UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2020



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

For the transition period from to

Commission File number 001-32959

AIRCASTLE LIMITED

(Exact name of registrant as specified in its charter)



Bermuda	98-0444035
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

c/o Aircastle Advisor LLC
201 Tresser Boulevard, Suite 400
Stamford CT
Connecticut
06901
(Address of ~~principal executive offices)~~		~~(Zip Code)~~Principal Executive Offices)

Registrant’s telephone number, including area ~~code (203)~~ code: (203) 504-1020

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Shares, par value $0.01 per share	N/A	NONE

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~~ þ NO ¨Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ þ NO ¨Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ☐	Accelerated filer	¨☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☑	Smaller reporting company	¨☐
		Emerging growth company	¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ ¨ NO þYes ☐ No ☑

As of ~~October 31, 2017~~,August 1, 2020, there were ~~78,707,968~~14,048 outstanding shares of the registrant’s common shares, par value $0.01 per share.

Aircastle Limited and Subsidiaries

Form 10-Q

Table of Contents



		Page No.
	PART I. – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019	3
	Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	4
	~~Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016~~	5
	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	65
	Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4542
Item 4.	Controls and Procedures	4543
	PART II. – OTHER INFORMATION
Item 1.	Legal Proceedings	4744
Item 1A.	Risk Factors	4744
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4744
Item 3.	Defaults Upon Senior Securities	4744
Item 4.	Mine Safety Disclosures	4744
Item 5.	Other Information	4744
Item 6.	Exhibits	4845
SIGNATURE		5046

PART I. — FINANCIAL INFORMATION


~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)


	September 30, 2017			December 31, 2016			June 30, 2020		December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Cash and cash equivalents	$	662,649		$	455,579		$	319,032	$	140,882
Restricted cash and cash equivalents	20,536			53,238			5,354		14,561
Accounts receivable	5,708			6,035			76,255		18,006
Flight equipment held for lease, net of accumulated depreciation of $1,168,064 and $1,224,899, respectively	5,490,164			6,247,585
Net investment in finance and sales-type leases	488,408			260,853
Flight equipment held for lease, net of accumulated depreciation of $1,803,936 and $1,501,664, respectively							6,866,811		7,375,018
Net investment in leases, net of allowance for credit losses of $2,972 and $0, respectively							319,531		419,396
Unconsolidated equity method investments	76,098			72,977			34,450		32,974
Other assets	131,395			148,398			257,047		201,209
Total assets	$	6,874,958		$	7,244,665		$	7,878,480	$	8,202,046

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured financings, net of debt issuance costs	$	874,874		$	1,219,034
Borrowings from unsecured financings, net of debt issuance costs	3,286,240			3,287,211
Borrowings from secured financings, net of debt issuance costs and discounts							$	974,167	$	1,129,345
Borrowings from unsecured financings, net of debt issuance costs and discounts							4,137,590		3,932,491
Accounts payable, accrued expenses and other liabilities	145,691			127,527			158,785		172,114
Lease rentals received in advance	51,937			62,225			77,444		108,060
Security deposits	120,320			122,597			91,649		124,954
Maintenance payments	523,922			591,757			603,232		682,398
Total liabilities	5,002,984			5,410,351			6,042,867		6,149,362

Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding	—			—			—		—
Common shares, $0.01 par value, 250,000,000 shares authorized, 78,707,968 shares issued and outstanding at September 30, 2017; and 78,593,133 shares issued and outstanding at December 31, 2016	787			786
Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at June 30, 2020; and 75,122,129 shares issued and outstanding at December 31, 2019							—		751
Additional paid-in capital	1,525,766			1,521,190			1,485,777		1,446,664
Retained earnings	347,248			315,890			349,836		605,269
Accumulated other comprehensive loss	(1,827		)	(3,552		)
Total shareholders’ equity	1,871,974			1,834,314			1,835,613		2,052,684
Total liabilities and shareholders’ equity	$	6,874,958		$	7,244,665		$	7,878,480	$	8,202,046

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Dollars in ~~thousands, except per share amounts)~~thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Revenues:
Lease rental revenue	$	171,687		$	181,975		$	551,371		$	537,670		$	172,380		$	192,823		$	371,300		$	374,057
Finance and sales-type lease revenue	6,412			5,354			16,363			13,026
Direct financing and sales-type lease revenue													4,537			8,321			11,303			16,764
Amortization of lease premiums, discounts and incentives	(2,388		)	(521		)	(8,780		)	(5,419		)	(6,404		)	(5,345		)	(12,100		)	(11,056		)
Maintenance revenue	14,507			6,829			55,738			20,603			72,168			26,567			118,720			42,968
Total lease revenue	190,218			193,637			614,692			565,880			242,681			222,366			489,223			422,733
Gain (loss) on sale of flight equipment													(279		)	346			26,770			12,348
Other revenue	1,193			1,015			4,526			2,425			13,050			704			21,957			2,262
Total revenues	191,411			194,652			619,218			568,305			255,452			223,416			537,950			437,343

Operating expenses:
Depreciation	70,018			76,201			227,446			227,918			88,117			89,578			177,822			174,313
Interest, net	60,636			61,797			185,376			188,490			56,226			66,377			117,733			129,840
Selling, general and administrative (including non-cash share-based payment expense of $2,506 and $2,059 for the three months ended, and $10,636 and $5,796 for the nine months ended September 30, 2017 and 2016, respectively)	17,137			15,985			55,491			46,883
Selling, general and administrative (including non-cash share-based payment expense of $0 and $3,177 for the three months ended, and $38,727 and $5,903 for the six months ended June 30, 2020 and 2019, respectively)													13,564			18,317			75,946			36,317
Impairment of flight equipment	—			10,462			80,430			27,185			280,088			7,404			342,745			7,404
Maintenance and other costs	2,572			1,834			7,846			5,504			4,241			5,213			8,997			12,617
Total expenses	150,363			166,279			556,589			495,980
Total operating expenses													442,236			186,889			723,243			360,491

Other income (expense):
Gain (loss) on sale of flight equipment	21,642			(73		)	35,926			14,932
Other expense:
Loss on extinguishment of debt													(65		)	—			(4,020		)	—
Merger expenses													(220		)	—			(32,430		)	—
Other	(360		)	(210		)	(3,069		)	(136		)	1			(1,910		)	(111		)	(3,971		)
Total other income (expense)	21,282			(283		)	32,857			14,796
Total other expense													(284		)	(1,910		)	(36,561		)	(3,971		)

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	62,330			28,090			95,486			87,121
Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments													(187,068		)	34,617			(221,854		)	72,881
Income tax provision	6,195			2,458			8,536			8,782			4,671			5,992			4,820			9,090
Earnings of unconsolidated equity method investments, net of tax	1,296			1,805			5,804			5,390			762			2,487			1,476			2,131
Net income	$	57,431		$	27,437		$	92,754		$	83,729
Net income (loss)													$	(190,977	)	$	31,112		$	(225,198	)	$	65,922

Earnings per common share — Basic:
Net income per share	$	0.73		$	0.35		$	1.18		$	1.06

Earnings per common share — Diluted:
Net income per share	$	0.73		$	0.35		$	1.18		$	1.06

Dividends declared per share	$	0.26		$	0.24		$	0.78		$	0.72
Other comprehensive income (loss), net of tax:
Net derivative loss reclassified into earnings													—			—			—			184
Other comprehensive income													—			—			—			184
Total comprehensive income (loss)													$	(190,977	)	$	31,112		$	(225,198	)	$	66,106

The accompanying notes are an integral part of these unaudited consolidated financial statements.

~~Aircastle Limited and Subsidiaries~~

~~Consolidated Statements of Comprehensive Income~~

~~(Dollars in thousands)~~

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729
Other comprehensive income, net of tax:
Net change in fair value of derivatives, net of tax expense of $0 for all periods presented —
—
—
(1 )
Net derivative loss reclassified into earnings 569
705
1,725
9,074
Other comprehensive income 569
705
1,725
9,073
Total comprehensive income $ 58,000
$ 28,142
$ 94,479
$ 92,802

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
Cash flows from operating activities:
Net income	$	92,754		$	83,729
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	(225,198	)	$	65,922
Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities:
Depreciation	227,446			227,918			177,822			174,313
Amortization of deferred financing costs	15,860			13,567			6,840			6,958
Amortization of lease premiums, discounts and incentives	8,780			5,419			12,100			11,056
Deferred income taxes	(1,369		)	3,129			1,479			7,957
Non-cash share-based payment expense	10,636			5,796			38,727			5,903
Cash flow hedges reclassified into earnings	1,725			9,074
Collections on net investment in leases							11,861			10,971
Security deposits and maintenance payments included in earnings	(17,147		)	(12,844		)	(129,349		)	(24,162		)
Gain on sale of flight equipment	(35,926		)	(14,932		)	(26,770		)	(12,348		)
Loss on extinguishment of debt							4,020			—
Impairment of flight equipment	80,430			27,185			342,745			7,404
Provision for credit losses							4,801			—
Other	2,078			(4,712		)	(1,300		)	393
Changes in certain assets and liabilities:
Accounts receivable	415			1,699			(54,404		)	(7,899		)
Other assets	(6,980		)	3,815			(52,990		)	3,582
Accounts payable, accrued expenses and other liabilities	17,648			16,459			(13,981		)	(11,619		)
Lease rentals received in advance	(2,892		)	2,111			(33,064		)	7,181
Net cash and restricted cash provided by operating activities	393,458			367,413			63,339			245,612
Cash flows from investing activities:
Acquisition and improvement of flight equipment	(353,492		)	(792,270		)	(52,419		)	(660,723		)
Proceeds from sale of flight equipment	764,984			488,749			155,560			56,924
Net investment in finance and sales-type leases	(246,871		)	(78,892		)
Collections on finance and sales-type leases	23,673			14,413
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits	(14,068		)	(14,035		)	(10,212		)	18,054
Unconsolidated equity method investments and associated costs	—			(12,686		)	—			(7,551		)
Other	(405		)	(812		)	(508		)	2,241
Net cash and restricted cash provided by (used in) investing activities	173,821			(395,533		)	92,421			(591,055		)
Cash flows from financing activities:
Repurchase of shares	(4,862		)	(36,573		)	(27,906		)	(14,288		)
Parent contribution at Merger							25,536			—
Proceeds from secured and unsecured debt financings	500,000			999,350			650,000			1,841,848
Repayments of secured and unsecured debt financings	(852,451		)	(489,134		)	(608,189		)	(1,105,353		)
Debt extinguishment costs							(2,750		)	—
Deferred financing costs	(8,540		)	(17,273		)	—			(12,165		)
Restricted secured liquidity facility collateral	—			65,000
Liquidity facility	—			(65,000		)
Security deposits and maintenance payments received	138,813			123,767			49,824			92,514
Security deposits and maintenance payments returned	(104,475		)	(37,036		)	(49,307		)	(64,788		)
Dividends paid	(61,396		)	(56,702		)	(24,025		)	(45,054		)
Other	—			(2,073		)
Net cash and restricted cash (used in) provided by financing activities	(392,911		)	484,326
Net increase in cash and restricted cash	174,368			456,206
Net cash and restricted cash provided by financing activities							13,183			692,714
Net increase in cash and restricted cash:							168,943			347,271
Cash and restricted cash at beginning of period	508,817			254,041			155,443			167,853

Cash and restricted cash at end of period	$	683,185		$	710,247		$	324,386		$	515,124

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30,
2017 2016
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest $ 156,428
$ 141,653
Cash paid for income taxes $ 3,622
$ 12,904
Supplemental disclosures of non-cash investing activities:
Advance lease rentals, security deposits and maintenance payments assumed in asset acquisitions $ 133,389
$ 110,472
Advance lease rentals, security deposits, and maintenance payments settled in sale of flight equipment $ 22,542
$ 26,671
Transfers from Flight equipment held for lease to Net investment in finance and sales-type leases, Other assets, and Maintenance reserves $ 154,213
$ 140,150



	Six Months Ended June 30,
	2020		2019
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents	$	319,032	$	500,373
Restricted cash and cash equivalents	5,354		14,751

Unrestricted and restricted cash and cash equivalents	$	324,386	$	515,124

Supplemental disclosures of cash flow information:
Cash paid for interest	$	116,546	$	121,523
Cash paid for income taxes	$	144	$	115
Supplemental disclosures of non-cash investing activities:
Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions	$	37,742	$	35,889
Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment	$	16,480	$	10,938
Transfers from flight equipment held for lease to Net investment in leases and Other assets	$	28,916	$	59,185

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except share amounts)

(Unaudited)



						Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Common Shares
	Shares		Amount
Balance, December 31, 2019	75,122,129		$	751		$	1,446,664		$	605,269		$	—		$	2,052,684
Issuance of common shares to directors and employees	28,568		1			(1		)	—			—			—
Repurchase of common shares from stockholders, directors and employees	(73,903	)	(1		)	(2,369		)	—			—			(2,370		)
Amortization of share-based payments	—		—			38,727			—			—			38,727
Reclassification of prior year director stock award liability	—		—			2,005			—			—			2,005
Dividends declared	—		—			—			(24,025		)	—			(24,025		)
Net loss	—		—			—			(34,221		)	—			(34,221		)
Adoption of accounting standard	—		—			—			(6,210		)	—			(6,210		)
Payment of unvested shares at Merger	(101,809	)	(1		)	(25,535		)	—			—			(25,536		)
Parent contribution at Merger	—		—			25,536			—			—			25,536
Share cancellation and re-issuance at Merger	(74,960,937	)	(750		)	750			—			—			—
Balance, March 31, 2020	14,048		$	—		$	1,485,777		$	540,813		$	—		$	2,026,590
Net loss	—		—			—			(190,977		)	—			(190,977		)

Balance, June 30, 2020	14,048		$	—		$	1,485,777		$	349,836		$	—		$	1,835,613


						Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Common Shares
	Shares		Amount
Balance, December 31, 2018	75,454,511		$	754		$	1,468,779		$	539,332		$	(184	)	$	2,008,681
Issuance of common shares to directors and employees	276,923		3			(3		)	—			—			—
Repurchase of common shares from stockholders, directors and employees	(653,796	)	(6		)	(11,418		)	—			—			(11,424		)
Amortization of share-based payments	—		—			2,410			—			—			2,410
Reclassification of prior year director stock award liability	—		—			796			—			—			796
Dividends declared	—		—			—			(22,518		)	—			(22,518		)
Net income	—		—			—			34,810			—			34,810
Net derivative loss reclassified into earnings	—		—			—			—			184			184
Balance, March 31, 2019	75,077,638		$	751		$	1,460,564		$	551,624		$	—		$	2,012,939
Issuance of common shares to directors and employees	35,000		—			—			—			—			—
Repurchase of common shares from stockholders, directors and employees	(129,524	)	(1		)	(2,863		)	—			—			(2,864		)
Amortization of share-based payments	—		—			2,833			—			—			2,833
Dividends declared	—		—			—			(22,536		)	—			(22,536		)
Net income	—		—			—			31,112			—			31,112
Balance, June 30, 2019	74,983,114		$	750		$	1,460,534		$	560,200		$	—		$	2,021,484

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

Note 1. Summary of Significant Accounting Policies

Organization and Basis of Presentation

Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is acquiring, leasing, managing and selling commercial jet aircraft.

On March 27, 2020, the Company successfully completed its merger (the “Merger”) and is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”).

Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations on the basis of ~~one~~1 operating segment: leasing, financing, selling and managing commercial flight equipment. Our ~~chief executive officer~~Chief Executive Officer is the chief operating decision maker.

The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2019.

Effective January 1, ~~2017,~~2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (“ASC 326”). The standard applies to entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The standard affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and other financial assets not excluded from the scope that have the contractual right to receive cash. Net investment in leases comprised the Company’s financial asset principally affected by the standard. Operating lease receivables are not within the scope of ASC 326.

Upon the Company’s adoption of ASC 326, our net investment in leases was recorded in the consolidated financial statements net of an allowance for credit losses. This allowance for credit losses reflects the Company’s estimate of lessee default probabilities and loss given default percentages. The estimate of expected credit losses considers relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of reported amounts. Our allowance also considers the potential loss due to non-credit risk related to unguaranteed residual values. We adopted the standard using the “modified retrospective” approach with a January 1, 2020 adjustment to the opening balance of retained earnings. The adoption of the standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company adopted, the FASB Accounting Standard Update (“ASU”) No. ~~2016-18,~~ ~~Statement~~2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The standard modifies certain disclosure requirements for fair value measurements as part of ~~Cash Flows (Topic 230), Restricted Cash. For~~its disclosure framework project. The adoption of the ~~nine months ended September 30, 2017,~~standard did not have a material impact on our consolidated financial statements or related disclosures.

Effective January 1, 2020, the Company ~~revised~~adopted the ~~presentation~~FASB ASU No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use-software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The adoption of the standard did not have a material impact on our consolidated financial

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

statements or related disclosures.

Effective January 1, 2020, the Company adopted the FASB ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities. The standard changes how all entities evaluate decision-making fees under the variable interest entity guidance. The standard is applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of ~~Cash Flows to show~~ the ~~changes in~~earliest period presented. The adoption of the ~~total of cash, cash equivalents, restricted cash and restricted cash equivalents. For the nine months ended September 30, 2016,~~standard did not have a material impact on our ~~Consolidated Statement of Cash Flows reflected: (1) changes in restricted cash~~consolidated financial statements or related to the sale of flight equipment within investing activities; and (2) changes in restricted cash and restricted cash equivalents related to rents, maintenance payments and security deposits within financing activities. Therefore, the amounts included for the nine months ended September 30, 2016 have been reclassified to conform to the current period presentation.disclosures.

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure ~~since~~subsequent to the balance sheet date of ~~September~~June 30, ~~2017~~2020, through the date on which the consolidated financial statements included in this Form 10-Q were issued.

Principles of Consolidation

The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates ~~four~~2 Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding: (a) whether an entity is subject to consolidation as a VIE; (b) who the variable interest holders are; (c) the potential expected losses and residual returns of the variable interest holders; and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider: (1) the entity’s purpose and design; (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance; and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity.

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September 30, 2017~~

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes ~~that~~ the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

~~Recent Accounting Pronouncements~~Lease Revenue Recognition

~~On February 25, 2016,~~We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the ~~FASB issued Accounting Standards Codification~~lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals. Operating lease rentals that adjust based on a London Interbank Offered Rate (“~~ASC”~~LIBOR”) ~~842 (“ASC 842”)~~index are recognized on a straight-line basis over the lease term using the prevailing rate at lease commencement. Changes to rate-based lease rentals are recognized in the statements of income (loss) in the period of change.

In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement. We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within Other assets in our consolidated balance sheet.

If we determine that the collectability of rental payments is no longer probable (including any deferral thereof), “~~Leases,” which replaced~~we recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the ~~existing guidance in ASC 840,~~ ~~Leases. The accounting for leases by lessors basically remained unchanged~~period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the concepts that existed in ASC 840 accounting. The FASB decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement aligns the notion of what constituteslessee, including security deposit amounts held, as a sale in the lessor accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective. The standard will be effective for public entities beginning after December 15, 2018. The standard is applied on a modified retrospective approach. We plan to adopt the standard on its required effective date of January 1, 2019. We are evaluating the impact that ASC 842 will have on our consolidated financial statements and related disclosures. We do not believe that the adoption of the standard will significantly impact our existing or potential lessees' economic decisionscurrent period adjustment to lease ~~aircraft.~~rental revenue.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments~~. The standard affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The standard is applied on a modified retrospective approach. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as early as the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are in the process of determining the impact the standard will have on our consolidated financial statements and related disclosures.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments~~. The standard clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The update should be applied using a retrospective transition method to each period presented. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard will not have a material impact on our consolidated financial statements and related disclosures.

~~On May 28, 2014, the FASB and the International Accounting Standards Board (the “IASB”) (collectively, “the Boards”), jointly issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606) and related updates. Lease contracts within the scope of ASC 840,~~ ~~Leases~~, are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The standard is effective for public entities beginning after December 15, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We plan to adopt the standard on its required effective date of January 1, 2018, using the modified retrospective approach. We do not expect the impact of this standard to be material to our consolidated financial statements and related disclosures.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting~~. The standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

~~conditions or classification~~The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular on the aviation sector. There has been a dramatic slowdown in air traffic, with many markets in near complete shutdown. According to the International Air Transport Association (“IATA”), as of mid-June 2020, air travel is down to approximately 30% of normal levels and a full recovery to pre-pandemic levels is not expected for several years. Substantially all the world’s airlines are experiencing financial difficulties and liquidity challenges. While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of the ~~award changes.~~COVID-19 virus’ economic shock are material; the extent and duration of which cannot currently be determined.

Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors. We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time. As of August 1, 2020, we have agreed to defer approximately $99,000 in near-term lease payments, including $61,209 that appear in our Consolidated Balance Sheet as components of Accounts receivable, Net investment in leases, or Other assets as of June 30, 2020. This represents approximately 12% of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended June 30, 2020. Deferrals have been agreed to with 40 airlines, representing 50% of our customer base, and for an average deferral of four months of lease rentals. In a limited number of situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions.

If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to our customers or extend the periods of repayment for deferrals we have already made. We may ultimately not be able to collect all the amounts we have deferred.

As of August 1, 2020, 6 of our customers entered judicial insolvency proceedings. We lease 21 aircraft to these customers, which comprise 12% of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases, or “net book value”) and 11% of our Lease rental revenue as of and for the twelve months ended June 30, 2020. NaN of these is LATAM, our second largest customer, which represents 7% of our net book value of flight equipment and 7% of our Lease rental revenue as of and for the twelve months ended June 30, 2020. As of August 1, 2020, only 1 aircraft lease has been rejected in the various proceedings, but that number may increase as the judicial processes advance. Based on historic experience, the judicial process can take anywhere from twelve months up to eighteen months to be resolved. We are actively engaged in the various judicial procedures to protect our economic interests. As a result of these proceedings, the recognition of lease rental revenue for certain customers may be done on a cash basis of accounting rather than the accrual method depending on the customers lease security arrangements.

Impairment of Flight Equipment

We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the second quarter. In addition, ~~when applicable, disclosure~~a recoverability assessment is ~~required~~performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, ~~indicate~~a significant lease restructuring or early lease termination, significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates, transition costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors. In the event that ~~compensation expense has~~an aircraft does not ~~changed.~~meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 – Fair Value Measurements.

Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The ~~update~~factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

We are closely monitoring the impact of the COVID-19 virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.

Net Investment in Leases

If a lease meets specific criteria at lease commencement or at the effective date of a lease modification, we recognize the lease as a direct financing or sales-type lease. The net investment in direct financing and sales-type leases consists of the lease receivable, estimated unguaranteed residual value of the lease flight equipment at lease-end and, for direct financing leases, deferred selling profit. For sales-type leases, we recognize the difference between the net book value of the aircraft and the net investment in the lease as a gain or loss on sale of flight equipment. Selling profit on a direct financing lease is deferred and amortized over the lease term, and a selling loss is recognized at lease commencement. Interest income on our net investment in leases is recognized as Direct financing and sales-type leases revenue over the lease term in a manner that produces a constant rate of return on the net investment in the lease.

The net investment in leases is recorded in the consolidated financial statements net of an allowance for credit losses. The allowance for credit losses is recorded upon the initial recognition of the net investment in the lease based on the Company’s estimate of expected credit losses over the lease term. The allowance reflects the Company’s estimate of lessee default probabilities and loss given default percentages. When determining the credit loss allowance, we consider relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the net investment in the lease. The allowance also considers potential losses due to non-credit risk related to unguaranteed residual values. A provision for credit losses is recorded as a component of Selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) to adjust the allowance for changes to management’s estimate of expected credit losses.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard applies to entities that have contracts, such as debt agreements, lease agreements or derivative instruments, which reference LIBOR or another reference rate expected to be ~~applied using~~discontinued due to reference rate reform. Entities can elect not to apply certain modification accounting requirements for contract modifications that replace a ~~prospective transition method to each period presented.~~reference rate affected by reference rate reform. If elected, such contracts are accounted for as a continuation of the existing contract and no reassessments or re-measurements are required. The standard is effective for ~~annual periods beginning~~all entities from March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December ~~15, 2017, including~~31, 2022. We have not adopted ASC 848 for this interim ~~periods within those fiscal years. Early adoption is permitted. The~~period and are currently evaluating the election available to us under the standard ~~will not~~and the impact it may have ~~a material impact~~ on our ~~consolidated~~ financial ~~statements and~~statements.

In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related ~~disclosures.~~to the effects of the COVID-19 pandemic. The Q&A provides that entities may elect to apply or not apply the lease modification guidance in ASC 842, “Leases”, for lease concessions provided by lessors as a result of the COVID-19 pandemic. The Company has elected not to apply the lease modification guidance in ASC 842 for such lease concessions – see “Lease Revenue Recognition” above.

Note 2. Fair Value Measurements

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.

The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth our financial assets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.


			Fair Value Measurements at September 30, 2017 Using Fair Value Hierarchy									Fair Value Measurements at June 30, 2020 Using Fair Value Hierarchy
	Fair Value as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique	Fair Value as of June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:
Cash and cash equivalents	$	662,649	$	662,649	$	—	$	—	Market	$	319,032	$	319,032	$	—	$	—	Market
Restricted cash and cash equivalents	20,536		20,536		—		—		Market	5,354		5,354		—		—		Market
Derivative assets	2,663		—		2,663		—		Market	2		—		2		—		Market
Total	$	685,848	$	683,185	$	2,663	$	—		$	324,388	$	324,386	$	2	$	—



			Fair Value Measurements at December 31, 2019 Using Fair Value Hierarchy
	Fair Value as of December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:
Cash and cash equivalents	$	140,882	$	140,882	$	—	$	—	Market
Restricted cash and cash equivalents	14,561		14,561		—		—		Market
Derivative assets	115		—		115		—		Market
Total	$	155,558	$	155,443	$	115	$	—

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September 30, 2017~~

Fair Value Measurements at December 31, 2016
Using Fair Value Hierarchy
Fair Value as of December 31, 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Valuation
Technique
Assets:
Cash and cash equivalents $ 455,579
$ 455,579
$ —
$ —
Market
Restricted cash and cash equivalents 53,238
53,238
—
—
Market
Derivative assets 5,735
—
5,735
—
Market
Total $ 514,552
$ 508,817
$ 5,735
$ —

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are ~~considered to be~~ highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivative included in Level 2 consists of a United States dollar-denominated interest rate cap, and ~~the~~its fair value is based on the market comparisons for similar instruments. We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and the year ended December 31, ~~2016,~~2019, we had no0 transfers into or out of Level 3.

We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

not be recoverable. Assets subject to these measurements include our ~~investments~~investment in unconsolidated joint ventures and aircraft. ~~We account for our investments in unconsolidated joint ventures under the equity method of accounting and record impairment when its fair value is less than its carrying value.~~ We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach ~~which~~that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling ~~aircraft.~~aircraft discounted using the Company’s weighted average cost of capital.

We account for our investment in unconsolidated joint ventures under the equity method of accounting. Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital. These investments are also reviewed for impairment whenever events or circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.

Aircraft Valuation

During the six months ended June 30, 2020, the Company recorded impairment charges related to 20 aircraft due to scheduled lease expirations, early lease terminations, lessee defaults and/or protective filings, or as a result of our annual recoverability assessment conducted during the second quarter of 2020. These 20 aircraft were comprised of 11 narrow-body and 9 wide-body aircraft. The Company recorded impairment charges totaling $342,745 and recognized $136,236 of maintenance reserves, security deposits and lease rentals received in advance into revenue during the six months ended June 30, 2020 – refer to the sections below for additional details.

Transactional Impairments

In February 2020, the Company initiated a process to accept the redelivery of 4 wide-body aircraft prior to their scheduled lease expirations due to a lessee default. As a result, the Company recorded impairment charges of $62,657 and recognized $38,804 of maintenance revenue, $8,740 of security deposits, and $5,863 of lease rentals received in advance into revenue during the first quarter of 2020.

During the second quarter, ~~of 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at~~ the ~~end of their respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in~~Company recorded impairment charges totaling ~~$79,234, partially offset by~~$77,298 related to 11 aircraft due to the scheduled lease expirations of 1 narrow-body aircraft and 1 wide-body aircraft, as well as the early terminations of 9 narrow-body aircraft. The Company recognized $69,995 of maintenance revenue and $12,834 of ~~$13,520.~~ security deposits into revenue related to these 11 aircraft during the second quarter of 2020.

During the ~~third~~second quarter, 6 of our customers filed for bankruptcy protection. As a result, the Company reviewed the related aircraft for recoverability and recorded impairment charges of $159,750 during the second quarter of ~~2017, we sold one production freighter and one converted freighter~~2020 related to 3 wide-body aircraft. ~~We expect to sell one production freighter aircraft in the first quarter of 2018.~~

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter ~~this year. We also performed aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations. Other than~~of 2020. In addition to the transactional impairments discussed above, ~~no other impairments were~~we recorded impairment charges totaling $43,040 related to 1 narrow-body and 1 wide-body aircraft as a result of our annual recoverability assessment. Although we have completed our annual recoverability assessment, we will continue to monitor the developments of the COVID-19 virus throughout the remainder of the year. We will closely monitor the impact of the virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.

The 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 information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

~~in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.~~

Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our annual recoverability assessment. However, ifIf our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates.

Financial Instruments

Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.

The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of our financial instruments at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016 are~~2019 were as follows:



	June 30, 2020				December 31, 2019
	Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
Credit Facilities	$	650,000	$	636,118	$	150,000	$	150,000
Unsecured Term Loan	215,000		208,985		215,000		215,000
ECA Financings	45,443		47,660		147,644		150,805
Bank Financings	937,605		935,547		993,593		1,010,482
Senior Notes	3,300,000		3,193,612		3,600,000		3,787,268

September 30, 2017 December 31, 2016

Carrying Amount
of Liability

Fair Value
of Liability

Carrying
Amount
of Liability

Fair Value
of Liability
Unsecured Term Loan $ 120,000
$ 120,000
$ 120,000
$ 120,000
ECA Financings 236,879
243,880
305,276
316,285
Bank Financings 651,434
649,557
933,541
925,783
Senior Notes 3,200,000
3,422,824
3,200,000
3,387,125

All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

Note 3. Lease Rental Revenues and Flight Equipment Held for Lease

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at ~~September~~June 30, ~~2017~~2020 were as follows:



Year Ending December 31,	Amount⁽¹⁾
Remainder of 2020	$	391,123
2021	665,509
2022	582,359
2023	502,207
2024	390,977
Thereafter	460,916
Total	$	2,993,091

Year Ending December 31, Amount
Remainder of 2017 $ 163,587
2018 630,237
2019 532,026
2020 424,140
2021 350,093
Thereafter 830,674
Total $ 2,930,757
_______________


(1)	Reflects impact of lessee lease rental deferrals.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
Region	2020		2019		2020		2019
Asia and Pacific	44	%	44	%	43	%	43	%
Europe	29	%	28	%	27	%	28	%
Middle East and Africa	5	%	10	%	7	%	11	%
North America	10	%	8	%	11	%	8	%
South America	12	%	10	%	12	%	10	%

Total	100	%	100	%	100	%	100	%

Three Months Ended September 30, Nine Months Ended September 30,
Region 2017 2016 2017 2016
Asia and Pacific 35 % 40 % 38 % 40 %
Europe 24 % 22 % 23 % 23 %
Middle East and Africa 12 % 12 % 12 % 12 %
North America 9 % 7 % 8 % 6 %
South America 20 % 19 % 19 % 19 %
Total 100 % 100 % 100 % 100 %

The classification of regions in the ~~tables~~table above and in the ~~table~~tables and discussion below is determined based on the principal location of the lessee of each aircraft.

The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the ~~years~~periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	Number of Lessees	Combined % of Lease Rental Revenue	Number of Lessees	Combined % of Lease Rental Revenue	Number of Lessees	Combined % of Lease Rental Revenue	Number of Lessees	Combined % of Lease Rental Revenue
Largest lessees by lease rental revenue	4	29%	3	21%	4	27%	3	21%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Number of Lessees
Combined % of Lease
Rental Revenue
Number of Lessees
Combined % of Lease
Rental Revenue
Number of Lessees
Combined % of Lease
Rental Revenue
Number of Lessees Combined % of Lease
Rental Revenue
Largest lessees by lease rental revenue 4 25% 4 25% 4 24% 4 25%

The following table sets forth revenue attributable to individual countries representing at least 10% of ~~total~~Total revenue (including maintenance and other revenue) ~~in any year~~ based on each lessee’s principal place of business for the ~~years~~periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,								Six Months Ended June 30,
	2017			2016			2017			2016			2020				2019				2020				2019
Country	Revenue		% of Total Revenue	Revenue		% of Total Revenue	Revenue		% of Total Revenue	Revenue		% of Total Revenue	Revenue		% of Total Revenue		Revenue		% of Total Revenue		Revenue		% of Total Revenue		Revenue		% of Total Revenue
Indonesia⁽¹⁾	$	—	—%	$	21,745	11%	$	—	—%	$	61,195	11%
India⁽¹⁾													$	—	—	%	$	42,312	19	%	$	—	—	%	$	61,638	14	%
Mexico⁽²⁾													67,922		27	%	—		—	%	74,954		14	%	—		—	%
South Africa⁽³⁾													—		—	%	—		—	%	57,920		11	%	—		—	%

_______________


(1)	~~Total~~For both the three and six months ended June 30, 2019, total revenue attributable to ~~Indonesia~~India included $17,554 of maintenance revenue recognized into revenue. For the three and six months ended June 30, 2020, total revenue attributable to India was less than 10% ~~for~~.


(2)	For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020, total revenue attributable to Mexico included $54,436 of maintenance revenue and $12,834 of security deposits recognized into revenue. For the three and six months ended June 30, 2019, total revenue attributable to Mexico was less than 10%.


(3)	For the three and six months ended June 30, 2020, total revenue attributable to South Africa included $263 and $39,067 of maintenance revenue, respectively, $8,740 of lease rentals received in advance and $5,863 of security deposits recognized into revenue. For the three and six months ended June 30, 2019, total revenue attributable to South Africa was less than 10%.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in ~~finance and sales-type~~ leases, or ~~"net~~“net book ~~value"~~value”) was as follows:


	September 30, 2017			December 31, 2016				June 30, 2020				December 31, 2019
Region	Number of Aircraft	Net Book Value %		Number of Aircraft		Net Book Value %		Number of Aircraft		Net Book Value %		Number of Aircraft		Net Book Value %
Asia and Pacific	54	31	%	61		38	%	89		39	%	94		38	%
Europe	67	28	%	66		23	%	98		27	%	99		26	%
Middle East and Africa	13	9	%	14		11	%	11		4	%	16		7	%
North America	34	11	%	26		8	%	28		10	%	40		13	%
South America	24	21	%	23		18	%	26		13	%	26		15	%
Off-lease	—	—	%	3	⁽¹⁾	2	%	22	⁽¹⁾	7	%	3	⁽²⁾	1	%
Total	192	100	%	193		100	%	274		100	%	278		100	%

_______________


(1)	Consisted of ~~one~~1 Airbus A320-200 and 1 Airbus A330-200 aircraft, each of which are scheduled to be delivered during the third quarter of 2020 to lessees in North America and Europe, respectively, and 1 Airbus A319-100, 11 Airbus A320-200, 5 Airbus A330-200 and 3 Boeing 737-800 aircraft, which we are marketing for lease or sale.

(2)

Consisted of 1 Airbus A320-200 aircraft, which was delivered on lease to a customer in ~~February 2017, and two~~Europe during the first quarter of 2020, 1 Airbus ~~A321-200~~A330-200 aircraft, which ~~were both~~is scheduled to be delivered ~~on lease~~ to a customer in Europe during the ~~second~~third quarter of ~~2017.~~2020, and 1 Boeing 737-800 aircraft, which was sold during the first quarter of 2020.

~~At September 30, 2017~~The following table sets forth net book value of flight equipment (includes net book value of flight equipment held for lease and ~~December 31, 2016, no country represented~~net investment in leases) attributable to individual countries representing at least 10% of net book value of flight equipment based on each lessee’s principal place of ~~business.~~business as of:



	June 30, 2020				December 31, 2019
Country	Net Book Value		Net Book Value %	Number of Lessees	Net Book Value		Net Book Value %	Number of Lessees
India	$	901,093	13%	4	$	924,190	12%	4

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were ~~$9,637~~$11,184 and ~~$14,931,~~$9,176, respectively.

Note 4. Net Investment in ~~Finance~~Leases

At June 30, 2020 and ~~Sales-Type Leases~~

At ~~September 30, 2017~~,December 31, 2019, our net investment in ~~finance and sales-type~~ leases consisted of ~~28 aircraft.~~24 and 29 aircraft, respectively. The ~~following table lists the~~ components of our net investment in ~~finance and sales-type~~ leases at ~~September~~June 30, ~~2017~~:2020, and December 31, 2019, were as follows:

Amount
Total lease payments to be received $ 297,061
Less: Unearned income (153,253 )
Estimated residual values of leased flight equipment (unguaranteed) 344,600
Net investment in finance and sales-type leases $ 488,408



	June 30, 2020			December 31, 2019
Lease receivable	$	122,460		$	164,816
Unguaranteed residual value of flight equipment	200,043			254,580
Net investment leases	322,503			419,396
Allowance for credit losses	(2,972		)	—
Net investment in leases, net of allowance	$	319,531		$	419,396

At ~~September 30, 2017, minimum future lease payments on finance and sales-type leases are as follows:~~

Year Ending December 31, Amount
Remainder of 2017 $ 14,948
2018 54,842
2019 54,507
2020 52,287
2021 42,691
Thereafter 77,786
Total lease payments to be received $ 297,061

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

The activity in the allowance for credit losses related to our net investment in leases for the six months ended June 30, 2020 is as follows:



	Amount
Balance at December 31, 2019	$	—
Adoption of accounting standard	6,270
Provision for credit losses	3,595
Balance at March 31, 2020	9,865
Provision for credit losses	1,206
Write-offs	(8,099		)
Balance at June 30, 2020	$	2,972

During the six months ended June 30, 2020, we wrote off $8,099 of lease rentals against the allowance for credit losses due to the early lease termination of seven Airbus A320-200 aircraft which had been classified as Net investment in leases. At June 30, 2020, future lease payments on net investment in leases are as follows:



Year Ending December 31,	Amount
Remainder of 2020	$	20,936
2021	34,793
2022	23,960
2023	23,234
2024	8,950
Thereafter	32,406
Total lease payments to be received	144,279
Present value of lease payments - lease receivable	(122,460		)
Difference between undiscounted lease payments and lease receivable	$	21,819

Note 5. Unconsolidated Equity Method Investments

We have a joint ~~ventures~~venture with ~~an affiliate of Ontario Teachers’ Pension Plan (“Teachers’”) and~~Mizuho Leasing which has 9 aircraft with ~~the leasing arm of the Industrial Bank of Japan, Limited (“IBJL”).~~

~~At September 30, 2017, the~~a net book value of ~~both joint ventures’ thirteen aircraft~~$321,067 at June 30, 2020.



	Amount
Investment in joint ventures at December 31, 2019	$	32,974
Earnings from joint venture, net of tax	1,476
Investment in joint venture at June 30, 2020	$	34,450

In April 2020, we sold 2 engines to Magellan, an affiliate of Marubeni, for $5,355. This transaction was ~~approximately $661,000.~~

Amount
Investment in joint ventures at December 31, 2016 $ 72,977
Investment in joint ventures 2,117
Earnings from joint ventures, net of tax 5,804
Distributions (4,800 )
Investment in joint ventures at September 30, 2017 $ 76,098

~~The Company has recorded in its Consolidated Balance Sheet~~approved by our Audit Committee as an ~~$11,967 guarantee liability in Maintenance payments and a $5,100 guarantee liability in Security deposits representing its share of the respective exposures.~~arm’s length transaction under our related party policy.

Note 6. Variable Interest Entities

Aircastle consolidates ~~four~~2 VIEs (the “Air Knight VIEs”) of which it is the primary beneficiary. The operating activities of these VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling ~~the~~ ~~six~~2 aircraft as discussed below.

~~ECA Financings~~

~~Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively~~During February 2020, we repaid the “Air Knight VIEs”), has entered into six different twelve-year term loans, which are supported by guarantees from Compagnie Française d'Assurance pour le Commerce Extérieur, (“COFACE”), the French government sponsored export credit agency ~~(“ECA”). We refer to these COFACE-supported financings as~~(the “ECA ~~Financings.”~~

~~Aircastle is~~Financings”) for 4 of the ~~primary beneficiary of~~6 aircraft owned by the Air Knight VIEs, ~~as we have~~which included principal and accrued interest amounts outstanding of $95,128 and incurred early extinguishment costs of $4,020. In June 2020, the ~~power to direct the activities~~leases of the ~~VIEs that most significantly impact~~4 aircraft subject to the ~~economic performance of~~ECA Financings were formally

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

terminated and the aircraft were released as security under such VIEs and we bear the significant risk of loss and participate in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft. There is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air Knight VIEs.

financings. The only assets that the Air Knight VIEs have on their books are ~~financing~~net investments in leases that are eliminated in the consolidated financial statements. The related aircraft, with a net book value as of ~~September~~June 30, ~~2017~~2020 of ~~$417,439,~~$124,432, were included in our flight equipment held for lease. The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of ~~September~~June 30, ~~2017~~2020 is ~~$230,858.~~$44,860.

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September 30, 2017~~

Note 7. Secured and Unsecured Debt Financings

The outstanding amounts of our secured and unsecured ~~term~~ debt financings are as follows:

At September 30, 2017 At December 31, 2016
Debt Obligation
Outstanding
Borrowings
Number of Aircraft Interest Rate
Final Stated
Maturity
Outstanding
Borrowings
Secured Debt Financings:
ECA Financings⁽¹⁾
$ 236,879
6
3.02% to 3.96% 12/03/21 to 11/30/24 $ 305,276
Bank Financings⁽²⁾
651,434
23
2.22% to 4.45% 9/11/18 to 01/19/26 933,541
Less: Debt Issuance Costs (13,439 ) —
(19,783 )
Total secured debt financings, net of debt issuance costs 874,874
29
1,219,034

Unsecured Debt Financings:
Senior Notes due 2017 —
6.75% 04/15/17 500,000
Senior Notes due 2018 400,000
4.625% 12/15/18 400,000
Senior Notes due 2019 500,000
6.25% 12/01/19 500,000
Senior Notes due 2020 300,000
7.625% 04/15/20 300,000
Senior Notes due 2021 500,000
5.125% 03/15/21 500,000
Senior Notes due 2022 500,000
5.50% 02/15/22 500,000
Senior Notes due 2023 500,000
5.00% 04/01/23 500,000
Senior Notes due 2024 500,000
4.125% 05/01/24 —
Unsecured Term Loan 120,000
3.320% 04/28/19 120,000
Revolving Credit Facilities —
N/A 11/21/19 to 05/13/20 —
Less: Debt Issuance Costs (33,760 ) (32,789 )
Total unsecured debt financings, net of debt issuance costs 3,286,240
3,287,211

Total secured and unsecured debt financings, net of debt issuance costs $ 4,161,114
$ 4,506,245



	At June 30, 2020						At December 31, 2019
Debt Obligation	Outstanding Borrowings			Number of Aircraft	Interest Rate	Final Stated Maturity	Outstanding Borrowings
Secured Debt Financings:
ECA Financings⁽¹⁾	$	45,443		2	3.49% to 3.96%	12/03/21 to 11/30/24	$	147,644
Bank Financings⁽²⁾	937,605			34	2.18% to 4.55%	06/17/23 to 01/19/26	993,593
Less: Debt issuance costs and discounts	(8,881		)	—			(11,892		)
Total secured debt financings, net of debt issuance costs and discounts	974,167			36			1,129,345

Unsecured Debt Financings:
Senior Notes due 2020⁽³⁾	—				7.625%	04/15/20	300,000
Senior Notes due 2021	500,000				5.125%	03/15/21	500,000
Senior Notes due 2022	500,000				5.50%	02/15/22	500,000
Senior 5.00% Notes due 2023	500,000				5.00%	04/01/23	500,000
Senior 4.40% Notes due 2023	650,000				4.40%	09/25/23	650,000
Senior Notes due 2024	500,000				4.125%	05/01/24	500,000
Senior Notes due 2026	650,000				4.250%	06/15/26	650,000
Unsecured Term Loans	215,000				1.78%	03/07/22 to 03/07/24	215,000
Revolving Credit Facilities	650,000				1.56% to 1.57%	12/27/21 to 06/27/22	150,000
Less: Debt issuance costs and discounts	(27,410		)				(32,509		)
Total unsecured debt financings, net of debt issuance costs and discounts	4,137,590						3,932,491
Total secured and unsecured debt financings, net of debt issuance costs and discounts	$	5,111,757					$	5,061,836


(1)	The borrowings under these financings at ~~September~~June 30, ~~2017~~2020 have a weighted-average rate of interest of ~~3.59%~~3.60%. During February 2020, the Company repaid the ECA Financings for 4 aircraft owned by the Air Knight VIEs, which were released as security for such financings during the second quarter of 2020 – see Note 6.


(2)	The borrowings under these financings at ~~September~~June 30, ~~2017~~2020 have a weighted-average fixed rate of interest of ~~3.45%~~3.21%.


(3)	Repaid on April 15, 2020.

~~Unsecured Debt Financings:~~

~~Senior Notes due 2024~~

On March 6, 2017, Aircastle issued $500,000 aggregate principal amount of Senior Notes due 2024 (the "Senior Notes due 2024") at par. The Senior Notes due 2024 will mature on May 1, 2024 and bear interest at the rate of 4.125% per annum, payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2017. Interest accrues on the Senior Notes due 2024 from March 20, 2017.

Prior to February 1, 2024, we may redeem the Senior Notes due 2024 at any time at a redemption price equal to (a) 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes from the redemption date through the maturity date of the notes (computed using a discount rate equal to the Treasury

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September~~At June 30, ~~2017~~

~~Rate (as defined in the indenture governing the notes) as of such redemption date plus 0.5%). In addition, prior to May 1,~~ 2020, we may redeem up to 40% of the aggregate principal amount of the notes issued under the indenture at a redemption price equal to 104.125% plus accrued and unpaid interest thereon to, but not including, the redemption date, with the net proceeds of certain equity offerings. If the Company undergoes a change of control, it must offer to repurchase the Senior Notes due 2024 at 101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2024 are not guaranteed by any of the Company's subsidiaries or any third-party.

~~On April 17, 2017, we paid off our Senior Notes due 2017.~~

~~Revolving Credit Facilities~~

~~At September 30, 2017, we~~ had ~~no amounts~~$650,000 outstanding under ~~these facilities.~~our revolving credit facilities and had $450,000 available for borrowing.

As of ~~September~~June 30, ~~2017,~~2020, we were in compliance with all applicable covenants in our financings.

Note 8. Shareholders' Equity and Share-Based Payment

~~During~~On March 27, 2020, (the “Merger Date”), the ~~nine months ended September 30, 2017,~~total authorized share capital of the Company ~~issued 315,588 restricted~~was $3,000, comprised of 250,000,000 common shares of $0.01 each and 50,000,000 preference shares of $0.01 each, and the issued ~~224,147 performance~~ share ~~units (“PSUs”). These awards were made under the Aircastle Limited 2014 Omnibus Incentive Plan.~~

~~During the nine months endedSeptember 30, 2017,~~capital of the Company ~~incurred share-based compensation expense~~was comprised of ~~$7,014 related to restricted~~14,048 common shares ~~and $3,622 related to PSUs,~~ of which $1,611 and $1,581, respectively, pertains to accelerated share-based compensation expense in regards to the separation and disability of our former Chief Executive Officer under the terms of his employment and share-based award agreements.$0.01 each.

As of September 30, 2017, there was $5,789 of unrecognized compensation cost related to unvested restricted common share-based payments and $4,658 of unrecognized compensation cost related to unvested PSU share-based payments that are expected to be recognized over a weighted-average remaining period of 2.6 years.

~~Note 9. Dividends~~

~~The following table sets forth the quarterly dividends declared by our Board of Directors for the periods covered in this report:~~

Declaration Date
Dividend per
Common Share

Aggregate
Dividend
Amount
Record Date Payment Date
August 4, 2017 $ 0.26
$ 20,464
August 31, 2017 September 15, 2017
May 2, 2017 $ 0.26
$ 20,482
May 31, 2017 June 15, 2017
February 9, 2017 $ 0.26
$ 20,466
February 28, 2017 March 15, 2017
October 28, 2016 $ 0.26
$ 20,434
November 29, 2016 December 15, 2016
August 2, 2016 $ 0.24
$ 18,872
August 26, 2016 September 15, 2016

~~Note 10. Earnings Per Share~~

We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic earnings per share calculations using the two-class method. All of our restricted common shares are currently participating securities. Our PSUs are contingently issuable shares which are included in our diluted earnings per share calculations which do not include voting or dividend rights.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

~~Under~~In December 2019, the ~~two-class method, earnings per~~Company accelerated the vesting of certain restricted common share ~~is computed by dividing~~awards and the ~~sum~~vesting and payment of ~~distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders~~certain Performance Share Units (“PSUs”) held by the ~~weighted-average number~~Company’s executive officers, initially granted under the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan. Share-based compensation expense of ~~common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated~~$2,683 related to ~~both~~restricted common shares and $12,466 related to PSUs represents the cost of this accelerated vesting from January 1, 2020 through the Merger Date.

As per the Agreement and Plan of Merger, dated as of November 5, 2019, (the “Merger Agreement”), on the Merger Date, the Company paid $4,063 and $21,473 representing the payment for 126,971 unvested restricted common shares ~~based on~~and 671,030 unvested PSUs, respectively. Concurrently, the ~~total weighted-average~~Company received $25,536 from the MM Air Limited, which was recorded as an additional paid-in-capital as of the Merger Date. The Company also repurchased 73,903 shares totaling $2,370 from our employees and directors to settle tax obligations related to share vesting.

Included in share-based compensation expense for the six months ended June 30, 2020 is $4,197 and $19,381 related to remaining outstanding ~~during~~restricted common shares and remaining outstanding PSUs, respectively, that were accelerated and paid out (in the ~~period.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Weighted-average shares:
Common shares outstanding 78,237,199
77,989,933
78,197,091
78,230,011
Restricted common shares 569,617
680,249
569,453
646,299
Total weighted-average shares 78,806,816
78,670,182
78,766,544
78,876,310

Percentage of weighted-average shares:
Common shares outstanding 99.28 % 99.14 % 99.28 % 99.18 %
Restricted common shares 0.72 % 0.86 % 0.72 % 0.82 %
Total percentage of weighted-average shares 100.00 % 100.00 % 100.00 % 100.00 %

~~The calculations~~case of ~~both basic and diluted earnings per share are as follows:~~PSUs, at the maximum level of performance) in accordance with the Merger Agreement.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Earnings per share – Basic:
Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729
Less: Distributed and undistributed earnings allocated to restricted common shares⁽¹⁾
(415 ) (237 ) (671 ) (686 )
Earnings available to common shareholders – Basic $ 57,016
$ 27,200
$ 92,083
$ 83,043

Weighted-average common shares outstanding – Basic 78,237,199
77,989,933
78,197,091
78,230,011

Earnings per common share – Basic $ 0.73
$ 0.35
$ 1.18
$ 1.06

Earnings per share – Diluted:
Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729
Less: Distributed and undistributed earnings allocated to restricted common shares⁽¹⁾
(415 ) (237 ) (671 ) (686 )
Earnings available to common shareholders – Diluted $ 57,016
$ 27,200
$ 92,083
$ 83,043

Weighted-average common shares outstanding – Basic 78,237,199
77,989,933
78,197,091
   78,230,011
Effect of dilutive shares⁽²⁾
137,810
32,235
169,053
35,804
Weighted-average common shares outstanding – Diluted 78,375,009
78,022,168
78,366,144
   78,265,815

Earnings per common share – Diluted $ 0.73
$ 0.35
$ 1.18
   $ 1.06

~~(1)~~

For the three months ended September 30, 2017 and 2016, distributed and undistributed earnings to restricted shares were 0.72% and 0.86%, respectively, of net income. For the nine months ended September 30, 2017 and 2016, distributed and undistributed earnings to restricted shares were 0.72% and 0.82%, respectively, of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.


~~(2)~~	~~For all periods presented, dilutive shares represented contingently issuable shares.~~

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September 30, 2017~~

Note ~~11.~~9. Income Taxes

Income taxes have been provided for based onupon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily ~~Ireland, Singapore and~~ the United ~~States.~~States and Ireland.

The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
U.S. operations	$	5,915		$	1,959	$	10,820		$	3,875
Non-U.S. operations	(192,983		)	32,658		(232,674		)	69,006
Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments	$	(187,068	)	$	34,617	$	(221,854	)	$	72,881

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
U.S. operations $ 531
$ (92 ) $ 2,029
$ 1,652
Non-U.S. operations 61,799
28,182
93,457
85,469
Income from continuing operations before income taxes and earnings of unconsolidated equity method investments $ 62,330
$ 28,090
$ 95,486
$ 87,121

~~All of our~~Our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are primarily non-U.S. corporations. These ~~non-U.S.~~ subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income ~~taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income~~ taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and ~~Singapore~~the U.S. are subject to tax in those respective jurisdictions.

We have a ~~U.S. based~~U.S.-based subsidiary which provides management services to our ~~non-U.S.~~ subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

The consolidated income tax expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was determined based onupon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

The Company’s effective tax ~~rate~~rates (“ETRs”) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was 9.9%~~2020 and ~~8.9%~~2019 were (2.5)% and (2.2)%, ~~respectively, compared~~and 17.3% and 12.5%, respectively. The three and six months ended June 30, 2020, included discrete items totaling $3,973 and $950 in tax benefits, respectively. The second quarter of 2019 included a discrete item of $2,845 related to ~~8.8%~~a fair value adjustment on an intercompany asset transfer. Excluding these discrete tax items, the ETR would have been (4.6)% and ~~10.1%, respectively,~~(2.6)% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020, respectively, and for the three and six months ended June 30, 2019, 9.1% and 8.6%, respectively. Movements in the ~~effective tax rates~~ETR are generally caused by changes in the proportion of ~~the Company’s pre-tax earnings in taxable and non-tax jurisdictions.~~

~~Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income from continuing operations consisted of the following:~~

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

the Company’s pre-tax earnings in taxable and non-tax jurisdictions. During the six months ended June 30, 2020, we incurred net impairment charges of $206,744 in low tax jurisdictions and a significant decrease in Bermuda income primarily related to Merger expenses of $32,385. During the six months ended June 30, 2019, we reported a significant decrease in Bermuda income primarily related to Avianca Brazil and an increase in Irish income related to Jet Airways.

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income (loss) from continuing operations consisted of the following:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Notional U.S. federal income tax expense at the statutory rate	$	21,815		$	9,831		$	33,420		$	30,492
Notional U.S. federal income tax expense (benefit) at the statutory rate													$	(39,284	)	$	7,270		$	(46,589	)	$	15,305
U.S. state and local income tax, net	33			14			122			139			390			181			1,979			390
Non-U.S. operations:
Bermuda	(12,260		)	(6,025		)	(10,632		)	(16,687		)	46,088			(2,910		)	48,594			(8,048		)
Ireland	(315		)	82			(569		)	2,155			1,017			2,093			(171		)	2,602
Singapore	(1,518		)	(823		)	(9,107		)	(4,874		)	59			(2		)	85			(4		)
Other low tax jurisdictions	(1,450		)	(752		)	(4,377		)	(2,835		)	412			(872		)	2,066			(1,724		)
Non-deductible expenses in the U.S.	(104		)	133			(298		)	418			140			232			3,420			569
Other	(6		)	(2		)	(23		)	(26		)	(4,151		)	—			(4,564		)	—
Provision for income taxes	$	6,195		$	2,458		$	8,536		$	8,782

Income tax provision													$	4,671		$	5,992		$	4,820		$	9,090

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property. While we continue to evaluate the potential application of the CARES Act provisions, the CARES Act did not materially impact the Company’s effective tax rate for the six months ended June 30, 2020.

Note ~~12.~~10. Interest, Net

The following table shows the components of interest, net:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Interest on borrowings and other liabilities⁽¹⁾	$	54,527		$	57,589		$	170,225		$	166,692		$	53,136		$	63,639		$	111,562		$	123,918
Amortization of deferred losses related to interest rate derivatives	569			705			1,725			9,074			—			—			—			184
Amortization of deferred financing fees and debt discount⁽²⁾	6,735			4,097			15,860			13,567			3,259			3,594			6,840			6,958
Interest expense	61,831			62,391			187,810			189,333			56,395			67,233			118,402			131,060
Less: Interest income	(1,061		)	(546		)	(2,089		)	(768		)	(169		)	(856		)	(669		)	(1,220		)
Less: Capitalized interest	(134		)	(48		)	(345		)	(75		)

Interest, net	$	60,636		$	61,797		$	185,376		$	188,490		$	56,226		$	66,377		$	117,733		$	129,840


~~(1)~~	Includes $1,070 and $2,058 of loan prepayment fees related to the sale of aircraft during the three and nine months ended September 30, 2017, respectively, and $0 and $1,509 of loan prepayment fees related to the sale of aircraft during the three and nine months ended September 30, 2016.

~~(2)~~

Includes $3,019 and $4,005 in deferred financing fees written off related to the prepayment of debt in connection with the sale of aircraft during the three and nine months ended September 30, 2017, respectively, and $0 and $1,972 in deferred financing fees written off related to the prepayment of debt in connection with the sale of aircraft during the three and nine months ended September 30, 2016.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September~~June 30, ~~2017~~2020

Note ~~13.~~11. Commitments and Contingencies

Rent expense, primarily for the corporate offices and sales and marketing offices, was $398 and $796 for the three and six months ended June 30, 2020, and $414 and $770 for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows:



Year Ending December 31,	Amount
Remainder of 2020	$	924
2021	1,892
2022	1,806
2023	1,696
2024	1,727
Thereafter	6,113
Total	$	14,158

At ~~September~~June 30, ~~2017,~~2020, we had commitments to acquire 6427 aircraft for ~~$1,803,810,~~$1,022,422, including 25 Embraer E-Jet E2 aircraft.

Commitments, including ~~$129,218~~$109,855 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at ~~September~~June 30, ~~2017,~~2020, net of amounts already paid, are as follows:



Year Ending December 31,	Amount⁽¹⁾
Remainder of 2020	$	104,611
2021	352,453
2022	336,473
2023	155,037
2024	73,848

Total	$	1,022,422

Year Ending December 31, Amount
Remainder of 2017 $ 862,760
2018 52,518
2019 371,673
2020 375,216
2021 141,643
Thereafter —
Total $ 1,803,810
_______________


(1)	We are in the process of deferring some of our E Jet E-2 deliveries scheduled to be delivered over the next twelve months to a later date which would reduce our commitments due within one year by approximately $111,302.

As of August 1, 2020, we had commitments to acquire 25 aircraft for $983,922.

Note ~~14.~~12. Other Assets

The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:


	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Deferred income tax asset	$	1,736	$	1,902	$	3,159	$	1,007
Lease incentives and lease premiums, net of amortization of $38,827 and $39,638, respectively	69,721		96,587
Lease incentives and lease premiums, net of amortization of $67,500 and $71,851, respectively					95,976		112,923
Flight equipment held for sale	3,627		3,834		326		333
Aircraft purchase deposits and progress payments	28,541		12,923
Fair value of interest rate cap	2,663		5,735
Aircraft purchase deposits and Embraer E-2 progress payments					43,286		33,754
Right-of-use asset⁽¹⁾					8,783		9,329
Deferred rent receivable					41,847		5,255
Other assets	25,107		27,417		63,670		38,608

Total other assets	$	131,395	$	148,398	$	257,047	$	201,209

______________


(1)	Net of lease incentives and tenant allowances.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

June 30, 2020

Note ~~15.~~13. Accounts Payable, Accrued Expenses and Other Liabilities

The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of:



	June 30, 2020		December 31, 2019
Accounts payable, accrued expenses and other liabilities	$	36,409	$	47,228
Deferred income tax liability	68,340		64,674
Accrued interest payable	39,947		44,694
Lease liability	12,017		12,800
Lease discounts, net of amortization of $45,184 and $44,696, respectively	2,072		2,718

Total accounts payable, accrued expenses and other liabilities	$	158,785	$	172,114

September 30,
2017 December 31,
2016
Accounts payable and accrued expenses $ 33,499
$ 24,337
Deferred income tax liability 42,706
44,241
Accrued interest payable 56,611
43,107
Lease discounts, net of amortization of $35,296 and $29,016, respectively 12,875
15,842
Total accounts payable, accrued expenses and other liabilities $ 145,691
$ 127,527

Note 14. Subsequent Event

On July 30, 2020, the Company successfully executed a $150,000 revolving credit facility at LIBOR plus 2% with Mizuho Bank Ltd, a related party. The agreement has a one-year term with an one-year extension option.

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Dollars in thousands, except per share amounts)~~

~~September 30, 2017~~

~~Note 16. Accumulated Other Comprehensive Loss~~

~~The following table describes the principal components of accumulated other comprehensive loss recorded on our Consolidated Balance Sheets:~~

Changes in accumulated other comprehensive loss by component⁽¹⁾
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Beginning balance $ (2,396 ) $ (4,845 ) $ (3,552 ) $ (13,213 )
Amounts recognized in other comprehensive loss on derivatives, net of tax expense of $0 for all periods presented —
—
—
(690 )
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense of $0 for all periods presented 569
705
1,725
9,763
Net current period other comprehensive income 569
705
1,725
9,073
Ending balance $ (1,827 ) $ (4,140 ) $ (1,827 ) $ (4,140 )

~~(1) All amounts are net of tax. Amounts in parentheses indicate debits.~~

Reclassifications from accumulated other comprehensive loss⁽¹⁾
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Amount of effective amortization of net deferred interest rate derivative losses⁽²⁾
$ 569
$ 705
$ 1,725
$ 9,074
Effective amount of net settlements of interest rate derivatives, net of tax expense of $0 for all periods presented —
—
—
689
Amount of loss reclassified from accumulated other comprehensive loss into income $ 569
$ 705
$ 1,725
$ 9,763

~~(1) All amounts are net of tax.~~

~~(2) Included in interest expense.~~

At September 30, 2017, the amount of deferred net loss expected to be reclassified from OCI into interest expense over the next twelve months related to our terminated interest rate derivatives is $1,361.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, ~~2016 filed with~~2019, and in our Quarterly Report on Form 10-Q for the ~~Securities and Exchange Commission (the “SEC”).~~quarterly period ended March 31, 2020. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “report”), other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA ~~Adjusted EBITDA~~ and Adjusted ~~Net Income~~EBITDA and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the ~~SEC~~Securities and Exchange Commission (the “SEC”) and previously disclosed under “Risk Factors” in Part I - Item 1A of Aircastle’s ~~2016~~2019 Annual Report on Form 10-K and ~~elsewhere~~ in ~~this report.~~our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

WEBSITE AND ACCESS TO THE COMPANY’S REPORTS

The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge through our website under “Investors — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S. taxpayers are ~~also~~ available free of charge through our website at www.aircastle.com under “Investors — Tax Information (PFIC).”

Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board of Directors committee charters (including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee) are available free of charge through our website under “Investors — Corporate Governance.” In addition, our Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, is available in print, free of charge, to any shareholder upon request to Investor Relations, Aircastle Limited, c/o Aircastle Advisor LLC, 201 Tresser Boulevard, Suite 400, Stamford, Connecticut 06901.

The information on the Company’s Internet website is not part of, ornor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

OVERVIEW

Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. As of ~~September~~June 30, ~~2017,~~2020, we owned and managed on behalf of our joint ventures ~~205~~283 aircraft leased to 7180 lessees located in 3844 countries. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs. In many cases ~~however,~~ we are, however, obligated to pay a specified portion of ~~specified~~ maintenance or modification costs. As of ~~September~~June 30, ~~2017,~~2020, the net book value (including flight equipment held for lease and net investment in ~~finance and sales-type~~ leases, or ~~"net~~“net book ~~value"~~value”) was ~~$5.98~~$7.19 billion compared to ~~$6.51~~$7.79 billion at December 31, ~~2016.~~2019. Our revenues and net ~~income~~loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$191.4~~$255.5 millionand $191.0 million and ~~$57.4~~$538.0 million and ~~$619.2~~$225.2 million, respectively.

On March 27, 2020, the Company successfully completed its merger (the “Merger”) and ~~$92.8 million, respectively.~~is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”). The Merger is not expected to result in any change of the Company’s business strategy, and we believe the Company will benefit by having stable investors with a long-term investment horizon. We also may benefit by being affiliated with Mizuho Leasing, part of the Mizuho Financial Group, one of the largest Japanese financial institutions.

~~Growth~~Historically, growth in commercial air traffic ~~is broadly~~has been correlated with world economic activity. In recent years ~~it has been expanding~~commercial air traffic growth expanded at a rate ~~one and a half~~1.5 to ~~two~~2 times that of global GDP growth. The expansion of air travel has driven ~~a rise~~the growth in the world aircraft ~~fleet. There~~fleet; there are ~~currently~~ approximately ~~20,000~~22,000 commercial mainline passenger and freighter aircraft in ~~operation worldwide. This~~the world fleet ~~is expected~~today. Aircraft leasing companies own approximately 45% of the world’s commercial jet aircraft. Under normal circumstances, we would expect the global fleet to continue expanding at a three to four percent average annual ~~rate~~rate.

The COVID-19 crisis has had an unprecedented negative impact on the global economy, and in particular on the aviation sector. There has been a dramatic slowdown in air traffic, with many markets in near complete shutdown. While there have been some limited improvements in certain markets recently, according to IATA, as of mid-June 2020, air travel is down to approximately 30% of normal levels and a full recovery to pre-pandemic levels is not expected for several years. IATA estimates this situation will cost the airline industry over $350 billion of lost revenue, a number which may be revised upwards. Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges, including certain of our customers, and this could adversely affect our lessees’ ability to fulfill their lease payment obligations to us. While we believe long-term demand for air travel will return to historical trends over time, the near-term impacts of the COVID-19 economic shock are material; the extent and duration of those mpacts cannot currently be determined.

Airlines have been seeking to preserve liquidity by obtaining support from their respective governments, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, and requesting concessions from lessors. Some have sought judicial protection. We have agreed to defer lease payments with numerous airline customers, which they are obligated to repay over time. As of August 1, 2020, we have agreed to defer approximately $99.0 million in near-term lease payments, including $61.2 million that appear in our Consolidated Balance Sheet as components of Accounts receivable, Net investment in leases, or Other assets as of June 30, 2020. This represents approximately 12% of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended June 30, 2020. Deferrals have been agreed to with 40 airlines, representing 50% of our customers, for an average deferral of four months of lease rentals. In a limited number of situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions.

If air traffic continues to remain depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to our customers or extend the period of repayment for deferrals we have already made. We may ultimately not be able to collect all the amounts we have deferred.

As of August 1, 2020, six of our customers entered judicial insolvency proceedings. We lease 21 aircraft to these customers, which comprise 12% of our net book value of flight equipment (including Flight equipment held for lease and Net investment in leases, or “net book value”) and 11% of our Lease rental revenue as of and for the twelve months ended June 30, 2020. One of these customers is LATAM, our second largest customer, which represents 7% of our net book value of flight equipment and 7% of our Lease rental revenue as of and for the twelve months ended June 30, 2020. As of August 1,

2020, only one aircraft lease has been rejected in the various proceedings, but that number may increase as the judicial processes advance. Based on historic experience, the judicial process can take up to twelve to eighteen months to be resolved. We are actively engaged in these judicial proceedings to protect our economic interests. However, the outcome of these proceedings is uncertain and could result in these customers grounding our aircraft, negotiating reductions in aircraft lease rentals, rejecting their leases or taking other actions that could adversely impact us or the value of our aircraft. As a result of these proceedings, the recognition of lease rental revenue for certain customers may be done on a cash basis of accounting rather than the accrual method depending on the customers lease security arrangements.

We believe we have sufficient liquidity to meet our contractual obligations over the next ~~twenty years. Aircraft leasing companies own approximately 41%~~twelve months and as of August 1, 2020, have $971 million of liquidity from cash on hand, working capital and/or available credit lines. As of August 1, 2020, we have commitments to acquire 25 aircraft for $983.9 million. We are in the ~~world’s commercial jet aircraft.~~

Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject to economic variability due to changes in macroeconomic variables such as fuel price levels and foreign exchange rates. The aviation industry is also susceptible to external shocks, such as regional conflicts and terrorist events. Mitigating this risk is the portabilityprocess of ~~the assets, allowing aircraft~~deferring some of our E Jet E-2 deliveries scheduled to be ~~redeployed to locations where demand is higher.~~

Air traffic data for the past several years has shown strong passenger market growth. According to the International Air Transport Association, during the first eight months of 2017, global passenger traffic increased 7.9% compared to the same period in 2016. During the first eight months of 2017, air cargo traffic increased 10.5% compared to the same period in 2016, and capacity increased 3.8%, resulting in an increase in load factors to 43.3%.

Demand for air travel varies considerably by region. Emerging market economies have generally been experiencing greater increases in air traffic, driven by rising levels of per capita income. Air traffic growth is also being driven by the proliferation of low cost carriers, which have stimulated demand through lower prices. Mature markets, such as North America and Western Europe, are likely to grow more slowly in tandem with their economies. Persian Gulf-based Emirates, Qatar Airways and Etihad Airways are also showing signs of reaching maturity. Airlines operating in areas with political instability or weakening economies are under pressure, and their near-term outlook is more uncertain. On balance, we believe air travel will increase over time, and as a result, we expect demand for modern aircraft will continue to remain strongdelivered over the ~~long-term.~~

~~Low fuel prices and interest rates have had~~next twelve months to a substantial effect on our industry. The price of oil dropped by $67 to $36 per barrel in the four years prior to December 2015. This allowed airlines to reduce ticket prices and stimulate aircraft traffic while retaining enough of this benefit to achieve record profit levels. A low interest rate environment and the strong overall performance of the aircraft financing sector attracted significant new capital, increasing competition for new investments. The downward trend in fuel prices and interest rates appears to have ended as fuel prices started rising in 2016. In 2017, the price of fuel has averaged approximately $50 per barrel. Likewise, interest rates have started to rise in the U.S., with Federal Reserve guidance suggesting multiple future rate hikes subsequent to the December 2016 increase in the Federal Funds rate.

Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our business. If pursued properly, this represents an important source of opportunity. Both debt and equity markets have improved globally over the past several years with the recovery from the global financial crisis. Strong U.S. debt capital market conditions benefited borrowers by permitting access to financing at historic lows while higher fees have driven down ECA demand. Recently, ECA availability has been curtailed, both in the U.S. and in Europe, due to political issues and an investigation into possible irregularities, respectively. Commercial bank debt continues to play a critical role for aircraft finance, although we believe regulatory pressures may limit its role over time.

While financial markets conditions are currently attractive, heightened volatility stemming from global growth concerns and various geopolitical issues may increase capital costs and limit availability going forward. We believe these market forces should generate attractive new investment and trading opportunities forlater date which ~~we are well placed to capitalize given our access to different financing sources, our limited capital commitments and our reputation as a reliable trading partner.~~

~~Over the longer term, our strategy is to achieve an investment grade credit rating, which we believe will~~would reduce our ~~borrowing costs and enable more reliable access to debt capital throughout the business cycle.~~commitments due within one year by approximately $111.3 million.

We believe that our long-standing business strategy of maintaining conservative leverage, limiting long-term financial commitments and focusing our portfolio on more liquid narrow-body aircraft will enable us to manage through the COVID-19 crisis. Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.

We also believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will enable us to take advantage of new investment opportunities when they arise. Our Company employs a team of experienced senior professionals with extensive industry and financial experience. Our leadership team members have an average of more than 30 years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 global financial crisis and the September 11, 2001 terror attacks.

Our business approach iswill remain differentiated from those of other large leasing companies. ~~Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so our acquisition targets and growth rates will vary with market conditions.~~ We ~~prefer to~~ have ~~capital resources available to capture investment opportunities that arise in the context of changing market circumstances. As such, we limit~~intentionally limited large, long-term capital commitments and are ~~therefore much~~ less reliant on orders for new aircraft from aircraft manufacturers as a source of new ~~investments.~~

Weinvestments than many of our competitors. While our current posture is defensive given the macro situation, over the long-term we plan to grow our business and profits ~~over the long-term~~ while maintaining a ~~countercyclical orientation, a bias towards limiting long-dated capital commitments and a~~ conservative, ~~and~~ flexible capital structure. ~~Our business strategy entails the following elements:~~

~~Pursuing a disciplined and differentiated investment strategy.~~ In our view, aircraft values change in different ways over time. We carefully evaluate investments across different aircraft models, ages, lessees and acquisition sources and re-evaluate these choices as market conditions and relative investment values change. We believe the financing flexibility offered through unsecured debt and our team’s experience with a wide range of asset types enables our value oriented strategy and provides us with a competitive advantage. We view orders from equipment manufacturers to be part of our investment opportunity set, but choose to limit long term capital commitments unless we believe there is an adequate return premium to compensate for risks and opportunity costs. This approach sets us apart from most other large aircraft leasing companies.

~~Originating investments from many different sources across the globe.~~Our strategy is to seek out worthwhile investments by leveraging our team’s wide range of contacts around the world. We utilize a multi-channel approach to sourcing acquisitions and have purchased aircraft from a large number of airlines, lessors, original equipment manufacturers, lenders and other aircraft owners. Since our formation in 2004, we have acquired aircraft from 86 different sellers.

~~Selling assets when attractive opportunities arise.~~ We sell assets with the aim of realizing profits and reinvesting proceeds when a sale generates the greatest expected cash flow or when more accretive investments are available. We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft types.

~~Maintaining efficient access to capital from a wide set of sources while targeting an investment grade credit rating.~~ We believe the aircraft investment market is influenced by the business cycle. Our strategy is to increase our purchase activity when prices are low and to emphasize asset sales when competition for assets is high. To implement this approach, we believe it is important to maintain access to a wide variety of financing sources. Our objective is to improve our corporate credit ratings to an investment grade level by maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth. We believe improving our credit rating will not only reduce our borrowing costs but also facilitate more reliable access to both secured and unsecured debt capital throughout the business cycle.

~~Leveraging our strategic relationships.~~ We intend to capture the benefits provided through the extensive global contacts and relationships maintained by Marubeni, which is our biggest shareholder and one of the largest Japanese trading companies. Marubeni has already enabled greater access to Japanese-based financing and helped source and develop our joint venture with IBJL (“IBJ Air”). IBJ Air is targeted at newer narrow-body aircraft leased to premier airlines, providing Aircastle with increased access to this market sector and to these customers. Our joint venture with Teachers’ (“Lancaster”) provides us with an opportunity to pursue larger transactions, manage portfolio concentrations and improve our return on deployed capital.

~~Capturing the value of our efficient operating platform and strong operating track record.~~ We believe our team’s capabilities in the global aircraft leasing market places us in a favorable position to source and manage new income-generating activities. We intend to continue to focus our efforts in areas where we believe we have competitive advantages, including new direct investments as well as ventures with strategic business partners.

~~Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels.~~ Aircastle has paid dividends each quarter since our initial public offering in 2006. On August 4, 2017, our Board of Directors declared a regular quarterly dividend of $0.26 per common share, or an aggregate of $20.5 million for the three months ended September 30, 2017, which was paid on September 15, 2017 to holders of record on August 31, 2017. These dividends may not be indicative of the amount of any future dividends. Our ability to

~~pay quarterly dividends will depend upon many factors, including those as described in Item 1A. “Risk Factors” and elsewhere in our 2016 Annual Report on Form 10-K.~~

Revenues

Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from ~~retained~~ maintenance payments related to lease expirations, lease termination payments, ~~lease incentive amortization and~~ interest recognized from ~~finance~~direct financing and sales-type ~~leases.~~leases and gains on the sale of flight equipment.

Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on ~~a number of~~several factors, including the creditworthiness of our lessees and the occurrence of restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

As a result of the COVID-19 pandemic, the Company has provided lease concessions to certain customers, primarily in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease is generally the same as that which was required under the original lease agreement. We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within Other assets in our consolidated balance sheet. In a limited number of situations, we have agreed to broader restructurings of contractual terms, for example obtaining better security packages, term extensions, or other valuable considerations in exchange for short-term economic concessions.

If we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized

to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue.

Under ~~an operating~~a lease, the lessee ~~will be~~is responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we typically do not recognize maintenance revenue during the lease. Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement. The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon ~~a number of~~several factors, including the timing of lease ~~expiries,~~expirations, including scheduled and unscheduled ~~expiries,~~expirations, the timing of maintenance events and the utilization of the aircraft by the lessee.

Many of our leases contain provisions which may require us to pay 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 revenue over the life of the lease. We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments ~~on the~~in our consolidated balance sheet. The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

~~2017~~2020 Lease Expirations and Lease Placements

At ~~September~~June 30, ~~2017,~~2020, the Company had 22 off-lease aircraft and sixteen aircraft with scheduled lease expirations in 2020. As of August 1, 2020, of these 38 aircraft, we ~~had two~~have 28 aircraft, ~~accounting~~which account for ~~less than 1%~~8% of our net book value ~~that are scheduled~~at June 30, 2020, still to ~~come off lease during 2017 for which we have not yet secured lease~~be placed or ~~sales commitments. We are marketing these aircraft for sale.~~sold.

~~2018-2021~~2021-2024 Lease Expirations and Lease Placements

Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period ~~2018-2021,~~2021-2024, representing the percentage of our net book value of flight equipment

~~(including~~ (including flight equipment held for lease and net investment in ~~finance and sales-type~~ leases) at ~~September~~June 30, ~~2017,~~2020, specified below:

~~2018: 10~~2021: 16 aircraft, representing 6%5%;

~~2019: 28~~2022: 33 aircraft, representing ~~18%~~10%;

~~2020: 25~~2023: 37 aircraft, representing 9%11%; and

~~2021: 23~~2024: 56 aircraft, representing ~~12%~~21%.

Operating Expenses

Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, ~~selling, general and administrative~~SG&A expenses, aircraft impairment charges and maintenance and other costs. Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for ~~unscheduled~~early lease terminations.

Income Tax Provision

We obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event 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 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 to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland ~~Singapore~~ and the United States.

~~All of our~~Our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are primarily non-U.S. corporations. These ~~non-U.S.~~ subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income ~~taxes, unless they operate within the U.S., in which case they may be subject to federal, state and local income~~ taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and ~~Singapore~~the U.S. are subject to tax in those respective jurisdictions.

We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

Acquisitions and Sales

During the first ~~nine~~six months of ~~2017,~~2020, we acquired 28four aircraft for ~~$635.1~~$82.3 million. As of ~~October 31, 2017,~~August 1, 2020, we have not acquired ~~37 aircraft for approximately $760 million.~~any additional aircraft. At ~~September~~June 30, ~~2017,~~2020, we had commitments to acquire 6427 additional aircraft for ~~$1.80~~$1.02 billion, including the acquisition of 25 new E-Jet E2 aircraft from ~~Embraer, which are scheduled to deliver in 2019 to 2021.~~Embraer. Of this amount, approximately $104.6 million represents commitments for the remainder of 2020. As of ~~October 31, 2017,~~August 1, 2020, we have commitments to acquire 5525 aircraft for ~~$1.68 billion.~~$983.9 million.

We are in the process of deferring some of our E Jet E-2 deliveries scheduled to be delivered over the next twelve months to a later date which would reduce our commitments due within one year by approximately $111.3 million.

During the first ~~nine~~six months of ~~2017,~~2020, we sold 29eight aircraft for ~~$765.0~~net proceeds of $155.6 million, ~~which resulted in a~~and recognized net ~~gain~~gains on sales of ~~$35.9~~$26.8 million. ~~During October 2017,~~As of August 1, 2020, we have not sold ~~one narrow-body aircraft and one classic narrow-body~~any additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of ~~September~~June 30, ~~2017~~2020:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)


Owned Aircraft	As of September 30, 2017⁽¹⁾			As of September 30, 2016⁽¹⁾			As of June 30, 2020⁽¹⁾			As of June 30, 2019⁽¹⁾
Net Book Value of Flight Equipment	$	5,979		$	6,270		$	7,186		$	7,842
Net Book Value of Unencumbered Flight Equipment	$	4,572		$	4,343		$	5,687		$	5,957
Number of Aircraft	192			175			274			268
Number of Unencumbered Aircraft	163			139			238			226
Number of Lessees	71			65			80			89
Number of Countries	38			35			44			47
Weighted Average Age (years)⁽²⁾	8.7			7.6			10.3			9.5
Weighted Average Remaining Lease Term (years)⁽²⁾	4.7			5.3			4.3			4.6
Weighted Average Fleet Utilization during the three months ended September 30, 2017 and 2016⁽³⁾	100.0		%	98.2		%
Weighted Average Fleet Utilization during the nine months ended September 30, 2017 and 2016⁽³⁾	99.2		%	98.9		%
Portfolio Yield for the three months ended September 30, 2017 and 2016⁽⁴⁾	12.3		%	12.4		%
Portfolio Yield for the nine months ended September 30, 2017 and 2016⁽⁴⁾	12.3		%	12.4		%
Weighted Average Fleet Utilization during the three months ended June 30, 2020 and 2019⁽³⁾							95.1		%	94.0		%
Weighted Average Fleet Utilization during the six months ended June 30, 2020 and 2019⁽³⁾							97.0		%	93.9		%
Portfolio Yield for the three months ended June 30, 2020 and 2019⁽⁴⁾							9.7		%	10.7		%
Portfolio Yield for the six months ended June 30, 2020 and 2019⁽⁴⁾							10.5		%	10.6		%

Managed Aircraft on behalf of Joint Ventures
Managed Aircraft on behalf of Joint Venture
Net Book Value of Flight Equipment	$	661		$	629		$	321		$	678
Number of Aircraft	13			11			9			15


(1)	Calculated using net book value at period end.


(2)	Weighted by net book value.


(3)	Aircraft on-lease days as a percent of total days in period weighted by net book value. The decrease from our historical utilization rate for the three and six months ended June 30, 2020 and 2019, was primarily due to early lease terminations.

(4)

Lease rental revenue, interest income and cash collections on our net investment in ~~finance and sales-type~~ leases for the period as a percent of the average net book value for the period; quarterly information is annualized. The calculation of portfolio yield includes our net investment in leases in the average net book value, and the interest income and cash collections from our net investment in lease rentals.

~~Our owned aircraft portfolio as of~~ ~~September 30, 2017~~ ~~is listed in Exhibit 99.1 to this report.~~

PORTFOLIO DIVERSIFICATION


	Owned Aircraft as of September 30, 2017			Owned Aircraft as of September 30, 2016				Owned Aircraft as of June 30, 2020				Owned Aircraft as of June 30, 2019
	Number of Aircraft	% of Net Book Value⁽¹⁾		Number of Aircraft		% of Net Book Value⁽¹⁾		Number of Aircraft		% of Net Book Value⁽¹⁾		Number of Aircraft		% of Net Book Value⁽¹⁾
Aircraft Type
Passenger:
Narrow-body	159	60	%	134		52	%	246		78	%	238		74	%
Wide-body	28	34	%	32		40	%	24		18	%	26		22	%
Total Passenger	187	94	%	166		92	%	270		96	%	264		96	%
Freighter	5	6	%	9		8	%	4		4	%	4		4	%
Total	192	100	%	175		100	%	274		100	%	268		100	%

Manufacturer
Airbus	108	53	%	87		50	%	186		64	%	167		60	%
Boeing	79	45	%	83		48	%	83		34	%	96		38	%
Embraer	5	2	%	5		2	%	5		2	%	5		2	%
Total	192	100	%	175		100	%	274		100	%	268		100	%

Regional Diversification
Asia and Pacific	54	31	%	55		39	%	89		39	%	91		38	%
Europe	67	28	%	57		22	%	98		27	%	95		27	%
Middle East and Africa	13	9	%	14		11	%	11		4	%	17		8	%
North America	34	11	%	24		8	%	28		10	%	37		11	%
South America	24	21	%	23		19	%	26		13	%	23		13	%
Off-lease	—	—	%	2	⁽²⁾	1	%	22	⁽²⁾	7	%	5	⁽³⁾	3	%

Total	192	100	%	175		100	%	274		100	%	268		100	%


(1)	Calculated using net book value at period end.


(2)	Consisted of ~~two~~one Airbus A320-200 and one Airbus A330-20 aircraft, each of which are scheduled to be delivered during the third quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A319-100, eleven Airbus A320-200 and five Airbus A330-200 and three Boeing 737-800 aircraft, ~~that~~which we are marketing for lease or sale.


(3)	Consisted of three Airbus A320-200 aircraft and one Airbus A330-200 aircraft, which were delivered on lease to two customers in South America during the third quarter of 2019, and one Airbus A330-200 aircraft, which is scheduled to be delivered on lease to a customer in ~~China~~Europe in ~~October 2016.~~the third quarter of 2020.

Our ~~largest single customer represents over 6%~~top ten customers with respect to aircraft we owned as of ~~the~~June 30, 2020, representing 109 aircraft and 41.7% of our net book value at ~~September 30, 2017. Our top fifteen customers~~of flight equipment (includes Flight equipment held for ~~aircraft we owned at~~ ~~September 30, 2017, representing 87 aircraft~~lease and ~~58% of the net book value,~~Net investment in leases), are as follows:



~~Percent of Net Book Value~~	~~Customer~~	~~Country~~	~~Number of~~ ~~Aircraft~~
~~Greater than 6% per customer~~	~~Avianca Brazil~~	~~Brazil~~	10

~~3% to 6% per customer~~	~~LATAM~~	~~Chile~~	3
	~~Lion Air~~	~~Indonesia~~	10
	~~TAP Portugal~~⁽¹⁾	~~Portugal~~	8
	~~South African Airways~~	~~South Africa~~	4
	~~Aerolineas Argentina~~	~~Argentina~~	5
	~~AirBridgeCargo~~⁽²⁾	~~Russia~~	2
	~~Iberia~~	~~Spain~~	10
	~~Jet Airways~~	~~India~~	8

~~Less than 3% per customer~~	~~Interjet~~	~~Mexico~~	9
	~~AirAsia X~~	~~Malaysia~~	2
	~~Avianca~~	~~Colombia~~	2
	~~Thai Airways~~	~~Thailand~~	1
	~~easyJet~~	~~United Kingdom~~	10
	~~Air Canada~~	~~Canada~~	3
	~~Total top fifteen customers~~		87
	~~All other customers~~		~~105~~
	~~Total all customers~~		~~192~~



Customer	Percent of Net Book Value	Country	Number of Aircraft
IndiGo	8.8%	India	16
LATAM⁽¹⁾	7.3%	Chile	13
easyJet	5.2%	United Kingdom	30
Air Canada	3.8%	Canada	6
Iberia	3.8%	Spain	15
Aerolineas Argentinas	2.9%	Argentina	5
American Airlines	2.7%	United States	7
AirBridgeCargo⁽²⁾	2.5%	Russia	2
Jeju Air	2.4%	South Korea	7
SpiceJet	2.3%	India	8

Total top ten customers	41.7%		109
All other customers	58.3%		165

Total all customers	100.0%		274


(1)	~~Combined with an affiliate.~~LATAM filed for Chapter 11 in May 2020.


~~(2)~~	~~Guaranteed by Volga-Dnepr Airlines. We have one additional aircraft on lease with an affiliate.~~

(2) Guaranteed by Volga-Dnepr Airlines. We have one additional aircraft on lease with an affiliate.

Finance

We ~~believe that~~operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital over the last fifteen years. Since our inception in late 2004, we have raised $1.69 billion in equity capital from private and public investors. We also raised $17.55 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured and ~~other funds generated from operations, secured~~unsecured borrowings for aircraft, ~~borrowings under~~draws on our revolving credit facilities and ~~other borrowings and~~ proceeds from any future aircraft ~~sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.~~sales. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.

See “Liquidity and Capital ~~Resources”~~Resources — Secured Debt Financings” and “Liquidity and Capital Resources — Unsecured Debt Financings” below.

RESULTS OF OPERATIONS

Comparison of the three months ended ~~September~~ June 30, ~~2017~~2020 to the three months ended ~~September~~ June 30, ~~2016:~~2019:


	Three Months Ended September 30,						Three Months Ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Revenues:
Lease rental revenue	$	171,687		$	181,975		$	172,380		$	192,823
Finance and sales-type lease revenue	6,412			5,354
Amortization of net lease discounts and lease incentives	(2,388		)	(521		)
Direct financing and sales-type lease revenue							4,537			8,321
Amortization of lease premiums, discounts and incentives							(6,404		)	(5,345		)
Maintenance revenue	14,507			6,829			72,168			26,567
Total lease revenue	190,218			193,637			242,681			222,366
Gain (loss) on sale of flight equipment							(279		)	346
Other revenue	1,193			1,015			13,050			704
Total revenues	191,411			194,652			255,452			223,416
Operating expenses:
Depreciation	70,018			76,201			88,117			89,578
Interest, net	60,636			61,797			56,226			66,377
Selling, general and administrative	17,137			15,985			13,564			18,317
Impairment of aircraft	—			10,462
Impairment of flight equipment							280,088			7,404
Maintenance and other costs	2,572			1,834			4,241			5,213
Total operating expenses	150,363			166,279			442,236			186,889
Other income (expense):
Gain (loss) on sale of flight equipment	21,642			(73		)

Other expense:
Loss on extinguishment of debt							(65		)	—
Merger expenses							(220		)	—
Other	(360		)	(210		)	1			(1,910		)
Total other income (expense)	21,282			(283		)
Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	62,330			28,090
Total other expense							(284		)	(1,910		)

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments							(187,068		)	34,617
Income tax provision	6,195			2,458			4,671			5,992
Earnings of unconsolidated equity method investments, net of tax	1,296			1,805			762			2,487
Net income	$	57,431		$	27,437
Net income (loss)							$	(190,977	)	$	31,112

Revenues

Total revenues~~decreased~~ increased by ~~$3.2~~$32.0 million for the three months ended~~September~~June 30, ~~2017~~2020, as compared to the three months ended~~September~~June 30, ~~2016~~2019.

Lease rental revenue. The decrease in lease rental revenue of ~~$10.3~~$20.4 million for the three months ended~~September~~June 30, ~~2017~~2020, as compared to the same period in ~~2016~~2019, was primarily the result of:

a ~~$32.8~~$15.6 million decrease due to the sale of 4022 aircraft since ~~September 30, 2016;~~April 1, 2019; and

a ~~$6.7~~$21.9 million decrease due to early lease ~~extensions, amendments, transitions~~terminations and ~~other changes.~~the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

This decrease was partially offset by ana $19.7 million increase in revenue, reflecting the impact of ~~$29.2 million due to the acquisition of 50~~39 aircraft purchased since ~~September 30, 2016.~~April 1, 2019.

~~Finance~~Direct financing and sales-type lease revenue. For the three months ended~~September~~ June 30, ~~2017, $6.4~~2020, $4.5 million of interest income from ~~finance~~direct financing and sales-type leases was recognized, as compared to ~~$5.4~~$8.3 million ~~of interest income from finance and sales-type leases~~ recorded for the same period in ~~2016, due~~2019, primarily attributable to the ~~addition~~early lease terminations of ~~fifteen~~seven aircraft ~~partially offset by~~during the ~~sale~~second quarter of 2020. Additionally, we sold two aircraft ~~over~~subject to direct financing and sales-type leases during the ~~last twelve months.~~fourth quarter of 2019.

Amortization of ~~net~~ lease premiums, discounts and lease incentives consisted of the following:


	Three Months Ended September 30,						Three Months Ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Amortization of lease incentives	$	(1,810	)	$	42
Amortization of lease premiums	(2,266		)	(2,894		)	$	(5,070	)	$	(4,261	)
Amortization of lease discounts	1,688			2,331			270			1,407
Amortization of net lease discounts and lease incentives	$	(2,388	)	$	(521	)
Amortization of lease incentives							(1,604		)	(2,491		)

Amortization of lease premiums, discounts and incentives							$	(6,404	)	$	(5,345	)

As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components, which are amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The increase in amortization of lease incentives of $1.9 million for the three months ended September 30, 2017, as compared to the same period in 2016, was primarily attributable to the reversal of lease incentives associated with one freighter aircraft due to changes in estimate and the reclassification of one aircraft from an operating lease to a finance lease.

Maintenance revenue. For the three months ended ~~September~~June 30, ~~2017,~~2020, we recorded ~~$14.5~~$72.2 million of maintenance revenue, of which $38.8 million related to the early lease terminations of eleven narrow-body aircraft and $31.7 million related to the scheduled lease expirations of one narrow-body aircraft and one wide-body aircraft – see “Summary of Recoverability Assessment and Other Impairments” below. For the same period in 2019, we recorded $26.6 million maintenance revenue, primarily due to the transition of ~~one~~ten narrow-body and one wide-body aircraft, ofincluding $17.6 million related to the early lease terminations with one lessee in Asia.

Other revenue increased by $12.3 million to $13.1 ~~million. For~~million for the three months ended June 30, 2020, as compared to $0.7 million for the same period in ~~2016, we recorded $6.8~~2019, primarily due to $12.8 million of ~~maintenance~~security deposits recognized into revenue ~~including $5.6 million~~ related to ~~maintenance reserves taken into income for three freighter aircraft.~~

~~Other revenue.~~ ~~For the three months ended September 30, 2017, we recorded $1.2 million of other revenue, primarily from fees earned from one lessee in connection with~~ the early ~~termination~~lease terminations of ~~a lease. For the same period in 2016, we recorded $1.0 million of other revenue.~~eleven narrow-body aircraft.

Operating expenses

Total operating expenses ~~decreased~~ increased by ~~$15.9~~$255.3 million for the three months ended~~September~~June 30, ~~2017~~2020, as compared to the three months ended~~September~~June 30, ~~2016~~2019.

Depreciation expense decreased by ~~$6.2~~$1.5 million for the three months ended~~September~~ June 30, ~~2017~~2020 as compared to the same period in ~~2016. The~~2019, primarily due a decrease of $9.6 million resulting from 22 aircraft sold since April 1, 2019 and lower depreciation on aircraft subject to impairment charges recorded during 2020. This is partially offset by higher depreciation of $7.2 million due to 39 aircraft acquired since April 1, 2019.

Interest, net consisted of the following:



	Three Months Ended June 30,
	2020			2019
	(Dollars in thousands)
Interest on borrowings and other liabilities	$	53,136		$	63,639
Amortization of deferred losses related to interest rate derivatives	—			—
Amortization of deferred financing fees and debt discount	3,259			3,594
Interest expense	56,395			67,233
Less: Interest income	(169		)	(856		)

Interest, net	$	56,226		$	66,377

Interest, net decreased by $10.2 million as compared to the three months ended June 30, 2019, primarily ~~the~~as a result of lower ~~depreciation of $18.8 million due to 40 aircraft sold.~~

~~This decrease was~~weighted average interest rates, partially offset by ~~increases of:~~higher weighted average debt outstanding.

~~$11.0~~Selling, general and administrative expenses for the three months ended June 30, 2020 decreased $4.8 million ~~due~~as compared to ~~50 aircraft acquired;~~the same period in 2019, primarily attributable to lower share-based compensation expense of $3.2 million and

~~$1.6~~ lower personnel and travel costs of $2.1 million, ~~due to changes in asset lives, residual values and other changes.~~

~~Interest, net~~ ~~consisted~~partially offset by a provision for credit losses of ~~the following:~~

Three Months Ended September 30,
2017 2016
(Dollars in thousands)
Interest on borrowings, net of settlements on interest rate derivatives, and other liabilities⁽¹⁾
$ 54,527
$ 57,589
Amortization of interest rate derivatives related to deferred losses 569
705
Amortization of deferred financing fees and debt discount⁽²⁾
6,735
4,097
Interest expense 61,831
62,391
Less: Interest income (1,061 ) (546 )
Less: Capitalized interest (134 ) (48 )
Interest, net $ 60,636
$ 61,797

~~(1) Includes $1.1~~$1.2 million ~~of loan prepayment fees~~ related to the ~~sale~~change in our allowance for credit losses since the adoption of ASC 326 on January 1, 2020.

Impairment of aircraft. We recorded impairment charges of $280.1 million related to sixteen aircraft during the three months ended ~~September~~June 30, ~~2017.~~

~~(2) Includes $3.0~~2020 compared to impairment charges of $7.4 million ~~in deferred financing fees written off~~ related to ~~the prepayment of debt in connection with the sale of~~seven aircraft during the three months ended ~~September~~June 30, ~~2017.~~

Interest, net decreased by $1.2 million over the three months ended September 30, 2016. The net decrease is primarily a result of lower interest on borrowings of $3.1 million, primarily due to lower weighted average debt outstanding, and higher interest income of $0.5 million, partially offset by higher amortization of deferred financing fees and debt discount of $2.6 million during the three months ended September 30, 2017 as compared to a year ago.

~~Selling, general and administrative expenses~~ ~~for the~~ ~~three months endedSeptember 30, 2017~~ ~~increased by $1.2 million over the same period in 2016.~~

~~Impairment of Aircraft.~~ 2019. See “Summary of ~~Impairments~~Recoverability Assessment and ~~Recoverability Assessment”~~Other Impairments” below for a detailed discussion of impairment charges related to certain aircraft.

~~Other income (expense)~~

~~Gain (loss) on sale of flight equipment~~ ~~increased by $21.7 million to $21.6~~Maintenance and other costs were $4.2 million for the three months ended ~~September~~June 30, ~~2017,~~2020, a decrease of $1.0 million compared ~~with a loss of $0.1 million for~~to the same period in ~~2016. During the third quarter of 2017, we sold fifteen aircraft. During the third quarter of 2016, we recorded gains totaling $7.8 million and losses totaling $7.9 million, primarily~~2019. The three months ended June 30, 2019, included higher maintenance costs for eighteen unscheduled transitions due to ~~a loss of $5.2~~early lease terminations related to two lessees.

Other expense

Total other expense decreased by $1.6 million for ~~a wide-body aircraft’s lease extension classified~~the three months ended June 30, 2020, as ~~a sales-type lease.~~compared to the three months ended June 30, 2019. The decrease was primarily attributable to favorable mark-to-market adjustments on our interest rate caps of $1.9 million.

Income tax provision

Our provision for income taxes for the three months ended ~~September~~ June 30, ~~2017~~2020 and ~~2016~~2019 was $~~6.2~~4.7 million and $~~2.5~~6.0 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland ~~Singapore~~ and the United States. The ~~increase~~decrease in our income tax provision of ~~approximately $3.7~~$1.3 million for the three months ended~~September~~June 30, ~~2017~~2020, as compared to the same period in ~~2016~~,2019, was primarily attributable to changes in operating income subject to tax in Ireland, ~~Singapore,~~ the United States and other jurisdictions.

~~All~~ The three months ended June 30, 2020, included net impairment charges of ~~our aircraft-owning subsidiaries that are recognized as corporations for U.S.~~$197.6 million in a low-tax jurisdiction. The three months ended June 30, 2020, also included discrete items totaling $4.0 million in tax ~~purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject~~benefits. The second quarter of 2019 included a discrete item of $2.8 million related to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

~~We have~~ a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. In addition, we have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

~~The Company received~~fair value adjustment on an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.intercompany asset transfer.

~~Other comprehensive income~~

~~Other comprehensive income~~ ~~consisted of the following:~~

Three Months Ended September 30,
2017 2016
(Dollars in thousands)
Net income $ 57,431
$ 27,437
Derivative loss reclassified into earnings 569
705
Total comprehensive income $ 58,000
$ 28,142

~~Other comprehensive income~~ increased by $29.9 million for the three months ended September 30, 2017, as a result of a $30.0 million increase in net income, partially offset by a decrease of $0.1 million in amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.

RESULTS OF OPERATIONS

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 to the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~2019:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Revenues:
Lease rental revenue	$	551,371		$	537,670		$	371,300		$	374,057
Finance and sales-type lease revenue	16,363			13,026
Direct financing and sales-type lease revenue							11,303			16,764
Amortization of lease premiums, discounts and incentives	(8,780		)	(5,419		)	(12,100		)	(11,056		)
Maintenance revenue	55,738			20,603			118,720			42,968
Total lease revenue	614,692			565,880			489,223			422,733
Gain on sale of flight equipment							26,770			12,348
Other revenue	4,526			2,425			21,957			2,262
Total revenues	619,218			568,305			537,950			437,343
Operating expenses:
Depreciation	227,446			227,918			177,822			174,313
Interest, net	185,376			188,490			117,733			129,840
Selling, general and administrative	55,491			46,883			75,946			36,317
Impairment of flight equipment	80,430			27,185			342,745			7,404
Maintenance and other costs	7,846			5,504			8,997			12,617
Total operating expenses	556,589			495,980			723,243			360,491
Other income (expense):
Gain on sale of flight equipment	35,926			14,932

Other expense:
Loss on extinguishment of debt							(4,020		)	—
Merger expenses							(32,430		)	—
Other	(3,069		)	(136		)	(111		)	(3,971		)
Total other income	32,857			14,796
Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	95,486			87,121
Total other expense							(36,561		)	(3,971		)

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments							(221,854		)	72,881
Income tax provision	8,536			8,782			4,820			9,090
Earnings of unconsolidated equity method investments, net of tax	5,804			5,390			1,476			2,131
Net income	$	92,754		$	83,729
Net income (loss)							$	(225,198	)	$	65,922

Revenues

Total revenues increased by ~~$50.9~~$100.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019.

Lease rental revenue. The ~~increase~~decrease in lease rental revenue of ~~$13.7~~$2.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same period in ~~2016~~2019, was primarily the result ~~of increases in revenue of $102.1~~of:

a $30.1 million ~~due to the acquisition of 64 aircraft since September 30, 2016. This increase was partially offset by decreases of:~~

~~$71.8 million~~decrease due to the sale of 5523 aircraft since ~~September 30, 2016;~~January 1, 2019; and

~~$16.6~~a $21.3 million decrease due to early lease ~~extensions, amendments, transitions~~terminations and ~~other changes.~~the recognition of lease rental revenue for certain customers using a cash basis of accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy.

~~Finance~~This decrease was partially offset by a $48.9 million increase in revenue, reflecting the impact of 52 aircraft purchased since January 1, 2019.

Direct financing and sales-type lease revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017, $16.4~~2020, $11.3 million of interest income from ~~finance~~direct financing and sales-type leases was recognized, as compared to ~~$13.0~~$16.8 million ~~of interest income from finance and sales-type leases~~ recorded for the same period in ~~2016 due~~

2019, primarily attributable to ~~the addition of fifteen aircraft, partially offset by~~ the sale of two aircraft ~~over~~subject to direct financing and sales-type leases during the ~~last twelve months.~~fourth quarter of 2019 and early lease terminations of seven aircraft during the second quarter of 2020.

Amortization of ~~net~~ lease premiums, discounts and lease ~~incentives.~~incentives consisted of the following:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Amortization of lease incentives	$	(7,124	)	$	(3,989	)
Amortization of lease premiums	(7,935		)	(8,571		)	$	(8,599	)	$	(8,298	)
Amortization of lease discounts	6,279			7,141			646			2,833
Amortization of lease incentives							(4,147		)	(5,591		)

Amortization of lease premiums, discounts and incentives	$	(8,780	)	$	(5,419	)	$	(12,100	)	$	(11,056	)

~~As more fully described above under “Revenues,” lease incentives represent our estimated portion of~~Maintenance revenue. For the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The increase in amortization of lease incentives of $3.1 million for the ninesix months ended ~~September~~June 30, ~~2017~~2020, we recorded $118.7 million of maintenance revenue, primarily comprised of $79.3 million related to the early lease terminations of eleven narrow-body aircraft and four wide-body aircraft, as ~~compared~~well as $39.2 million related to the scheduled lease expirations of four narrow-body aircraft and one wide-body aircraft - see “Summary of Recoverability Assessment and Other Impairments” below. For the same period in 2016 was primarily attributable to the reversal of lease incentives associated with two freighter aircraft due to changes in estimate and the reclassification of one aircraft from an operating lease to a finance lease.

~~Maintenance revenue.~~ ~~For the nine months ended September 30, 2017,~~2019, we recorded ~~$55.7~~$43.0 million of maintenance revenue, primarily due to the transition of ~~four~~21 narrow-body ~~four~~aircraft and three wide-body aircraft, including cash maintenance revenue received for ten narrow-body aircraft from one lessee South America and $17.6 million related to the early lease terminations with one ~~freighter aircraft~~lessee in Asia.

Gain on sale of flight equipment increased by $14.4 million to $26.8 million for ~~$50.6 million. For~~the six months ended June 30, 2020, as compared to gains of $12.3 million for the same period in 2016, we recorded $20.6 million of maintenance revenue from one scheduled lease termination for $6.9 million and maintenance reserves taken into income for three freighter aircraft and one wide-body aircraft totaling $13.2 million.

~~Other revenue.~~ ~~For~~2019. During the ~~nine~~six months ended ~~September 30, 2017,~~of 2020, we ~~recorded $4.5~~sold eight aircraft, including the receipt of insurance proceeds for one aircraft, as compared to the sale of four aircraft during the six months ended of 2019. We also recognized gains totaling $3.7 million ~~of other revenue, primarily~~resulting from ~~fees earned from two lessees in connection with~~ the ~~early terminations~~transition of two ~~leases. For~~aircraft from operating to net investment in direct financing and sales-type leases during the six months ended June 30, 2019.

Other revenue increased by $19.7 million to $22.0 million for the six months ended June 30, 2020, as compared to $2.3 million for the same period in ~~2016, we recorded $2.4~~2019, primarily due to $21.6 million of ~~other revenue.~~security deposits recognized into revenue related to the early lease terminations of four wide-body aircraft and eleven narrow-body aircraft. This was partially offset by lower service fees of $1.6 million related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.

Operating expenses

Total operating expenses increased by ~~$60.6~~$362.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019.

Depreciation expense ~~decreased~~ increased by ~~$0.5~~$3.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in ~~2016.~~2019. The ~~decrease~~increase is primarily the result of ~~lower~~higher depreciation of ~~$44.0~~$18.5 million due to 5552 aircraft ~~sold.~~

~~This decrease was~~acquired since January 1, 2019, partially offset by ~~increases of:~~a decrease of $16.1 million resulting from 24 aircraft sold since January 1, 2019 and lower depreciation related to aircraft subject to aircraft impairments recorded during 2020.

~~$40.2 million due to 64 aircraft acquisitions, and;~~

~~$3.3 million due to changes in asset lives, residual values and other changes.~~

Interest, net consisted of the following:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Interest on borrowings and other liabilities⁽¹⁾	$	170,225		$	166,692		$	111,562		$	123,918
Amortization of interest rate derivatives related to deferred losses	1,725			9,074
Amortization of deferred losses related to interest rate derivatives							—			184
Amortization of deferred financing fees and debt discount⁽²⁾	15,860			13,567			6,840			6,958
Interest expense	187,810			189,333			118,402			131,060
Less: Interest income	(2,089		)	(768		)	(669		)	(1,220		)
Less: Capitalized interest	(345		)	(75		)

Interest, net	$	185,376		$	188,490		$	117,733		$	129,840


~~(1)~~	~~Includes $2.1 million and $1.5 million of loan prepayment fees related to the sale of aircraft during the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	Includes $4.0 million and $2.0 million in deferred financing fees written off related to the prepayment of debt in connection with the sale of aircraft during the nine months ended September 30, 2017 and 2016, respectively.

Interest, net decreased by ~~$3.1~~$12.1 million as compared to the ~~nine~~six months ended ~~September~~June 30, 2016. The net decrease is primarily a result of lower amortization of deferred losses on terminated interest rate derivatives of $7.3 million and higher interest income of $1.3 million, partially offset by higher interest on borrowings of $3.5 million, primarily due to higher weighted average debt outstanding during the nine months ended September 30, 2017 and higher amortization of deferred financing fees and debt discount of $2.3 million as compared to a year ago.

~~Selling, general and administrative expenses~~ ~~for the nine months ended September 30, 2017 increased $8.6 million over the same period in 2016,~~2019, primarily as a result of ~~$5.1~~lower weighted average interest rates, partially offset by higher weighted average debt outstanding.

Selling, general and administrative expenses for the six months ended June 30, 2020 increased $39.6 million ~~of separation and disability~~as compared to the same period in 2019, primarily attributable to net share-based compensation expense of $38.7 million recognized as a result of the Merger and a provision for credit losses of $4.8 million related to the change in our ~~former Chief Executive Officer under~~allowance for credit losses since the ~~terms~~adoption of ~~his employment and share-based award agreements.~~ASC 326 on January 1, 2020.

Impairment of ~~Aircraft.~~ aircraft. We recorded impairment charges of $342.7 million during the six months ended June 30, 2020 related to 20 aircraft. During the six months ended June 30, 2019, the Company recorded impairment charges of $7.4 million related to seven aircraft. See “Summary of ~~Impairments~~Recoverability Assessment and ~~Recoverability Assessment”~~Other Impairments” below for a detailed discussion of impairment charges related to certain aircraft.

Maintenance and other costs were ~~$7.8~~$9.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, an increase~~2020, a decrease of ~~$2.3~~$3.6 million ~~over~~compared to the same period in ~~2016.~~2019. The ~~net increase is primarily related to higher maintenance costs of $2.2 million related to terminations and transitions for the nine~~six months ended ~~September~~June 30, ~~2017 versus~~2019 included higher costs for scheduled transitions and higher than projected lessor contributions towards the ~~same period in 2016.~~cost of maintenance events for aircraft acquired with attached leases.

Other ~~income (expense)~~expense

~~Gain on sale of flight equipment~~Total other expense increased by ~~$21.0~~$32.6 million to ~~$35.9~~$36.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to ~~gains of $14.9~~$4.0 million for the ~~same period in 2016. During the nine~~six months ended ~~September~~June 30, ~~2017, we sold 29 aircraft. During~~2019. The increase was attributable to $32.4 million of legal and banking expenses related to the ~~nine months ended September 30, 2016, we recorded gains totaling $26.7~~Merger and a $4.0 million ~~that were~~loss on extinguishment of debt due to the early repayment of secured debt for five aircraft, partially offset by ~~losses totaling $11.8 million, including a loss~~favorable mark-to-market adjustments on our interest rate caps of ~~$5.2 million for a wide-body aircraft’s lease extension classified as a sales-type lease.~~$3.9 million.

Income tax provision

Our provision for income taxes for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$8.5~~$4.8 million and ~~$8.8~~$9.1 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland ~~Singapore~~ and the United States. The decrease in our income tax provision of ~~approximately $0.2~~$4.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same period in ~~2016~~2019, was primarily attributable to changes in operating income subject to tax in Ireland, ~~Singapore,~~ the United States and other jurisdictions.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The ~~aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.~~

We have a U.S. based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

~~Other comprehensive income~~

Nine Months Ended September 30,
2017 2016
(Dollars in thousands)
Net income $ 92,754
$ 83,729
Net change in fair value of derivatives, net of tax expense of $0 for both periods presented —
(1 )
Derivative loss reclassified into earnings 1,725
9,074
Total comprehensive income $ 94,479
$ 92,802

~~Other comprehensive income~~ ~~increased by $1.7 million for the nine~~six months ended ~~September~~June 30, ~~2017, as a result of a $9.0 million increase in net income, partially offset by a decrease of $7.3~~2020, included discrete items totaling $1.0 million in ~~amortization~~tax benefits. The six months ended June 30, 2019 included a discrete item of ~~deferred net losses reclassified into earnings~~$2.8 million related to ~~terminated interest rate derivatives.~~a fair value adjustment on an intercompany asset transfer. During the six months ended June 30, 2020, we incurred net impairment charges of $206.7 million and a significant decrease in Bermuda income primarily related to Merger expenses of $32.4 million.

Summary of Recoverability Assessment and Other Impairments

During the six months ended June 30, 2020, the Company recorded impairment charges related to twenty aircraft due to scheduled lease expirations, early lease terminations, lessee defaults and/or protective filings, or as a result of our annual recoverability assessment conducted during the second quarter of 2020. These twenty aircraft were comprised of eleven narrow-body and nine wide-body aircraft. The Company recorded impairment charges totaling $342.7 million and recognized

$136.2 million of maintenance reserves, security deposits and lease rentals received in advance into revenue during the six months ended June 30, 2020. Please refer to the sections below for additional details.

Transactional Impairments

In February 2020, the Company initiated a process to accept the redelivery of four wide-body aircraft prior to their scheduled lease expirations due to a lessee default. As a result, the Company recorded impairment charges of $62.7 million and recognized $38.8 million of maintenance revenue, $8.7 million of security deposits, and $5.9 million of lease rentals received in advance into revenue during the first quarter of 2020.

During the second quarter, ~~of 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at~~ the ~~end of their respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in~~Company recorded impairment charges totaling ~~$79.2~~$77.3 million ~~partially offset by~~related to eleven aircraft due to the scheduled lease expirations of one narrow-body aircraft and one wide-body aircraft, as well as the early terminations of nine narrow-body aircraft. The Company recognized $70.0 million of maintenance revenue and $12.8 million of ~~$13.5 million.~~ security deposits into revenue related to these eleven aircraft during the second quarter of 2020.

During the ~~third~~second quarter, six of our customers filed for bankruptcy protection. As a result, the Company reviewed the related aircraft for recoverability and recorded impairment charges of $159.8 million during the second quarter of ~~2017,~~2020 related to three wide-body aircraft which we ~~sold one production freighter and one converted freighter aircraft. We expect~~lease to ~~sell one production freighter aircraft in~~ the ~~first quarter of 2018.~~airline.

Annual Recoverability Assessment

We completed our annual recoverability assessment of our aircraft in the second quarter ~~this year. We also performed aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations. Other than~~of 2020. In addition to the transactional impairments discussed above, ~~no other impairments were~~we recorded impairment charges totaling $43.0 million related to one narrow-body and one wide-body aircraft as a result of our annual recoverability assessment. Although we have completed our annual recoverability assessment, we will continue to monitor the developments of the COVID-19 virus throughout the remainder of the year. We will closely monitor the impact of the virus on our customers, air traffic, lease rental rates, and aircraft valuations, and will perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We will focus on our customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, aircraft with near-term lease expirations, and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.

Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our annual recoverability assessment. However, ifIf our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates.

~~Aircraft Monitoring List~~

At September 30, 2017, we considered one Boeing 747-400 production freighter model and five Airbus A330 passenger aircraft with a total net book value of $407.3 million, or 6.8%, to be more susceptible to failing our recoverability assessments due to their sensitivity to changes in contractual cash flows, future cash flow estimates and aircraft residual or scrap values.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 -– “Summary of Significant Accounting Policies –Organization and Basis of Presentation” in the Notes to Unaudited Consolidated Financial Statements above.

~~RECENTLY~~RECENT UNADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 -– “Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the Notes to Unaudited Consolidated Financial Statements above.

LIQUIDITY AND CAPITAL RESOURCES

Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio. Our operations generate a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including:

various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions;

unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;

asset sales; and

~~sales of common shares.~~contributions from our shareholders.

Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.

During the first ~~nine~~six months of ~~2017,~~2020, we met our liquidity and capital resource needs with ~~$393.5~~$63.3 million of cash flow from operations, ~~$500.0~~$650.0 million ~~in gross proceeds~~ from ~~the issuance of~~ our ~~Senior Notes due 2024~~revolving credit facilities and ~~$765.0~~$155.6 million of cash from aircraft sales.

As of ~~September~~June 30, ~~2017,~~2020, the weighted-average maturity of our secured and unsecured debt financings was ~~3.9~~3.1 years and we ~~are~~were in compliance with all applicable covenants. Depending upon our actual results for the remainder of our fiscal year, we may fail our EBITDA to Cash Interest covenant ratio for our ACS 2016 secured financing at the end of the fourth quarter. We are in discussions with the ACS 2016 banks to modify the definition of our EBITDA to Cash Interest ratio to Adjusted EBITDA to Cash Interest, to be consistent with our other debt covenants. If we fail to modify the EBITDA to Cash Interest covenant ratio and our EBITDA for the full year declines, we may be required to repay the outstanding loan balance, which was $235.8 million as of June 30, 2020. We have sufficient liquidity to repay the outstanding loan plus interest.

We have agreed to defer some near-term lease payments with certain of our airline customers. As of August 1, 2020, we have agreed to defer approximately $99.0 million in near-term lease payments with 40 airlines, which these airline customers have agreed to repay over time. If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, government or other sources, we may need to extend further deferrals to some of our other customers or to extend the deferrals we have already made. We may ultimately be unable to collect all the amounts we have deferred.

We believe ~~that~~we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of August 1, 2020, have $971 million of liquidity from cash on hand, working capital and/or available credit lines. In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.

Cash Flows


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020		2019
	(Dollars in thousands)						(Dollars in thousands)
Net cash flow provided by operating activities	$	393,458		$	367,413		$	63,339	$	245,612
Net cash flow provided by (used in) investing activities	173,821			(395,533		)	92,421		(591,055		)
Net cash flow (used in) provided by financing activities	(392,911		)	484,326
Net cash flow provided by financing activities							13,183		692,714

Operating Activities:

Cash flow provided by operations was ~~$393.5~~$63.3 million and ~~$367.4~~$245.6 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~increase~~decrease in cash flow provided by operations of ~~approximately $26.0~~$182.3 million for the ~~nine~~six months ended~~September~~ June 30, ~~2017~~ ~~versus the same period in~~ ~~2016~~2020 was primarily attributable to a ~~result of:~~

~~a $30.7 million increase in cash received from maintenance revenue;~~

~~a $12.0 million increase in cash from lease rentals, net of finance and sales-type leases; and~~

~~a $9.3 million decrease in cash paid for taxes.~~

~~These inflows were offset by a $10.9 million~~ decrease in cash from working ~~capital~~capital.

The COVID-19 pandemic has severely and negatively impacted air travel and our customers’ financial performance as a ~~$14.8~~result of a variety of factors. The impact of COVID-19, together with lease concessions given to certain of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the six months ended June 30, 2020. Lease rental receivables, including deferred lease rentals, on our consolidated balance sheet have increased $85.1 million ~~increase in~~during the six months ended June 30, 2020. In addition, as compared to the six months ended June 30, 2019, the six months ended June 30, 2020 includes lower lease rental revenues of $21.3 million due to fifteen early lease terminations and the recognition of revenue for certain customers using a cash basis of accounting rather than an accrual method - see Note 1 regarding our lease revenue recognition policy.

Cash flow provided by operations for the six months ended June 30, 2020 also includes $36.3 million of cash paid for ~~interest.~~Merger expenses.

Investing Activities:

Cash flow provided by investing activities was ~~$173.8~~$92.4 million ~~for the nine months ended September 30, 2017 as compared to~~and cash flow used in investing activities ~~of $395.5~~was $591.1 million for the ~~nine~~six months ended~~September~~ June 30, ~~2016.~~2020 and 2019, respectively. The ~~net~~ increase in cash flow provided by investing activities of ~~$569.4~~$683.5 million for the ~~nine~~six months ended~~September~~June 30, ~~2017~~2020 versus the same period in ~~2016~~2019 was primarily a result ~~of:~~

of a ~~$280.1~~$608.3 million ~~net~~ decrease in the acquisition and improvement of flight equipment and ~~net investments in finance and sales-type leases;~~

a ~~$276.2~~$98.6 million increase in aircraft proceeds from the sale of flight ~~equipment;~~equipment.

These inflows were offset by a $28.3 million increase in aircraft purchase deposits and

•~~a $12.7 million decrease in unconsolidated equity method investments.~~ progress payments, net of returned deposits.

Financing Activities:

Cash flow ~~used in~~provided by financing activities was ~~$392.9~~$13.2 million and $692.7 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2017 as compared to~~2020 and 2019, respectively. The decrease in cash flow provided by financing activities of ~~$484.3~~$679.5 million for the ~~nine~~six months ended~~September~~ June 30, ~~2016. The net increase in cash flow used in financing activities of $877.2 million for the nine months ended September 30, 2017~~2020 versus the same period in ~~2016~~2019 was primarily a result ~~of:~~

of a ~~$499.4~~$694.7 million decrease in proceeds from secured and unsecured ~~financings;~~

~~a $363.3 million increase in securitization and term debt financing repayments; and~~

~~a $52.4 million increase in maintenance and security deposits returned,~~financings, net of ~~deposits received.~~repayments.

~~These outflows were partially offset by a $31.7 million decrease in shares repurchased and an $8.7 million decrease in deferred financing costs.~~

Debt Obligations

For complete information on our debt obligations, please refer to Note 7 - “Secured and Unsecured Debt Financings” in the Notes to Unaudited Consolidated Financial Statements above.

Contractual Obligations

Our contractual obligations consist of principal and interest payments on debt ~~payments on interest rate derivatives, other~~financings, aircraft ~~acquisition agreements~~acquisitions and rent payments related to our office leases. Total contractual obligations ~~increased~~decreased to ~~$6.86~~$6.83 billion at ~~September~~June 30, ~~2017~~2020 from ~~$6.50~~$7.03 billion at December 31, ~~2016~~2019, primarily due ~~primarily~~ to a decrease in principal payments for senior notes and secured financings, as well as purchase obligations, partially offset by an increase in ~~purchase obligations for aircraft to be acquired, partially offset by the amortization of~~borrowings under our ~~other financings.~~revolving credit facilities.

The following table presents our actual contractual obligations and their payment due dates as of ~~September~~June 30, ~~2017~~:2020:


	Payments Due by Period as of September 30, 2017										Payments Due by Period as of June 30, 2020
Contractual Obligations	Total		1 year or less		2-3 years		4-5 years		More than 5 years		Total		1 year or less		2-3 years		4-5 years		More than 5 years
	(Dollars in thousands)										(Dollars in thousands)
Principal payments:
Senior Notes due 2018 - 2024	$	3,200,000	$	—	$	1,200,000	$	1,000,000	$	1,000,000
Unsecured Term Loan	120,000		—		120,000		—		—
Senior Notes due 2021 - 2026											$	3,300,000	$	500,000	$	1,000,000	$	1,150,000	$	650,000
DBJ Term Loan											215,000		—		60,000		155,000		—
Revolving Credit Facilities	—		—		—		—		—		650,000		—		650,000		—		—
ECA Financings	236,879		38,071		80,321		80,475		38,012		45,443		14,529		18,930		11,984		—
Bank Financings	652,138		76,123		134,734		125,244		316,037		937,605		89,537		341,555		470,769		35,744
Total principal payments	4,209,017		114,194		1,535,055		1,205,719		1,354,049		5,148,048		604,066		2,070,485		1,787,753		685,744

Interest payments on debt obligations⁽¹⁾	827,298		211,809		356,308		178,026		81,155		645,263		200,898		299,226		117,260		27,879
Office leases⁽²⁾	21,335		1,259		4,971		4,901		10,204		14,158		1,877		3,588		3,455		5,238
Purchase obligations⁽³⁾	1,803,810		896,818		765,349		141,643		—		1,022,423		269,660		602,595		150,168		—

Total	$	6,861,460	$	1,224,080	$	2,661,683	$	1,530,289	$	1,445,408	$	6,829,892	$	1,076,501	$	2,975,894	$	2,058,636	$	718,861


(1)	Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at ~~September~~June 30, ~~2017.~~2020.


(2)	Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.

(3)

At ~~September~~June 30, ~~2017,~~2020, we had commitments to acquire 6427 aircraft for ~~$1.80~~$1.02 billion, including 25 new E-Jet E2 aircraft from Embraer S.A. These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments. As of ~~October 31, 2017,~~August 1, 2020, we have commitments to acquire 5525 aircraft for ~~$1.68 billion.~~$983.9 million. We are in the process of deferring some of our E Jet E-2 deliveries scheduled to be delivered over the next twelve months to a later date which would reduce our commitments due within one year by approximately $111.3 million.

Capital Expenditures

From time to time, we make capital expenditures to maintain or improve our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we incurred a total of ~~$24.4~~$13.4 million and ~~$27.0~~$17.6 million, respectively, of capital expenditures (including lease incentives) related to the ~~acquisition and~~ improvement of aircraft.

As of ~~September~~June 30, ~~2017,~~2020, the weighted average age by net book value of our aircraft was approximately ~~8.7~~10.3 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, such as lessee default, or a lessee fails to meet its maintenance obligations under the lease agreement. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of ~~a number of~~several factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance expenses

incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. See Item 1A. “Risk Factors - Risks Related to Our Business - Risks related to our leases - If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease” in our ~~2016~~2019 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We entered into ~~two~~a joint venture ~~arrangements~~arrangement in order to help expand our base of new business opportunities. ~~None of these~~This joint ~~ventures qualifies~~venture does not qualify for consolidated accounting treatment. The assets and liabilities of ~~these entities~~this entity are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting. See Note 5 -– “Unconsolidated Equity Method Investments” in the Notes to Unaudited Consolidated Financial Statements above.

We hold a ~~30% equity interest in our Lancaster joint venture and a~~ 25% equity interest in our ~~IBJ Air~~ joint ~~venture. At September~~venture with Mizuho Leasing and as of June 30, ~~2017,~~2020, the net book value of ~~our two joint ventures’ thirteen~~its nine aircraft was ~~approximately $661~~$321.1 million.

Foreign Currency Risk and Foreign Operations

At ~~September~~June 30, ~~2017~~,2020, all of our leases are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the ~~nine~~six months ended~~September~~ June 30, ~~2017~~,2020, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately ~~$14.2~~$11.5 million in U.S. dollar equivalents and represented approximately ~~26%~~15.1% of total selling, general and administrative ~~expenses.~~expenses (or 22.0% when excluding share-based compensation expense, of which a large portion relates to employees domiciled in the U.S.). Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, our international operations and our exposure to foreign currency risk will likely increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk. For the ~~nine~~six months ended ~~September~~ June 30, ~~2017~~2020 and ~~2016,~~2019, we incurred insignificant net gains and losses on foreign currency transactions.

~~Hedging~~

~~For complete information on our derivative instruments, please refer to Note 16 - “Accumulated Other Comprehensive Loss” in the Notes to Unaudited Consolidated Financial Statements above.~~

Management’s Use of EBITDA and Adjusted EBITDA

We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.

This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.

We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.

~~The table below shows the reconciliation of net income to EBITDA and Adjusted EBITDA for the~~ ~~three and nine months ended~~ ~~September 30, 2017 and 2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(Dollars in thousands)
Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729
Depreciation 70,018
76,201
227,446
227,918
Amortization of lease premiums, discounts and incentives 2,388
521
8,780
5,419
Interest, net 60,636
61,797
185,376
188,490
Income tax provision 6,195
2,458
8,536
8,782
EBITDA 196,668
168,414
522,892
514,338
Adjustments:
Impairment of flight equipment —
10,462
80,430
27,185
Non-cash share-based payment expense 2,506
2,059
10,636
5,796
Loss on mark-to-market of interest rate derivative contracts 361
210
3,073
141
Adjusted EBITDA $ 199,535
$ 181,145
$ 617,031
$ 547,460

~~Management’s Use of Adjusted Net Income (“ANI”)~~

Management believes that ANI, when viewed in conjunction with the Company’s results under U.S. GAAP and the below reconciliation, provides useful information about operating and period-over-period performance and additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity and non-cash share-based payment expense.

The table below shows the reconciliation of net income (loss) to ~~ANI~~EBITDA and Adjusted EBITDA for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(Dollars in thousands)
Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729
Loan termination fee⁽¹⁾
1,070
—
2,058
1,509
Loss on mark-to-market of interest rate derivative contracts⁽²⁾
361
210
3,073
141
Write-off of deferred financing fees⁽¹⁾
3,019
—
4,005
1,972
Non-cash share-based payment expense⁽³⁾
2,506
2,059
10,636
5,796
Hedge loss amortization charges ⁽¹⁾
—
—
—
4,855
Adjusted net income $ 64,387
$ 29,706
$ 112,526
$ 98,002



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(Dollars in thousands)
Net income (loss)	$	(190,977	)	$	31,112	$	(225,198	)	$	65,922
Depreciation	88,117			89,578		177,822			174,313
Amortization of lease premiums, discounts and incentives	6,404			5,345		12,100			11,056
Interest, net	56,226			66,377		117,733			129,840
Income tax provision	4,671			5,992		4,820			9,090
EBITDA	(35,559		)	198,404		87,277			390,221
Adjustments:
Impairment of flight equipment	280,088			7,404		342,745			7,404
Equity share of joint venture impairment	—			—		—			2,724
Loss on extinguishment of debt	65			—		4,020			—
Non-cash share-based payment expense	—			3,177		38,727			5,903
Merger related expenses⁽¹⁾	220			—		34,990			—
(Gain) loss on mark-to-market of interest rate derivative contracts	(1		)	1,915		113			3,995

Adjusted EBITDA	$	244,813		$	210,900	$	507,872		$	410,247

______________

(1) Included ~~in Interest, net.~~

~~(2) Included~~$32.4 million in Other ~~income (expense).~~

~~(3) Included~~expense and $2.6 million in Selling, general and administrative expenses.

Three Months Ended September 30, Nine Months Ended September 30,
Weighted-average shares: 2017 2016 2017 2016
Common shares outstanding 78,237,199
77,989,933
78,197,091
78,230,011
Restricted common shares 569,617
680,249
569,453
646,299
Total weighted-average shares 78,806,816
78,670,182
78,766,544
78,876,310

Three Months Ended September 30, �� Nine Months Ended September 30,
Percentage of weighted-average shares: 2017 2016 2017 2016
Common shares outstanding 99.28 % 99.14 % 99.28 % 99.18 %
Restricted common shares⁽¹⁾
0.72 % 0.86 % 0.72 % 0.82 %
Total percentage of weighted-average shares 100.00 % 100.00 % 100.00 % 100.00 %

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Weighted-average common shares outstanding – Basic 78,237,199
77,989,933
78,197,091
78,230,011
Effect of dilutive shares⁽²⁾
137,810
32,235
169,053
35,804
Weighted average common shares outstanding – Diluted 78,375,009
78,022,168
78,366,144
78,265,815

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(Dollars in thousands, except per share amounts)
Adjusted net income allocation:
Adjusted net income $ 64,387
$ 29,706
$ 112,526
$ 98,002
Less: Distributed and undistributed earnings allocated to restricted common shares⁽²⁾
(465 ) (257 ) (814 ) (803 )
Adjusted net income allocable to common shares – Basic and Diluted $ 63,922
$ 29,449
$ 111,712
$ 97,199

Adjusted net income per common share – Basic and Diluted $ 0.82
$ 0.38
$ 1.43
$ 1.24

~~(1)~~


~~(2)~~	~~For all periods presented, dilutive shares represented contingently issuable shares.~~

Limitations of EBITDA and Adjusted EBITDA ~~and ANI~~

An investor or potential investor may find EBITDA and Adjusted EBITDA ~~and ANI~~ important measures in evaluating our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA and Adjusted EBITDA ~~and ANI~~ have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of earnings (loss). Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA and Adjusted EBITDA, ~~and ANI,~~ and using these non-U.S. GAAP measures as compared to U.S. GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include:

depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures;

the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results;

elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;

~~hedge loss amortization charges;~~ and

adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured ~~notes.~~

notes which may not be comparable to similarly titled measures used by other companies.

EBITDA and Adjusted EBITDA ~~and ANI~~ are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S. GAAP. You should not rely on these non-U.S. GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations to U.S. GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA and Adjusted EBITDA ~~and ANI~~ are not measures of financial performance under U.S. GAAP and are susceptible to varying

calculations, EBITDA and Adjusted EBITDA ~~and ANI~~ as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements, floating rate debt obligations and interest rate derivatives. Rent payments under our aircraft lease agreements typically do not vary during the term of the lease according to changes in interest rates. However, our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our securities. If LIBOR is no longer available or in certain other circumstances as described in the borrowing agreements, the applicable borrowing agreements provide a mechanism for determining an alternative rate of interest. There is no assurance that any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, LIBOR.

Changes in interest rates may also impact our net book value as our interest rate derivatives are periodically marked-to-market through shareholders’ equity. Generally, we are exposed to loss on our fixed pay interest rate derivatives to the extent interest rates decrease below their contractual fixed rate.

The relationship between spreads on derivative instruments may vary from time to time, resulting in a net aggregate book value increase or decrease. Changes in the general level of interest rates can also affect our ability to acquire new investments and our ability to realize gains from the settlement of such assets.

Sensitivity Analysis

The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.

A hypothetical 100-basis point increase/decrease in interest rates on our leases subject to variable ~~interest~~rental rates would increase/decrease the minimum contracted rentals onin our portfolio as of ~~September~~June 30, ~~2017~~2020 by ~~$2.3~~$4.0 million and ~~$2.3~~$1.5 million, respectively, over the next twelve months. As of ~~September~~June 30, ~~2017,~~2020, a hypothetical 100-basis point increase/decrease in interest rates on our variable ~~interest~~ rate ~~on our~~ borrowings would result in an interest expense increase/decrease of ~~$3.9~~$10.0 million and ~~$5.3~~$3.3 million, respectively, net of amounts received from our interest rate derivatives, over the next twelve months. ~~In September 2016, we purchased~~We have an interest rate cap ~~for $2.3 million~~ to hedge ~~approximately 70%~~a portion of our floating rate interest ~~exposure. The interest rate cap~~exposure which is set at 2% and has a current notional balance of ~~$405.0~~$235.0 million and reduces over time to $215.0 million. The cap matures in September 2021.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by

a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as of ~~September~~June 30, ~~2017~~2020. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017~~2020.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), that occurred during the quarter ended ~~September~~June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II. — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The Company is not a party to any material legal or adverse regulatory proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes to the disclosure related to the risk factors described in our Annual Report on Form 10-K ~~filed with the SEC~~ for the year ended December 31, ~~2016.~~2019 and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as filed with the SEC.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Issuer Purchases of Equity Securities~~None.

~~In February 2016, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common shares. During the third quarter of~~ ~~2017, we purchased our common shares as follows:~~

Period
Total
Number
of Shares
Purchased

Average
Price
Paid
per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs⁽¹⁾

Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs ⁽¹⁾
(Dollars in thousands, except per share amounts)
July 1 through July 31 —
$ —
—
$ 95,888
August 1 through August 31 104,594
0.01
—
95,888
September 1 through September 30 —
—
—
95,888
Total 104,594
$ 0.01
—
$ 95,888


~~(1)~~	~~Under our current repurchase program, we have repurchased an aggregate of 217,574 common shares at an aggregate cost of $4.1 million, including commissions.~~


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Exhibit No.		Description of Exhibit

2.1		Agreement and Plan of Merger, dated as of November 5, 2019, by and among Aircastle Limited, MM Air Limited and MM Air Merger Sub Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 7, 2019). **

3.1		Amended and Restated Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s ~~Registration Statement~~Current Report on Form ~~S-1 (Amendment No. 2) (No. 333-134669)~~8-K filed with the SEC on ~~July 25, 2006)~~March 27, 2020).

3.2		Amended and Restated Bye-laws (incorporated by reference to Exhibit 3.2 to the Company’s ~~Registration Statement~~Current Report on Form ~~S-3 (No. 333-182242)~~8-K filed with the SEC on ~~June 20, 2012)~~March 27, 2020).

4.1		Specimen Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).

4.2		Indenture, dated as of April 4, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 5, 2012).

~~4.3~~		Indenture, dated as of November 30, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2012).

~~4.4~~		Amended and Restated Shareholder Agreement, dated as of February 18, 2015, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2015).

~~4.5~~		Amendment No. 1 to the Amended and Restated Shareholder Agreement, dated as of September 23, 2016, by and among Aircastle Limited, Marubeni Corporation, and Marubeni Aviation Holding Coöperatief U.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 26, 2016).

~~4.6~~		Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee Citigroup Global Markets, Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBC Capital Markets, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 6, 2013).

~~4.7~~4.3		First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 6, 2013).

~~4.8~~		Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 26, 2014).

~~4.9~~4.4		Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 15, 2015).

~~4.10~~4.5		Fourth Supplemental Indenture, dated as of March 24, 2016, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 24, 2016).

~~4.11~~4.6		Fifth Supplemental Indenture, dated as of March 20, 2017, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 20, 2017).

~~10.1~~4.7		~~Separation Agreement,~~Sixth Supplemental Indenture, dated ~~June 30, 2017,~~as of September 25, 2018, between Aircastle ~~Advisor LLC~~Limited and ~~Ron Wainshal~~Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit ~~10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2017). #~~

~~10.2~~		~~Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 25, 2017).~~

~~10.3~~		~~Form of Employment Agreement (incorporated by reference to Exhibit 10.1~~4.1 to the Company’s Current Report on Form 8-K filed on September ~~8, 2017)~~25, 2018). #

~~10.4~~		~~Amendment No. 4 to Purchase Agreement COM0270-15, dated as of August 11, 2017, by and between Aircastle Holding Corporation and Embraer S.A. *Ø~~

~~10.5~~4.8		~~Amendment No. 2 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15,~~Seventh Supplemental Indenture, dated as of ~~August 11, 2017, by and~~June 13, 2019, between Aircastle ~~Holding Corporation~~Limited and ~~Embraer S.A. *Ø~~Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 13, 2019).

31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. *

31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. *



~~Exhibit No.~~		~~Description of Exhibit~~

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

~~99.1~~		Owned Aircraft Portfolio at September 30, 2017. *

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2020, formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016;~~2019; (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016;~~2019; (iii) ~~Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016; (iv)~~ Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016;~~2019; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019; and (v) Notes to Unaudited Consolidated Financial Statements.*

104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

~~# Management contract or compensatory plan or arrangement.~~

* Filed herewith.

~~Ø Portions of this exhibit~~** Certain schedules have been omitted pursuant to ~~a request for confidential treatment.~~Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules to the SEC upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: ~~November 2, 2017~~August 3, 2020



	AIRCASTLE LIMITED
	(Registrant)
	By:	/s/ ~~Jose Maronilla, Jr.~~James C. Connelly
		~~Jose Maronilla, Jr.~~James C. Connelly
		Chief Accounting Officer and Authorized Officer

5046



			Fair Value Measurements at December 31, 2016 Using Fair Value Hierarchy
	Fair Value as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:
Cash and cash equivalents	$	455,579	$	455,579	$	—	$	—	Market
Restricted cash and cash equivalents	53,238		53,238		—		—		Market
Derivative assets	5,735		—		5,735		—		Market
Total	$	514,552	$	508,817	$	5,735	$	—



Year Ending December 31,	Amount
Remainder of 2017	$	163,587
2018	630,237
2019	532,026
2020	424,140
2021	350,093
Thereafter	830,674
Total	$	2,930,757



	Amount
Total lease payments to be received	$	297,061
Less: Unearned income	(153,253		)
Estimated residual values of leased flight equipment (unguaranteed)	344,600
Net investment in finance and sales-type leases	$	488,408



	At September 30, 2017						At December 31, 2016
Debt Obligation	Outstanding Borrowings			Number of Aircraft	Interest Rate	Final Stated Maturity	Outstanding Borrowings
Secured Debt Financings:
ECA Financings⁽¹⁾	$	236,879		6	3.02% to 3.96%	12/03/21 to 11/30/24	$	305,276
Bank Financings⁽²⁾	651,434			23	2.22% to 4.45%	9/11/18 to 01/19/26	933,541
Less: Debt Issuance Costs	(13,439		)	—			(19,783		)
Total secured debt financings, net of debt issuance costs	874,874			29			1,219,034

Unsecured Debt Financings:
Senior Notes due 2017	—				6.75%	04/15/17	500,000
Senior Notes due 2018	400,000				4.625%	12/15/18	400,000
Senior Notes due 2019	500,000				6.25%	12/01/19	500,000
Senior Notes due 2020	300,000				7.625%	04/15/20	300,000
Senior Notes due 2021	500,000				5.125%	03/15/21	500,000
Senior Notes due 2022	500,000				5.50%	02/15/22	500,000
Senior Notes due 2023	500,000				5.00%	04/01/23	500,000
Senior Notes due 2024	500,000				4.125%	05/01/24	—
Unsecured Term Loan	120,000				3.320%	04/28/19	120,000
Revolving Credit Facilities	—				N/A	11/21/19 to 05/13/20	—
Less: Debt Issuance Costs	(33,760		)				(32,789		)
Total unsecured debt financings, net of debt issuance costs	3,286,240						3,287,211

Total secured and unsecured debt financings, net of debt issuance costs	$	4,161,114					$	4,506,245



Declaration Date	Dividend per Common Share		Aggregate Dividend Amount		Record Date	Payment Date
August 4, 2017	$	0.26	$	20,464	August 31, 2017	September 15, 2017
May 2, 2017	$	0.26	$	20,482	May 31, 2017	June 15, 2017
February 9, 2017	$	0.26	$	20,466	February 28, 2017	March 15, 2017
October 28, 2016	$	0.26	$	20,434	November 29, 2016	December 15, 2016
August 2, 2016	$	0.24	$	18,872	August 26, 2016	September 15, 2016



	September 30, 2017		December 31, 2016
Accounts payable and accrued expenses	$	33,499	$	24,337
Deferred income tax liability	42,706		44,241
Accrued interest payable	56,611		43,107
Lease discounts, net of amortization of $35,296 and $29,016, respectively	12,875		15,842
Total accounts payable, accrued expenses and other liabilities	$	145,691	$	127,527



	Three Months Ended September 30,		Nine Months Ended September 30,
Weighted-average shares:	2017	2016	2017	2016
Common shares outstanding	78,237,199	77,989,933	78,197,091	78,230,011
Restricted common shares	569,617	680,249	569,453	646,299
Total weighted-average shares	78,806,816	78,670,182	78,766,544	78,876,310



	Three Months Ended September 30,				��	Nine Months Ended September 30,
Percentage of weighted-average shares:	2017		2016			2017		2016
Common shares outstanding	99.28	%	99.14	%		99.28	%	99.18	%
Restricted common shares⁽¹⁾	0.72	%	0.86	%		0.72	%	0.82	%
Total percentage of weighted-average shares	100.00	%	100.00	%		100.00	%	100.00	%



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
	(Dollars in thousands, except per share amounts)
July 1 through July 31	—	$	—	—	$	95,888
August 1 through August 31	104,594	0.01		—	95,888
September 1 through September 30	—	—		—	95,888
Total	104,594	$	0.01	—	$	95,888