager’s core management team with additional personnel as may be required by developments or changes in the commercial aircraft leasing industry (whether regulatory, economic or otherwise) or the compliance or reporting environment for publicly listed companies in the United States (whether as a result of changes to securities laws or regulations, listing requirements or accounting principles or otherwise); and

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making available individuals (other than members of our Manager’s core management team) as our nominees on the boards of directors of any of our subsidiaries.

Servicing

For so long as our Manager’s appointment is not terminated, we agree to engage BBAM as the exclusive Servicer for any additional aircraft or other aviation assets that we acquire in the future on terms substantially similar to those set forth in the servicing agreement between our subsidiaries and BBAM or on such other terms as we and BBAM may agree.

Competitors. In the Management Agreement, we agree not to sell any of our subsidiaries receiving services from BBAM pursuant to a servicing agreement to a competitor of BBAM, or to any party that does not agree in a manner reasonably acceptable to BBAM to be bound by the provisions of the applicable servicing agreement. In addition, we agree not to permit competitively sensitive information to be provided to any competitor of BBAM even if such competitor is a shareholder, and to screen any of our officers, directors, agents, advisors or consultants that are involved in any other business activities that are competitive with BBAM or an affiliate from competitively sensitive information.

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Compliance with Our Strategy, Policy and Directions

In performing the services, our Manager is required to comply with our written policies and directions provided to our Manager from time to time by our board of directors unless doing so would contravene any law or the express terms of the Management Agreement.

Notwithstanding the above, we may not make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation assets, unless:

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that matter has been the subject of a recommendation by our Manager; or

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the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.

In addition, we may not direct our Manager (unless the direction is otherwise permitted under the Management Agreement) to make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation asset, and our Manager is not obliged to comply with any such direction if given by us, unless:

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that matter has been the subject of a recommendation by our Manager; or

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the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.

Notwithstanding the foregoing, we may direct our Manager to review a proposed decision, action or omission to take an action in relation to the acquisition, disposition or management of any aircraft or other aviation asset and require that within a reasonable period of time our Manager either make or decline to make a recommendation with respect thereto.

The Manager shall also ensure that the members of the Compensation Committee of the Board of Directors of Fly are aware of the proposed salaries, bonuses, equity grants and other compensation arrangements for the chief executive officer, chief financial officer and, at the reasonable request of the Compensation Committee, other senior BBAM employees who devote substantial time to the Company (“Senior Executives”), and allow the Compensation Committee to participate in the discussion of such proposed arrangements for each Senior Executive, before such proposed arrangements are finalized by the Manager or its affiliates.

Appointment of Our Chief Executive Officer and Chief Financial Office r

Although our chief executive officer and chief financial officer are employees of our Manager (or an affiliate of our Manager), they serve us in such corporate capacities by appointment by our board of directors. The Management Agreement acknowledges that our board may terminate our chief executive officer or chief financial officer without our Manager’s consent. The Management Agreement provides that if there is a vacancy in such position for any reason, then our Manager will recommend a candidate to serve as replacement chief executive officer or chief financial officer. If our board of directors does not appoint the initial candidate proposed by our Manager to fill such vacancy, then our Manager will be required to recommend additional candidates until our board appoints a candidate recommended by our Manager for such vacancy.

Restrictions and Duties

Our Manager has agreed that it will use reasonable care and diligence and act honestly and in good faith at all times in the performance of the services under the Management Agreement. We refer to the foregoing standard as the “standard of care” required under the Management Agreement.

Under the Management Agreement, our Manager may not, without our board’s prior consent:

(1)

carry out any transaction with an affiliate of our Manager on our behalf, it being understood that BBAM has been appointed as the exclusive Servicer for our portfolio of aircraft, and that our Manager may delegate the provision of all or any part of the services under the Management Agreement to any person affiliated or associated with BBAM;

(2)

carry out any aviation asset investment or disposition transaction, or sequence of related aviation asset investment or disposition transactions with the same person or group of persons under common control, for us if the aggregate purchase price to be paid or the gross proceeds to be received by us in connection therewith would exceed $200 million;

(3)	carry out any aviation asset investment or disposition transaction if the sum of all the purchase prices to be paid or of all the gross proceeds to be received by us in connection with all such transactions during any quarter would exceed $500 million;

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(4)	appoint or retain any third-party service provider to assist our Manager in providing management and administrative services if:

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the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or

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as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million;

(5)	appoint or retain any third-party service provider to assist our Manager in providing ancillary management and administrative or the origination and disposition services if:

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(6)	hold any cash or other assets of ours, provided that our Manager may cause our cash and other assets to be held in our name or any custodian for us nominated or approved by us.

The thresholds discussed in clauses (4) and (5) above are reviewed regularly by us and our Manager and may be increased by our board of directors (but shall not be decreased) having regard to changes in the value of money, changes in our market capitalization and any other principles agreed between us and our Manager. The thresholds discussed in clauses (2) and (3) may be increased or decreased by our board of directors in its sole discretion at any time by notice to our Manager. Amounts relating to transactions and third-party service providers entered into, appointed or retained by BBAM on our behalf pursuant to our servicing agreements or administrative agency agreements are not included in determining whether the thresholds discussed under this heading have been met or exceeded. Acquisitions of series of aircraft from non-affiliated persons are deemed not to be related matters for purposes of this provision.

Relationship of Management Agreement and Servicing Agreements

To the extent that BBAM is entitled to exercise any authority, enter into any transaction or take any action on our behalf pursuant to any of our servicing agreements or administrative agency agreements, such servicing agreement or administrative agency agreement shall govern such exercise of authority, transaction or authority in the event of a conflict between the Management Agreement and such servicing agreement or administrative agency agreement.

Board Appointees

Pursuant to the Management Agreement and our bye-laws, for so long as our Manager holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors. Our Manager’s appointees on our board of directors are not required to stand for election by our shareholders other than by our Manager.

Our Manager’s board appointees do not receive any cash compensation from us (other than out-of-pocket expenses) and do not have any special voting rights. The appointees of our Manager shall not participate in discussions regarding, or vote on, any related-party transaction in which any affiliate of our Manager has an interest. Our independent directors are responsible for approving any such related-party transactions.

Fees and Expenses

Pursuant to the Management Agreement, we pay our Manager the fees and pay or reimburse our Manager for the expenses described below.

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Management and Administrative Services

Base and Rent Fees . BBAM is entitled to receive (i) a rent fee equal to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold.

Origination and Disposition Fees and Change of Control Fees. We generally pay our Manager a fee for each acquisition or sale of aircraft or other aviation assets equal to 1.5% of the gross acquisition cost in respect of acquisitions or the aggregate gross proceeds in respect of dispositions. From time to time, we and our Manager have agreed to modify origination and disposition proceeds in connection with the purchase or sale of aircraft portfolios.

We also pay our Manager a fee of 1.5% of the aggregate gross consideration received in respect of any change of control of our company, which includes the acquisition of more than 50% of our common shares or the acquisition of all or substantially all our assets.

In 2019, we paid our Manager origination fees of $5.0 million in connection with the purchase of 11 aircraft. In 2018, we paid our Manager origination fees of $16.1 million in connection with the purchase of 34 aircraft and seven engines. In 2017, we paid our Manager origination fees of $6.8 million in connection with the purchase of ten aircraft.

Administrative Agency Fees. The administrative agency fee payable with respect to the Securitization Notes was $20,000 per month, subject to an annual CPI adjustment. In connection with the redemption of the Securitization Notes in March 2019, the administrative service agreement was terminated.

In 2019, 2018 and 2017, we paid the Manager administrative agency fees totaling $0.1 million, $0.2 million and $0.2 million, respectively, which amounts were credited toward servicing fees paid pursuant to the servicing agreement between B&B Air Funding and BBAM.

Ancillary Management and Administrative Services

We may pay to our Manager such additional fees for any ancillary management and administrative services provided by our Manager to us from time to time as we and our Manager agree to before the ancillary management and administrative services are provided. We did not pay any ancillary management and administrative services fee to our Manager in 2019, 2018 or 2017.

Credit for Servicing Fees Paid

Base fees and rent fees paid to BBAM under our servicing agreements and administrative services fees paid to our Manager under the administrative services agreements are credited toward (and thereby reduce) the base and rent fees payable to our Manager as described above under “— Fees and Expenses — Management and Administrative Services — Base and Rent Fees” and “— Fees and Expenses — Management and Administrative Services — Administrative Agency Fees.” Similarly, sales fees paid to BBAM under our servicing agreements in respect of aircraft dispositions are credited toward (and thereby reduce) the fee payable to our Manager in connection with dispositions as described above under “— Fees and Expenses — Management and Administrative Services — Origination and Disposition Fees and Change of Control Fees.” See “Servicing Agreements.”

Break Fees

Our Manager is entitled to one-third of the value of any break, termination or other similar fees received by us (with such value to be reduced by any third-party costs incurred by or on behalf of us or by our Manager on behalf of us in the transaction to which the fee relates) in connection with any investment or proposed investment to be made by us in any aircraft or other aviation assets. We did not pay any break fees to our Manager in 2019, 2018 or 2017.

Expenses of the Manager

We pay an annual management fee to the Manager as compensation for providing the services of the chief executive officer, the chief financial officer and other personnel, and for certain corporate overhead costs related to us. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of our aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of our aircraft portfolio in excess of $2.0 billion, with a minimum annual management fee of $5.0 million. The management fee is subject to an annual adjustment tied to the Consumer Price Index applicable to the prior calendar year. For the years ended December 31, 2019, 2018 and 2017, we incurred management fees of $9.6 million, $7.3 million and $6.3 million, respectively.

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We pay or reimburse our Manager:

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for all our costs paid for us by our Manager (other than remuneration and certain expenses in relation to our Manager’s core management team and our Manager’s corporate overhead), including the following items which are not covered by the management expense amount:

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directors’ fees for the independent directors on our board of directors and our subsidiaries,

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directors’ and officers’ insurance for our and our subsidiaries’ directors and officers,

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travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while traveling) to attend any meeting of the board of our Company,

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registration and listing fees in connection with the listing of our shares on the NYSE and registering the shares under the Securities Act,

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fees and expenses relating to any equity or debt financings we enter into in the future,

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fees and expenses of the depositary for our ADSs,

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costs and expenses related to insuring our aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers,

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costs incurred in connection with organizing and hosting our annual meetings or other general meetings of our Company,

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costs of production and distribution of any of our security holder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document,

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website development and maintenance,

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travel expenses of the core management team and other personnel of BBAM and its affiliates (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on our behalf and attending any meeting of the board or our Company,

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external legal counsel,

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fees of third party consultants, accounting firms and other professionals,

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external auditor’s fees, and

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internal auditor’s fees.

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for all taxes, costs, charges and expenses properly incurred by our Manager in connection with:

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the provision of ancillary management and administrative services, and

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the engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by us from time to time; or which our Manager considers reasonably necessary in providing the services and discharging its duties and other functions under the Management Agreement, including, without limitation, the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets.

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Term and Termination

The term of the Management Agreement expires on July 1, 2025, and shall be automatically extended for one additional term of five years unless terminated by either party upon 12 months’ notice or terminated earlier as set forth below.

If the Management Agreement is not renewed after July 1, 2025, we will pay the Manager a non-renewal fee on the termination date in an amount equal to (i) $6.0 million plus (ii) so long as the Management Expense Amount does not exceed $12.0 million, 50% of the excess (if any) of the Management Expense Amount over $6.0 million.

We may terminate our Manager’s appointment immediately upon written notice if but only if:

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BBAM LP ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in our Manager ;

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our Manager materially breaches the Management Agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care;

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any license, permit or authorization held by our Manager which is necessary for it to perform the services and duties under the Management Agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent our Manager from performing the services and the situation is not remedied within 90 days;

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our Manager voluntarily commences or files any petition seeking bankruptcy, insolvency or receivership relief; consents to the institution of, or fails to contest the filing of any bankruptcy or insolvency filing; files an answer admitting the material allegations filed against it in any such proceeding; or makes a general assignment for the benefit of its creditors, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement; or

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Our Manager may terminate the Management Agreement immediately upon written notice if:

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we fail to make any payment due under the Management Agreement to our Manager within 15 days after the same becomes due;

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we otherwise materially breach the Management Agreement and fail to remedy the breach within 90 days of receiving written notice from our Manager requiring us to do so; or

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if the directors in office on December 28, 2012 and any successor to any such director who was nominated or selected by a majority of the current directors and our Manager appointed directors, cease to constitute at least a majority of the board (excluding directors appointed by our Manager). (See “Board Appointees”.)

If our Manager terminates the Management Agreement upon the occurrence of any of the above, we will pay our Manager a fee as follows (i) during the first five year term, an amount equal to three times the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date; (ii) during the second five year term, an amount an amount equal to two times the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date; (iii) during the third five year term, an amount an amount equal to the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date.

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Upon the termination of the Management Agreement, we will redeem all of the manager shares for their nominal value.

Conflicts of Interest

Nothing in the Management Agreement restricts BBAM or any of its affiliate or associates from:

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dealing or conducting business with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours;

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being interested in any contract or transaction with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours;

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acting in the same or similar capacity in relation to any other corporation or enterprise;

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holding or dealing in any of our shares or other securities or interests therein; or

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co-investing with us.

Acting in Interests of Shareholders

Without limiting the clause set out above, in performing the services under the Management Agreement, our Manager shall act in the best interests of our shareholders. If there is a conflict between our shareholders’ interests and our Manager’s interests, our Manager shall give priority to our shareholders’ interests.

Indemnification and Limitation of Liability

We assume liability for, and have agreed to indemnify our Manager and any person to whom our Manager delegates its obligations in compliance with the Management Agreement, and their respective members, shareholders, managers, directors, officers, employees and agents, on an after-tax basis against, any losses and liabilities (collectively, “Losses”) that arise out of or in connection with the doing or failing to do anything in connection with the Management Agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such loss is finally adjudicated to have been caused directly by the indemnified person from gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care under the Management Agreement. Our Manager and each other indemnified person is not liable to us for any Losses suffered or incurred by us arising out of or in connection with the indemnified person doing or failing to do anything in connection with the Management Agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such Loss is finally adjudicated to have been caused directly by the gross negligence, fraud or dishonesty of, or willful misconduct in respect of the obligation to apply the standard of care under the Management Agreement by the indemnified person.

Independent Advice

For the avoidance of doubt, nothing in the Management Agreement limits the right of the members of our board of directors to seek independent professional advice (including, but not limited to, legal, accounting and financial advice) at our expense on any matter connected with the discharge of their responsibilities, in accordance with the procedures and subject to the conditions set out in our corporate governance principles from time to time.

SERVICING AGREEMENTS

Our subsidiaries have entered into servicing agreements with BBAM relating to the aircraft and engines owned by them. The principal services provided by BBAM pursuant to these servicing agreements relate to:

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lease marketing and remarketing, including lease negotiation;

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collecting rental payments and other amounts due under leases, collecting maintenance payments where applicable, lease compliance and enforcement and delivery and accepting redelivery of aircraft and engines under lease;

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implementing aircraft and engine dispositions;

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monitoring the performance of maintenance obligations of lessees under the leases;

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procuring legal and other professional services with respect to the lease, sale or financing of the aircraft or engines, any amendment or modification of any lease, the enforcement of our rights under any lease, disputes that arise as to any aircraft or engines or for any other purpose that BBAM reasonably determines is necessary in connection with the performance of its services;

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periodic reporting of operational information relating to the aircraft and engines, including providing certain reports to lenders and other third parties; and

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certain aviation insurance related services.

B&B Air Funding – Servicing Agreement

Pursuant to the servicing agreement between B&B Air Funding and BBAM in respect of the aircraft financed by the Securitization Notes, BBAM was entitled to receive (i) a rent fee equal to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to an administrative agency fee from B&B Air Funding of $20,000 per month, subject to an annual CPI adjustment. In connection with the redemption of the Securitization Notes in March 2019, the servicing agreement between B&B Air Funding and BBAM was terminated.

For the years ended December 31, 2019, 2018 and 2017, BBAM received rent and servicing fees pursuant to the B&B Air Funding servicing agreement totaling $0.5 million, $0.8 million and $0.9 million, respectively. BBAM also received administrative fees totaling $0.1 million during the year ended December 31, 2019. BBAM received administrative fees totaling $0.2 million during each of the years ended December 31, 2018 and 2017.

For the year ended December 31, 2019, B&B Air Funding incurred disposition fees of $0.6 million in connection with the sale of three aircraft. For each of the years ended December 31, 2018 and 2017, B&B Air Funding incurred no disposition fees.

All Other Aircraft and Aviation Assets Acquired – Servicing Agreements

With respect to all other aircraft, BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected, plus an administrative fee of $1,000 per aircraft per month. Under the Term Loan, the Magellan Acquisition Limited Facility and the Fly Aladdin Acquisition Facility, BBAM is also entitled to an administrative fee of $10,000 per month. Under the Fly Aladdin Engine Funding Facility, BBAM is entitled to receive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000 per month .

Under the Fly Acquisition III Facility, BBAM was entitled to an administrative fee of $10,000 per month. In connection with the repayment of the Fly Acquisition III Facility in October 2019 , the servicing agreement was terminated.

For the years ended December 31, 2019, 2018 and 2017, BBAM received servicing and administrative fees totaling $14.9 million, $14.7 million and, $12.0 million, respectively.

For the years ended December 31, 2019, 2018 and 2017, we incurred disposition fees of $14.8 million, $3.1 million and $0.3 million , respectively, in connection with the sale of aircraft.

These servicing agreements can generally be terminated by us in the case of a material breach by the servicer that is not cured within 30 days of written notice, the bankruptcy or insolvency of the servicer or if the servicer ceases to be actively involved in the aircraft leasing business. Some servicing agreements require the consent of the lender providing financing for the relevant aircraft prior to termination. It is our intention to enter into substantially similar servicing agreements with respect to all future aircraft and aviation assets that we acquire .

ITEM 8.

FINANCIAL INFORMATION

Consolidated statements and other financial information

See Item 18 below for information regarding our consolidated financial statements and additional information required to be disclosed under this Item. No significant changes have occurred since the date of the annual financial statements included in this Annual Report .

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Legal Proceedings

We are not currently a party to any litigation or other legal proceeding that may have a material adverse impact on our business or operations. However, we are and may continue to be subject to various claims and legal actions arising in the ordinary course of business.

Dividends

No dividends were paid in 2019, 2018 or 2017.

The declaration and payment of future dividends to holders of our common shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, cash flows, legal requirements and other factors as our board of directors deems relevant .

In addition, as a Bermuda company, our ability to pay dividends is subject to certain restrictions imposed by Bermuda law .

ITEM 9.

THE OFFER AND LISTING

Our ADSs, each representing one common share, are traded on the New York Stock Exchange under the symbol “FLY.”

ITEM 10.

ADDITIONAL INFORMATION

Share Capital

Not applicable.

Memorandum and Articles of Association

Pursuant to the instructions to Form 20-F, the information called for by this section of Item 10 is contained in our Registration Statement on Form F-1, as filed with the SEC on September 12, 2007, as subsequently amended, under the heading “Description of Share Capital,” and is hereby incorporated by reference .

Material Contracts

The following is a list of material contracts, other than contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, preceding the date of this Annual Report:

1)	Deposit Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Limited. See Item 5 “Liquidity and Capital Resources—Financing— Term Loan.”

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2)	Form of Director Service Agreement between Babcock & Brown Air Limited and each director thereof. See Item 6. “Directors, Senior Management and Employees.”

3)	Fly Leasing Limited Omnibus Incentive Plan.

4)	Form of Stock Appreciation Right Award Agreement.

5)	Form of Restricted Stock Unit Award Agreement.

6)	Form of Servicing Agreement among BBAM US LP, BBAM Aviation Services Limited and each company thereof. See Item 7 “Related Party Transactions — Servicing Agreement.”

7)	Amended and Restated Fly Leasing Limited Management Agreement dated as of December 28, 2012, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.”

8)	Amended and Restated Servicing Agreement, dated as of January 24, 2013, by and among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. See Item 7 “Related Party Transactions — Servicing Agreement.”

Amended and Restated Term Loan Credit Agreement, dated as of November 21, 2013, among Fly Funding II S.à r.l., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, each other Guarantor Party referred to therein, the Lenders identified therein, Citibank, N.A., and Wells Fargo Bank Northwest, National Association. See Item 5 “Liquidity and Capital Resources – Financing – Term Loan.”

10)	Indenture dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.”

11)	First Supplemental Indenture, dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.”

12)	Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5 “Liquidity and Capital Resources – Financing – Nord LB Facility.”

13)	Second Supplemental Indenture, dated as of October 3, 2014, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.”

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14)

Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.”

15)	First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.”

16)

Aircraft Mortgage and Security Agreement dated as of August 9, 2012, among Fly Funding II S.a.r.l.., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, The Initial Intermediate Lessees, The Initial Lessor Subsidiaries, The Additional Grantors Referred to Therein and Wells Fargo Bank Northwest, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.”

17)

Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.”

18)	Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.”

19)	Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.”

20)	Third Supplemental Indenture dated as of October 16, 2017, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.”

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21)	Servicing Agreement dated as of December 8, 2017, among BBAM US LP, BBAM Aviation Services Limited and Magellan Acquisition Limited. See Item 7 “Related Party Transactions — Management Agreement.”

22)

Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.”

23)

Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.”

24)

Facility Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.”

25)

Note Purchase Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Purchasers party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.”

26)

Credit Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Banks party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.”

27)	Security Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Grantors party thereto, and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.”

28)	Guaranty [Fly 2017A Term Loan] dated December 8, 2017 by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.”

29)	Share Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited, Fly Leasing Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

30)	Aircraft Sale and Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

31)	Aircraft Sale and Purchase Option Agreement, dated April 26, 2018, but having effect between the parties as of February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

32)

Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown Co., Ltd. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

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33)

Amended and Restated Delivery Side Letter (Portfolio C and Portfolio D), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Incline B Aviation Limited Partnership. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

34)	Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Meridian Aviation Partners Limited. See Item 7, “Major Shareholders and Related Party Transactions.”

35)	Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Summit Aviation Holdings LLC. See Item 7, “Major Shareholders and Related Party Transactions.”

36)	Registration Rights Agreement, dated July 18, 2018, among Fly Leasing Limited and shareholders named therein. See Item 7, “Major Shareholders and Related Party Transactions.”

37)	Subscription Agreement, dated July 18, 2018, among Fly Leasing Limited, AirAsia Group Berhad and AirAsia Berhad. See Item 7, “Major Shareholders and Related Party Transactions.”

38)	Registration Rights Agreement, dated July 18, 2018, between Fly Leasing Limited and AirAsia Group Berhad. See Item 7, “Major Shareholders and Related Party Transactions.”

39)	Fly SPA Amendment Agreement (No. 1) dated July 11, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

40)	Fly SPA Amendment Agreement (No. 2) dated July 18, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.”

41)	Servicing Agreement dated June 15, 2018, among BBAM Aviation Services Limited, BBAM US LP, Fly Aladdin Funding Limited, Fly Aladdin MaltaCo Limited and each Borrower Group Company that becomes a party thereto. See Item 7 “Related Party Transactions —Servicing Agreement.”

42)

Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Engine Funding Facility.”

43)	Borrower Parent Security Agreement dated June 15, 2018, between Fly Aladdin Holdings Limited, as Grantor and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.”

44)	Co-Borrower Security Agreement dated June 15, 2018, between Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Acquisition Facility.”

45)	Deed of Limited Guaranty dated June 15, 2018, by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Engine Funding Facility.”

46)

Amendment to Senior Secured Credit Agreement dated July 19, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Acquisition Facility.”

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47)	Purchase Agreement dated November 30, 2018 among the sellers identified therein, Horizon Aircraft Finance I Limited, Horizon Aircraft Finance I LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.”

48)	Form of Loan Amendment Letter Agreement (2018) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5, “Liquidity and Capital Resources—Financing—Nord LB Facility.”

49 )	Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein . See Item 5, “Operating and Financial Review and Prospects.”

50 )	Purchase Agreement dated October 31, 2019 among the sellers identified therein, Horizon Aircraft Finance III Limited, Horizon Aircraft Finance III LLC and the other purchasers identified therein . See Item 5, “Operating and Financial Review and Prospects.”

51)

Fifth Amendment to Credit Agreement dated as of November 22, 2019, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Trust Company, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5, “Liquidity and Capital Resources—Financing—Term Loan.”

52)	Form of Loan Amendment Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5, “Liquidity and Capital Resources—Financing—Nord LB Facility.”

Documents on Display

Documents concerning us that are referred to herein may be inspected at our principal executive headquarters at West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland. Electronic copies of these documents, including the related exhibits and schedules, and any documents we file with the SEC without charge at the SEC’s website, http://www.sec.gov.

Our internet address is www.flyleasing.com. Investors and others should note that we announce material information to investors through the investor relations page on our website, SEC filings, press releases, public conference calls and webcasts. We expect to update investor presentations and similar materials on a regular basis and will continue to post these materials to our investor relations website. We encourage investors, the media and others to review the information we post from time to time on our website. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 20-F and should not be considered part of this or any other report filed with the SEC .

Exchange Controls

We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in Bermuda that restrict the export or import of capital, including the availability of cash and cash equivalents for our use, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.

We are not aware of any limitation of non-resident or foreign owners to hold or vote our securities imposed by the laws of Bermuda of our memorandum of association or bye-laws.

Taxation

Irish Tax Considerations

The following discussion reflects the material Irish tax consequences applicable to both Irish and Non-Irish Holders (as defined below) of the acquisition, ownership and disposition of our shares. This discussion is based on Irish tax law, statutes, treaties, regulations, tax briefings, rulings and decisions all as of the date of this Annual Report. Taxation laws are subject to change, from time to time, and no representation is or can be made as to whether such laws will change, to what impact, if any, such changes will have on the summary contained in this Annual Report. Proposed amendments may not be enacted as proposed, and legislative or judicial changes, as well as changes in administrative practice, may modify or change statements expressed herein.

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This summary is of a general nature only. It does not constitute legal or tax advice nor does it discuss all aspects of Irish taxation that may be relevant to any particular holder of our shares. The Irish tax treatment of a holder of our shares may vary depending upon such holder’s particular situation, and holders or prospective purchasers of our shares are advised to consult their own tax advisors as to the Irish or other tax consequences of the purchase, ownership and disposition of our shares.

For the purposes of this summary of Irish tax considerations:

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An “Irish Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant American Depositary Receipt or ADR; (2) in the case of individual holders, is resident or ordinarily resident in Ireland under Irish taxation laws; and (3) in the case of a holder that is a company, is resident in Ireland under Irish taxation laws and is not also a resident of any other country under any double taxation agreement entered into by Ireland.

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A “Non-Irish Holder” is a holder of our shares that is not an Irish Holder and has never been an Irish Holder.

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A “US Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant ADR; (2) is a resident of the United States for the purposes of the Ireland/United States Double Taxation Convention; (3) in the case of an individual holder, is not also resident or ordinarily resident in Ireland for Irish tax purposes; (4) in the case of a corporate holder, is not resident in Ireland for Irish tax purposes and is not ultimately controlled by persons resident in Ireland; and (5) is not engaged in any trade or business and does not perform independent personal services through a permanent establishment or fixed base in Ireland.

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“Relevant Territory” is defined as a country with which Ireland has a double tax treaty (which includes the United States), a country with which Ireland has signed a double taxation treaty which will come into force once all ratification procedures have been completed, or a member state of the European Union other than Ireland.

Irish Dividend Withholding Tax

Dividends that we pay on our shares (including deemed distributions) are generally subject to a 20% dividend withholding tax, or DWT for 2019. This rate increased to 25% effective January 1, 2020. DWT may not apply where an exemption is permitted by Irish tax legislation or a double taxation treaty and where all necessary documentation has been submitted to the ADS depository prior to the payment of the dividend.

Irish Holders . Individual Irish Holders are generally subject to DWT on any dividend payments that we make. Irish tax resident individual shareholders should be entitled to a tax credit for the amount of DWT suffered on the dividend against their Irish income tax charge on the dividend income. Irish tax resident or ordinary resident individual shareholders that are entitled to receive dividends without DWT (for example certain incapacitated individuals) must submit the necessary documentation to the ADS depository prior to the payment of the dividend.

Corporate Irish Holders will generally be entitled to claim an exemption from DWT by delivering a declaration to us in the form prescribed by the Irish Revenue Commissioners.

Non-Irish Holders. Shareholders who are individuals resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland may receive dividends free from DWT where the shareholder has provided the ADS depository with the relevant declaration and residency certificate required by Irish legislation.

Corporate shareholders that are not resident in Ireland and

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who are ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; or

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who are resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; or

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whose principal class of shares or the principal class of shares of whose 75% or greater parents are substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or which are wholly owned by two or more companies, each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance.

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may receive dividends free from DWT where they provide the ADS depository with the relevant documentation required by Irish law before the record date for the dividend.

Income Tax

Irish Holders. Individual Irish Holders are subject to income tax on the gross amount of any dividend ( i.e ., the amount of the dividend received plus any DWT withheld), at their marginal rate of tax (currently either 20% or 40% depending on the individual’s circumstances). Individual Irish Holders will be able to claim a credit against their resulting income tax liability in respect of any DWT. Individual Irish Holders may, depending on their circumstances, be subject to Pay Related Social Insurance (PRSI) and to the Universal Social Charge with effect from 1 January 2011.

For the year ended 2019, the Universal Social Charge will apply to all income where an individual has income in excess of €13,000. The Universal Social Charge applies at four different rates ¹ for 2019 as follows:

•

0.5% on the first €12,012;

•

2% on the next €7,862;

•

4. 5% on the next €50,170 and

•

8% on the aggregate income in excess of €70,044.

There is also a Universal Social Charge surcharge of 3% on individuals in receipt of non-PAYE income that exceeds €100,000 in a year.

Currently, individual Irish Holders may also, depending on their circumstances, be subject to Pay Related Social Insurance (PRSI) contributions of up to 4% in respect of dividend income.

Corporate Irish Holders generally will not be subject to Irish corporation tax in respect of dividends received from Fly.

Non-Irish Holders. Non-Irish Holders will not have an Irish income tax liability on dividends from us if the shareholder is neither resident nor ordinarily resident in Ireland and is:

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an individual resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland; or

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a corporation that is resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; or

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a corporation that is ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; or

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a corporation whose principal class of shares (or whose 75% or greater parent’s principal class of shares) are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance; or

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a corporation that is wholly owned by two or more corporations each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance; or

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otherwise entitled to an exemption from DWT.

If a Non-Irish Holder is not so exempted, such a shareholder will be liable for Irish income tax (currently 20%) on dividends received from us, but may be entitled to a credit for DWT withheld.

Taxation of Capital Gains

Irish Holders. Irish Holders that acquire shares will generally be considered, for Irish tax purposes, to have acquired their shares at a base cost equal to the amount paid for shares. On subsequent dispositions, shares acquired at an earlier time will generally be deemed, for Irish tax purposes, to be disposed of on a “first in first out” basis before shares acquired at a later time. Irish Holders that dispose of their shares will generally be subject to Irish capital gains tax (CGT) to the extent that the proceeds realized from such disposition exceed the base cost of the common shares or ADSs disposed of and any incidental expenses. Disposals are subject to CGT at 33%. Unutilized capital losses from other sources generally can be used to reduce gains realized on the disposal of our shares.

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An annual exemption allows individuals to realize chargeable gains of up to €1,270 in each tax year without giving rise to CGT. This exemption is specific to the individual (it is not available to corporate holders) and cannot be transferred between spouses. Irish Holders are required, under Ireland’s self-assessment system, to file a tax return reporting any chargeable gains arising to them in a particular tax year. When disposal proceeds are received in a currency other than euro they must be translated into euro amounts to calculate the amount of any chargeable gain or loss. Similarly, acquisition costs denominated in a currency other than the euro must be translated at the date of acquisition to euro amounts. Irish Holders that realize a loss on the disposition of our shares generally will be entitled to offset such allowable losses against capital gains realized from other sources in determining their CGT liability in a year. Allowable losses which remain unrelieved in a year generally may be carried forward indefinitely for CGT purposes and applied against capital gains in future years. Transfers between spouses will not give rise to any chargeable gain or loss for CGT purposes.

Non-Irish Holders. A person who is not resident or ordinarily resident in Ireland is not subject to Irish capital gains tax on the disposal of our shares unless at or before the time when the chargeable gain arose, such shares are used, held or acquired for the purposes of a trade carried on by such a shareholder though a branch or agency in Ireland.

Irish Capital Acquisitions Tax

A gift or inheritance of our shares/ADRs will be within the charge to capital acquisitions tax (CAT) where the donor/deceased is Irish resident/ordinarily resident at the date of the gift/date of inheritance or the beneficiary is Irish resident/r ordinarily resident at the date of the gift/inheritance or to the extent that the ADR has an Irish situs at the relevant date. Where the ADR is in bearer form its legal situs is where it is held and if a unit trust then where the trustees are resident.

Where an individual is non-Irish domiciled, then special rules apply to determine his/her residence for CAT purposes. CAT is payable by the beneficiary and is charged at 33% on the value of the gift / inheritance that exceeds a tax-free threshold amount. The applicable tax-free threshold depends on the relationship between the donor and the beneficiary. Gifts and inheritances between spouses are exempt from CAT. A person can receive a gift with a value of up to €3,000 per annum from any number of individuals exempt from CAT.

The Estate Tax Convention between Ireland and the United States generally provides for Irish CAT paid on inheritances in Ireland to be credited (or in certain cases exempted), in whole or in part, against federal estate tax payable in the United States, in the case where an inheritance is subject to both Irish CAT and US federal estate tax. The Estate Tax Convention does not apply to gifts.

Irish Stamp Duty

Broadly, no Irish stamp duty should arise on the issuance of the common shares. Transfers of the common shares of a non-Irish incorporated company would not ordinarily be subject to Irish stamp duty, unless the transfer related to Irish real estate or Irish stocks or marketable securities. In such cases a 1% stamp duty charge would arise for the transferee based on the consideration paid or, if higher, the market value of the shares.

Transfers of ADSs are exempt from Irish stamp duty when the ADSs are dealt in on the New York Stock Exchange, NASDAQ National Market or any recognized stock exchange in the United States or Canada.

Irish Corporation Tax

In general, Irish tax resident companies pay corporation tax at the rate of 12.5% on trading income and 25% on non-trading income. Fly and its Irish tax resident subsidiaries intend to conduct business so that they carry on a trading business for Irish tax purposes. Non-trading income, including certain categories of interest income, will be subject to corporation tax at the rate of 25%.

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U.S. Federal Income Tax Considerations

The following is a general discussion of the U.S. federal income taxation of us and of certain U.S. federal income tax consequences of acquiring, holding or disposing of the shares by U.S. Holders (as defined below) and information reporting and backup withholding rules applicable to both U.S. and Non-U.S. Holders (as defined below). It is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), issued and proposed income tax regulations (“Treasury Regulations”) promulgated thereunder, legislative history, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). In addition, the application and interpretation of certain aspects of the passive foreign investment company (“PFIC”) rules, referred to below, require the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these regulations will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. This discussion is not binding on the U.S. Internal Revenue Service (“IRS”) or the courts. This summary does not address any aspect of U.S. federal non-income tax laws, such as U.S. federal estate and gift tax laws, and does not purport to address all of the U.S. federal income tax consequences applicable to us or to all categories of investors, some of whom may be subject to special rules including, without limitation, dealers in securities, commodities, or non-U.S. currencies, financial institutions or “financial services entities,” insurance companies, holders of shares held as part of a “straddle,” “hedge,” “constructive sale,” “conversion transaction,” or other integrated transaction for U.S. federal income tax purposes, U.S. persons whose “functional currency” is not the U.S. dollar, persons who have elected “mark-to-market” accounting, persons who have not acquired their shares upon their original issuance, or in exchange for consideration other than cash, persons who hold their shares through a partnership or other entity which is a pass-through entity for U.S. federal income tax purposes, persons for whom a share is not a capital asset, and persons holding, directly indirectly or constructively, 10% or more of our shares by voting power or value. The tax consequences of an investment in our shares will depend not only on the nature of our operations and the then-applicable U.S. federal tax principles, but also on certain factual determinations that cannot be made at this time, and upon a particular investor’s individual circumstances. No rulings have been or will be sought from the IRS regarding any matter discussed herein.

For purposes of this discussion, a “U.S. Holder” is (1) a citizen or resident of the United States; (2) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust which (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A “Non-U.S. Holder” is a beneficial owner of our shares that is not a U.S. Holder and who, in addition, is not (1) a partnership or other fiscally transparent entity; (2) an individual present in the United States for 183 days or more in a taxable year who meets certain other conditions; or (3) subject to rules applicable to certain expatriates or former long-term residents of the United States. This summary does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase the shares. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States. Investors should consult their own tax advisors regarding the application of the U.S. federal tax rules, including the impact of the tax reform legislation enacted on December 22, 2017 known as the Tax Cuts and Jobs Act (the “TCJA”), to their particular circumstances as well as the state, local, non-U.S. and other tax consequences to them of the acquisition, ownership and disposition of our shares. For U.S. tax purposes holders of our ADSs are treated as if they hold the underlying common shares represented by the ADSs.

Taxation of U.S. Holders of Shares

We expect that we will be treated as a PFIC for U.S. federal income tax purposes for the current taxable year and for the foreseeable future and that U.S. Holders of shares will be subject to the PFIC rules, as summarized below. However, no assurance can be given that we (or any of our subsidiaries or any investment) will or will not be considered a PFIC in the current or future years. The determination of whether or not we are a PFIC is a factual determination that is made annually (after the close of each taxable year) based on the types of income we earn and the value of our assets, and because certain aspects of the PFIC rules are not entirely certain, there can be no assurance that we are or are not a PFIC or that the IRS will agree with our conclusion regarding our PFIC status. If we (or any of our subsidiaries) are currently or were to become a PFIC, U.S. Holders of shares would be subject to special rules and a variety of potentially adverse tax consequences under the Code. We anticipate that we will have positive earnings and profits for U.S. federal income tax purposes for the year ended December 31, 2019, which may impact the taxation of U.S. holders of shares.

Tax Consequences of PFIC Status. The Code provides special rules regarding certain distributions received by U.S. persons with respect to, and sales, exchanges and other dispositions, including pledges, of shares of stock in a PFIC. We will be treated as a PFIC if (i) 75% or more of our gross income is passive income or (ii) at least 50% of our assets are held for the production of, or produce, passive income in a taxable year, based on a quarterly average and generally by value, including our pro rata share of the gross income or assets of any company, U.S. or non-U.S., in which we are considered to own directly or indirectly 25% or more of the shares by value. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. Assuming we are a PFIC, our dividends will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. Holders. Thus, dividends (as determined for U.S. federal income tax purposes) will be taxed at the rate applicable to ordinary income of the U.S. Holder.

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Assuming we are a PFIC, U.S. Holders of our shares will be subject to different taxation rules with respect to an investment in our shares depending on whether they elect to treat us as a qualified electing fund, or a QEF, with respect to their investment in our shares. If a U.S. Holder makes a QEF election in the first taxable year in which the U.S. Holder owns our shares (assuming we continue to provide shareholders with the annual information necessary to do so), then such U.S. Holder will be required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, subject to a separate voluntary election to defer payment of taxes, which deferral is subject to an interest charge. If a QEF election is made, U.S. Holders will not be taxed again on our distributions, which will be treated as return of capital for U.S. federal income tax purposes. Instead, distributions will reduce the U.S. Holder’s basis in our shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of a capital asset.

U.S. Holders may, instead of making a QEF election, make a “mark-to-market” election, recognizing as ordinary income or loss each year an amount equal to the difference, as of the close of the taxable year, between the fair market value of the shares and the U.S. Holder’s adjusted tax basis in the shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. If the mark-to-market election were made, then the rules set forth below would not apply for periods covered by the election. The U.S. Holder’s basis in the shares will be adjusted to reflect the amounts included or deducted pursuant to the election. A mark-to-market election is only available if our shares meet trading volume requirements on qualifying exchange.

Because we are a PFIC, if a U.S. Holder does not make a QEF election or mark-to-market election, then the following special rules will apply:

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Excess distributions by us to a U.S. Holder would be taxed in a special way. “Excess distributions” are amounts received by a U.S. Holder with respect to our shares in any taxable year that exceed 125% of the average distributions received by such U.S. Holder from us in the shorter of either the three previous years or such U.S. Holder’s holding period for shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our shares. A U.S. Holder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. Holder must pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax. The preferential U.S. federal income tax rates for dividends and long-term capital gain of individual U.S. Holders (as well as certain trusts and estates) would not apply, and special rates would apply for calculating the amount of the foreign tax credit with respect to excess distributions.

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The entire amount of gain realized by a U.S. Holder upon the sale or other disposition of shares will also be treated as an excess distribution and will be subject to tax as described above.

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The tax basis in shares that were acquired from a decedent who was a U.S. Holder would not receive a step-up to fair market value as of the date of the decedent’s death but would instead be equal to the decedent’s basis, if lower than fair market value.

If a corporation is a PFIC for any taxable year during which a U.S. Holder holds shares in the corporation, then the corporation generally will continue to be treated as a PFIC with respect to such shares, even if the corporation no longer satisfies either the passive income or passive assets test described above, unless the U.S. Holder terminates this deemed PFIC status by electing to recognize gain, which will be taxed under the excess distribution rules as if such shares had been sold on the last day of the last taxable year for which the corporation was a PFIC.

The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return or, if not required to file an income tax return, by filing such form with the IRS. Even if a QEF election is not made, a shareholder in a PFIC who is a U.S. Holder must file a completed IRS Form 8621 every year. We have provided and intend to continue to provide U.S. Holders with all necessary information to enable them to make QEF elections as described above.

It is also possible that one or more of our subsidiaries is or will become a PFIC. Such determination is made annually at the end of each taxable year and is dependent upon a number of factors, some of which are beyond our control, including the amount and nature of a subsidiary’s income, as well as the market valuation and nature of a subsidiary’s assets. In such case, assuming a U.S. Holder does not receive from such subsidiary the information that the U.S. Holder needs to make a QEF election with respect to such a subsidiary, a U.S. Holder generally will be deemed to own a portion of the shares of such lower-tier PFIC and may incur liability for a deferred tax and interest charge if we receive a distribution from, or dispose of all or part of our interest in, or the U.S. Holder otherwise is deemed to have disposed of an interest in, the lower-tier PFIC (including through a sale of our shares). There is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC, or that the lower-tier PFIC will provide the required information for a U.S. Holder to make or maintain a QEF election with respect to such lower-tier PFIC. In addition, a mark-to-market election generally would not be available with respect to such a lower-tier PFIC. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by lower-tier PFICs.

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In 2018 we made an investment in Horizon I Limited, an entity that we expect to be treated as a PFIC for U.S. federal income tax purposes. In addition, in 2019 we made investments in Horizon II Limited and Horizon III Limited, entities that we also expect to be treated as PFICs for U.S. federal income tax purposes. As such, U.S. Holders may need to make a QEF election with respect to these lower-tier PFICs with their 2019 tax returns. However, there is no assurance that we will cause the lower-tier PFICs to provide the required information for a U.S. Holder to make the timely QEF election for the 2019 tax year. Further, with respect to these investments in the lower-tier PFICs, there is no assurance that we will have timely knowledge of the status of these lower-tier PFICs on an annual basis, or that we will cause the lower-tier PFICs to provide the required information for a U.S. Holder to maintain the QEF election. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by this investment.

You should consult your tax advisor about the PFIC rules, including the advisability of making a QEF election or mark-to-market election.

In addition, a U.S. Holder that is an individual (and, under proposed regulations, an entity that meets certain requirements), may be subject to certain reporting obligations with respect to shares and if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the IRS. Significant penalties can apply and the period of limitations on assessment and collection of United States federal income taxes may be extended if holders are required to make this disclosure and fail to do so. In addition, a U.S. Holder should consider the possible obligation to file annually FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) as a result of holding shares. Holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of shares.

Taxation of the Disposition of Shares. Subject to the next paragraph, a U.S. Holder that has made a QEF election for the first year of its holding period will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s basis in the shares, which is usually the cost of such shares (as adjusted to take into account any QEF inclusion, which increases the basis of such shares, and any distribution, which decreases the basis of such shares) and the amount realized on a sale or other taxable disposition of the shares. If, as anticipated, the shares are publicly traded, a disposition of shares will be considered to occur on the “trade date,” regardless of the U.S. Holder’s method of accounting. If a QEF election has been made, then subject to the next paragraph, capital gain from the sale, exchange or other taxable disposition of shares held more than one year is long-term capital gain and generally is eligible for preferential tax rates (currently at a maximum 20% rate) for non-corporate U.S. Holders.

In the event any of our subsidiaries is treated as a PFIC and a QEF election is not made for such subsidiary, a U.S. Holder may incur liability for a deferred tax (imposed at ordinary rates) and an interest charge in respect of such subsidiary upon a disposition by such U.S. Holder of some or all of our shares, in the same manner as if we had sold or disposed of some or all of the shares of such subsidiary. U.S. Holders should consult with their tax advisors regarding the consequences to them of a sale or other disposition of our shares in a case where we have a subsidiary with respect to which a QEF election is not made.

As noted above, on December 22, 2017 the U.S. government enacted a comprehensive tax reform legislation commonly referred to as the TCJA. The TCJA amended the Internal Revenue Code to reduce tax rates and modify credits, and deductions for individuals and businesses. We have considered the provisions of the TCJA and believe that they do not alter the U.S. tax treatment as identified above.

Medicare Tax

Certain U.S. Holders who are individuals, estates or trusts are required to pay a 3.8% Medicare surtax on all or part of that U.S. Holder’s “net investment income”, which includes, among other items, dividends on, and capital gains from the sale or other taxable disposition of, the shares, subject to certain limitations and exceptions. Prospective investors should consult their own tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the shares.

Information Reporting and Backup Withholding for U.S. Holders

Dividend payments made within the United States with respect to the shares, and proceeds from the sale, exchange or redemption of shares, may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. Generally, a U.S. Holder will provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s tax liability, and a U.S. Holder may obtain a refund of any excess amount withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS.

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Information Reporting and Backup Withholding for Non-U.S. Holders

Information reporting to the United States and backup withholding to the IRS generally would not be required for dividends paid on our shares or proceeds received upon the sale, exchange or redemption of our shares to Non-U.S. Holders who hold or sell our shares through the non-U.S. office of a non-U.S. related broker or financial institution. Information reporting and backup withholding may apply if shares are held by a Non-U.S. Holder through a U.S., or U.S.-related, broker or financial institution, or the U.S. office of a non-U.S. broker or financial institution and the Non-U.S. Holder fails to establish an exemption from information reporting and backup withholding by certifying such holder’s status on IRS Form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY, as applicable.

The IRS may make information reported to you and the IRS available under the provisions of an applicable income tax treaty to the tax authorities in the country in which you reside. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, if any, provided the required information is timely furnished by you to the IRS. You should consult your own tax advisors regarding the filing of a U.S. tax return for claiming a refund of any such backup withholding. Non-U.S. Holders should consult their tax advisors regarding the application of these rules.

Taxation of Fly and Our Subsidiaries

Although Fly’s income is primarily subject to corporate tax in Ireland, part of our income is also subject to taxation in France, Australia and Malta.

In 2011, Fly made a 57.41% investment in Fly-Z/C LP, a US partnership incorporated in Delaware. The partnership wholly owns an Irish company, Fly-Z/C Aircraft Limited. Fly-Z/C LP and Fly-Z/C Aircraft Limited are not expected to have a U.S. trade or business subject to tax on effectively connected income or a U.S. permanent establishment subject to tax on business profits under Article 7. Effectively connected taxable income means the taxable income of the partnership which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.

Each year we have qualified for the benefits of the U.S. and Ireland tax treaty (the “Irish Treaty”), and we expect to be a qualified resident under the Irish treaty. No assurances can be given, however, that we will continue to qualify for the benefits of the Irish Treaty or that we will not in the future be treated as maintaining a permanent establishment in the United States or having income that is effectively connected with the conduct of a trade or business in the United States. In order for us and our subsidiaries to be eligible for the benefits of the Irish Treaty for a particular fiscal year, we must each satisfy the requirements of Article 23 (Limitation on Benefits) of the Irish Treaty for that fiscal year. We will be eligible for the benefits of the Irish Treaty if the principal class of our shares is substantially and regularly traded on one or more recognized stock exchanges. Our shares will be considered substantially and regularly traded on one or more recognized stock exchanges in a fiscal year if (1) trades in such shares are effected on such stock exchanges in more than de minimis quantities during every quarter; and (2) the aggregate number of shares traded on such stock exchanges during the previous fiscal year is at least 6% of the average number of shares outstanding during that taxable year. We satisfied this requirement for each of the years since our inception. If our shares cease to be treated as regularly traded, then we may no longer be eligible for the benefits of the Irish Treaty. Our subsidiaries and investees that are Irish tax-resident, including Fly-Z/C Aircraft Limited, will be eligible for benefits under the Irish Treaty if we hold, directly or indirectly, 50% or more of the vote and value of the subsidiary and we meet the regularly traded test described above.

If we or any subsidiary were not entitled to the benefits of the Irish Treaty, any income that we or that subsidiary earns that is treated as effectively connected with a trade or business in the United States, either directly or through agents, would be subject to tax in the United States at a rate of 21%. In addition, we or that subsidiary would be subject to the U.S. federal branch profits tax at a rate of 30% on its effectively connected earnings and profits, considered distributed from the U.S. business. In addition, if we did not qualify for the Irish Treaty benefits, certain U.S. source rental income not connected with a U.S. trade or business could be subject to withholding tax of 30% and certain U.S. source gross transportation income could be subject to a 4% gross transportation tax if an exemption did not apply.

Bermuda Tax Considerations

We are incorporated under the laws of Bermuda. At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda.

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Bermuda Economic Substance Regulation

Bermuda has enacted legislation that requires certain entities in Bermuda engaged in a list of enumerated activities to maintain a substantial economic presence in Bermuda and to satisfy economic substance requirements. We are an exempted Bermuda company and entities within the scope of the legislation (‘registered entities’) include exempted Bermuda companies, where carrying on a ‘relevant activity’ as a business, but does not include non-resident entities. For this purpose, a non-resident entity is an entity which is resident for tax purposes in a jurisdiction outside Bermuda which is not designated by the EU as a non-cooperative jurisdiction for tax purposes. As we are tax resident in Ireland, we qualify as such a non-resident entity and are therefore outside the scope of this new legislation.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate 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. Interest rate risk is highly sensitive due 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 lease agreements and our floating rate debt obligations. As of December 31, 2019 , we had 82 lease agreements (excluding lease agreements associated with aircraft classified as held for sale) and seven engine lease agreements. 83 of these lease agreements had fixed lease rates and six had floating lease rates based on LIBOR. Our floating rate indebtedness requires payments based on a variable interest rate index such as LIBOR. Therefore, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding proportional increase in rents or cash flow from our leases.

We have entered into interest rate swap contracts to mitigate the interest rate fluctuation risk associated with our debt. We expect that these interest rate swap contracts will significantly reduce the additional interest expense that would be caused by an increase in variable interest rates.

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. A sensitivity analysis 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 complex market reactions that normally would arise from the market shifts. 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 hypothetical disclosure also is selective in nature and addresses only the potential impacts on our financial instruments and our variable rate leases. It does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.

Assuming we do not hedge our exposure to interest rate fluctuations, a hypothetical 100 basis-point increase or decrease in our variable interest rates would have increased or decreased our interest expense by $15.3 million, and would have increased or decreased our revenues by $4.3 million on an annualized basis.

The fair value of our interest rate swap contracts is affected by changes in interest rates and credit risk of the parties to the swap. We determine the fair value of our derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of Fly’s credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads, and measures of volatility. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive income, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that do not qualify for hedge accounting treatment are recognized directly into income. As of December 31, 2019, the fair value of our interest rate swap derivative liabilities, excluding accrued interest, was $27.0 million. A 100 basis-point increase in the interest rate would reduce the fair value of our derivative liabilities by approximately $24.4 million. A 100 basis-point decrease in the interest rate would increase the fair value of our derivative liabilities by approximately $25.7 million.

Foreign Currency Exchange Risk

We receive substantially all of our revenue in U.S. Dollars. We have two leases pursuant to which we receive a portion of the rent amount in Euros. In 2018, we entered into a cross currency swap contract to mitigate our exposure to foreign currency exchange fluctuations in conjunction with one of these leases. As of December 31, 2019, the fair value of our cross currency swap derivative asset, excluding accrued rent, was $4.8 million. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate would decrease or increase the fair value of our derivative asset by approximately $5.1 million, respectively. For the other Euro denominated lease, a 10% increase or decrease in the Euro to U.S. Dollar exchange rate would increase or decrease the annual rental revenue by $0.3 million, respectively.

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As of December 31, 2019, we had one aircraft secured borrowing denominated in Euros. During the year ended December 31, 2019, we recorded an unrealized foreign currency exchange gain of $0.3 million associated with this borrowing, resulting primarily from an increase in value of the U.S. Dollar relative to the Euro. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate on the Euro denominated borrowing at December 31, 2019 would have resulted in a $1.6 million unrealized foreign exchange loss or gain, respectively.

We pay substantially all of our expenses in U.S. Dollars. However, we incur some of our expenses in other currencies, primarily the Euro. Changes in the value of the U.S. Dollar relative to the Euro and other currencies may increase the U.S. Dollar cost to us to pay such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. Volatility in foreign exchange rates could have a material impact on our results of operations.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

American Depositary Shares

Fees and Expenses

We pay all fees, charges and expenses of the depositary, Deutsche Bank Trust Company Americas (the “Depositary”) and any agent of the Depositary pursuant to agreements from time to time between us and the Depositary, except that if a holder elects to withdraw the common shares underlying their American Depositary Receipts, or ADRs, from the Depositary they will be required to pay the Depositary a fee of up to US$5.00 per 100 ADSs surrendered or any portion thereof, together with expenses incurred by the Depositary and any taxes or charges, such as stamp taxes or stock transfer taxes or fees, in connection with the withdrawal.

We will not receive any portion of the fee payable to the Depositary upon a withdrawal of shares from the Depositary. The Depositary will not make any payments to us, and we will not receive any portion of any fees collected by the Depositary.

Dividends and Other Distributions

The Depositary has agreed to pay holders of ADRs the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, less any fees for withholding taxes, duties and other governmental charges. Dividends on our shares are subject to deduction of Irish withholding taxes, unless an exemption to withholding is available. U.S. holders of ADSs (including U.S. citizens or residents) are entitled to claim a refund of Irish withholding taxes on dividends. Unless a U.S. holder of ADSs otherwise specifies, a customary fee of $0.005 per ADS will be deducted from each dividend paid to such holder so that such dividend may be paid gross of Irish withholding taxes.

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PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.

CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

As of December 31, 2019, an evaluation was conducted under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Management of Fly Leasing Limited is responsible for establishing and maintaining adequate internal control over financial reporting for our company. With the participation of our Chief Executive Officer and our Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2019 using the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

Our independent auditor, Deloitte & Touche LLP, a registered public accounting firm, has issued their report which is included below.

To the shareholders and the Board of Directors of

Fly Leasing Limited

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Fly Leasing Limited and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2019, of the Company and our report dated February 28, 2020, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

San Francisco, CA

February 28, 2020

(d) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Our board has determined that Joseph M. Donovan, the Chairman of our Audit Committee of the Board of Directors, qualifies as an audit committee financial expert and is “independent” as defined under the applicable rules of the New York Stock Exchange. See Item 6 — Directors, Senior Management and Employees.

ITEM 16B.

CODE OF ETHICS

We have adopted our (i) Board Governance Document, (ii) Code of Business Conduct and Ethics and (iii) Supplemental Code of Ethics for the Chief Executive Officer and Senior Officers. These documents, along with the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available under “Corporate Governance” in the “About Fly Leasing” section of our website (www.flyleasing.com) .

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our principal accountants for the years ended December 31, 2019 and 2018 were Deloitte & Touche LLP.

The table below summarizes the fees for professional services rendered by Deloitte & Touche LLP for the audit of our annual financial statements for the years ended December 31, 2019 and 2018, respectively, and fees billed for other services rendered (in thousands):

	Years ended
	2019					2018
	Amount		%			Amount		%
Audit fees	$	2,014		88	%	$	2,187		91	%
Tax fees		240		10	%		228		9	%
All other fees		36		2	%		3		—
Total	$	2,290		100	%	$	2,418		100	%

The Audit Committee pre-approves all audit and non-audit services provided to the Company by its auditors.

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ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Issuer Purchases of Equity Securities

The following table summarizes the repurchase of our common shares during the year ended December 31, 2019:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Repurchased Plan		Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ⁽¹⁾
January 1-31, 2019		—	$	—		—	$	50.0 million
February 1-28, 2019		—	$	—		—	$	50.0 million
March 1-31, 2019		197,592	$	13.59		197,592	$	47.3 million
April 1-30, 2019		29,597	$	13.97		29,597	$	46.9 million
May 1-31, 2019		502,954	$	16.27		502,954	$	38.7 million
June 1-30, 2019		937,802	$	16.75		937,802	$	23.0 million
July 1-31, 2019		84,016	$	16.99		84,016	$	21.5 million
August 1-31, 2019		258,476	$	16.78		258,476	$	17.2 million
September 1-30, 2019		—	$	—		—	$	50.0 million
October 1-31, 2019		—	$	—		—	$	50.0 million
November 1-30, 2019		—	$	—		—	$	50.0 million
December 1-31, 2019		—	$	—		—	$	50.0 million

(1)

In November 2018, our board of directors approved a $50.0 million share repurchase program expiring in December 2019. In August 2019, our board of directors approved a new $50.0 million share repurchase program to replace our then existing program, expiring in September 2020. Under this program, Fly may make share repurchases from time to time in the open market or in privately negotiated transactions.

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.

CORPORATE GOVERNANCE

The New York Stock Exchange requires companies with listed shares to comply with its corporate governance standards. As a foreign private issuer, we are not required to comply with all of the rules that apply to listed U.S. companies. Nevertheless, we have generally chosen to comply with the New York Stock Exchange’s corporate governance rules as though we were a U.S. company. Accordingly, we do not believe there are any significant differences between our corporate governance practices and those that would typically apply to a U.S. domestic issuer under the New York Stock Exchange corporate governance rules.

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17.

FINANCIAL STATEMENTS

See Item 18 below for information regarding our financial statements and additional information required to be disclosed under this Item.

F-1

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ITEM 18.

FINANCIAL STATEMENTS

INDEX

	Page
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets of Fly Leasing Limited as of December 31, 2019 and 2018	F-4
Consolidated Statements of Income of Fly Leasing Limited for the years ended December 31, 2019, 2018 and 2017	F-5
Consolidated Statements of Comprehensive Income of Fly Leasing Limited for the years ended December 31, 2019, 2018 and 2017	F-6
Consolidated Statements of Shareholders’ Equity of Fly Leasing Limited for the years ended December 31, 2017, 2018 and 2019	F-7
Consolidated Statements of Cash Flows of Fly Leasing Limited for the years ended December 31, 2019, 2018 and 2017	F-8
Notes to Consolidated Financial Statements	F-10
Schedule I — Condensed Financial Information of Parent	F-38

F-2

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Report of Independent Registered Public Accounting Firm

To the shareholders and the Board of Directors of

Fly Leasing Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Fly Leasing Limited and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 18 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

San Francisco, CA

February 28, 2020

We have served as the Company’s auditor since 2015.

F-3

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Fly Leasing Limited

Consolidated Balance Sheets

AT DECEMBER 31, 2019 AND 2018

(Dollars in thousands, except par value data)

	December 31,
	2019			2018

Assets
Cash and cash equivalents	$	285,565		$	180,211
Restricted cash and cash equivalents		52,738			100,869
Rent receivables		14,264			9,307
Investment in finance lease, net		11,639			12,822
Flight equipment held for sale, net		144,119			259,644
Flight equipment held for operating lease, net		2,720,000			3,228,018
Maintenance rights		290,958			298,207
Deferred tax asset, net		11,675			6,505
Fair value of derivative assets		4,824			5,929
Other assets, net		129,377			124,960
Total assets	$	3,665,159		$	4,226,472
Liabilities
Accounts payable and accrued liabilities	$	22,746		$	23,146
Rentals received in advance		16,391			21,322
Payable to related parties		10,077			4,462
Security deposits		40,726			60,097
Maintenance payment liability, net		219,371			292,586
Unsecured borrowings, net		619,407			617,664
Secured borrowings, net		1,695,525			2,379,869
Deferred tax liability, net		57,935			36,256
Fair value of derivative liabilities		27,943			8,558
Other liabilities		76,761			80,402
Total liabilities		2,786,882			3,524,362
Shareholders’ equity
Common shares, $0.001 par value; 499,999,900 shares authorized; 30,898,410 and 32,650,019 shares issued and outstanding at December 31, 2019 and 2018, respectively		31			33
Manager shares, $0.001 par value; 100 shares authorized, issued and outstanding		—			—
Additional paid-in capital		516,254			549,123
Retained earnings		380,392			154,347
Accumulated other comprehensive loss, net		(18,400	)		(1,393	)
Total shareholders’ equity		878,277			702,110
Total liabilities and shareholders’ equity	$	3,665,159		$	4,226,472

The accompanying notes are an integral part of these consolidated financial statements.

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Fly Leasing Limited

Consolidated Statements of Income

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands, except per share data)

	Years ended
	2019		2018			2017
Revenues
Operating lease revenue	$	464,399	$	399,514		$	346,894
Finance lease revenue		618		675			731
Equity earnings (loss) from unconsolidated subsidiary		2,717		(54	)		496
Gain on sale of aircraft		97,323		13,398			3,926
Interest and other income		9,967		4,766			1,204
Total revenues		575,024		418,299			353,251
Expenses
Depreciation		140,798		144,084			133,227
Aircraft impairment		—		—			22,000
Interest expense		137,133		144,742			127,782
Selling, general and administrative		35,304		31,185			30,671
Loss (gain) on derivatives		2,720		(2,382	)		(192	)
Loss on modification and extinguishment of debt		9,590		2,474			23,309
Maintenance and other costs		3,075		2,547			2,524
Total expenses		328,620		322,650			339,321
Net income before provision for income taxes		246,404		95,649			13,930
Provision for income taxes		20,527		9,926			11,332
Net income	$	225,877	$	85,723		$	2,598
Weighted average number of shares:
Basic		31,607,781		29,744,083			30,307,357
Diluted		31,715,469		29,783,904			30,353,425
Earnings per share:
Basic	$	7.15	$	2.88		$	0.09
Diluted	$	7.12	$	2.88		$	0.09

The accompanying notes are an integral part of these consolidated financial statements.

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Fly Leasing Limited

Consolidated Statements of Comprehensive Income

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands)

	Years ended
	2019			2018			2017
Net income	$	225,877		$	85,723		$	2,598
Other components of comprehensive income (loss), net of tax:
Change in fair value of derivatives, net of deferred tax ⁽¹⁾		(19,668	)		(530	)		3,926
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax ⁽²⁾		2,829			3,717			1,239
Comprehensive income	$	209,038		$	88,910		$	7,763

(1)	The associated deferred tax benefit for the years ended December 31, 2019 and 2018 was $ 3.5 million and $0.7 million, respectively . The associated deferred tax expense was $0.6 million for the year ended December 31, 2017.

(2)	The associated deferred tax expense was $0.4 million, $0.3 million and $0.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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Fly Leasing Limited

Consolidated Statements of Shareholders’ Equity

FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

(Dollars in thousands)

	Manager Shares				Common Shares						Additional					Accumulated Other			Total
	Shares		Amount		Shares			Amount			Paid-in Capital			Retained Earnings		Comprehensive Loss, net			Shareholders’ Equity
Balance December 31, 2016		100	$	—		32,256,440		$	32		$	536,922		$	66,026	$	(9,745	)	$	593,235
Shares issued in connection with SARs exercised		—		—		1,481			—			—			—		—			—
Shares repurchased		—		—		(4,274,569	)		(4	)		(57,285	)		—		—			(57,289	)
Net income		—		—		—			—			—			2,598		—			2,598
Net change in the fair value of derivatives, net of deferred tax of $0.6 million ⁽¹⁾		—		—		—			—			—			—		3,926			3,926
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.2 million ⁽¹⁾		—		—		—			—			—			—		1,239			1,239
Balance December 31, 2017		100	$	—		27,983,352		$	28		$	479,637		$	68,624	$	(4,580	)	$	543,709
Shares issued in connection with AirAsia transactions		—		—		4,666,667			5			69,486			—		—			69,491
Net income		—		—		—			—			—			85,723		—			85,723
Net change in the fair value of derivatives, net of deferred tax of $0.7 million ⁽¹⁾		—		—		—			—			—			—		(530	)		(530	)
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.3 million ⁽¹⁾		—		—		—			—			—			—		3,717			3,717
Balance December 31, 2018		100	$	—		32,650,019		$	33		$	549,123		$	154,347	$	(1,393	)	$	702,110
Reclassification from prior period losses into other comprehensive loss due to adoption of new accounting guidance, net of deferred tax of $0.1 million ⁽¹⁾															168		(168	)		—
Adjusted balance January 1, 2019		100		—		32,650,019			33			549,123			154,515		(1,561	)		702,110
Shares issued in connection with SARs exercised		—		—		258,828			—			—			—		—			—
Shares repurchased		—		—		(2,010,437	)		(2	)		(32,869	)		—		—			(32,871	)
Net income		—		—		—			—			—			225,877		—			225,877
Net change in the fair value of derivatives, net of deferred tax of $3.5 million ⁽¹⁾		—		—		—			—			—			—		(19,668	)		(19,668	)
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.4 million ⁽¹⁾		—		—		—			—			—			—		2,829			2,829
Balance December 31, 2019		100	$	—		30,898,410		$	31		$	516,254		$	380,392	$	(18,400	)	$	878,277

(1)	See Note 11 to Notes to Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

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Fly Leasing Limited

Consolidated Statements of Cash Flows

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands)

	Years ended
	2019			2018			2017
Cash Flows from Operating Activities
Net income	$	225,877		$	85,723		$	2,598
Adjustments to reconcile net income to net cash flows provided by operating activities:
Finance lease revenue		(618	)		(675	)		(731	)
Equity in (earnings) loss from unconsolidated subsidiary		(2,717	)		54			(496	)
Gain on sale of aircraft		(97,323	)		(13,398	)		(3,926	)
Depreciation		140,798			144,084			133,227
Aircraft impairment		—			—			22,000
Amortization of debt discounts and debt issuance costs		9,906			9,455			7,955
Amortization of lease incentives and other items		6,152			11,409			9,303
Loss on modification and extinguishment of debt		9,590			2,474			23,309
Unrealized foreign exchange (gain) loss		(271	)		(563	)		2,305
Provision for deferred income taxes		20,449			9,864			5,178
Loss (gain) on derivative instruments		3,224			(1,269	)		(478	)
Security deposits and maintenance payment liability recognized into earnings		(47,890	)		(15,597	)		(16,268	)
Distributions from unconsolidated subsidiary		2,727			2,131			—
Cash receipts from maintenance rights		4,637			3,013			—
Maintenance rights recognized into earnings		—			—			465
Changes in operating assets and liabilities:
Rent receivables		(10,668	)		(12,866	)		(4,251	)
Other assets		(2,160	)		(4,119	)		(2,599	)
Payable to related parties		5,615			2,378			(10,126	)
Accounts payable, accrued liabilities and other liabilities		4,842			18,982			11,588
Net cash flows provided by operating activities		272,170			241,080			179,053
Cash Flows from Investing Activities
Distributions from unconsolidated subsidiary		2,639			3,103			—
Rent received from finance lease		1,800			1,800			1,880
Net payments for derivative settlements		(3,208	)		—			—
Investment income from equity certificates		1,603			—			—
Purchase of equity certificates		(10,481	)		(5,747	)		—
Purchase of flight equipment		(319,995	)		(934,481	)		(434,122	)
Proceeds from sale of aircraft, net		824,116			177,702			21,750
Capitalized interest on Portfolio B orderbook		(4,893	)		—			—
Purchase price allocated to Portfolio B orderbook value		—			(80,450	)		—
Payments for aircraft improvement		(8,085	)		(6,779	)		(7,357	)
Payments for lessor maintenance obligations		(2,110	)		(8,601	)		(12,564	)
Net cash flows provided by (used in) investing activities		481,386			(853,453	)		(430,413	)

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	Years ended
	2019			2018			2017
Cash Flows from Financing Activities
Security deposits received		4,369			15,042			7,196
Security deposits returned		(4,617	)		(8,716	)		(3,554	)
Maintenance payment liability receipts		60,744			84,102			75,765
Maintenance payment liability disbursements		(22,567	)		(15,495	)		(14,303	)
Net swap termination payments		—			1,801			—
Debt modification and extinguishment costs		(2,052	)		301			(17,396	)
Debt issuance costs		(342	)		(3,619	)		(1,464	)
Proceeds from unsecured borrowings		—			—			295,150
Repayment of unsecured borrowings		—			—			(375,000	)
Proceeds from secured borrowings		—			826,396			513,459
Repayment of secured borrowings		(698,989	)		(482,703	)		(326,909	)
Net proceeds from issuance of shares		—			19,624			—
Shares repurchased		(32,871	)		—			(57,286	)
Net cash flows (used in) provided by financing activities		(696,325	)		436,733			95,658
Effect of exchange rate changes on unrestricted and restricted cash and cash equivalents		(8	)		(95	)		430
Net increase (decrease) in unrestricted and restricted cash and cash equivalents		57,223			(175,735	)		(155,272	)
Unrestricted and restricted cash and cash equivalents at beginning of year		281,080			456,815			612,087
Unrestricted and restricted cash and cash equivalents at end of year	$	338,303		$	281,080		$	456,815

Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents	$	285,565		$	180,211		$	329,105
Restricted cash and cash equivalents		52,738			100,869			127,710
Unrestricted and restricted cash and cash equivalents	$	338,303		$	281,080		$	456,815

The accompanying notes are an integral part of these consolidated financial statements.

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Fly Leasing Limited

Notes to Consolidated Financial Statements

For the year ended December 31, 2019

1.	ORGANIZATION

Fly Leasing Limited (“Fly”) is a Bermuda exempted company that was incorporated on May 3, 2007, under the provisions of Section 14 of the Companies Act 1981 of Bermuda. Fly was formed to acquire, finance, lease and sell commercial jet aircraft directly or indirectly through its subsidiaries (Fly and its subsidiaries collectively, the “Company”).

Although Fly is organized under the laws of Bermuda, it is a resident of Ireland for tax purposes and is subject to Irish corporation tax on its income in the same way, and to the same extent, as if the Company was organized under the laws of Ireland.

In accordance with Fly’s amended and restated bye-laws, Fly issued 100 shares (“Manager Shares”) with a par value of $0.001 to Fly Leasing Management Co. Limited (the “Manager”) for no consideration. Subject to the provisions of Fly’s amended and restated bye-laws, the Manager Shares have the right to appoint the nearest whole number of directors to Fly which is not more than 3/7th of the number of directors comprising the board of directors. The Manager Shares are not entitled to receive any dividends, are not convertible into common shares and, except as provided for in Fly’s amended and restated bye-laws, have no voting rights.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

Fly is a holding company that conducts its business through its subsidiaries. Fly directly or indirectly owns all of the common shares of its consolidated subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of Fly and all of its subsidiaries. In instances where it is the primary beneficiary, the Company consolidates a Variable Interest Entity (“VIE”). Fly is deemed the primary beneficiary when it has both the power to direct the activities of the VIE that most significantly impact the economic performance of such VIE, and it bears the significant risk of loss and participates in gains of the VIE. All intercompany transactions and balances have been eliminated. The consolidated financial statements are stated in U.S. Dollars, which is the principal operating currency of the Company.

The Company has one operating and reportable segment which is aircraft and aircraft equipment leasing.

Certain amounts in prior period consolidated financial statements have been reclassified to conform to the current period presentation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, deferred tax assets, liabilities and reserves. To the extent available, the Company utilizes industry specific resources, third-party appraisers and other materials to support management’s estimates, particularly with respect to flight equipment. Despite management’s best efforts to accurately estimate such amounts, actual results could differ from those estimates.

RISKS AND UNCERTAINTIES

The Company encounters several types of risk during the course of its business, including credit, market, aviation industry and capital market risks. Credit risk addresses a lessee’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects the change in the value of derivatives and credit facilities due to changes in interest rate spreads or other market factors, including the value of collateral underlying the Company’s credit facilities. Aviation industry risk is the risk of a downturn in the commercial aviation industry, as a result of global, regional or industry-specific factors, which could adversely impact a lessee’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of the Company’s aircraft and aircraft equipment. 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 credit facilities.

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CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

RESTRICTED CASH AND CASH EQUIVALENTS

The Company’s restricted cash and cash equivalents consist primarily of (i) security deposits and certain maintenance payments received from lessees under the terms of the lease agreements, (ii) a portion of rents collected which may be required to be held as cash collateral under certain of the Company’s debt facilities and (iii) other cash, which may be subject to withdrawal restrictions pursuant to the Company’s credit agreements. All restricted cash is held by major financial institutions in segregated accounts.

RENT RECEIVABLES

Rent receivables represent unpaid lessee obligations under existing lease contracts. Any allowance for doubtful accounts is established on a specific identification basis and is maintained at a level believed by management to be adequate to absorb probable losses associated with rent receivables. The assessment of credit risk is primarily based on the extent to which amounts outstanding exceed the value of security held, the financial strength and condition of a debtor and the current economic and regulatory conditions of the debtor’s operating environment. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows and consideration of current factors and economic trends impacting the lessees and their credit worthiness, all of which may be susceptible to significant change. Uncollectible rent receivables are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is recorded based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. As of December 31, 2019 and 2018, the Company had no allowance for doubtful accounts.

In addition, the Company places a lessee on non-accrual status once it determines that it is no longer probable that the Company will receive the economic benefits of the lease. The Company recognizes revenue from a lessee on non-accrual status to the extent cash is received.

INVESTMENT IN FINANCE LEASE

The Company has recorded one lease as an investment in finance lease. The investment in finance lease equals the sum of amounts to be received under the lease, plus the estimated residual value of the equipment at lease termination, less unearned income. Residual value reflects management’s estimate of the amounts to be received at lease termination from the re-lease or disposition of the leased equipment. Initial unearned income represents the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is recognized as finance lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease based on an implicit interest rate. Initial direct costs and fees related to lease origination are deferred as part of the investment and amortized over the lease term.

FLIGHT EQUIPMENT HELD FOR SALE

Flight equipment is classified as held for sale when the Company commits to and commences a plan of sale that is reasonably expected to be completed within one year and satisfies other criteria. Flight equipment held for sale is recorded at the lesser of carrying value or fair value, less estimated cost to sell. The Company continues to recognize rent from aircraft held for sale until the date the aircraft is sold. An impairment loss is recorded for an asset or asset group held for sale when the carrying value of the asset or asset group exceeds its fair value, less estimated cost to sell. Aircraft classified as flight equipment held for sale are not depreciated.

Subsequent changes to the asset’s fair value are recorded as adjustments to the carrying value of the flight equipment. However, any such adjustment will not cause the asset’s fair value to exceed its original carrying value.

FLIGHT EQUIPMENT HELD FOR OPERATING LEASE

Flight equipment held for operating lease is recorded at cost, net of any impairment charges, and depreciated to estimated residual values on a straight-line basis over their estimated remaining useful lives. Useful life is generally 25 years from the date of manufacture. Residual values are generally estimated to be 15% of the original manufacturer’s estimated realized price for the flight equipment when new. Management may, at its discretion, make exceptions to this policy on a case by case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of residual values. Examples of such situations include, but are not limited to:

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Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions.

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Flight equipment that is out of production and may have a shorter useful life or lower residual value due to obsolescence.

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The remaining life of a converted freighter is determined based on the date of conversion, in which case, the total useful life may extend beyond 25 years from the date of manufacture.

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Flight equipment that management believes will be disposed of prior to the end of its estimated useful life.

Estimated residual values and useful lives of flight equipment are reviewed and adjusted, if appropriate, during each reporting period.

Major aircraft improvements or lessee-specific aircraft modifications to be performed by the Company pursuant to a lease agreement are accounted for as lease incentives and amortized against revenue over the term of the lease, assuming no lease renewal. Generally, lessees are responsible for repairs, scheduled maintenance and overhauls during the lease term and compliance with return conditions of flight equipment at lease termination.

Major aircraft improvements and modifications incurred during an off-lease period are capitalized and depreciated over a period to the next scheduled maintenance event. In addition, costs paid by the Company for scheduled maintenance and overhauls are also capitalized and depreciated over a period to the next scheduled maintenance or overhaul event. Miscellaneous repairs are expensed when incurred.

IMPAIRMENT OF FLIGHT EQUIPMENT

The Company evaluates flight equipment for impairment when circumstances indicate that the carrying amounts of such assets may not be recoverable. The Company’s evaluation of impairment indicators include, but are not limited to, recent transactions for similar aircraft or aircraft equipment, adverse changes in market conditions for specific aircraft or engine types, third party appraisals of aircraft and aircraft equipment, published values for similar aircraft or aircraft equipment, any occurrence of adverse changes in the aviation industry and the overall market conditions that could impact the fair value of the Company’s aircraft and aircraft equipment. The review for recoverability includes an assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will assess whether the carrying values of the flight equipment exceed the fair values and an impairment loss is required. The undiscounted cash flows consist of cash flows from currently contracted leases, future projected lease rates, transition costs, estimated down time and estimated residual or scrap values for an aircraft. The Company will also record an impairment charge if the expected sale proceeds of an aircraft or aircraft equipment are less than its carrying value. The impairment loss is measured as the excess of the carrying amount of the impaired asset over its fair value.

Impairment analyses require the use of assumptions and estimates, including the level of future rents, the residual value of the flight equipment to be realized upon sale at some future date, estimated downtime between re-leasing events and the amount of re-leasing costs.

MAINTENANCE RIGHTS

The Company identifies, measures and accounts for maintenance right assets and liabilities associated with its acquisitions of aircraft or aircraft equipment with in-place leases. A maintenance right asset represents the value of its contractual right under a lease to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company’s obligation to pay the lessee for the difference between the contractual maintenance condition of the aircraft or aircraft equipment at lease expiry and the actual maintenance condition of the aircraft or aircraft equipment on the acquisition date.

The Company’s aircraft and aircraft equipment are typically subject to triple-net leases pursuant to which the lessee is responsible for maintenance, which is accomplished through one of two types of provisions in its leases: (i) end of lease return conditions (EOL Leases) or (ii) periodic maintenance payments (MR Leases).

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EOL Leases

Maintenance right assets in EOL Leases represent the difference in value between the contractual right to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. Maintenance right liabilities exist in EOL Leases if, on the acquisition date, the maintenance condition of the aircraft or aircraft equipment is greater than the contractual return condition in the lease at lease expiry and the Company is required to pay the lessee in cash for the improved maintenance condition.

When the Company has recorded maintenance right assets with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment to the Company by the lessee, the maintenance right asset is relieved and an aircraft improvement is recorded to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy; (ii) the lessee pays the Company cash compensation at lease expiry in excess of the value of the maintenance right asset, the maintenance right asset is relieved and any excess is recognized as end of lease income; or (iii) the lessee pays the Company cash compensation at lease expiry that is less than the value of the maintenance right asset, the cash is applied to the maintenance right asset and the balance of such asset is relieved and recorded as an aircraft improvement to the extent the improvement is substantiated and meets the Company’s capitalization policy. Any aircraft improvement will be depreciated over a period to the next scheduled maintenance event in accordance with the Company’s policy with respect to major maintenance.

When the Company has recorded maintenance right liabilities with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment by the Company to the lessee, the maintenance right liability is relieved and end of lease income is recognized; (ii) the Company pays the lessee cash compensation at lease expiry of less than the value of the maintenance right liability, the maintenance right liability is relieved and any difference is recognized as end of lease income; or (iii) the Company pays the lessee cash compensation at lease expiry in excess of the value of the maintenance right liability, the maintenance right liability is relieved and the excess amount is recorded as an aircraft improvement to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy.

MR Leases

Under MR Leases, the lessee is required to make periodic maintenance payments to the Company based upon usage of the aircraft or aircraft equipment. When qualified major maintenance is performed during the lease term, the Company is required to reimburse the lessee for the costs associated with such maintenance. At the end of lease, the Company is entitled to retain any cash receipts in excess of the required reimbursements to the lessee.

Maintenance right assets in MR Leases represent the right to receive an aircraft or aircraft equipment in an improved condition relative to the actual condition on the acquisition date. The aircraft or aircraft equipment is improved by the performance of qualified major maintenance paid for by the lessee who is reimbursed by the Company from the periodic maintenance payments that it receives.

When the Company has recorded maintenance right assets with respect to MR Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry and no qualified major maintenance has been performed by the lessee since the acquisition date, the maintenance right asset is offset by the amount of the associated maintenance payment liability and any excess is recorded as end of lease income; or (ii) the Company has reimbursed the lessee for the performance of qualified major maintenance, the maintenance right asset is relieved and an aircraft improvement is recorded.

There are no maintenance right liabilities for MR Leases.

When flight equipment is sold, maintenance rights are released from the balance sheet as part of the disposition gain or loss.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to manage its exposure to interest rate and foreign currency risks. All derivatives are recognized on the balance sheet at their fair values. Pursuant to U.S. GAAP, changes in the fair value of the item being hedged are recognized into earnings in the same period and in the same income statement line as the change in the fair value of the derivative instrument. On the date that the Company enters into a derivative contract, the Company typically documents all relationships between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.

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At the hedge’s inception and at least every reporting period thereafter, a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future. The Company discontinues hedge accounting prospectively when (i) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the derivative instrument is carried at its fair value on the balance sheet with changes in fair value recognized into current-period earnings. The remaining balance in accumulated other comprehensive income associated with the derivative that has been discontinued is not recognized in the income statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in earnings when earnings are affected by the hedged transaction.

OTHER ASSETS

Other assets consist primarily of the Company’s Portfolio B orderbook value (see Note 17 below), investment in equity certificates, net value added tax receivables, investment in unconsolidated subsidiary and other miscellaneous receivables.

Investment in equity certificates are initially accounted for at cost and subsequent changes in fair value are recognized into income.

The Company accounts for its interest in the unconsolidated subsidiary using the equity method as it does not control the entity. Under the equity method, the Company’s investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated subsidiary’s undistributed earnings and losses, and distributions of dividends and capital.

The Company periodically reviews the carrying amount of its investment in the unconsolidated subsidiary, including whenever events or changes in circumstances indicate that a decline in value may have occurred. If its investment is determined to be impaired on an other-than-temporary basis, a loss equal to the difference between the fair value of the investment and its carrying value is recorded in the period of identification.

SECURITY DEPOSITS

In the normal course of leasing flight equipment to third parties under its lease agreements, the Company receives cash or letters of credit as security for certain contractual obligations, which are held on deposit until termination of the lease. Security deposits are returned to the lessee at lease termination or taken into income if the lessee fails to perform under its lease.

MAINTENANCE PAYMENT LIABILITY

The Company’s flight equipment is typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. Fly’s leases also obligate the lessees to comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration and airworthiness directives.

Under the terms of the lease agreements, cash collected from lessees for future maintenance of the aircraft is recorded as maintenance payment liabilities. The Company does not recognize such maintenance payments as revenue during the lease term. Maintenance payment liabilities are attributable to specific aircraft and are typically based on hours or cycles of utilization, depending upon the component. Upon the occurrence of qualified maintenance events, the lessee submits a request for reimbursement and upon disbursement of the funds, the liability is relieved.

The lessor may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or lessor may be obligated to make a payment to the other party at lease termination based on a computation stipulated in the lease agreement. The calculation is based on utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination.

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The Company may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by the Company are capitalized and depreciated over the period until the next overhaul is required. Payments made by the Company for minor maintenance, repairs and re-leasing of aircraft are expensed as incurred.

At lease termination, maintenance payment liabilities are offset against any maintenance right balance for the aircraft, and the remainder is recognized as end of lease income. When flight equipment is sold, the maintenance payment liability amounts may be remitted to the buyer in accordance with the terms of the related agreements and are released from the balance sheet as part of the disposition gain or loss.

REVENUE RECOGNITION

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Where revenue amounts do not meet these recognition criteria, recognition is delayed until the criteria are met.

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Operating lease revenue . The Company receives lease revenue from flight equipment under operating leases. Rental income from aircraft and aircraft equipment is recognized on a straight-line basis over the initial term of the respective lease. The operating lease agreements generally do not provide for purchase options, however, the leases may allow the lessee to exercise an option to extend the lease for an additional term. Contingent rents are recognized as revenue when the contingency is resolved. Revenue is not recognized when collection is not reasonably assured.

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End of lease income . The amount of end of lease income the Company recognizes in any reporting period is inherently volatile and depends upon a number of factors, including the timing of both scheduled and unscheduled lease expiries and the timing of maintenance performed on the aircraft or aircraft equipment by the lessee, among others.

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Lease incentives. The Company’s leases may contain provisions which require it to contribute a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. The Company accounts for these expected payments as lease incentives, which are amortized as a reduction of lease revenue over the life of the lease.

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Lease premiums and lease discounts . Lease premiums and lease discounts are amortized into operating lease revenue over the lease term. Amortization of lease premiums decreases rental revenue and amortization of lease discounts increases rental revenue.

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Finance lease income . Revenue from finance lease is recognized using the interest method to produce a level yield over the life of the finance lease.

INCOME TAXES

The Company provides for income taxes by tax jurisdiction. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statements and tax basis of existing assets and liabilities at the enacted tax rates expected to apply when the assets are recovered or liabilities are settled. A valuation allowance is used to reduce deferred tax assets to the amount that management ultimately expects to be more likely than not realized.

The Company recognizes an uncertain tax benefit only to the extent that it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company has elected to classify interest on unpaid income taxes and penalties as a component of the provision for income taxes. No interest on unpaid income taxes and penalties were incurred during each of the years ended December 31, 2019, 2018 and 2017.

NEW ACCOUNTING PRONOUNCEMENTS

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The timing and pattern of transfer for the non-lease component and the associated lease component are the same; and

•

The stand-alone lease component would be classified as an operating lease if accounted for separately.

The Company adopted the guidance effective January 1, 2019 and elected the practical expedients and transition relief, which does not require the Company to restate comparative periods. Accordingly, the adoption did not result in any adjustment to the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). ASU 2017-12 is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. The Company adopted the guidance effective January 1, 2019. The adoption of the standard did not have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which amends its guidance on the impairment of financial instruments. The standard adds to U.S. GAAP an impairment model, known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes its estimate of lifetime expected credit losses as an allowance for most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, investment in finance leases and off-balance sheet credit exposures. The FASB believes the new accounting standard will result in more timely recognition of losses. The standard is applied on a modified retrospective approach. ASU 2016-13 does not apply to operating lease receivables. The Company adopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on the Company’s consolidated financial statements.

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The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

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The policy for timing of transfers between levels; and

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The valuation processes for Level 3 fair value measurements.

The following disclosure requirements were added to Topic 820:

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The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements at the end of the reporting period; and

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The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 is effective for fiscal years (including interim periods) beginning after December 15, 2019, and early adoption is permitted. The Company adopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on the Company’s consolidated financial statements.

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3.	SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended
	2019		2018		2017
	(Dollars in thousands)
Cash paid during the year for:
Interest	$	126,659	$	126,648	$	113,710
Taxes		787		4,163		2,155
Noncash Activities:
Security deposits applied to rent receivables and maintenance payment liability		3,224		1		2,045
Maintenance payment liability applied to rent receivables, maintenance rights, and other liabilities		9,133		25,837		68
Other liabilities applied to security deposits, maintenance payment liability and rent receivables		5,016		5,520		676
Noncash investing activities:
Aircraft improvement		7,143		10,870		192
Noncash activities in connection with purchase of flight equipment		34,925		79,727		3,979
Noncash activities in connection with sale of flight equipment		20,480		2,648		—

4.	INVESTMENT IN FINANCE LEASE

At each of December 31, 2019 and 2018, the Company had one aircraft classified as an investment in finance lease, which had an implicit interest rate of 5%. During the years ended December 31, 2019, 2018 and 2017, the Company recognized finance lease revenue totaling $0.6 million, $0.7 million and $0.7 million, respectively.

The Company’s net investment in finance lease consisted of the following (dollars in thousands):

	December 31, 2019			December 31, 2018
Total minimum lease payments receivable	$	9,600		$	11,400
Estimated unguaranteed residual value of leased asset		4,227			4,227
Unearned finance income		(2,188	)		(2,805	)
Net Investment in Finance Lease	$	11,639		$	12,822

Presented below are the contracted future minimum rental payments due under the non-cancellable finance lease, as of December 31, 2019.

Year ending December 31,	(Dollars in thousands)
2020	$	1,800
2021		1,800
2022		1,800
2023		1,800
2024		1,800
Thereafter		600
Future minimum rental payments under finance lease	$	9,600

5.	FLIGHT EQUIPMENT HELD FOR SALE

At December 31, 2019 and 2018 , the Company had six aircraft and 12 aircraft classified as flight equipment held for sale, respectively. In addition, as of December 31, 2019, the Company classified two engines as flight equipment held for sale as the result of an aircraft part out. These two engines were sold in January 2020.

During the year ended December 31, 2019, the Company sold 25 aircraft that had been classified as flight equipment held for sale and recognized an aggregate gain on sale of aircraft of $94.4 million. During the year ended December 31, 2018, t he Company sold three aircraft that had been classified as flight equipment held for sale and recognized an aggregate gain on sale of aircraft of $ 7.9 million . During the year ended December 31, 2017, t he Company sold one aircraft that had been classified as flight equipment held for sale and recognized a gain on sale of aircraft of $3 .9 million .

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6.	FLIGHT EQUIPMENT HELD FOR OPERATING LEASE

As of December 31, 2019 , the Company had 81 aircraft and seven engines held for operating lease on lease to 39 lessees in 22 countries , and one aircraft off-lease . As of December 31, 2018 , the Company had 100 aircraft and seven engines held for operating lease on lease to 43 lessees in 24 countries .

During the year ended December 31 , 2019 , the Company capitalized $260.3 million of flight equipment purchased . During the year ended December 31 , 2018 , the Company capitalized $820.9 million of flight equipment purchased .

During the year ended December 31 , 2019, the Company sold ten aircraft held for operating lease and recognized an aggregate gain on sale of aircraft of $2.9 m illion . During the year ended December 31, 2018 , the Company sold three aircraft held for operating lease and recognized an aggregate gain on sale of aircraft of $5.5 million. The Company did not sell any aircraft held for operating lease during the year ended December 31, 2017.

The Company did not recognize any aircraft impairment in 2019 or 2018.

In August 2017, Air Berlin commenced insolvency proceedings in Germany and the United States. At that time, the Company had two aircraft on lease to Air Berlin. As a result of these insolvency proceedings, the Company recognized aircraft impairment of $22.0 million related to one of these aircraft.

Flight equipment held for operating lease consists of the following (dollars in thousands):

	December 31, 2019			December 31, 2018
Cost	$	3,334,996		$	3,900,938
Accumulated depreciation		(614,996	)		(672,920	)
Flight equipment held for operating lease, net	$	2,720,000		$	3,228,018

The Company capitalized $16.3 million and $ 16.4 million of major maintenance for the years ended December 31, 2019 and 2018, respectively .

The classification of the net book value of flight equipment held for operating lease, net and operating lease revenue by geographic region in the tables and discussion below is based on the principal operating location of the lessees.

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The distribution of the net book value of flight equipment held for operating lease by geographic region is as follows (dollars in thousands):

	December 31, 2019				December 31, 2018
Europe:
Spain	$	161,474	6	%	$	168,534	5	%
United Kingdom		52,212	2	%		169,763	5	%
Turkey		—	—			22,843	1	%
Other		259,176	9	%		242,711	8	%
Europe — Total		472,862	17	%		603,851	19	%
Asia and South Pacific:
India		542,312	20	%		690,193	21	%
Malaysia		406,777	15	%		394,441	12	%
Philippines		264,814	10	%		276,237	9	%
Indonesia		220,304	8	%		296,390	9	%
China		168,703	6	%		177,393	5	%
Other		113,713	4	%		161,330	6	%
Asia and South Pacific — Total		1,716,623	63	%		1,995,984	62	%
Mexico, South and Central America — Total		37,618	1	%		58,202	2	%
North America:
United States		95,910	4	%		126,498	4	%
Other		—	—			49,320	1	%
North America — Total		95,910	4	%		175,818	5	%
Middle East and Africa:
Ethiopia		303,057	11	%		312,977	10	%
Other		51,815	2	%		81,186	2	%
Middle East and Africa — Total		354,872	13	%		394,163	12	%
Off-Lease — Total		42,115	2	%		—	—
Total flight equipment held for operating lease, net	$	2,720,000	100	%	$	3,228,018	100	%

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The distribution of operating lease revenue by geographic region for the years ended December 31, 2019, 2018 and 2017 is as follows (dollars in thousands):

	Years ended
	2019				2018				2017
Europe:
Spain	$	17,475	4	%	$	17,267	4	%	$	11,199	3	%
United Kingdom		79,022	17	%		31,259	8	%		29,182	8	%
Turkey		2,041	—			12,114	3	%		17,103	5	%
Germany		951	—			—	—			26,457	8	%
Other		31,197	7	%		31,995	8	%		29,180	9	%
Europe — Total		130,686	28	%		92,635	23	%		113,121	33	%
Asia and South Pacific:
India		103,422	22	%		87,492	22	%		64,381	18	%
Malaysia		55,189	12	%		26,748	7	%		8,767	3	%
Philippines		34,217	7	%		35,009	9	%		29,825	9	%
Indonesia		32,882	7	%		32,336	8	%		16,308	5	%
China		23,320	5	%		21,103	5	%		22,611	6	%
Other		18,550	5	%		18,756	4	%		10,496	3	%
Asia and South Pacific — Total		267,580	58	%		221,444	55	%		152,388	44	%
Mexico, South and Central America — Total		5,425	1	%		11,415	3	%		17,565	5	%
North America:
United States		16,267	4	%		20,147	5	%		17,647	5	%
Other		4,991	1	%		6,242	2	%		6,237	2	%
North America — Total		21,258	5	%		26,389	7	%		23,884	7	%
Middle East and Africa:
Ethiopia		30,019	6	%		30,019	8	%		30,018	9	%
Other		9,431	2	%		17,612	4	%		9,918	2	%
Middle East and Africa — Total		39,450	8	%		47,631	12	%		39,936	11	%
Total Operating Lease Revenue	$	464,399	100	%	$	399,514	100	%	$	346,894	100	%

No customer accounted for 10% or more of total operating lease revenue for the year ended December 31, 2019. In each of the years ended December 31, 2018, and 2017, the Company had one customer (Air India) that accounted for 10% or more of total operating lease revenue.

As of December 31, 2019, the Company had three lessees, which leased a total of four aircraft, on non-accrual status, as the Company had determined that it was not probable that the Company would receive the economic benefits of the leases, principally due to (i) the lessees’ failure to pay rent and overhaul payments and (ii) the Company’s evaluation of the lessees’ payment history. During the year ended December 31, 2019, the Company recognized $13.6 million of operating lease revenue from these lessees. At December 31, 2018, the Company had two lessees, which leased a total of three aircraft, on non-accrual status. During the year ended December 31, 2018, the Company recognized $9.3 million of operating lease revenue from these lessees.

For the years ended December 31, 2019, 2018 and 2017, the Company recognized end of lease income, which is included in operating lease revenue, of $78.8 million, $20.3 million and $17.8 million, respectively. Approximately $52.8 million of end of lease income recognized in 2019 derived from four lessees in the United Kingdom.

As of December 31, 2019 and 2018, the weighted average remaining lease term of the Company’s aircraft held for operating lease was 5.4 years and 5.9 years, respectively.

Leases are entered into with specified lease terms and may provide the lessee with an option to extend the lease term. The Company’s leases do not typically provide for early termination or purchase options.

For the year ended December 31, 2019, the Company recognized $391.1 million of operating lease rental revenue, $71.4 million of which was from leases with variable rates. Variable rates are rents that reset based on changes in LIBOR. Presented below are the contracted future minimum rental payments due under non-cancellable operating leases for flight equipment held for operating lease, as of December 31, 2019. For leases that have floating rental rates, the future minimum rental payments assume that LIBOR as of December 31, 2019 is held constant for the duration of the lease.

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Year ending December 31,	(Dollars in thousands)
2020	$	321,993
2021		288,459
2022		244,007
2023		201,380
2024		186,707
Thereafter		480,878
Future minimum rental payments under operating leases	$	1,723,424

For the years ended December 31, 2019, 2018 and 2017, amortization of lease incentives recorded as a reduction of operating lease revenue totaled $5.6 million, $9.7 million and $7.7 million, respectively. At December 31, 2019, lease incentive amortization for the next five years and thereafter is as follows (dollars in thousands):

Year ending December 31,
2020	$	2,573
2021		3,221
2022		2,821
2023		1,614
2024		736
Thereafter		303
Future amortization of lease incentives	$	11,268

7.	MAINTENANCE RIGHTS

Changes in maintenance right assets, net of maintenance right liabilities, during the years ended December 31, 2019 and 2018 were as follows (dollars in thousands) :

	December 31, 2019			December 31, 2018
Maintenance rights, net beginning balance	$	298,207		$	131,299
Acquisitions		94,664			189,864
Capitalized to aircraft improvements		(6,739	)		(9,240	)
Maintenance rights settled with retained maintenance payments		(3,996	)		(2,369	)
Cash receipts from maintenance rights		(4,637	)		(3,013	)
Maintenance rights associated with aircraft sold		(86,541	)		(8,334	)
Maintenance rights, net ending balance	$	290,958		$	298,207

8.	OTHER ASSETS

The principal components of the Company’s other assets are as follows (dollars in thousands):

	December 31, 2019		December 31, 2018
Portfolio B orderbook value	$	100,935	$	103,951
Equity certificates		16,048		5,747
Value added tax receivables, net		7,714		6,016
Investment in unconsolidated subsidiary		259		2,908
Other assets		4,421		6,338
Total other assets	$	129,377	$	124,960

In 2019, the Company purchased $7.4 million, or 6%, and $3.1 million, or 3%, of the equity certificates issued by Horizon II Limited and Horizon III Limited, respectively. In 2018, the Company purchased $5.7 million, or 4%, of equity certificates issued by Horizon I Limited. The Company has entered into seven-year lock-up agreements in connection with the equity certificates.

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The Company has a 57.4% interest in Fly-Z/C Aircraft Holdings LP (“Fly-Z/C LP”). Summit Aviation Partners LLC (“Summit”) has a 10.2% interest in the joint venture. A subsidiary of BBAM Limited Partnership (“BBAM LP”) is the general partner of the joint venture. In 2019, the joint venture sold its last aircraft. During the years ended December 31, 2019 and 2018, the Company received cash distributions of $5.4 million and $5.2 million, respectively. During the year ended December 31, 2017, the Company received no distributions.

9.	UNSECURED BORROWINGS

	Balance as of
	December 31, 2019				December 31, 2018
	(Dollars in thousands)
Outstanding principal balance:
2021 Notes		$	325,000			$	325,000
2024 Notes			300,000				300,000
Total outstanding principal balance			625,000				625,000
Unamortized debt discounts and loan costs			(5,593	)			(7,336	)
Unsecured borrowings, net		$	619,407			$	617,664

On December 11, 2013, the Company sold $300.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (together with the Additional 2020 Notes (as defined below), the “2020 Notes”). In connection with the issuance, the Company paid an underwriting discount totaling $8.5 million.

On October 3, 2014, the Company sold $75.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (the “Additional 2020 Notes”) and $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”). The Additional 2020 Notes were issued as additional notes under the 2020 Notes indenture and were sold at a price equal to 104.75% of the principal amount thereof. The 2021 Notes were issued under an indenture containing substantially similar terms as the indenture governing the 2020 Notes and were sold at par. In connection with these issuances, the Company paid a net underwriting discount totaling $3.4 million.

On October 16, 2017, the Company sold $300.0 million aggregate principal amount of unsecured 5.250% Senior Notes due 2024 (the “2024 Notes”). The net proceeds to the Company were approximately $294.2 million, after deducting the underwriters’ discounts and commissions and offering expenses paid by the Company. The Company used the net proceeds from the sale of the 2024 Notes, together with cash on hand, to redeem all $375.0 million of its outstanding 2020 Notes on December 15, 2017. In connection with the redemption, the Company incurred debt extinguishment costs totaling $19.7 million.

The 2021 Notes and 2024 Notes are senior unsecured obligations of the Company and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of the Company. The 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes have a maturity date of October 15, 2024.

2021 Notes

The Company may redeem the 2021 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.

If redeemed during the 12-month period commencing on October 15 of the years set forth below :	Redemption Price
2019		101.594	%
2020 and thereafter		100.000	%

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2024 Notes

At any time prior to October 15, 2020, the Company may redeem up to 35% of the original principal amount of the 2024 Notes with the proceeds of certain equity offerings at a redemption price of 105.250% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption. On and after October 15, 2020, the Company may redeem the 2024 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.

If redeemed during the 12-month period commencing on October 15 of the years set forth below :	Redemption Price
2020		102.625	%
2021		101.313	%
2022 and thereafter		100.000	%

At any time prior to October 15, 2020, the Company may also redeem all or a portion of the 2024 Notes at par, plus accrued and unpaid interest to the redemption date and a “make-whole premium” equal to the present value of all future interest payments called for under the indenture.

Pursuant to the indentures governing the 2021 Notes and 2024 Notes, the Company is subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of the Company and transactions with affiliates. The Company is also subject to certain operating covenants, including reporting requirements. The Company’s failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating.

The indentures governing the 2021 Notes and the 2024 Notes contain customary events of default with respect to the notes of each series, including (i) default in payment when due and payable of principal or premium, (ii) default for 30 days or more in payment when due of interest, (iii) failure by the Company or any restricted subsidiary for 60 days after receipt of written notice given by the trustee or the holders of at least 25% in aggregate principal amount of the notes of such series then issued and outstanding to comply with any of the other agreements under the indenture, (iv) default in any of the aircraft owning entities in respect of obligations in excess of $50.0 million, which holders of such obligation accelerate or demand repayment of amounts due thereunder, (v) failure by the Company or any significant subsidiary to pay final judgments aggregating in excess of $50.0 million for 60 days after such judgment becomes final, subject to certain non-recourse exceptions, and (vi) certain events of bankruptcy or insolvency with respect to Fly or a significant subsidiary. As of December 31, 2019, the Company was not in default under the indentures governing the 2021 Notes or the 2024 Notes.

10.	SECURED BORROWINGS

The Company’s secured borrowings, net balance as of December 31, 2019 and 2018 are presented below (dollars in thousands):

	Outstanding principal balance as of December 31,						Weighted average interest rate ⁽¹⁾ as of December 31,
	2019 ⁽²⁾			2018 ⁽²⁾			2019			2018			Maturity date
Securitization Notes	$	—		$	85,584			—			3.08	%	—
Nord LB Facility		65,290			108,882			3.59	%		4.29	%	May 2021
Term Loan		385,364			407,768			4.15	%		5.17	%	August 2025
Magellan Acquisition Limited Facility		278,684			305,226			4.11	%		4.18	%	December 2025
Fly Acquisition III Facility		—			190,457			—			4.10	%	—
Fly Aladdin Acquisition Facility		272,343			467,179			4.85	%		4.59	%	June 2023
Fly Aladdin Engine Funding Facility		42,339			43,829			4.95	%		4.95	%	December 2021 – April 2022
Other Aircraft Secured Borrowings		673,463			807,882			4.07	%		4.44	%	December 2020 – June 2028
Total outstanding principal balance		1,717,483			2,416,807
Unamortized debt discounts and loan costs		(21,958	)		(36,938	)
Total secured borrowings, net	$	1,695,525		$	2,379,869

(1)	Represents the contractual interest rates and effect of derivative instruments and excludes the amortization of debt discounts and debt issuance costs.

(2)	As of December 31, 2019 and 2018, accrued interest on secured borrowings totaled $9.2 million and $10.9 million, respectively.

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The Company is subject to restrictive covenants under its secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of its aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.

The Company’s loan agreements include events of default that are customary for these types of secured borrowings. The Company’s failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of the Company’s loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement.

As of December 31, 2019, the Company was not in default under any of its secured borrowings.

Securitization Notes

On March 14, 2019, B&B Air Funding redeemed all remaining aircraft lease-backed Class G-1 notes (the “Securitization Notes”) issued on October 2, 2007 and with an original maturity date of November 14, 2033, in the aggregate principal amount then-outstanding of $63.8 million. In connection with the redemption, the Company expensed approximately $1.9 million of debt extinguishment costs.

Nord LB Facility

As of December 31, 2019, the Company had $65.3 million principal amount outstanding under its non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by three aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning and leasing subsidiaries, the related leases, and certain deposits.

Prior to November 14, 2018, the loans bore interest at one-month LIBOR plus a margin of 3.30%. Effective on November 14, 2018, the Company amended the loans under the Nord LB Facility to (i) extend the maturity date from November 14, 2018 to January 14, 2020 and (ii) reduce the margin to 1.85%. Effective on December 16, 2019, the Company amended the remaining loans under the Nord LB Facility to further extend the maturity date to May 14, 2021.

Under the terms of the Nord LB Facility, the Company applies 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan.

In the event the Company sells any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by the Company will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.

Upon termination or expiration of a lease other than by sale, no payments are due with respect to the outstanding loan associated with that aircraft until the earlier of (i) six months from such termination or expiration and (ii) the date on which the aircraft is re-leased. Interest during this period increases the outstanding balance under the facility. The Company must pay interest with respect to any aircraft that remains off-lease after six months, and if such aircraft continues to be off-lease after twelve months, the Company must pay debt service equal to 85% of the lease rate under the prior lease agreement. The lenders may require payment in full or foreclose on an aircraft that remains off-lease after 24 months but may not foreclose on any other aircraft in the facility.

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Term Loan

As of December 31, 2019, the Company had $385.4 million principal amount outstanding under its senior secured term loan (the “Term Loan”), which was secured by 27 aircraft. Fly has guaranteed all payments under the Term Loan. The final maturity date of the Term Loan is August 9, 2025. Until May 2020, the Term Loan can be prepaid in whole or in part for an amount equal to 101% of the outstanding principal amount being repaid. Thereafter, the Term Loan can be prepaid in whole or in part at par.

Prior to November 22, 2019, the Term Loan bore interest at three-month LIBOR plus a margin of 2.00%. Effective on November 22, 2019, the Company amended the Term Loan to (i) reduce the margin to 1.75% and (ii) extend the maturity date from February 9, 2023 to August 9, 2025. The weighted average interest rate on all outstanding amounts was 4.15% as of December 31, 2019, excluding the amortization of debt discounts and debt issuance costs. The Term Loan requires quarterly principal payments of $5.6 million.

In connection with the amendment completed in November 2019, the Company paid a one-time fee of 0.25% on the then outstanding principal amount to the Term Loan lenders and there was no prepayment penalty associated with this repricing.

On April 28, 2017, the Company had amended the Term Loan to (i) reduce the margin from 2.75% to 2.25%, (ii) eliminate the LIBOR floor of 0.75% and (iii) extend the maturity date from February 2022 to February 2023. The Company had also upsized the Term Loan by $50.0 million. On November 1, 2017, the Company had further amended the Term Loan to reduce the margin to 2.00%. During the year ended December 31, 2017, the Company incurred debt extinguishment costs totaling $3.0 million in connection with these amendments.

The Term Loan requires that the Company maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers. The Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.

Magellan Acquisition Limited Facility

As of December 31, 2019, the Company had $278.7 million principal amount outstanding in loans and notes under its term loan facility (“Magellan Acquisition Limited Facility”), which was secured by nine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025.

The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum. The facility requires monthly principal payments of $2.2 million.

Fly Acquisition III Facility

On October 22, 2019, the Company paid in full the outstanding principal balance under a revolving credit facility (the “Fly Acquisition III Facility”). The availability period under the Fly Acquisition III Facility expired on February 26, 2019. The Company paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of their commitments from February 26, 2016 until February 26, 2019. The facility had a maturity date of February 26, 2022 and all payments were guaranteed by Fly.

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Fly Aladdin Acquisition Facility

As of December 31, 2019, the Company had an aggregate of $272.3 million principal amount outstanding of Series B loans under its term loan facility (the “Fly Aladdin Acquisition Facility”), which were secured by 15 aircraft. Series B loans have a final maturity date of June 15, 2023. During the year ended December 31, 2019, the Company repaid Series A loans in full and a portion of Series B loans and expensed approximately $2.6 million of debt extinguishment costs.

The Company paid aggregate arrangement and commitment fees of approximately $9.5 million to the lenders in 2018.

During the fourth quarter of 2018, the Company prepaid $81.1 million of debt and wrote off approximately $0.9 million of unamortized loan costs and debt discounts as debt extinguishment costs. The aircraft associated with the debt prepayment were sold during the first quarter of 2019.

The interest rate on Series A loans was based on three-month LIBOR, plus an applicable margin of 1.50% per annum. The interest rate on Series B loans is based on three-month LIBOR, plus an applicable margin of 1.80% per annum. The Company makes scheduled quarterly payments of principal and interest on the loans in accordance with a fixed amortization schedule.

The borrowers are required to maintain (i) a debt service coverage ratio of at least 1.15:1.00, (ii) a loan-to-value ratio equal to 71% and (iii) that 85% of aircraft financed under the facility (a) are on lease, (b) have been subject to a lease in the previous six months or (c) are subject to a letter of intent for a re-lease or sale. The tests in (ii) and (iii) are based on the average of the most recent half-life adjusted current market value of all aircraft financed under the facility, as determined by three independent appraisers on a semi-annual basis. Upon the occurrence of (i) a breach of the debt service coverage ratio continuing for two consecutive quarterly payment dates, (ii) an event of default that is continuing under the Fly Aladdin Acquisition Facility, or (iii) a default under any mortgage, indenture or instrument under which there is issued, or which secures or evidences, any recourse indebtedness of the Company in an aggregate principal amount exceeding $50.0 million, Fly will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received under the associated leases into pledged accounts. Upon the occurrence of a breach, on any payment date, of the loan-to-value ratio or the utilization test described above, and certain other events, all cash collected will be applied to repay the outstanding principal balance of the Series B loans until such breach is cured.

Fly Aladdin Engine Funding Facility

As of December 31, 2019, the Company had $42.3 million principal amount outstanding under a term loan facility (the “Fly Aladdin Engine Funding Facility”), which was secured by seven engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.

In October 2018, the Company drew down $43.9 million under the Fly Aladdin Engine Funding Facility and paid up-front fees of approximately $0.4 million.

The interest rates for the borrowings range from 4.94% to 4.96% per annum, per engine. The Company is required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule.

The loans are secured by the engines and related leases and the Company’s equity and beneficial interests in the engine owning entities. The Fly Aladdin Engine Funding Facility contains customary covenants, including various reporting requirements. A violation of any of these covenants could result in a default under the Fly Aladdin Engine Funding Facility.

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Other Aircraft Secured Borrowings

The Company has entered into other aircraft secured borrowings to finance the acquisition of aircraft, one of which is denominated in Euros. As of December 31, 2019, the Company had $673.5 million principal amount outstanding of other aircraft secured borrowings, which were secured by 14 aircraft. Of this amount, $372.1 million was recourse to Fly.

These borrowings are structured as individual loans secured by pledges of the Company’s rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020 to June 2028.

During the third quarter of 2018, the Company entered into a recourse secured borrowing in the amount of $122.5 million to finance an unencumbered aircraft.

Future Minimum Principal Payments on Secured Borrowings

During the year ended December 31, 2019, the Company made scheduled principal payments of $179.7 million on its secured borrowings. The anticipated future minimum principal payments due for its secured borrowings are as follows (dollars in thousands):

Year ending December 31,
2020	$	172,684
2021		241,435
2022		169,409
2023		408,302
2024		113,733
Thereafter		611,920
Future minimum principal payments due	$	1,717,483

11.	DERIVATIVES

Derivatives are used by the Company to manage its exposure to identified risks, such as interest rate and foreign currency exchange fluctuations. The Company uses interest rate swap contracts to hedge variable interest payments due on borrowings associated with aircraft with fixed rate rentals. As of December 31, 2019, the Company had $1.1 billion of floating rate debt associated with aircraft with fixed rate rentals.

Interest rate swap contracts allow the Company to pay fixed interest rates and receive variable interest rates with the swap counterparty based on either the one-month or three-month LIBOR applied to the notional amounts over the life of the contracts. As of December 31, 2019 and 2018, the Company had interest rate swap contracts with notional amounts aggregating $0.8 billion and $1.1 billion, respectively. The unrealized fair value gain on the interest rate swap contracts, reflected as derivative assets, was $3.2 million as of December 31, 2018. The unrealized fair value loss on the interest rate swap contracts, reflected as derivative liabilities, was $27.9 million and $8.6 million as of December 31, 2019 and 2018, respectively.

To mitigate its exposure to foreign currency exchange fluctuations, the Company entered into a cross currency swap contract in 2018 in conjunction with a lease in which a portion of the lease rental is denominated in Euros. Pursuant to such cross currency swap, the Company receives U.S. dollars based on a fixed conversion rate through the maturity date of the swap contract. Over the remaining life of the cross currency swap contract, the Company expects to receive $58.6 million in U.S. dollars. The unrealized fair value gain, reflected as a derivative asset, was $4.8 million and $2.7 million as of December 31, 2019 and 2018, respectively.

The Company determines the fair value of derivative instruments using a discounted cash flow model. The model incorporates an assessment of the risk of non-performance by the swap counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.

The Company considers in its assessment of non-performance risk, if applicable, netting arrangements under master netting agreements, any collateral requirement, and the derivative payment priority in the Company’s debt agreements. The valuation model uses various inputs including contractual terms, interest rate curves and credit spreads.

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Effective January 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. As a result of the adoption, the Company reclassified $0.2 million of prior year losses into accumulated other comprehensive loss, net.

During the year ended December 31, 2019, the Company recorded $3.1 million of interest expense in the consolidated statements of income from its interest rate swap contracts. The Company also recognized $1.4 million of rental revenue, included in operating lease revenue in the consolidated statements of income, under its cross currency swap contract during the year ended December 31, 2019.

During the year ended December 31, 2018, the Company recorded $5.9 million of interest expense in the consolidated statements of income from its interest rate swap contracts. The Company also recognized $0.8 million of rental revenue, included in operating lease revenue in the consolidated statements of income, under its cross currency swap contract during the year ended December 31, 2018.

During the year ended December 31, 2017, the Company recorded $5.3 million of interest expense in the consolidated statements of income from its interest rate swap contracts.

Designated Derivatives

The Company’s cross currency swap and certain of its interest rate derivatives have been designated as cash flow hedges. Changes in fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of a provision for income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

As of December 31, 2019, the Company had the following designated derivative instrument classified as derivative asset on its balance sheet (dollars in thousands):

Type	Quantity		Maturity Date	Contracted Fixed Conversion Rate to U.S. Dollar	Total Contracted USD to be Received		Credit Risk Adjusted Fair Value		Gain Recognized in Accumulated Comprehensive Loss
Cross currency swap contract		1	11/26/25	1 EURO to $1.3068	$	58,592	$	4,805	$	4,204
Accrued rent						—		19		—
Total - designated derivative asset		1			$	58,592	$	4,824	$	4,204

As of December 31, 2019, the Company had the following designated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):

Type	Quantity		Maturity Date	Hedge Interest Rate			Swap Contract Notional Amount		Credit Risk Adjusted Fair Value			Loss Recognized in Accumulated Comprehensive Loss
Interest rate swap contracts		30	2/9/23-12/8/25		2.28%-3.13	%	$	792,636	$	(26,559	)	$	(22,615	)
Accrued interest								—		(932	)		—
Total – designated derivative liabilities		30					$	792,636	$	(27,491	)	$	(22,615	)

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Dedesignated Derivatives

Certain of the Company’s interest rate swap contracts no longer qualify for hedge accounting and have been dedesignated. As of December 31, 2019, the Company had the following dedesignated and undesignated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):

Type	Quantity		Maturity Date	Hedge Interest Rate			Swap Contract Notional Amount		Credit Risk Adjusted Fair Value
Interest rate swap contracts		3	6/15/23		2.66%-2.68	%	$	12,259	$	(434	)
Accrued interest								—		(18	)
Total – dedesignated derivative liabilities		3					$	12,259	$	(452	)

At December 31, 2019, the Company had an accumulated other comprehensive loss, net of tax, of $0.4 million, which will be amortized over the remaining term of the interest rate swap contracts. During the year ended December 31, 2019, the Company amortized $0.5 million from accumulated other comprehensive loss, net of tax, into interest expense.

At December 31, 2018, the Company had an accumulated other comprehensive loss, net of tax, of $0.5 million, which will be amortized over the remaining term of the interest rate swap contracts due to dedesignation of interest rate swaps. During the year ended December 31, 2018, the Company amortized $4.1 million from accumulated other comprehensive loss, net of tax, into interest expense.

At December 31, 2017, the Company had an accumulated other comprehensive loss, net of tax, of $4.3 million, which will be amortized over the remaining term of the interest rate swap contracts. During the year ended December 31, 2017, the Company amortized $1.4 million from accumulated other comprehensive loss, net of tax, into interest expense.

During the year ended December 31, 2019, one interest rate swap contract matured and 16 other interest rate swap contracts were terminated. Also during the year ended December 31, 2019, the Company reclassified $2.4 million of accumulated comprehensive loss, net of tax, to loss on derivative instruments.

Fly did not designate as an accounting hedge the interest rate derivative contracts entered into during the year ended December 31, 2018 to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia transactions. Changes in the fair value of undesignated derivative instruments were recognized as gain or loss on derivatives in each reporting period. During the year ended December 31, 2018, the Company terminated these interest rate swap contracts and recognized a total gain of $1.8 million.

12.	INCOME TAXES

Fly is a tax resident of Ireland and has wholly-owned subsidiaries in Ireland, France, Luxembourg, Australia and Malta that are tax residents in those jurisdictions. In general, Irish resident companies pay corporation tax at the rate of 12.5% on trading income and 25.0% on non-trading income. Historically, most of the Company’s operating income has been trading income in Ireland.

Income tax expense (benefit) by jurisdiction is shown below (dollars in thousands):

	Years ended
	2019			2018			2017
Current tax expense (benefit):
Ireland	$	—		$	—		$	—
Luxembourg		55			44			195
Australia		—			(138	)		4,062
Other		23			50			43
Current tax expense (benefit) — total		78			(44	)		4,300
Deferred tax expense (benefit):
Ireland		21,359			9,865			8,710
Australia		(910	)		105			(1,743	)
Other		—			—			65
Deferred tax expense (benefit) — total		20,449			9,970			7,032
Total income tax expense (benefit)	$	20,527		$	9,926		$	11,332

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The Company had no unrecognized tax benefits as of December 31, 2019 and 2018. The principal components of the Company’s net deferred tax asset (liability) were as follows (dollars in thousands):

	December 31, 2019			December 31, 2018
Deferred tax asset:
Net operating loss carry forwards	$	142,685		$	177,663
Net unrealized losses on derivative instruments		3,794			773
Basis difference on acquisition of GAAM Australian assets		6,575			6,619
Other		124			168
Valuation allowance		(33,929	)		(37,429	)
Total deferred tax asset		119,249			147,794
Deferred tax liability:
Excess of tax depreciation over book depreciation		(165,343	)		(171,725	)
Miscellaneous book/tax differences		(166	)		(112	)
Net earnings of non-European Union member subsidiaries		—			(3,654	)
Withholding tax on Australian unrepatriated earnings		—			(2,054	)
Total deferred tax liability		(165,509	)		(177,545	)
Deferred tax liability, net	$	(46,260	)	$	(29,751	)

The majority of the Company’s net operating loss carryforwards are attributable to Ireland. Under current tax rules in Ireland, the Company is allowed to carry forward its net operating losses for an indefinite period to offset any future income. The Company has recorded valuation allowances to reduce deferred tax assets to the extent it believes it is more likely than not that a portion of such assets will not be realized. In making such determinations, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and its ability to carry back losses to prior years.

The Company is required to make assumptions and judgments about potential outcomes that may be outside its control. Critical factors include the projection, source, and character of future taxable income. Although realization is not assured, the Company believes it is more likely than not that deferred tax assets, net of the valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented.

At December 31, 2019 and 2018, the Company had a valuation allowance of $33.9 million and $37.4 million, respectively. For the years ended December 31, 2019 and 2018, the Company recorded net valuation allowance reversals of $3.4 million and $1.3 million, respectively. For the year ended December 31, 2017, the Company recorded a net valuation allowance provision of $8.4 million.

For the years ended December 31, 2019, 2018 and 2017, the effective tax rate was 8.3%, 10.4% and 81.3%, respectively. The effective tax rate in any period is impacted by the source and amount of income earned and expenses incurred in different tax jurisdictions and valuation allowances the Company has recorded. The table below is a reconciliation of the Irish statutory corporation tax rate of 12.5% on trading income to the Company’s recorded income tax expense or benefit:

	Years ended
	2019			2018			2017
Irish statutory corporate tax rate on trading income		12.5	%		12.5	%		12.5	%
Valuation allowances		(1.4	)%		(1.4	)%		59.9	%
Tax impact of repurchased and resold Notes		(0.1	)%		0.1	%		(0.8	)%
Foreign tax rate differentials		(0.4	)%		(2.8	)%		(18.4	)%
True-up of prior year tax provision		(0.1	)%		—			2.2	%
Non-deductible interest expense, transaction fees and expenses		0.5	%		1.8	%		12.2	%
Deductible interest paid in the period		(2.7	)%		—			—
Unrealized foreign exchange loss on re-valuation of deferred tax balances		—			0.1	%		0.5	%
Withholding tax		—			—			13.3	%
Other		—			0.1	%		(0.1	)%
Effective tax rate		8.3	%		10.4	%		81.3	%

In 2018, the Company had a deferred tax liability of $2.1 million in connection with unrepatriated earnings from Australia, which the Company reduced by $0.9 million in 2019. In 2019, the Company recorded a benefit of $6.7 million, which it intends to utilize as group relief to offset taxable income.

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Under Irish tax legislation, Irish Revenue (“Revenue”) is entitled to make enquiries and/or raise an assessment of any corporation tax return submitted up to a period of four years from the end of the year in which the return is submitted. As such, Revenue is entitled to make enquiries and/or raise an assessment in respect of the corporation tax returns submitted by the Company’s Irish subsidiaries for each of the years ended December 31, 2015 to 2019.

Fly was notified by Revenue in November 2019 that a VAT audit for the period March 1, 2017 to June 30, 2018 will be conducted. Fly has not recorded any uncertain tax position liability or loss contingency related to this matter based on its position that Fly is able to reclaim any VAT that it is required to pay.

In February 2018, Revenue issued a Value Added Tax (“VAT”) assessment to Fly for the period from January 1, 2014 to December 31, 2016 in the amount of 6.1 million Euros, representing a portion of the VAT refunded to Fly during that time period. Fly has had an ongoing dialogue with Revenue since January 2017, and in March 2018, Fly appealed the assessment and the case is currently progressing through the Tax Appeals Commission process. Fly has not recorded any liability related to this assessment based on the facts and circumstances, and as also supported by a relevant tax court case, the positions taken in Fly’s VAT returns are probable to be sustained upon ultimate resolution of this matter.

13.	OTHER LIABILITIES

The following table describes the principal components of the Company’s other liabilities (dollars in thousands):

	December 31, 2019		December 31, 2018
Current tax payable	$	308	$	50
Lease discount		24,965		25,539
Lease incentive obligation		15,634		14,020
Deferred rent		15,715		15,067
Refundable deposits		3,210		3,420
Other		16,929		22,306
Total other liabilities	$	76,761	$	80,402

14.	SHARE-BASED COMPENSATION

Description of Plan

On April 29, 2010, the Company adopted the 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) stock appreciation rights (“SARs”); (ii) restricted stock units (“RSUs”); (iii) nonqualified stock options; and (iv) other stock-based awards. The Company has issued all shares available under the 2010 Plan.

SARs entitle the holder to receive any increase in value between the grant date price of Fly’s ADSs and their value on the exercise date. RSUs entitle the holder to receive a number of Fly’s ADSs equal to the number of RSUs awarded upon vesting. All awards are fully vested. The granted SARs and RSUs vested in three equal installments and expire on the tenth anniversary of the grant date. The Company satisfies SAR and RSU exercises with newly issued ADSs.

The holder of a SAR or RSU is also entitled to dividend equivalent rights (“Dividend Equivalent”) on each SAR and RSU. For each Dividend Equivalent, the holder shall have the non-forfeitable right to receive a cash amount equal to the per share dividend paid by the Company during the period between the grant date and the earlier of the (i) award exercise or vesting date, (ii) termination date or (iii) expiration date. Dividend Equivalents expire at the same time and in the same proportion that the SARs and RSUs are exercised, cancelled, forfeited or expired.

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Grant Activity

Since June 30, 2015, all SARs and RSUs granted under the 2010 Plan have vested.

A summary of the Company’s SAR activity for the years ended December 31, 2019, 2018 and 2017 are presented as follows:

	Number of shares		Weighted average exercised price		Weighted average remaining contractual life (in years)
Outstanding and vested at January 1, 2017		821,117	$	12.74		4.1
SARs exercised		24,137		12.73
Outstanding at December 31, 2017		796,980	$	12.74		3.1
SARs exercised		—		—
Outstanding at December 31, 2018		796,980	$	12.74		2.1
SARs exercised		782,955		12.73
Outstanding and exercisable at December 31, 2019		14,025		12.95		1.6

15.	SHAREHOLDERS’ EQUITY

Share Repurchases

In November 2018, the Company’s board of directors approved a $50.0 million share repurchase program expiring in December 2019. In August 2019, the Company’s board of directors approved a new $50.0 million share repurchase program to replace its then existing program, expiring in September 2020. Under this program, the Company may make share repurchases from time to time in the open market or in privately negotiated transactions. As of December 31, 2019, there was $50.0 million remaining under the current authorization.

During the year ended December 31, 2019, the Company repurchased 2,010,437 shares at an average price of $16.29 per share, or $32.8 million, before commissions and fees. During the year ended December 31, 2018, the Company did not repurchase any shares. During the year ended December 31, 2017, the Company repurchased 4,274,569 shares at an average price of $13.35 per share, or $57.1 million, before commissions and fees.

Dividends

No dividends were declared or paid during the years ended December 31, 2019, 2018 or 2017.

Share Issuances

During the years ended December 31, 2019 and 2017, the Company issued 258,828 shares and 1,481 shares, respectively, in connection with SARs that were exercised. No shares were issued during the year ended December 31, 2018.

In connection with the AirAsia transactions (see Note 17), on July 13, 2018, the Company issued and sold a total of 1,333,334 common shares in the form of ADSs, at a purchase price of $15.00 per share, to Meridian Aviation Partners Limited and certain other affiliates of Onex Corporation (collectively, “Onex”) and members of the management team of BBAM LP in private placement transactions, for aggregate proceeds of $20.0 million. In addition, on August 30, 2018, the Company issued 3,333,333 common shares in the form of ADSs, valued at $15.00 per share, to AirAsia, as partial consideration in the AirAsia transactions. The Fly common shares issued to AirAsia are subject to lock-up restrictions until at least 2021, as well as voting and standstill undertakings until AirAsia and its affiliates own less than 10% of Fly’s outstanding shares. The Company registered the common shares issued to AirAsia for resale with the Securities and Exchange Commission.

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16.	EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted earnings per common share using the two-class method, in which dividends attributable to SARs, if any, are deducted from net income in determining net income attributable to common shareholders (dollars in thousands, except per share data):

	Years ended
	2019		2018		2017
Numerator
Net income attributable to common shareholders	$	225,877	$	85,723	$	2,598
Denominator
Weighted average shares outstanding-Basic		31,607,781		29,744,083		30,307,357
Dilutive common equivalent shares:
SARs		107,688		39,821		46,068
Weighted average shares outstanding-Diluted		31,715,469		29,783,904		30,353,425
Earnings per share:
Basic
Distributed earnings	$	—	$	—	$	—
Undistributed income	$	7.15	$	2.88	$	0.09
Basic earnings per share	$	7.15	$	2.88	$	0.09
Diluted
Distributed earnings	$	—	$	—	$	—
Undistributed income	$	7.12	$	2.88	$	0.09
Diluted earnings per share	$	7.12	$	2.88	$	0.09

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the potential number of dilutive common shares outstanding during the period, excluding the effect of any anti-dilutive securities.

SARs granted by the Company that contain non-forfeitable rights to receive dividend equivalents are deemed participating securities (see Note 14). Net income available to common shareholders is determined by reducing the Company’s net income for the period by dividend equivalents paid on vested SARs during the period.

17.	COMMITMENTS AND CONTINGENCIES

From time to time, the Company contracts with third-party service providers to perform maintenance or overhaul activities on its off-lease aircraft.

On February 28, 2018, the Company agreed to acquire 21 Airbus A320neo family aircraft to be leased to AirAsia Group Berhad (“AirAsia”) and its affiliated airlines as the aircraft deliver from the manufacturer (“Portfolio B”). The first of these aircraft was delivered in the fourth quarter of 2019. The Company also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease, delivering from the manufacturer (“Portfolio C”). The Company did not exercise its options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, the Company exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. The Company has options remaining to purchase up to nine Portfolio C aircraft delivering between 2021 and 2025.

On October 31, 2019, the Company agreed to sell six aircraft to Horizon Aircraft Finance III Limited and Horizon Aircraft Finance III LLC (together, “Horizon III”) for an aggregate base purchase price of $150.5 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (the “Horizon III Transaction”). The Company classified these aircraft as flight equipment held for sale as of October 31, 2019. The Company sold one of these aircraft in December 2019 and two aircraft subsequent to year end. The remaining three aircraft are expected to be sold in the first quarter of 2020. The Company also purchased $3.1 million, or 3%, of the equity certificates issued by Horizon III Limited in connection with the Horizon III Transaction, which are subject to a seven-year lock-up agreement. The investment initially will be accounted for at cost and changes in fair value will be recognized into income.

In 2019, the Company also agreed to sell two engines as the result of an aircraft part out and one other aircraft. These flight equipment were sold in January 2020.

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18.	RELATED PARTY TRANSACTIONS

With respect to aircraft financed by the Securitization Notes, BBAM was entitled to receive (i) a rent fee equal to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to an administrative agency fee from B&B Air Funding of $20,000 per month, subject to an annual CPI adjustment. In connection with the redemption of the Securitization Notes in March 2019, these obligations were terminated.

BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected, plus an administrative fee of $1,000 per aircraft per month. Under the Term Loan, the Magellan Acquisition Limited Facility and the Fly Aladdin Acquisition Facility, BBAM is also entitled to an administrative fee of $10,000 per month. Under the Fly Acquisition III Facility, BBAM was also entitled to an administrative fee of $10,000 per month. In connection with the repayment of the Fly Acquisition III Facility in October 2019, the servicing agreement was terminated. Under the Fly Aladdin Engine Funding Facility, BBAM is entitled to receive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000 per month.

For the years ended December 31, 2019, 2018 and 2017, BBAM received servicing and administrative fees totaling $15.4 million, $15.8 million and $13.1 million, respectively.

BBAM also is entitled to receive an acquisition fee of 1.5% of the gross acquisition cost for any aviation asset purchased by the Company, and a disposition fee of 1.5% of the gross proceeds for any aviation asset sold by the Company. During the years ended December 31, 2019, 2018 and 2017, the Company incurred $5.0 million, $16.1 million and $6.8 million of origination fees, respectively, payable to BBAM. During the years ended December 31, 2019, 2018 and 2017, the Company incurred disposition fees of $15.4 million, $3.1 million and $0.3 million, respectively, payable to BBAM.

In addition, Fly pays an annual management fee to the Manager as compensation for providing the services of the chief executive officer, the chief financial officer and other personnel, and for certain corporate overhead costs related to the Company. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of the Company’s aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of the Company’s aircraft portfolio in excess of $2.0 billion, with a minimum management fee of $5.0 million. The management fee is also subject to an annual CPI adjustment applicable to the prior calendar year. For the years ended December 31, 2019, 2018 and 2017, the Company incurred Management Expenses of $9.6 million, $7.3 million and $6.3 million, respectively.

The management agreement is scheduled to terminate on July 1, 2025 and shall be automatically extended for one additional term of five years unless terminated by either party with 12 months’ notice or otherwise terminated earlier in accordance with the terms therein.

If the management agreement is not renewed on July 1, 2025, Fly will pay the Manager a non-renewal fee on such termination date in an amount equal to (i) $6.0 million plus (ii) so long as the Management Expense Amount does not exceed $12.0 million, 50% of the excess (if any) of the Management Expense Amount over $6.0 million in respect of the last fiscal year prior to such termination date.

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The Company’s minimum long-term contractual obligations with BBAM LP as of December 31, 2019, excluding rent fees, consisted of the following (dollars in thousands):

	2020		2021		2022		2023		2024		Thereafter		Total
Fixed administrative agency fee payments due by B&B Air Funding ⁽¹⁾	$	51	$	36	$	34	$	24	$	14	$	84	$	243
Fixed administrative services fee due under the Term Loan ⁽²⁾		384		337		236		173		149		100		1,379
Fixed administrative services fee due under the Magellan Acquisition Limited Facility ⁽²⁾		204		204		203		192		192		386		1,381
Fixed administrative services fee due under Fly Acquisition III Facility ⁽²⁾		48		48		48		44		36		84		308
Fixed administrative services fee due under Fly Aladdin Acquisition Facility ⁽²⁾		288		278		254		140		78		92		1,130
Fixed administrative services fee due under Fly Aladdin Engine Funding Facility ⁽²⁾		12		12		12		10		—		—		46
Fixed administrative agency fee payments due by other subsidiaries ⁽²⁾		336		284		250		212		192		586		1,860
Fixed payments for Management Expenses ^{(1) (3)}		7,840		7,840		7,840		7,840		7,840		43,121		82,321
Acquisition fees related to Portfolio B in the AirAsia transactions ⁽⁴⁾		5,273		8,568		1,485		—		—		—		15,326
Disposition fees on flight equipment held for sale		2,768		—		—		—		—		—		2,768
Total	$	17,204	$	17,607	$	10,362	$	8,635	$	8,501	$	44,453	$	106,762

(1)	Assumes Consumer Price Index (“CPI”) rates in effect as of December 31, 2019 remain constant in future periods.

(2)	Assumes number of aircraft and engines at December 31, 2019 remain constant in future periods.

(3)	Assumes automatic extension for one additional term of five years to June 30, 2030. Also assumes net book values of aircraft and engines at December 31, 2019 remains constant in future periods.

(4)	Based on number of aircraft expected to be purchased.

19.	FAIR VALUE MEASUREMENTS

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The hierarchy levels give the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements are disclosed by level within the following fair value hierarchy:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, derivative instruments, accounts payable and borrowings. Fair value of an asset is defined as the price a seller would receive in a current transaction between knowledgeable, willing and able parties. A liability’s fair value is defined as the amount that an obligor would pay to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.

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Where available, the fair value of the Company’s investment in equity certificates, notes payable and debt facilities is based on observable market prices or parameters or derived from such prices or parameters (Level 2). Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms (Level 3). These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company determines the fair value of its derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of its credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

The Company also measures the fair value for certain assets and liabilities on a non-recurring basis, when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include Fly’s investment in an unconsolidated subsidiary and flight equipment held for operating lease, net. Fly accounts for its investment in an unconsolidated subsidiary under the equity method and records impairment when its fair value is less than its carrying value and the Company determines that the decline is other-than-temporary (Level 3).

The Company records flight equipment at fair value when the carrying value may not be recoverable. Such fair value measurements are based on management’s best estimates and judgment and use Level 3 inputs which include assumptions as to future cash flows associated with the use of an aircraft and eventual disposition of such aircraft. The Company will record an impairment charge if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset. For the year ended December 31, 2017, the Company wrote down aircraft to their net realizable value and recognized a charge of $22.0 million (See Note 6). The Company did not record any impairment during the years ended December 31, 2019 and 2018.

The carrying amounts and fair values of certain of the Company’s debt instruments are as follows (dollars in thousands):

	As of December 31, 2019				As of December 31, 2018
	Principal Amount Outstanding		Fair Value		Principal Amount Outstanding		Fair Value
Securitization Notes	$	—	$	—	$	85,584	$	80,770
Term Loan		385,364		385,364		407,768		396,554
2021 Notes		325,000		331,207		325,000		329,875
2024 Notes		300,000		314,070		300,000		279,390

The Company’s principal amount outstanding on its remaining debt instruments approximates fair value at December 31, 2019 and 2018.

As of December 31, 2019 and 2018, the categorized assets and liabilities measured at fair value on a recurring basis, based upon the lowest level of significant inputs to the valuations are as follows (dollars in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2019:
Derivative assets		—	$	4,824		—	$	4,824
Derivative liabilities		—		27,943		—		27,943
Investment in equity certificates		—		16,048		—		16,048
December 31, 2018:
Derivative assets		—	$	5,929		—	$	5,929
Derivative liabilities		—		8,558		—		8,558
Investment in equity certificates		—		5,747		—		5,747

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20.	UNAUDITED QUARTERLY CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The unaudited quarterly financial information for each of the quarters in the years ended December 31, 2019 and 2018 is presented below (dollars in thousands, except per share data):

	March 31, 2019		June 30, 2019		September 30, 2019		December 31, 2019
Total revenues	$	134,703	$	147,033	$	139,034	$	154,254
Net income	$	44,965	$	54,050	$	51,704	$	75,158
Earnings per share — Basic	$	1.38	$	1.69	$	1.67	$	2.43
Earnings per share — Diluted	$	1.38	$	1.68	$	1.67	$	2.43

	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018
Total revenues	$	88,755	$	102,673	$	104,566	$	122,305
Net income	$	9,630	$	24,344	$	20,740	$	31,009
Earnings per share — Basic	$	0.34	$	0.87	$	0.68	$	0.95
Earnings per share — Diluted	$	0.34	$	0.87	$	0.68	$	0.95

21.	SUBSEQUENT EVENTS

Subsequent to December 31, 2019, the Company purchased one aircraft.

Subsequent to December 31, 2019, the Company sold two engines as the result of an aircraft part out and three aircraft.

Subsequent to December 31, 2019, the Company repurchased 114,354 shares at an average price of $16.85 per share, or $1.9 million.

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Schedule I — Condensed financial information of parent

Fly Leasing Limited

Condensed Balance Sheets

AS OF DECEMBER 31, 2019 AND 2018

(Dollars in thousands)

	December 31,
	2019		2018
Assets
Cash and cash equivalents	$	229,431	$	43,233
Notes receivable from subsidiaries		440,801		466,729
Investments in subsidiaries		1,197,465		1,019,048
Deferred tax asset, net		145		—
Other assets, net		19,553		11,019
Total assets	$	1,887,395	$	1,540,029
Liabilities
Payable to related parties	$	823	$	729
Payable to subsidiaries		256,473		202,298
Unsecured borrowings, net		734,053		617,664
Deferred tax liability, net		—		3,066
Accrued and other liabilities		17,769		14,162
Total liabilities		1,009,118		837,919
Shareholders’ equity		878,277		702,110
Total liabilities and shareholders’ equity	$	1,887,395	$	1,540,029

These condensed financial statements should be read in conjunction with the notes to consolidated financial statements.

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Fly Leasing Limited

Condensed Statements of Income

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands, except per share data)

	Years ended
	2019		2018			2017
Revenues
Equity earnings from subsidiaries	$	219,720	$	90,175		$	35,208
Equity earnings (loss) from unconsolidated subsidiary		2,717		(54	)		496
Intercompany management fee income		16,452		16,844			12,124
Intercompany interest income		33,290		25,740			34,068
Interest and other income		6,066		1,072			809
Total revenues		278,245		133,777			82,705
Expense
Interest expense		38,211		38,211			45,970
Selling, general and administrative		14,102		12,314			12,630
Ineffective, dedesignated and terminated derivatives		—		(1,798	)		—
Loss on modification and extinguishment of debt		—		—			19,655
Total expenses		52,313		48,727			78,255
Net income before provision for income taxes		225,932		85,050			4,450
Provision (benefit) for income taxes		55		(673	)		1,852
Net income	$	225,877	$	85,723		$	2,598
Weighted average number of shares:
Basic		31,607,781		29,744,083			30,307,357
Diluted		31,715,469		29,783,904			30,353,425
Earnings per share:
Basic	$	7.15	$	2.88		$	0.09
Diluted	$	7.12	$	2.88		$	0.09

These condensed financial statements should be read in conjunction with the notes to consolidated financial statements.

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Schedule I — Condensed financial information of parent

Fly Leasing Limited

Condensed Statements of Cash Flows

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands)

	Years ended
	2019			2018			2017
Cash Flows from Operating Activities
Net income	$	225,877		$	85,723		$	2,598
Adjustments to reconcile net income to net cash flows provided by operating activities:
Equity earnings from subsidiaries		(219,720	)		(90,175	)		(35,208	)
Equity (earnings) loss from unconsolidated subsidiary		(2,717	)		54			(496	)
Deferred income taxes		(3,793	)		(673	)		1,852
Amortization of debt discount and other		1,742			1,742			1,931
Loss on modification and extinguishment of debt		—			—			19,655
Distributions from unconsolidated subsidiary		2,727			2,131			—
Changes in operating assets and liabilities:
Receivable from subsidiaries		240,470			(104,303	)		6,144
Other assets		(2,305	)		(709	)		(1,121	)
Payable to related parties		94			506			(683	)
Accrued and other liabilities		3,605			(477	)		(9,478	)
Net cash flows used in operating activities		245,980			(106,181	)		(14,806	)
Cash Flows from Investing Activities
Capital contributions to subsidiaries		(46,601	)		(8,986	)		—
Distributions received from subsidiaries		—			25,792			—
Distributions received from unconsolidated subsidiary		2,639			3,103			—
Advances of notes receivable to subsidiaries		(271,084	)		(265,311	)		(48,335	)
Repayment of notes receivable from subsidiaries		297,013			223,925			144,718
Investment income from equity certificates		1,603			—			—
Investment in equity certificates		(10,481	)		(5,747	)		—
Net cash flows (used in) provided by investing activities		(26,911	)		(27,224	)		96,383
Cash Flows from Financing Activities
Proceeds from issuance of unsecured borrowings		—			—			295,150
Repayment of unsecured borrowings		—			—			(375,000	)
Debt modification and extinguishment costs		—			—			(16,287	)
Debt issuance costs		—			—			(917	)
Shares issued		—			19,624			—
Shares repurchased		(32,871	)		—			(57,286	)
Net cash flows (used in) provided by financing activities		(32,871	)		19,624			(154,340	)
Net increase (decrease) in cash and cash equivalents		186,198			(113,781	)		(72,763	)
Cash and cash equivalents at beginning of year		43,233			157,014			229,777
Cash and cash equivalents at end of year	$	229,431		$	43,233		$	157,014
Supplemental Disclosure:
Cash paid during the year for:
Interest	$	36,469		$	36,425		$	41,883
Taxes		—			—			—

Noncash Activities:
Noncash investing activities:
Capital contribution to subsidiaries		142,246			7			109,391
Distributions from subsidiaries		213,312			3,386			76,451
Intercompany sale of subsidiaries		—			39,605			—

These condensed financial statements should be read in conjunction with the notes to consolidated financial statements.

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I TEM 19.

EXHIBITS

We have filed the following documents as exhibits to this Annual Report.

Exhibit Number		Description of Exhibit
1.1		Memorandum of Association ⁽¹⁾

1.2		Amended and Restated Bye-Laws of Fly Leasing Ltd. ⁽²⁾

2.1		Deposit Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Limited. ⁽¹⁾

2.2		Description of Securities Registered under Section 12 of the Exchange Act.

4.1		Form of Director Service Agreement between Babcock & Brown Air Limited and each director thereof. ⁽¹⁾

4.2		Fly Leasing Limited Omnibus Incentive Plan. ⁽³⁾

4.3		Form of Stock Appreciation Right Award Agreement. ⁽³⁾

4.4		Form of Restricted Stock Unit Award Agreement. ⁽³⁾

4.5		Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. ⁽⁴⁾

4.6		Form of Servicing Agreement among BBAM US LP, BBAM Aviation Services Limited and each company thereof. ⁽¹³⁾

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Exhibit Number		Description of Exhibit
4.7		Amended and Restated Fly Leasing Limited Management Agreement dated as of December 28, 2012, between Fly Leasing Limited and Fly Leasing Management Co. Limited. ⁽⁷⁾

4.8		Amended and Restated Servicing Agreement dated as of January 24, 2013, by and among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. ⁽⁷⁾

4.9		Indenture dated December 11, 2013 between Fly Leasing Limited and Wells Fargo Bank, National Association. ⁽⁶⁾

4.10		First Supplemental Indenture dated December 11, 2013 between Fly Leasing Limited and Wells Fargo Bank, Nation Association. ⁽⁶⁾

4.11		Second Supplemental Indenture dated as of October 3, 2014, between Fly Leasing Limited and Wells Fargo Bank, National Association. ⁽⁸⁾

4.12		First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited. ⁽¹⁰⁾

4.13		Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited. ⁽¹²⁾

4.14		Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited. ⁽¹³⁾

4.15		Third Supplemental Indenture dated as of October 16, 2017, between Fly Leasing Limited and Wells Fargo Bank, National Association. ⁽¹⁵⁾

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Exhibit Number		Description of Exhibit
4.16		Servicing Agreement dated as of December 8, 2017, among BBAM US LP, BBAM Aviation Services Limited and Magellan Acquisition Limited. ⁽¹⁷⁾

4.17		Guaranty [Fly 2017A Term Loan] dated December 8, 2017 by Fly Leasing Limited. ⁽¹⁷⁾

4.18		Share Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited, Fly Leasing Limited and AirAsia Berhad. ⁽¹⁸⁾

4.19		Aircraft Sale and Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. ⁽¹⁸⁾

4.20		Aircraft Sale and Purchase Option Agreement, dated April 26, 2018, but having effect between the parties as of February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. ⁽¹⁸⁾

4.21		Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown Co., Ltd. ⁽¹⁸⁾

4.22		Amended and Restated Delivery Side Letter (Portfolio C and Portfolio D), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Incline B Aviation Limited Partnership. ⁽¹⁸⁾

4.23		Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Meridian Aviation Partners Limited. ⁽¹⁹⁾

4.24		Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Summit Aviation Holdings LLC. ⁽¹⁹⁾

4.25		Registration Rights Agreement, dated July 18, 2018, among Fly Leasing Limited and shareholders named therein. ⁽¹⁹⁾

4.26		Subscription Agreement, dated July 18, 2018, among Fly Leasing Limited, AirAsia Group Berhad and AirAsia Berhad. ⁽¹⁹⁾

4.27		Registration Rights Agreement, dated July 18, 2018, between Fly Leasing Limited and AirAsia Group Berhad. ⁽¹⁹⁾

4.28		Fly SPA Amendment Agreement (No. 1) dated July 11, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. ⁽¹⁹⁾

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Exhibit Number		Description of Exhibit
4.29		Fly SPA Amendment Agreement (No. 2) dated July 18, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. ⁽¹⁹⁾

4.30		Servicing Agreement dated June 15, 2018, among BBAM Aviation Services Limited, BBAM US LP, Fly Aladdin Funding Limited, Fly Aladdin MaltaCo Limited and each Borrower Group Company that becomes a party thereto. ⁽¹⁹⁾

4.31		Purchase Agreement dated November 30, 2018 among the sellers identified therein, Horizon Aircraft Finance I Limited, Horizon Aircraft Finance I LLC and the other purchasers identified therein. ⁽²⁰⁾

4.32		Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein. ⁽²¹⁾

4.33		Purchase Agreement dated October 31, 2019 among the sellers identified therein, Horizon Aircraft Finance III Limited, Horizon Aircraft Finance III LLC and the other purchasers identified therein. ⁽²²⁾

4.34		Aircraft Mortgage and Security Agreement dated as of August 9, 2012, among Fly Funding II S.A.R.L., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, The Initial Intermediate Lessees, The Initial Lessor Subsidiaries, The Additional Grantors Referred to Therein and Wells Fargo Bank Northwest, National Association. ⁽⁵⁾

4.35		Amended and Restated Term Loan Credit Agreement dated as of November 21, 2013 among Fly Funding II S.A.R.L., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, each other Guarantor Party referred to therein, the Lenders identified therein, Citibank, N.A., and Well Fargo Bank Northwest, National Association. ⁽⁹⁾

4.36		Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. ⁽¹⁰⁾

4.37		Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. ⁽¹¹⁾

4.38		Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. ⁽¹⁴⁾

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Exhibit Number		Description of Exhibit
4.39		Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. ⁽¹⁶⁾

4.40		Facility Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. ⁽¹⁷⁾

4.41		Note Purchase Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Purchasers party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. ⁽¹⁷⁾

4.42		Credit Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Banks party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. ⁽¹⁷⁾

4.43		Security Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Grantors thereto, and Wells Fargo Bank, National Association, as Security Trustee. ⁽¹⁷⁾

4.44		Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. ⁽¹⁹⁾

4.45		Borrower Parent Security Agreement dated June 15, 2018, between Fly Aladdin Holdings Limited, as Grantor and Wilmington Trust (London) Limited, as Security Trustee. ⁽¹⁹⁾

4.46		Co-Borrower Security Agreement dated June 15, 2018, between Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta and Wilmington Trust (London) Limited, as Security Trustee. ⁽¹⁹⁾

4.47		Deed of Limited Guaranty dated June 15, 2018, by Fly Leasing Limited. ⁽¹⁹⁾

4.48		Form of Loan Amendment Letter Agreement (2018) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. ⁽²⁰⁾

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Exhibit Number		Description of Exhibit
4.49		Amendment to Senior Secured Credit Agreement dated July 19, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. ⁽¹⁹⁾

4.50		Fifth Amendment to Credit Agreement dated as of November 22, 2019, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Trust Company, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. ⁽²³⁾

4.51		Form of Loan Amendment Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof.

8.1		List of the Company’s subsidiaries.

12.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

12.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

13.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

15.1		Consent of Deloitte & Touche LLP.

101		The following materials from the Company’s Annual Report on Form 20-F for the year ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017, (iv) Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2017, 2018 and 2019, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017, and (vi) Notes to Consolidated Financial Statements for the year ended December 31, 2019.

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(1)	Previously filed with the Registration Statement on Form F-1, File No. 333-145994.

(2)	Previously filed as an exhibit on Form 6-K dated June 30, 2010.

(3)	Previously filed as an exhibit on Form 6-K dated May 7, 2010.

(4)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2011.

(5)	Previously filed as an exhibit on Form 6-K dated November 13, 2012.

(6)	Previously filed as an exhibit on Form 6-K dated December 11, 2013.

(7)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2012.

(8)	Previously filed as an exhibit on Form 6-K dated October 3, 2014.

(9)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2013.

(10)	Previously filed as an exhibit on Form 6-K dated August 5, 2015.

(11)	Previously filed as an exhibit on Form 6-K dated October 20, 2016.

(12)	Previously filed as an exhibit on Form 6-K dated November 17, 2016.

(13)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2016.

(14)	Previously filed as an exhibit on Form 6-K dated May 1, 2017.

(15)	Previously filed as an exhibit on Form 6-K dated October 16, 2017.

(16)	Previously filed as an exhibit on Form 6-K dated November 1, 2017.

(17)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2017.

(18)	Previously filed as an exhibit on Form 6-K dated May 8, 2018.

(19)	Previously filed as an exhibit on Form 6-K dated August 24, 2018.

(20)	Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2018.

(21)	Previously filed as an exhibit on Form 6-K dated August 23, 2019.

(22)	Previously filed as an exhibit on Form 6-K dated November 12, 2019.

(23)	Previously filed as an exhibit on Form 6-K dated November 25, 2019.

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

	Fly Leasing Limited

	By:	/s/ Colm Barrington
		Colm Barrington
		Chief Executive Officer and Director

Dated: February 28, 2020

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TABLE OF CONTENTS

Part I Item 1. Identity Of Directors, Senior Management and Advisers Item 2. Offer Statistics and Expected Timetable Item 3. Key Information Item 4. Information on The Company Item 4A. Unresolved Staff Comments Item 5. Operating and Financial Review and Prospects Item 6. Directors, Senior Management and Employees Item 7. Major Shareholders and Related Party Transactions Item 8. Financial Information Item 9. The Offer and Listing Item 10. Additional Information Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description Of Securities Other Than Equity Securities Part II Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications To The Rights Of Security Holders and Use Of Proceeds Item 15. Controls and Procedures Item 16A. Audit Committee Financial Expert Item 16B. Code Of Ethics Item 16C. Principal Accountant Fees and Services Item 16D. Exemptions From The Listing Standards For Audit Committees Item 16E. Purchases Of Equity Securities By The Issuer and Affiliated Purchasers Item 16F. Change in Registrant S Certifying Accountant Item 16G. Corporate Governance Item 16H. Mine Safety Disclosure Part III Item 17. Financial Statements Item 18. Financial Statements

Exhibits

FLY 20-F Report ended Dec. 31, 2019

Exhibits