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 30, 2017~~May 31, 2021



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

~~For~~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.)

~~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~~			~~06901~~
Stamford
Connecticut
06901
(Address of ~~principal executive offices)~~			~~(Zip Code)~~Principal Executive Offices)

Registrant’s telephone number, including area ~~code~~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 ☑

The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on August 31, 2020 (the last business day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was $0 because the Registrant’s Common Shares were not publicly traded as of that date. For purposes of the foregoing calculation, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and executive officers and shareholders owning 10% or more of the outstanding common shares of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

As of ~~October 31, 2017~~,July 9, 2021, 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 30, 2017~~May 31, 2021 and ~~December 31, 2016~~February 28, 2021	3
			Consolidated Statements of ~~Income~~Loss and Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2017~~May 31, 2021 and ~~2016~~2020	43
			~~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~~three months ended ~~September 30, 2017~~May 31, 2021 and ~~2016~~2020	64
			Consolidated Statements of Changes in Shareholders’ Equity for the three months ended May 31, 2021 and 2020	6
			Notes to Unaudited Consolidated Financial Statements	87
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320
Item 3.			Quantitative and Qualitative Disclosures about Market Risk	4535
Item 4.			Controls and Procedures	4536
			PART II. – OTHER INFORMATION
Item 1.			Legal Proceedings	4737
Item 1A.			Risk Factors	4737
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	4737
Item 3.			Defaults Upon Senior Securities	4737
Item 4.			Mine Safety Disclosures	4737
Item 5.			Other Information	4737
Item 6.			Exhibits	4838
SIGNATURE				5040

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)

(Unaudited)


	September 30, 2017			December 31, 2016				May 31, 2021		February 28, 2021
	(Unaudited)
ASSETS							ASSETS
Cash and cash equivalents	$	662,649		$	455,579		Cash and cash equivalents	$	642,910	$	578,004
Restricted cash and cash equivalents	20,536			53,238			Restricted cash and cash equivalents	2,693		2,594
Accounts receivable	5,708			6,035			Accounts receivable	75,427		82,572
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 $2,161,998 and $2,076,972, respectively							Flight equipment held for lease, net of accumulated depreciation of $2,161,998 and $2,076,972, respectively	6,392,594		6,492,471
Net investment in leases, net of allowance for credit losses of $870 and $864, respectively							Net investment in leases, net of allowance for credit losses of $870 and $864, respectively	191,457		195,376
Unconsolidated equity method investments	76,098			72,977			Unconsolidated equity method investments	35,664		35,377
Other assets	131,395			148,398			Other assets	317,665		311,944
Total assets	$	6,874,958		$	7,244,665		Total assets	$	7,658,410	$	7,698,338

LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES							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							Borrowings from secured financings, net of debt issuance costs and discounts	$	742,214	$	768,850
Borrowings from unsecured financings, net of debt issuance costs and discounts							Borrowings from unsecured financings, net of debt issuance costs and discounts	4,365,260		4,366,261
Accounts payable, accrued expenses and other liabilities	145,691			127,527			Accounts payable, accrued expenses and other liabilities	171,810		174,267
Lease rentals received in advance	51,937			62,225			Lease rentals received in advance	55,517		58,013

Security deposits	120,320			122,597			Security deposits	78,254		80,699
Maintenance payments	523,922			591,757			Maintenance payments	524,038		519,178
Total liabilities	5,002,984			5,410,351			Total liabilities	5,937,093		5,967,268

Commitments and Contingencies							Commitments and Contingencies	0		0

SHAREHOLDERS’ EQUITY							SHAREHOLDERS’ EQUITY
Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding	—			—			Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding	0		0
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 May 31, 2021 and February 28, 2021							Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at May 31, 2021 and February 28, 2021	0		0
Additional paid-in capital	1,525,766			1,521,190			Additional paid-in capital	1,485,777		1,485,777
Retained earnings	347,248			315,890			Retained earnings	235,540		245,293
Accumulated other comprehensive loss	(1,827		)	(3,552		)

Total shareholders’ equity	1,871,974			1,834,314			Total shareholders’ equity	1,721,317		1,731,070

Total liabilities and shareholders’ equity	$	6,874,958		$	7,244,665		Total liabilities and shareholders’ equity	$	7,658,410	$	7,698,338

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

Aircastle Limited and Subsidiaries

Consolidated Statements of ~~Income~~Loss and Comprehensive Loss

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

(Unaudited)


	Three Months Ended May 31,
		2021		2020
Revenues:
Lease rental revenue		$	132,125	$	183,178
Direct financing and sales-type lease revenue		2,877		5,317
Amortization of lease premiums, discounts and incentives		(5,325)		(7,347)
Maintenance revenue		26,477		76,630
Total lease revenue		156,154		257,778
Gain on sale of flight equipment		9,021		12,078
Other revenue		635		12,670
Total revenues		165,810		282,526

Operating expenses:
Depreciation		82,391		89,212
Interest, net		58,037		58,726
Selling, general and administrative (including non-cash share-based payment expense of $0 and $28,049 for the three months ended May 31, 2021 and 2020, respectively)		15,589		47,451
Impairment of flight equipment		20,583		77,298
Maintenance and other costs		7,528		5,566
Total operating expenses		184,128		278,253

Other income (expense):
Loss on extinguishment of debt		(24)		(8)
Merger expenses		0		(32,069)
Other		10		(17)
Total other expense		(14)		(32,094)

Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments		(18,332)		(27,821)
Income tax benefit		(8,292)		(551)
Earnings of unconsolidated equity method investments, net of tax		287		731
Net loss		$	(9,753)	$	(26,539)




Total comprehensive loss		$	(9,753)	$	(26,539)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Lease rental revenue $ 171,687
$ 181,975
$ 551,371
$ 537,670
Finance and sales-type lease revenue 6,412
5,354
16,363
13,026
Amortization of lease premiums, discounts and incentives (2,388 ) (521 ) (8,780 ) (5,419 )
Maintenance revenue 14,507
6,829
55,738
20,603
Total lease revenue 190,218
193,637
614,692
565,880
Other revenue 1,193
1,015
4,526
2,425
Total revenues 191,411
194,652
619,218
568,305

Operating expenses:
Depreciation 70,018
76,201
227,446
227,918
Interest, net 60,636
61,797
185,376
188,490
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
Impairment of flight equipment —
10,462
80,430
27,185
Maintenance and other costs 2,572
1,834
7,846
5,504
Total expenses 150,363
166,279
556,589
495,980

Other income (expense):
Gain (loss) on sale of flight equipment 21,642
(73 ) 35,926
14,932
Other (360 ) (210 ) (3,069 ) (136 )
Total other income (expense) 21,282
(283 ) 32,857
14,796

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments 62,330
28,090
95,486
87,121
Income tax provision 6,195
2,458
8,536
8,782
Earnings of unconsolidated equity method investments, net of tax 1,296
1,805
5,804
5,390
Net income $ 57,431
$ 27,437
$ 92,754
$ 83,729

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

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)


	Three Months Ended May 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(9,753)	$	(26,539)
Adjustments to reconcile net loss to net cash and restricted cash provided by operating activities:
Depreciation	82,391		89,212
Amortization of deferred financing costs	4,191		3,311
Amortization of lease premiums, discounts and incentives	5,325		7,347
Deferred income taxes	1,850		5,404
Non-cash share-based payment expense	0		28,049

Collections on net investment in leases	3,913		5,032
Security deposits and maintenance payments included in earnings	(13,139)		(81,634)
Gain on sale of flight equipment	(9,021)		(12,078)
Loss on extinguishment of debt	24		8
Impairment of flight equipment	20,583		77,298
Provision for credit losses	6		3,307
Other	(290)		(715)
Changes in certain assets and liabilities:
Accounts receivable	1,661		(46,088)
Other assets	(11,651)		(62,590)
Accounts payable, accrued expenses and other liabilities	(3,604)		(24,059)
Lease rentals received in advance	(2,496)		(9,740)
Net cash and restricted cash provided by (used in) operating activities	69,990		(44,475)
Cash flows from investing activities:
Acquisition and improvement of flight equipment	(70,834)		(28,426)
Proceeds from sale of flight equipment	63,420		51,881


Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits	11,963		(5,198)


Other	0		(409)
Net cash and restricted cash provided by investing activities	4,549		17,848
Cash flows from financing activities:
Repurchase of shares	0		(25,536)
Parent contribution at Merger	0		25,536
Proceeds from secured and unsecured debt financings	0		550,000
Repayments of secured and unsecured debt financings	(27,224)		(323,910)
Debt extinguishment costs	(24)		(8)
Deferred financing costs	(4,604)		0



Security deposits and maintenance payments received	22,793		15,318
Security deposits and maintenance payments returned	(475)		(31,140)

Dividends paid	0		(24,025)

Net cash and restricted cash (used in) provided by financing activities	(9,534)		186,235
Net decrease in cash and restricted cash:	65,005		159,608
Cash and restricted cash at beginning of period	580,598		171,437

Cash and restricted cash at end of period	$	645,603	$	331,045

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

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net income $ 92,754
$ 83,729
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 227,446
227,918
Amortization of deferred financing costs 15,860
13,567
Amortization of lease premiums, discounts and incentives 8,780
5,419
Deferred income taxes (1,369 ) 3,129
Non-cash share-based payment expense 10,636
5,796
Cash flow hedges reclassified into earnings 1,725
9,074
Security deposits and maintenance payments included in earnings (17,147 ) (12,844 )
Gain on sale of flight equipment (35,926 ) (14,932 )
Impairment of flight equipment 80,430
27,185
Other 2,078
(4,712 )
Changes in certain assets and liabilities:
Accounts receivable 415
1,699
Other assets (6,980 ) 3,815
Accounts payable, accrued expenses and other liabilities 17,648
16,459
Lease rentals received in advance (2,892 ) 2,111
Net cash and restricted cash provided by operating activities 393,458
367,413
Cash flows from investing activities:
Acquisition and improvement of flight equipment (353,492 ) (792,270 )
Proceeds from sale of flight equipment 764,984
488,749
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 )
Unconsolidated equity method investments and associated costs —
(12,686 )
Other (405 ) (812 )
Net cash and restricted cash provided by (used in) investing activities 173,821
(395,533 )
Cash flows from financing activities:
Repurchase of shares (4,862 ) (36,573 )
Proceeds from secured and unsecured debt financings 500,000
999,350
Repayments of secured and unsecured debt financings (852,451 ) (489,134 )
Deferred financing costs (8,540 ) (17,273 )
Restricted secured liquidity facility collateral —
65,000
Liquidity facility —
(65,000 )
Security deposits and maintenance payments received 138,813
123,767
Security deposits and maintenance payments returned (104,475 ) (37,036 )
Dividends paid (61,396 ) (56,702 )
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
Cash and restricted cash at beginning of period 508,817
254,041
Cash and restricted cash at end of period $ 683,185
$ 710,247

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

(Unaudited)


	Three Months Ended May 31,
	2021		2020
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents	$	642,910	$	325,691
Restricted cash and cash equivalents	2,693		5,354

Unrestricted and restricted cash and cash equivalents	$	645,603	$	331,045

Supplemental disclosures of cash flow information:
Cash paid for interest	$	44,948	$	74,457
Cash paid for income taxes	$	891	$	159
Supplemental disclosures of non-cash investing activities:
Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions	$	0	$	29,869

Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment	$	12,138	$	252
Transfers from flight equipment held for lease to Net investment in leases and Other assets	$	3,554	$	81,600

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

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)


	Three Months Ended May 31, 2021
				Additional Paid-In Capital		Retained Earnings		Total Shareholders’ Equity
	Common Shares
	Shares	Amount
Balance, February 28, 2021	14,048	$	0	$	1,485,777	$	245,293	$	1,731,070
Net loss	—	—		—		(9,753)		(9,753)
Balance, May 31, 2021	14,048	$	0	$	1,485,777	$	235,540	$	1,721,317


	Three Months Ended May 31, 2020
				Additional Paid-In Capital		Retained Earnings		Total Shareholders’ Equity
	Common Shares
	Shares	Amount
Balance, February 29, 2020	75,076,794	$	751	$	1,456,977	$	578,461	$	2,036,189
Amortization of share-based payments	—	—		28,049		—		28,049
Net loss	—	—		—		(26,539)		(26,539)
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		—		0
Balance, May 31, 2020	14,048	$	0	$	1,485,777	$	551,922	$	2,037,699

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 30, 2017~~May 31, 2021

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 based 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,~~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~~.February 28, 2021.

~~Effective January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230), Restricted Cash~~. For the nine months ended September 30, 2017, the Company revised the presentation in our Consolidated Statements of Cash Flows to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. For the nine months ended September 30, 2016, our Consolidated Statement of Cash Flows reflected: (1) changes in restricted cash 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.

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 30, 2017~~May 31, 2021, 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~~subsidiaries, including any Variable Interest ~~Entities~~Entity (“~~VIEs”~~VIE”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

~~We consolidate VIEs~~Risk and Uncertainties

In the normal course of business, Aircastle encounters several significant types of economic risk including credit, market, aviation industry and capital market risks. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments and to fulfill its other contractual obligations to Aircastle. Market risk reflects the change in the value of financings due to changes in interest rate spreads or other market factors, including the value of collateral underlying financings. Aviation industry risk is the risk of a downturn in the commercial aviation industry which ~~we have determined that we are~~could adversely impact a lessee’s ability to make payments, increase the ~~primary beneficiary. We use judgment when deciding: (a) whether an entity is subject to consolidation as a VIE; (b) who~~risk of unscheduled lease terminations and depress lease rates and the ~~variable interest holders are; (c) the potential expected losses and residual returns~~value of the ~~variable interest holders; and (d) which variable interest holder~~Company’s aircraft. Capital market risk is the ~~primary beneficiary. When determining which enterprise~~risk that the Company is unable to obtain capital at reasonable rates to fund the ~~primary beneficiary, we consider: (1) the entity’s purpose and design; (2) which variable interest holder has the power~~growth of its business or 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~~

refinance existing debt facilities.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While 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~~

~~On February 25, 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases,” which replaced the existing guidance in ASC 840,~~ ~~Leases~~. The accounting for leases by lessors basically remained unchanged 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 constitutes 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 decisions to lease aircraft.

~~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 30, 2017~~May 31, 2021

COVID-19 Pandemic

~~conditions~~COVID-19 has had an unprecedented negative impact on the aviation sector, resulting in a dramatic slowdown in air traffic. While there have been some improvements in certain markets recently, according to IATA, as of May 31, 2021, air travel was still down to approximately 37% of normal levels and a full recovery to pre-pandemic levels is not expected for several years. Substantially all the world’s airlines have experienced financial difficulties and liquidity challenges, including many of our customers. While we believe long-term demand for air travel will return to historical trends over time, the near-term impacts of COVID-19’s economic shock are material; the extent and duration of those impacts cannot currently be determined.

As the airline industry begins to recover, airlines continue to seek support from their respective governments, raise debt and equity, delay or ~~classification~~cancel new aircraft orders, furlough employees, request concessions from lessors, and in certain cases, seek judicial protection. As of July 9, 2021, we have agreed to $111,720 in total deferrals of lease payments with NaN customers. These deferrals have been granted for an average of six to nine months of lease rentals and represent 19% of Lease rental and Direct financing and sales-type lease revenues for the twelve months ended May 31, 2021. Of the total deferrals, $89,400 is included in Accounts receivable or Other assets as of May 31, 2021, with the balance representing future lease payments. Approximately 76% of our total deferrals as of July 9, 2021, have been agreed to as part of broader lease restructurings. These generally include term extensions, better security packages, or other valuable consideration in exchange for near-term economic concessions. Some have repayment terms that extend beyond twelve months and in a limited number of situations, we have agreed to broader lease restructurings that do not include the full repayment of all of lease payments.

If air traffic remains depressed and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to grant additional deferrals to some of 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 July 9, 2021, 6 of our customers are subject to judicial insolvency proceedings or similar protection. These customers lease 22 aircraft, which represent 13% 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 and direct financing and sales-type lease revenue as of and for the twelve months ended May 31, 2021. LATAM, our second largest customer, is included in this group and represents 8% of our net book value of flight equipment and 7% of our Lease rental revenue as of and for the twelve months ended May 31, 2021. 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 negotiating reductions in aircraft lease rentals, rejecting their leases or taking other actions that could adversely impact us or the value of our aircraft. Based on historic experience, the judicial process can take up to twelve to eighteen months to be resolved. 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.

Lease Revenue Recognition

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 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 ~~award changes.~~ initial lease, assuming no renewals.

In ~~addition, when applicable, disclosure~~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 ~~indicate~~the lease agreements were made and record the deferred rentals as a receivable within Other assets.

Should we determine that ~~compensation expense has~~the collectability of rental payments is no longer probable (including any deferral thereof), we will recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

May 31, 2021

period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue.

Impairment of Flight Equipment

We perform an annual recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis. A recoverability assessment is also performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not ~~changed.~~be recoverable. Indicators may include, but are not limited to, 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 ~~update~~undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates and maintenance payments, transition costs, estimated down time, and estimated residual or scrap values for an aircraft. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 – 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 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.

We continue to closely monitor the impact of COVID-19 on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We 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 deterioration.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform Topic 848 (“ASC 848”), in response to the market transition from the LIBOR and other interbank offered rates (“IBORs”) to alternative reference rates. U.S. GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022, and cannot be applied ~~using a prospective transition method~~ to ~~each period presented.~~contract modifications that occur after December 31, 2022. Reference rate reform will primarily impact our lease and debt arrangements for which floating-rate lease rentals and interest expense are based on LIBOR. As of May 31, 2021, less than 1% of our fleet have floating-rate lease rentals and, for the three months ended May 31, 2021, 5% of our interest expense was derived from floating-rate debt which is referenced to LIBOR. We have not adopted ASC 848 and are currently evaluating the election available to us under the standard.

Effective, March 1, 2021, the Company adopted FASB ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The ~~standard~~guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance. The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, ~~2017, including interim periods within those fiscal years. Early~~2020. This adoption ~~is permitted. The standard will~~did not have a material impact on our consolidated financial ~~statements~~statements.

Aircastle Limited and ~~related disclosures.~~Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

May 31, 2021

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.

~~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 30, 2017~~May 31, 2021 and ~~December 31, 2016~~February 28, 2021 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 May 31, 2021 Using Fair Value Hierarchy
	Fair Value as of May 31, 2021		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	$	642,910	$	642,910	$	0	$	0	Market
Restricted cash and cash equivalents	2,693		2,693		0		0		Market

Total	$	645,603	$	645,603	$	0	$	0

Fair Value Measurements at September 30, 2017
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
Assets:
Cash and cash equivalents $ 662,649
$ 662,649
$ —
$ —
Market
Restricted cash and cash equivalents 20,536
20,536
—
—
Market
Derivative assets 2,663
—
2,663
—
Market
Total $ 685,848
$ 683,185
$ 2,663
$ —

~~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 Measurements at February 28, 2021 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		Fair Value as of February 28, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:										Assets:
Cash and cash equivalents	$	455,579	$	455,579	$	—	$	—	Market	Cash and cash equivalents	$	578,004	$	578,004	$	0	$	0	Market
Restricted cash and cash equivalents	53,238		53,238		—		—		Market	Restricted cash and cash equivalents	2,594		2,594		0		0		Market
Derivative assets	5,735		—		5,735		—		Market

Total	$	514,552	$	508,817	$	5,735	$	—		Total	$	580,598	$	580,598	$	0	$	0

Our cash and cash equivalents, ~~along with our~~and 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~~the fair value hierarchy. Our interest rate derivative included in Level 2 consists of United States dollar-denominated interest rate cap, and the fair value is based on 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~~ months ended ~~September 30, 2017 and the year ended December~~May 31, ~~2016,~~2021, 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 these assets may 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 changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

May 31, 2021

Aircraft Valuation

~~Transactional Impairments~~Impairment of Flight Equipment

During the ~~second quarter of 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at~~three months ended May 31, 2021, the ~~end of their respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in~~Company recorded transactional impairment charges totaling ~~$79,234, partially offset by~~$20,583 which related to 2 narrow-body aircraft and were the result of an early lease termination and a scheduled lease expiration. The Company recognized $21,061 of maintenance revenue ~~of $13,520.~~ for these 2 aircraft.

During the ~~third quarter~~three months ended May 31, 2020, the Company recorded transactional impairment charges totaling $77,298, which related to 10 narrow-body and 1 wide-body aircraft. The Company recognized $83,342 of ~~2017, we sold one production freighter~~maintenance and ~~one converted freighter~~security deposits into revenue for these 11 aircraft. ~~We expect to sell one production freighter~~The impairment charges and revenue were recognized as a result of the early lease terminations of 9 aircraft ~~in the first quarter~~and scheduled lease expirations of ~~2018.~~

~~Annual Recoverability Assessment~~2 aircraft.

We ~~completed~~plan to perform our annual recoverability assessment of all our aircraft induring the ~~second~~fiscal third quarter ~~this year.~~for the nine months ended November 30, 2021. We ~~also performed aircraft-specific analyses where there were~~continue to closely monitor the impact of COVID-19 on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances ~~such as approaching lease expirations. Other than~~arise that may impact the ~~transactional impairments discussed above, no other impairments were recorded as a result~~recoverability of our ~~annual recoverability assessment.~~aircraft. We have and 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 the COVID-19 pandemic and value deterioration.

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

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

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

~~September 30, 2017~~

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, 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~~our recoverability ~~assessment~~assessments are appropriate, actual results could differ from those estimates.

Financial Instruments

Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and amounts borrowed under ~~financings and interest rate derivatives.~~financings. 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 30, 2017~~May 31, 2021 and ~~December 31, 2016 are~~February 28, 2021 were as follows:


										May 31, 2021				February 28, 2021
	September 30, 2017				December 31, 2016					Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
	Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
Credit Facilities									Credit Facilities	$	0	$	0	$	0	$	0
Unsecured Term Loan	$	120,000	$	120,000	$	120,000	$	120,000	Unsecured Term Loan	215,000		210,767		215,000		210,290
ECA Financings	236,879		243,880		305,276		316,285
Export Credit Agency (“ECA”) Financings									Export Credit Agency (“ECA”) Financings	27,163		28,422		36,423		37,942
Bank Financings	651,434		649,557		933,541		925,783		Bank Financings	720,389		721,859		738,353		740,086
Senior Notes	3,200,000		3,422,824		3,200,000		3,387,125		Senior Notes	4,200,000		4,448,863		4,200,000		4,402,722

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

May 31, 2021

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 30, 2017~~May 31, 2021 were as follows:


Year Ending February 28/29,	Amount(1)
Remainder of 2021	$	445,308
2022	566,477
2023	506,285
2024	377,617
2025	233,328
Thereafter	523,563
Total	$	2,652,578

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
_______________

~~Aircastle Limited and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

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

~~September 30, 2017~~

(1)Reflects impact of lessee lease rental deferrals.

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


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended May 31,
Region	2017		2016		2017		2016		Region		2021		2020
Asia and Pacific	35	%	40	%	38	%	40	%	Asia and Pacific		34	%	45	%
Europe	24	%	22	%	23	%	23	%	Europe		34	%	27	%
Middle East and Africa	12	%	12	%	12	%	12	%	Middle East and Africa		6	%	8	%
North America	9	%	7	%	8	%	6	%	North America		14	%	10	%
South America	20	%	19	%	19	%	19	%	South America		12	%	10	%

Total	100	%	100	%	100	%	100	%	Total		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 May 31,
		2021	2020
			Number of Lessees	Combined % of Lease Rental Revenue	Number of Lessees	Combined % of Lease Rental Revenue
Largest lessees by lease rental revenue			5	34%	3	20%

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 revenue (including maintenance revenue) in any year based on each lessee’s principal place of business for the years indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Country Revenue
% of
Total
Revenue
Revenue
% of
Total
Revenue
Revenue
% of
Total
Revenue
Revenue
% of
Total
Revenue
Indonesia⁽¹⁾
$ —
—% $ 21,745
11% $ —
—% $ 61,195
11%

~~_______________~~


~~(1)~~	~~Total revenue attributable to Indonesia was less than 10% for the three and nine months ended September 30, 2017.~~

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September 30, 2017~~May 31, 2021

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


	Three Months Ended May 31,
		2021	2020
Country			Revenue		% of Total Revenue		Revenue		% of Total Revenue
India(1)			$	20,202	12	%	$	0	0	%
Mexico(2)			0		0	%	69,508		25	%
South Korea(3)			21,043		13	%	0		0	%

_______________

(1)For the three months ended May 31, 2021, total revenue attributable to India included maintenance revenue totaling $654. Total revenue attributable to India was less than 10% for the three months ended May 31, 2020.

(2)For the three months ended May 31, 2020, total revenue attributable to Mexico included maintenance and other revenue, including early lease termination fees and security deposits recognized into revenue, totaling $67,265. Total revenue attributable to Mexico was less than 10% for the three months ended May 31, 2021.

(3)For the three months ended May 31, 2021, total revenue attributable to South Korea included maintenance revenue totaling $13,253. Total revenue attributable to South Korea was less than 10% for the three months ended May 31, 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					May 31, 2021				February 28, 2021
Region	Number of Aircraft	Net Book Value %		Number of Aircraft		Net Book Value %		Region	Number of Aircraft		Net Book Value %		Number of Aircraft		Net Book Value %
Asia and Pacific	54	31	%	61		38	%	Asia and Pacific	77		36	%	79		37	%
Europe	67	28	%	66		23	%	Europe	92		28	%	92		27	%
Middle East and Africa	13	9	%	14		11	%	Middle East and Africa	10		4	%	11		4	%
North America	34	11	%	26		8	%	North America	28		12	%	28		12	%
South America	24	21	%	23		18	%	South America	26		13	%	26		13	%
Off-lease	—	—	%	3	⁽¹⁾	2	%	Off-lease	17	(1)	7	%	16	(2)	7	%
Total	192	100	%	193		100	%	Total	250		100	%	252		100	%

_______________


~~(1)~~	~~Consisted of one~~ (1)Consisted of 1 Airbus A320-200 aircraft, 1 Airbus A330-200 aircraft, ~~which was delivered on lease to a customer in February 2017, and two Airbus A321-200 aircraft, which were both delivered on lease to a customer during the second quarter of 2017.~~

~~At September 30, 2017~~ and ~~December 31, 2016, no country represented~~1 Boeing 737-800 aircraft, all of which were delivered to lessees in Europe during the second quarter of 2021, 1 Airbus A321-200 aircraft which was delivered to a lessee in North America during the second quarter of 2021, 4 Airbus A320-200 aircraft which are subject to confirmed letters of intent with customers in Europe or South America, 1 Boeing 737-800 aircraft which is subject to an executed lease with a lessee in Europe, and 1 Airbus A320-200 aircraft, 3 Airbus A330-200 aircraft, and 4 Boeing 737-800 aircraft, which we are marketing for lease or sale.

(2)Consisted of 1 Airbus A320-200 aircraft, 1 Airbus A330-200 aircraft and 1 Boeing 737-800 aircraft, each of which was delivered to a lessee in Europe during the first half of 2021, 3 Airbus A320-200 aircraft which are subject to confirmed letters of intent with customers in Europe or South America, and 1 Boeing 737-800 aircraft which is subject to a lease commitment with a customer in Europe, and 1 Airbus A320-200 aircraft, 3 Airbus A330-200 aircraft, and 5 Boeing 737-800 aircraft, which we are marketing for lease or sale.

The following table sets forth the net book value of flight equipment (includes net book value of flight equipment held for lease and 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:

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

~~Note 4. Net Investment in Finance and Sales-Type Leases~~

At ~~September 30, 2017, our net investment in finance and sales-type leases consisted of 28 aircraft. The following table lists the components of our net investment in finance and sales-type leases at~~ ~~September 30, 2017~~:


	May 31, 2021				February 28, 2021
Country	Net Book Value		Net Book Value %	Number of Lessees	Net Book Value		Net Book Value %	Number of Lessees
India	$	730,449	11%	3	$	756,514	11%	3

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, 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 30, 2017~~May 31, 2021

At May 31, 2021 and February 28, 2021, the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $16,097 and $14,673, respectively.

Note 4. Net Investment in Leases

At May 31, 2021 and February 28, 2021, our net investment in leases consisted of 15 and 15 aircraft, respectively. The components of our net investment in leases at May 31, 2021 and February 28, 2021, were as follows:


	May 31, 2021		February 28, 2021
Lease receivable	$	61,321	$	67,075
Unguaranteed residual value of flight equipment	131,006		129,165
Net investment leases	192,327		196,240
Allowance for credit losses	(870)		(864)
Net investment in leases, net of allowance	$	191,457	$	195,376

The activity in the allowance for credit losses related to our net investment in leases for the three months ended May 31, 2021 is as follows:


	Amount
Balance at February 28, 2021	$	864
Provision for credit losses	6


Balance at May 31, 2021	$	870

At May 31, 2021, future lease payments on net investment in leases are as follows:


Year Ending February 28/29,	Amount
Remainder of 2021	$	17,073
2022	13,470
2023	12,568
2024	6,989
2025	6,060
Thereafter	15,414
Total lease payments to be received	71,574
Present value of lease payments - lease receivable	(61,321)
Difference between undiscounted lease payments and lease receivable	$	10,253

Note 5. Unconsolidated Equity Method Investments

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

~~At September 30, 2017, the net book value of both joint ventures’ thirteen aircraft 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~~Mizuho Leasing which has recorded in its Consolidated Balance Sheet an $11,967 guarantee liability in Maintenance payments and a $5,100 guarantee liability in Security deposits representing its share of the respective exposures.

~~Note 6. Variable Interest Entities~~

~~Aircastle consolidates~~ ~~four~~ ~~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~~ ~~aircraft discussed below.~~

~~ECA Financings~~

Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively 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 “ECA Financings.”

Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of 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.

~~The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated financial statements. The related~~9 aircraft with a net book value as of September 30, 2017 of $417,439, 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 30, 2017 is $230,858.$308,640 at May 31, 2021.


	Amount
Investment in joint ventures at February 28, 2021	$	35,377

Earnings from joint venture, net of tax	287
Investment in joint ventures at May 31, 2021	$	35,664

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September 30, 2017~~May 31, 2021

Note 7.6. 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 May 31, 2021					At February 28, 2021
Debt Obligation	Outstanding Borrowings		Number of Aircraft	Interest Rate	Final Stated Maturity	Outstanding Borrowings
Secured Debt Financings:
ECA Financings	$	27,163	1	3.49%	11/30/24	$	36,423
Bank Financings(1)	720,389		31	2.25% to 4.55%	06/17/23 to 03/06/25	738,353
Less: Debt issuance costs and discounts	(5,338)		—			(5,926)
Total secured debt financings, net of debt issuance costs and discounts	742,214		32			768,850

Unsecured Debt Financings:
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 2025	650,000			5.25%	08/11/25	650,000
Senior Notes due 2026	650,000			4.25%	06/15/26	650,000
Senior Notes due 2028	750,000			2.85%	01/26/28	750,000
Unsecured Term Loans	215,000			1.65%	02/27/22 to 02/27/24	215,000
Revolving Credit Facilities	0			1.575% to 2.00%	12/27/21 to 04/26/25	0
Less: Debt issuance costs and discounts	(49,740)					(48,739)
Total unsecured debt financings, net of debt issuance costs and discounts	4,365,260					4,366,261

Total secured and unsecured debt financings, net of debt issuance costs and discounts	$	5,107,474				$	5,135,111


~~(1)~~	~~The borrowings under these financings at September 30, 2017 have a weighted-average rate of interest of 3.59%.~~


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

(1)The borrowings under these financings at May 31, 2021 have a weighted-average fixed rate of interest of 3.22%.

Unsecured Debt Financings:

~~Senior Notes due 2024~~Revolving Credit Facilities

On ~~March 6, 2017, Aircastle issued $500,000 aggregate principal amount~~April 1, 2021, we entered into an amendment that split the $300,000 commitment of ~~Senior Notes due 2024 (the "Senior Notes due 2024") at par. The Senior Notes due 2024~~1 of our unsecured revolving credit facilities into 2 tranches: $160,000 was allocated to Tranche A, which 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 thefacility’s previously stated maturity date of December 27, 2021, and $140,000 was allocated to Tranche B, which will mature on February 28, 2023. On May 24, 2021, the ~~notes (computed using~~revolving credit facility was expanded to $330,000, with $155,000 and $175,000 of the commitment allocated to Tranche A and Tranche B, respectively.

On April 26, 2021, we entered into an amendment that increased the size of 1 of our revolving credit facilities from $800,000 to $1,000,000. The stated maturity date for $900,000 of the total commitment was extended to April 26, 2025, and the remaining $100,000 commitment will mature on the facility’s previously stated maturity date of June 27, 2022.

On April 26, 2021, we entered into an amendment that reduced the size of our revolving credit facility with Mizuho Bank Ltd., a ~~discount rate equal~~related party, from $150,000 to $50,000 and extended its maturity date to July 30, 2022. Mizuho Bank, Ltd. is now a lender for our $1,000,000 revolving credit facility with a commitment in the ~~Treasury~~amount of $100,000.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September 30, 2017~~May 31, 2021

~~Rate (as defined in~~On June 29, 2021, we elected to redeem the ~~indenture governing the notes) as~~outstanding balance 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 theour 5.5% Senior Notes due ~~2024 at 101% of the principal amount, plus~~2022, including accrued interest 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~~a call premium on July 30, ~~2017, we had no amounts outstanding under these facilities.~~2021.

As of ~~September 30, 2017,~~May 31, 2021, we had 0 borrowings outstanding under our revolving credit facilities and had $1,380,000 available for borrowing.

As of May 31, 2021, we were in compliance with all applicable covenants in our financings.

Note 7. Shareholders' Equity

On June 8, 2021, the Company issued 400,000 depositary shares (the “Depositary Shares”), each representing a 0.001 interest in a share of 5.250% Series A Cumulative Redeemable Perpetual Preference Shares par value $0.01 per share with a $1,000 liquidation preference per share (equivalent to $1,000 per Depositary Share) (the “Preference Shares”). The Preference Shares are perpetual and have no maturity date.

Dividends on the Preference Shares, when, as and if declared by the Company’s board of directors or any duly authorized committee thereof, will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021. Dividends will be payable: (i) from the date of original issue to, but excluding September 15, 2026 (the “original reset date”) at a fixed rate per annum of 5.250%; (ii) from, and including, the original reset date to, but excluding, September 15, 2031 (the “2031 reset date”), at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.410%; (iii) from, and including, the 2031 reset date to, but excluding, September 15, 2046 (the “2046 reset date”), during each reset period at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 4.660%; and (iv) from, and including, the 2046 reset date, during each reset period at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 5.410%. Dividends on the Preference Shares will accumulate daily and be cumulative from, and including, the date of original issuance of the Preference Shares.

The Company may not redeem the Preference Shares before the date that is 90-days prior to the original reset date. The Company may, at its option, redeem the Preference Shares, in whole or in part, from time to time during the period beginning 90-days prior to each reset date and ending on such reset date at a redemption price in cash equal to $1,000,000 per Preference Share (equivalent to $1,000 per Depositary Share), plus all accumulated and unpaid dividends (whether or not declared) to, but excluding, such redemption date. In addition, the Company may redeem the Preference Shares, in whole but not in part, at the Company’s option under certain other limited conditions.

Except with respect to certain amendments to the terms of the Preference Shares, in the case of certain dividend non-payments and as otherwise required by applicable law, the Preference Shares will not have voting rights.

The Company intends to use the net proceeds from the Offering for general corporate purposes, which may include the repayment, refinancing or redemption of its existing indebtedness.

Note 8. ~~Shareholders' Equity~~Related Party Transactions

On April 26, 2021, the Company entered into an amendment that reduced the size and ~~Share-Based Payment~~extended the term of our unsecured revolving credit facility with Mizuho Bank Ltd., a related party – see Note 6 for additional information.

During the ~~nine~~three months ended September 30, 2017, the Company issued 315,588 restricted common shares and 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,~~May 31, 2021, the Company incurred ~~share-based compensation expense~~$980 in fees to Marubeni as part of ~~$7,014 related to restricted common shares~~its intra-company service agreement, whereby Marubeni provides company-sponsored benefits, management services, strategy consultancy, and ~~$3,622 related to PSUs, of which $1,611 and $1,581, respectively, pertains to accelerated share-based compensation expense in regards~~general administrative support to the ~~separation and disability of our former Chief Executive Officer under the terms of his employment and share-based award agreements.~~Company.

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 30, 2017~~May 31, 2021

Under the two-class method, earnings per common share is computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted-average shares outstanding during 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 of both basic and diluted earnings per share are as follows:~~

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~~ months ended ~~September 30, 2017~~May 31, 2021 and ~~2016~~2020 were as follows:


	Three Months Ended May 31,
		2021		2020
U.S. operations		$	3,711	$	4,046
Non-U.S. operations		(22,043)		(31,867)
Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments		$	(18,332)	$	(27,821)

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 non-U.S. corporations. These non-U.S.~~ subsidiaries generally earn income from sources outside the ~~United States~~U.S. 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~~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. The CARES Act did not materially impact the three and nine months ended September 30, 2017 and 2016 was determined based on estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2017 and 2016, respectively.

~~The~~ Company’s effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017 was 9.9% and 8.9%, respectively, compared to 8.8% and 10.1%, respectively,~~May 31, 2021.

The Company’s effective tax rates (“ETRs”) for the three ~~and nine~~ months ended ~~September 30, 2016. Movements~~May 31, 2021 and 2020 were 45.2%, and 2.0%, respectively. The movement in the ~~effective tax rates are generally~~ETR is primarily caused by changes in the ~~proportion~~mix of the Company’s pre-tax ~~earnings~~earnings/(losses) in its taxable and non-tax jurisdictions.

~~Differences between statutory income tax rates~~ Further, the three-month period ended May 31, 2020 included discrete items related to stock compensation and ~~our effective income tax rates applied to pre-tax income from continuing operations consisted~~the impact of the ~~following:~~CARES act.

Note 10. Interest, Net

The following table shows the components of interest, net:


	Three Months Ended May 31,
		2021		2020
Interest on borrowings and other liabilities		$	54,033	$	55,739


Amortization of deferred financing fees and debt discount		4,191		3,311
Interest expense		58,224		59,050
Less: Interest income		(35)		(324)
Less: Capitalized interest		(152)		0

Interest, net		$	58,037	$	58,726

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

~~September 30, 2017~~May 31, 2021

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Notional U.S. federal income tax expense at the statutory rate $ 21,815
$ 9,831
$ 33,420
$ 30,492
U.S. state and local income tax, net 33
14
122
139
Non-U.S. operations:
Bermuda (12,260 ) (6,025 ) (10,632 ) (16,687 )
Ireland (315 ) 82
(569 ) 2,155
Singapore (1,518 ) (823 ) (9,107 ) (4,874 )
Other low tax jurisdictions (1,450 ) (752 ) (4,377 ) (2,835 )
Non-deductible expenses in the U.S. (104 ) 133
(298 ) 418
Other (6 ) (2 ) (23 ) (26 )
Provision for income taxes $ 6,195
$ 2,458
$ 8,536
$ 8,782

~~Note 12. Interest, Net~~

~~The following table shows the components of interest, net:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Interest on borrowings and other liabilities⁽¹⁾
$ 54,527
$ 57,589
$ 170,225
$ 166,692
Amortization of deferred losses related to interest rate derivatives 569
705
1,725
9,074
Amortization of deferred financing fees and debt discount⁽²⁾
6,735
4,097
15,860
13,567
Interest expense 61,831
62,391
187,810
189,333
Less: Interest income (1,061 ) (546 ) (2,089 ) (768 )
Less: Capitalized interest (134 ) (48 ) (345 ) (75 )
Interest, net $ 60,636
$ 61,797
$ 185,376
$ 188,490


~~(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 30, 2017~~

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

Rent expense, primarily for the corporate offices and sales and marketing offices, was $413 and $411 for the three months ended May 31, 2021 and 2020, respectively.

As of May 31, 2021, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows:


Year Ending February 28/29,	Amount
Remainder of 2021	$	1,446
2022	1,789
2023	1,721
2024	1,752
2025	1,783
Thereafter	4,387
Total	$	12,878

At ~~September 30, 2017,~~May 31, 2021, we had commitments to acquire 6423 aircraft for ~~$1,803,810, including 25 Embraer E-Jet E2 aircraft.~~$779,372.

Commitments, including ~~$129,218~~$101,933 of remaining progress payments, contractual price escalations and other adjustments for these aircraft, at ~~September 30, 2017,~~May 31, 2021, net of amounts already paid, are as follows:


Year Ending February 28/29,	Amount
Remainder of 2021	$	134,520
2022	360,828
2023	132,699
2024	39,404
2025	111,921
Thereafter	0

Total	$	779,372

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

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			May 31, 2021		February 28, 2021
Deferred income tax asset	$	1,736	$	1,902	Deferred income tax asset	$	602	$	637
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 $79,265 and $75,126, respectively					Lease incentives and lease premiums, net of amortization of $79,265 and $75,126, respectively	67,471		75,169
Flight equipment held for sale	3,627		3,834		Flight equipment held for sale	53,618		53,289
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					Aircraft purchase deposits and Embraer E-2 progress payments	41,279		52,092

Right-of-use asset(1)					Right-of-use asset(1)	7,769		8,056
Deferred rent receivable					Deferred rent receivable	75,287		69,103
Other assets	25,107		27,417		Other assets	71,639		53,598

Total other assets	$	131,395	$	148,398	Total other assets	$	317,665	$	311,944

______________

(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)

May 31, 2021

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:


	May 31, 2021		February 28, 2021
Accounts payable, accrued expenses and other liabilities	$	30,186	$	43,088
Deferred income tax liability	76,939		75,124
Accrued interest payable	52,904		43,676
Lease liability	10,636		11,003
Lease discounts, net of amortization of $45,118 and $44,887, respectively	1,145		1,376


Total accounts payable, accrued expenses and other liabilities	$	171,810	$	174,267

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

~~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~~14. Subsequent Event

During the fiscal second quarter of 2021, the Company entered into claims sale and purchase agreements with a third party for the sale of certain unsecured claims filed by various Aircastle entities against LATAM Airlines Group S.A. and certain of its subsidiaries in the Chapter 11 case captioned LATAM Airlines Group S.A., et al., Case No. 20-11254 (JLG) (Jointly Administered) (the “Bankruptcy Case”). Proceeds from the sales of these claims were received during the fiscal second quarter of 2021. 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~~allowed amount of ~~deferred net loss expected~~our unsecured claims has been approved by the Bankruptcy Court so that such claims are now approved claims in the Bankruptcy Case subject to ~~be reclassified from OCI into interest expense over the next twelve months related to our terminated interest rate derivatives is $1,361.~~customary conditions.

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 the Securities and Exchange Commission (the “SEC”).~~February 28, 2021. 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~~ Annual Report on Form 10-K ~~and elsewhere in this report.~~fir the year ended February 28, 2021. 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 30, 2017,~~May 31, 2021, we owned and managed on behalf of our joint ventures ~~205~~259 aircraft leased to 7177 lessees located in 3843 countries. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are generally subject to net leases whereby the lessee is ~~generally~~ responsible for maintaining the aircraft and paying operational, maintenance and insurance costs. InHowever, in many cases ~~however,~~ we are obligated to pay a specified portion of ~~specified~~ maintenance or modification costs. As of ~~September 30, 2017,~~May 31, 2021, the net book value of our flight equipment (including flight equipment held for lease and net investment in ~~finance and sales-type~~ leases, or ~~"net~~“net book ~~value"~~value”) was ~~$5.98~~$6.58 billion compared to ~~$6.51~~$6.69 billion at ~~December 31, 2016.~~February 28, 2021. Our total revenues, net loss and ~~net income~~Adjusted EBITDA were $165.8 million, $9.8 million and $148.3 million for the three ~~and nine~~ months ended ~~September 30, 2017 were $191.4~~May 31, 2021, and $282.5 million, $26.5 million and ~~$57.4~~$268.2 million ~~and $619.2 million and $92.8 million,~~for the three months ended May 31, 2020, respectively.

~~Growth~~Historically, growth in commercial air traffic ~~is broadly~~has been correlated with world economic activity. ~~In recent years, it has been expanding~~Prior to the COVID-19 pandemic, commercial air traffic growth expanded at a rate ~~one and a half~~1.3 to ~~two~~2 times that of global GDP growth. ~~The~~This expansion of air travel has driven ~~a rise~~the growth in the world aircraft ~~fleet. There~~fleet; and there are ~~currently~~ approximately ~~20,000~~24,000 commercial mainline passenger and freighter aircraft in ~~operation worldwide. This~~the world fleet ~~is expected~~today. Aircraft leasing companies own approximately 52% of the world’s commercial jet aircraft. Under normal circumstances, we would expect the global fleet to continue expanding at ~~three~~a two to four percent average annual ~~rate over~~rate.

COVID-19 has had an unprecedented negative impact on the ~~next twenty~~aviation sector, resulting in a dramatic slowdown in air traffic. While there have been some improvements in certain markets recently, according to IATA, as of May 31, 2021, air travel was still down to approximately 37% of normal levels and a full recovery to pre-pandemic levels is not expected for several years. ~~Aircraft leasing companies own approximately 41% of~~Substantially all the world’s ~~commercial jet aircraft.~~

~~Notwithstanding the sector’s~~airlines have experienced financial difficulties and liquidity challenges, including many of our customers. While we believe 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 portability of the assets, allowing aircraft 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 likelywill return 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 increasehistorical trends over time, the near-term impacts of COVID-19’s economic shock are material; the extent and ~~as a result, we expect demand for modern aircraft will~~duration of those impacts cannot currently be determined.

As the airline industry begins to recover, airlines continue to ~~remain strong over the long-term.~~

Low fuel prices and interest rates have had 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. Bothseek support from their respective governments, raise debt and equity, ~~markets~~delay or cancel new aircraft orders, furlough employees, request concessions from lessors, and in certain cases, seek judicial protection. As of July 9, 2021, we have ~~improved globally over~~agreed to $111.7 million in total deferrals of lease payments with 22 customers. These deferrals have been granted for an average of six to nine months of lease rentals and represent 19% of Lease rental and Direct financing and sales-type lease revenues for the ~~past several years~~twelve months ended May 31, 2021. Of the total deferrals, $89.4 million is included in Accounts receivable or Other assets as of May 31, 2021, with the ~~recovery from the global financial crisis. Strong U.S. debt capital market conditions benefited borrowers by permitting access~~balance representing future lease payments. Approximately 76% of our total deferrals as of July 9, 2021, have been agreed to ~~financing at historic lows while higher fees~~as part of broader lease restructurings. These generally include term extensions, better security packages, or other valuable consideration in exchange for near-term economic concessions. Some have ~~driven down ECA demand. Recently, ECA availability has been curtailed, both in the U.S.~~repayment terms that extend beyond twelve months and in ~~Europe, due~~a limited number of situations, we have agreed to ~~political issues~~broader lease restructurings that do not include the full repayment of all of lease payments.

If air traffic remains depressed and ~~an investigation into possible irregularities, respectively. Commercial bank debt continues~~if our customers are unable to ~~play a critical role for aircraft finance, although~~obtain sufficient funds from private, governmental or other sources, 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 for which we are well placedneed to ~~capitalize given our access~~grant additional deferrals 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 reduce our borrowing costs and enable more reliable access to debt capital throughout the business cycle.

We believe our business approach is 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 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.

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 partsome of our ~~investment opportunity set, but choose to limit long term capital commitments unless we believe there is an adequate return premium to compensate~~customers or extend the period of repayment 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,deferrals we have ~~acquired~~already made. We may ultimately not be able to collect all the amounts we have deferred.

As of July 9, 2021, six of our customers are subject to judicial insolvency proceedings or similar protection. These customers lease 22 aircraft, ~~from 86 different sellers.~~

~~Selling assets when attractive opportunities arise.~~ ~~We sell assets with the aim~~which represent 13% of ~~realizing profits~~our net book value of flight equipment (including Flight equipment held for lease and ~~reinvesting proceeds when a sale generates the greatest expected cash flow~~Net investment in leases, or ~~when more accretive investments are available. We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations~~“net book value”) and ~~lowering residual value exposures to certain aircraft types.~~

~~Maintaining efficient access to capital from a wide set~~11% 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~~Lease rental 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-baseddirect financing and ~~helped source~~sales-type lease revenue as of and ~~develop~~for the twelve months ended May 31, 2021. LATAM, our ~~joint venture with IBJL (“IBJ Air”). IBJ Air~~second largest customer, is ~~targeted at newer narrow-body~~included in this group and represents 8% of our net book value of flight equipment and 7% of our Lease rental revenue as of and for the twelve months ended May 31, 2021. 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 negotiating reductions in 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~~lease rentals, rejecting their leases or taking other actions that could adversely impact us ~~with an opportunity to pursue larger transactions, manage portfolio concentrations and improve our return on deployed capital.~~

~~Capturing~~or the value of our ~~efficient~~aircraft. Based on historic experience, the judicial process can take up to twelve to eighteen months to be resolved. 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 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 primarily mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital costs in an environment of tight airline margins and low fuel prices.

In addition, we believe that we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of July 1, 2021, total liquidity of $2.88 billion includes $1.38 billion of undrawn credit facilities, $1.02 billion of unrestricted cash, $103 million of contracted asset sales and $375 million of projected operating cash flows through June 30, 2022. As of May 31, 2021, we have commitments to acquire 23 aircraft for $779.4 million between 2021-2025.

We also believe our platform and ~~strong operating track record.~~ ~~We believe our team’s capabilities~~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 twenty years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 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 and sales-type leases.

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 leasefinancial crisis 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 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.September 11, 2001 terror attacks.

Under an operating lease, the lessee will be 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 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 factors, including the timing of lease expiries, including scheduled and unscheduled expiries, 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 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~~Fiscal Year 2021 Lease Expirations and Lease Placements

At ~~September 30, 2017,~~May 31, 2021, the Company had seventeen off-lease aircraft and 22 aircraft with scheduled lease expirations in fiscal 2021. As of July 9, 2021, of these 39 aircraft, we ~~had two~~have eighteen aircraft, ~~accounting~~which account for ~~less than 1%~~7% of our net book value ~~that are scheduled~~at May 31, 2021, 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~~Fiscal Years 2022-2025 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,~~fiscal years 2022-2025, 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 30, 2017,~~May 31, 2021, specified below:

~~2018: 10~~•2022: 19 aircraft, representing 6%;

~~2019: 28~~•2023: 45 aircraft, representing ~~18%~~13%;

~~2020: 25~~•2024: 53 aircraft, representing 9%21%; and

~~2021: 23~~•2025: 38 aircraft, representing ~~12%~~17%.

~~Operating Expenses~~

Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative 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 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 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.

Acquisitions and Sales

During the ~~first nine~~three months ~~of 2017,~~ended May 31, 2021, we acquired 28two aircraft for ~~$635.1~~$63.9 million. As of ~~October~~July 9, 2021, we acquired one additional aircraft. At May 31, ~~2017, we have acquired 37 aircraft for approximately $760 million. At September 30, 2017,~~2021, we had commitments to acquire ~~64 additional~~23 aircraft for ~~$1.80 billion, including~~$779.4 million. Of this amount, approximately $134.5 million represents commitments for the ~~acquisition~~remainder of ~~25 new E-Jet E2 aircraft from Embraer, which are scheduled to deliver in 2019 to~~fiscal year 2021. ~~As of October 31, 2017, we have commitments to acquire 55 aircraft for $1.68 billion.~~

During the ~~first nine~~three months ~~of 2017,~~ended May 31, 2021, we sold 29three aircraft and other flight equipment for ~~$765.0~~net proceeds of $63.4 million, ~~which resulted in a~~and recognized net ~~gain~~gains on sales of ~~$35.9~~$9.0 million. ~~During October 2017,~~As of July 9, 2021, we have sold one ~~narrow-body aircraft and one classic narrow-body~~additional aircraft.

The following table sets forth certain information with respect to the aircraft owned by us as of ~~September 30, 2017~~:May 31, 2021:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)


Owned Aircraft	As of September 30, 2017⁽¹⁾			As of September 30, 2016⁽¹⁾			Owned Aircraft	As of May 31, 2021(1)			As of May 31, 2020(1)
Net Book Value of Flight Equipment	$	5,979		$	6,270		Net Book Value of Flight Equipment	$	6,584		$	7,421
Net Book Value of Unencumbered Flight Equipment	$	4,572		$	4,343		Net Book Value of Unencumbered Flight Equipment	$	5,400		$	5,679
Number of Aircraft	192			175			Number of Aircraft	250			274
Number of Unencumbered Aircraft	163			139			Number of Unencumbered Aircraft	218			234
Number of Lessees	71			65			Number of Lessees	76			81
Number of Countries	38			35			Number of Countries	42			45
Weighted Average Age (years)⁽²⁾	8.7			7.6			Weighted Average Age (years)(2)	10.8			10.2
Weighted Average Remaining Lease Term (years)⁽²⁾	4.7			5.3			Weighted Average Remaining Lease Term (years)(2)	4.5			4.4
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		%

Managed Aircraft on behalf of Joint Ventures
Weighted Average Fleet Utilization during the three months ended May 31, 2021 and 2020(3)							Weighted Average Fleet Utilization during the three months ended May 31, 2021 and 2020(3)	93.1		%	96.7		%

Portfolio Yield for the three months ended May 31, 2021 and 2020(4)							Portfolio Yield for the three months ended May 31, 2021 and 2020(4)	8.4		%	10.3		%

Managed Aircraft on behalf of Joint Venture							Managed Aircraft on behalf of Joint Venture
Net Book Value of Flight Equipment	$	661		$	629		Net Book Value of Flight Equipment	$	309		$	322
Number of Aircraft	13			11			Number of Aircraft	9			9


~~(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.~~


~~(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.

~~Our owned~~(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 months ended May 31, 2021 and 2020, was primarily due to off-lease aircraft as a result of early lease terminations and scheduled lease expirations.

(4)Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percent of the average net book value for the period; quarterly information is annualized. The calculation of portfolio ~~as of~~ ~~September 30, 2017~~ ~~is listed~~yield includes our net investment in ~~Exhibit 99.1 to this report.~~leases in the average net book value, and the interest income and cash collections from our net investment in lease rentals.

PORTFOLIO DIVERSIFICATION


	Owned Aircraft as of September 30, 2017			Owned Aircraft as of September 30, 2016					Owned Aircraft as of May 31, 2021				Owned Aircraft as of May 31, 2020
	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								Aircraft Type
Passenger:								Passenger:
Narrow-body	159	60	%	134		52	%	Narrow-body	224		78	%	246		75	%

Wide-body	28	34	%	32		40	%	Wide-body	22		18	%	24		21	%
Total Passenger	187	94	%	166		92	%	Total Passenger	246		96	%	270		96	%
Freighter	5	6	%	9		8	%	Freighter	4		4	%	4		4	%
Total	192	100	%	175		100	%	Total	250		100	%	274		100	%

Manufacturer								Manufacturer
Airbus	108	53	%	87		50	%	Airbus	166		64	%	186		63	%
Boeing	79	45	%	83		48	%	Boeing	77		34	%	83		36	%
Embraer	5	2	%	5		2	%	Embraer	7		2	%	5		1	%
Total	192	100	%	175		100	%	Total	250		100	%	274		100	%

Regional Diversification								Regional Diversification
Asia and Pacific	54	31	%	55		39	%	Asia and Pacific	77		36	%	89		38	%
Europe	67	28	%	57		22	%	Europe	92		28	%	99		26	%
Middle East and Africa	13	9	%	14		11	%	Middle East and Africa	10		4	%	11		4	%
North America	34	11	%	24		8	%	North America	28		12	%	28		10	%
South America	24	21	%	23		19	%	South America	26		13	%	26		16	%
Off-lease	—	—	%	2	⁽²⁾	1	%	Off-lease	17	(2)	7	%	21	(3)	6	%

Total	192	100	%	175		100	%	Total	250		100	%	274		100	%


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


~~(2)~~	~~Consisted of two Boeing 737-800 aircraft that were delivered to a customer in China in October 2016.~~

(2) Consisted of one Airbus A320-200 aircraft, one Airbus A330-200 aircraft, and one Boeing 737-800 aircraft, all of which were delivered to lessees in Europe during the second quarter of 2021, one Airbus A321-200 aircraft which was delivered to a lessee in North America during the second quarter of 2021, four Airbus A320-200 aircraft which are subject to confirmed letters of intent with customers in Europe or South America, one Boeing 737-800 aircraft which is subject to an executed lease with a lessee in Europe, and one Airbus A320-200 aircraft, three Airbus A330-200 aircraft, and four Boeing 737-800 aircraft, which we are marketing for lease or sale.

(3) Consisted of one Airbus A319-100 aircraft which was sold in the second quarter of 2020, one Airbus A320-200 which was delivered to a lessee in North America in the second quarter of 2021, one Airbus A330-200 aircraft which was delivered to a lessee in Europe in the second quarter of 2020, one Airbus A330-200 aircraft which was delivered to a lessee in Europe in the second quarter of 2021, two Airbus A320-200 aircraft which are subject to confirmed letters of intent with a customer in South America, nine Airbus A320-200 and one Airbus A330-200 aircraft which have been consigned for sale, and three Airbus A330-200 aircraft and two Boeing 737-800 aircraft, which we are marketing for lease or sale.

Our largest ~~single~~ customer represents ~~over 6%~~approximately 8% of the net book value at ~~September 30, 2017. Our~~May 31, 2021. The top ~~fifteen~~ten customers for aircraft we owned at ~~September 30, 2017, representing 87 aircraft and 58% of the net book value,~~May 31, 2021, are asfollows:



~~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	8.0%	India	12
LATAM(1)	7.7%	Chile	13
easyJet	4.1%	United Kingdom	22
Iberia	3.9%	Spain	15
Air Canada	3.7%	Canada	5
Lion Air	3.5%	Indonesia	7
Aerolineas Argentinas	3.0%	Argentina	5
American Airlines	2.8%	United States	7
AirBridgeCargo(2)	2.6%	Russia	2
Jeju Air	2.5%	South Korea	7

Total top ten customers	41.8%		95
All other customers	58.2%		155

Total all customers	100.0%		250

(1) LATAM filed for Chapter 11 in May 2020.


~~(1)~~	~~Combined with an affiliate.~~


~~(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 sixteen years. Since our inception in late 2004, we have raised $2.1 billion in equity capital from private and public investors. We also raised $18.9 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 30, 2017~~ May 31, 2021 to the three months ended ~~September 30, 2016:~~ May 31, 2020:


	Three Months Ended May 31,
	2021		2020
	(Dollars in thousands)
Revenues:
Lease rental revenue	$	132,125	$	183,178
Direct financing and sales-type lease revenue	2,877		5,317
Amortization of lease premiums, discounts and incentives	(5,325)		(7,347)
Maintenance revenue	26,477		76,630
Total lease revenue	156,154		257,778
Gain on sale of flight equipment	9,021		12,078
Other revenue	635		12,670
Total revenues	165,810		282,526
Operating expenses:
Depreciation	82,391		89,212
Interest, net	58,037		58,726
Selling, general and administrative	15,589		47,451
Impairment of flight equipment	20,583		77,298
Maintenance and other costs	7,528		5,566
Total operating expenses	184,128		278,253

Other income (expense):
Loss on extinguishment of debt	(24)		(8)
Merger expenses	—		(32,069)
Other	10		(17)
Total other expense	(14)		(32,094)

Loss from continuing operations before income taxes and earnings of unconsolidated equity method investments	(18,332)		(27,821)
Income tax benefit	(8,292)		(551)
Earnings of unconsolidated equity method investments, net of tax	287		731

Net loss	$	(9,753)	$	(26,539)

Three Months Ended September 30,
2017 2016
(Dollars in thousands)
Revenues:
Lease rental revenue $ 171,687
$ 181,975
Finance and sales-type lease revenue 6,412
5,354
Amortization of net lease discounts and lease incentives (2,388 ) (521 )
Maintenance revenue 14,507
6,829
Total lease revenue 190,218
193,637
Other revenue 1,193
1,015
Total revenues 191,411
194,652
Operating expenses:
Depreciation 70,018
76,201
Interest, net 60,636
61,797
Selling, general and administrative 17,137
15,985
Impairment of aircraft —
10,462
Maintenance and other costs 2,572
1,834
Total operating expenses 150,363
166,279
Other income (expense):
Gain (loss) on sale of flight equipment 21,642
(73 )
Other (360 ) (210 )
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
Income tax provision 6,195
2,458
Earnings of unconsolidated equity method investments, net of tax 1,296
1,805
Net income $ 57,431
$ 27,437

Revenues

Total revenuesdecreased ~~by $3.2~~$116.7 million for the three months ended~~September 30, 2017~~ May 31, 2021, as compared to the three months ended~~September 30, 2016~~. May 31, 2020.

Lease rental revenue~~. The~~ decreased $51.1 million as a result of:

•a $39.9 million decrease indue to early lease terminations and the recognition of lease rental revenue for certain customers using a cash basis of ~~$10.3 million for the~~ ~~three months endedSeptember 30, 2017, as compared to the same period in~~ ~~2016, was primarily the result of:~~accounting rather than an accrual method – see Note 1 regarding our lease revenue recognition policy;

•a ~~$32.8~~$7.0 million decrease due to the sale of 40twelve aircraft since ~~September 30, 2016;~~March 1, 2020; and

•a $6.7 million decrease due to lease extensions, amendments, transitions and other changes.

This ~~decrease~~ was partially offset by ana $2.5 million increase in revenue, reflecting the impact of ~~$29.2 million due to the acquisition of 50~~seven aircraft purchased since ~~September 30, 2016.~~March 1, 2020.

~~Finance~~Direct financing and sales-type lease ~~revenue.~~ ~~For the~~ ~~three months endedSeptember 30, 2017, $6.4~~revenue decreased $2.4 million, ~~of interest income from finance and sales-type leases was recognized, as compared to $5.4 million of interest income from finance and sales-type leases recorded for the same period in~~ ~~2016, due~~primarily attributable to the ~~addition~~early lease terminations of ~~fifteen~~eight aircraft ~~partially offset by~~and the ~~sale~~transition of ~~two~~six aircraft ~~over the last twelve months.~~to operating leases.

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


	Three Months Ended May 31,
	2021		2020
	(Dollars in thousands)
Amortization of lease premiums	$	(2,904)	$	(5,093)
Amortization of lease discounts	231		285
Amortization of lease incentives	(2,652)		(2,539)

Amortization of lease premiums, discounts and incentives	$	(5,325)	$	(7,347)

Three Months Ended September 30,
2017 2016
(Dollars in thousands)
Amortization of lease incentives $ (1,810 ) $ 42
Amortization of lease premiums (2,266 ) (2,894 )
Amortization of lease discounts 1,688
2,331
Amortization of net lease discounts and lease incentives $ (2,388 ) $ (521 )

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~~decrease in amortization of lease ~~incentives~~premiums of ~~$1.9~~$2.2 million for the three months ended ~~September 30, 2017,~~May 31, 2021 as compared to the ~~same period in 2016,~~three months ended May 31, 2020, 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~~early lease ~~to a finance lease.~~terminations.

Maintenance ~~revenue.~~revenue. For the three months ended ~~September 30, 2017,~~May 31, 2021, we recorded ~~$14.5~~$26.5 million of maintenance revenue, comprised primarily ~~due~~of $21.7 million related to the ~~transition~~scheduled lease expirations of two narrow-body aircraft and the early lease termination of one narrow-body aircraft. In addition, we recorded $4.8 million of maintenance revenue related to one narrow-body and one wide-body aircraft ~~of $13.1 million. For~~for which the ~~same period in 2016, we recorded $6.8 million of maintenance revenue, including $5.6 million related~~customers are subject to ~~maintenance reserves taken into income for three freighter aircraft.~~

~~Other revenue.~~judicial insolvency proceedings or similar protection. For the three months ended ~~September 30, 2017,~~May 31, 2020, we recorded ~~$1.2~~$76.6 million of ~~other~~maintenance revenue, comprised primarily ~~from fees earned from one lessee in connection with~~of $38.8 million related to the early ~~termination~~lease terminations of ~~a lease. For~~ten narrow-body aircraft and $36.8 million related to the ~~same period in 2016, we recorded $1.0~~scheduled lease expirations of three narrow-body and one wide-body aircraft.

Gain on sale of flight equipment decreased $3.1 million ~~of other revenue.~~

~~Operating expenses~~

~~Total operating expenses~~ ~~decreased by $15.9~~to $9.0 million for the three months ended~~September 30, 2017~~, May 31, 2021, as compared to gains of $12.1 million for the three months ended May 31, 2020. During the three months ended May 31, 2021, we sold three aircraft, as compared to the ~~three months endedSeptember 30, 2016~~.

~~Depreciation expense~~ ~~decreased by $6.2 million for the~~ ~~three months endedSeptember 30, 2017~~ ~~as compared to the same period in~~ ~~2016. The decrease is primarily the result~~sale of ~~lower depreciation of $18.8 million due to 40 aircraft sold.~~

~~This decrease was partially offset by increases of:~~

~~$11.0 million due to 50 aircraft acquired; and~~

~~$1.6 million due to changes in asset lives, residual values and other changes.~~

~~Interest, net~~ ~~consisted 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 million of loan prepayment fees related to the sale of~~two aircraft during the three months ended ~~September 30, 2017.~~

~~(2) Includes $3.0 million in deferred financing fees written off related to the prepayment of debt in connection with the~~May 31, 2020.Gain on sale ~~of aircraft during~~for the three months ended ~~September 30, 2017.~~May 31, 2020, was primarily attributable to the receipt of insurance proceeds for one aircraft which was disposed.

~~Interest, net~~ Other revenue decreased ~~by $1.2~~$12.0 million ~~over~~to $0.6 million for the three months ended ~~September 30, 2016.~~May 31, 2021, as compared to $12.7 million for the three months ended May 31, 2020. The ~~net~~three months ended May 31, 2020 included $12.8 million of security deposits recognized into revenue related to the early lease termination of seven narrow-body aircraft.

Operating expenses

Total operating expenses decreased $94.1 million for the three months ended May 31, 2021, as compared to the three months ended May 31, 2020.

Depreciation expense decreased $6.8 million for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020. The decrease is primarily comprised of $8.5 million resulting from thirteen aircraft sold since March 1, 2020 and lower depreciation related to aircraft subject to aircraft impairments. This was partially offset by a ~~result~~$1.4 million increase in depreciation due to seven aircraft acquired since March 1, 2020.

Interest, net consisted of ~~lower interest on borrowings of $3.1~~the following:


	Three Months Ended May 31,
	2021		2020
	(Dollars in thousands)
Interest on borrowings and other liabilities	$	54,033	$	55,739


Amortization of deferred financing fees and debt discount	4,191		3,311
Interest expense	58,224		59,050
Less: Interest income	(35)		(324)
Less: Capitalized interest	(152)		—

Interest, net	$	58,037	$	58,726

Interest, net decreased $0.7 million ~~primarily~~ due to lower weighted average interest rates and debt outstanding, ~~and higher interest income of $0.5 million,~~ partially offset by higher amortization of deferred ~~financing fees~~financings fees.

Selling, general and ~~debt discount~~administrative expenses decreased $31.9 million, primarily attributable to a decrease in share-based compensation expense of ~~$2.6~~$28.0 million ~~during~~as a result of the completion of the Merger. The three months ended May 31, 2020 also included a provision for credit losses of $3.3 million related to the change in our allowance for credit losses.

Impairment of aircraft. During the three months ended ~~September 30, 2017 as compared~~May 31, 2021, we recorded transactional impairment charges of $20.6 million related to ~~a year ago.~~

~~Selling, general and administrative expenses~~two narrow-body aircraft. The Company recognized $21.1 million of maintenance revenue for these two aircraft.During the three months ended~~September 30, 2017~~ ~~increased by $1.2~~ May 31, 2020, the Company recorded transactional impairment charges of $77.3 million ~~over the same period in 2016.~~

~~Impairment~~related to ten narrow-body aircraft and one wide-body aircraft.The Company recognized $83.3 million of ~~Aircraft.~~ maintenance and security deposits into revenue for these eleven aircraft. 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 $7.5 million for the three months ended ~~September 30, 2017, compared with a loss~~May 31, 2021, an increase of ~~$0.1~~$2.0 million for 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 due to a loss of $5.2 million for a wide-body aircraft’s lease extension classified as a sales-type lease.

~~Income tax provision~~

~~Our~~ ~~provision for income taxes~~ ~~for the~~ ~~three months ended~~ ~~September 30, 2017 and 2016 was~~ ~~$6.2 million~~ ~~and~~ ~~$2.5 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 in our income tax provision of approximately $3.7 million for the ~~three months endedSeptember 30, 2017~~, as compared to the ~~same period in~~ ~~2016, was~~three months ended May 31, 2020, primarily attributable to ~~changes in operating income subject to tax in Ireland, Singapore, the United States~~higher costs for scheduled and ~~other jurisdictions.~~unscheduled transitions.

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. 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 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~~expense

~~Other comprehensive~~ Total other expense decreased $32.1 million as the three months ended May 31, 2020 included $32.1 million of legal and banking expenses related to the Merger.

Income tax benefit

Our 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~~tax benefit 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 months ended September 30, 2017 to the nine months ended September 30, 2016:~~

Nine Months Ended September 30,
2017 2016
(Dollars in thousands)
Revenues:
Lease rental revenue $ 551,371
$ 537,670
Finance and sales-type lease revenue 16,363
13,026
Amortization of lease premiums, discounts and incentives (8,780 ) (5,419 )
Maintenance revenue 55,738
20,603
Total lease revenue 614,692
565,880
Other revenue 4,526
2,425
Total revenues 619,218
568,305
Operating expenses:
Depreciation 227,446
227,918
Interest, net 185,376
188,490
Selling, general and administrative 55,491
46,883
Impairment of flight equipment 80,430
27,185
Maintenance and other costs 7,846
5,504
Total operating expenses 556,589
495,980
Other income (expense):
Gain on sale of flight equipment 35,926
14,932
Other (3,069 ) (136 )
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
Income tax provision 8,536
8,782
Earnings of unconsolidated equity method investments, net of tax 5,804
5,390
Net income $ 92,754
$ 83,729

~~Revenues~~

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

~~Lease rental revenue. The increase in lease rental revenue of $13.7 million for the nine months ended September 30, 2017 as compared to the same period in 2016~~May 31, 2021 and 2020 was ~~primarily the result of increases in revenue of $102.1 million due to the acquisition of 64 aircraft since September 30, 2016. This increase was partially offset by decreases of:~~

~~$71.8 million due to the sale of 55 aircraft since September 30, 2016; and~~

~~$16.6 million due to lease extensions, amendments, transitions and other changes.~~

~~Finance and sales-type lease revenue.~~ For the nine months ended September 30, 2017, $16.4 million of interest income from finance and sales-type leases was recognized as compared to $13.0 million of interest income from finance and sales-type leases recorded for the same period in 2016 due to the addition of fifteen aircraft, partially offset by the sale of two aircraft, over the last twelve months.

~~Amortization of net lease premiums, discounts and lease incentives.~~

Nine Months Ended September 30,
2017 2016
(Dollars in thousands)
Amortization of lease incentives $ (7,124 ) $ (3,989 )
Amortization of lease premiums (7,935 ) (8,571 )
Amortization of lease discounts 6,279
7,141
Amortization of lease premiums, discounts and incentives $ (8,780 ) $ (5,419 )

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 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 nine months ended September 30, 2017 as compared to 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, we recorded $55.7 million of maintenance revenue primarily due to the transition of four narrow-body, four wide-body and one freighter aircraft for $50.6 million. For the same period in 2016, we recorded $20.6 million of maintenance revenue from one scheduled lease termination for $6.9$8.3 million and ~~maintenance reserves taken into income for three freighter aircraft and one wide-body aircraft totaling $13.2 million.~~

~~Other revenue.~~ For the nine months ended September 30, 2017, we recorded $4.5 million of other revenue, primarily from fees earned from two lessees in connection with the early terminations of two leases. For the same period in 2016, we recorded $2.4 million of other revenue.

~~Operating expenses~~

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

~~Depreciation expense~~ decreased by $0.5 million for the nine months ended September 30, 2017 as compared to the same period in 2016. The decrease is primarily the result of lower depreciation of $44.0 million due to 55 aircraft sold.

~~This decrease was partially offset by increases of:~~

~~$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,
2017 2016
(Dollars in thousands)
Interest on borrowings and other liabilities⁽¹⁾
$ 170,225
$ 166,692
Amortization of interest rate derivatives related to deferred losses 1,725
9,074
Amortization of deferred financing fees and debt discount⁽²⁾
15,860
13,567
Interest expense 187,810
189,333
Less: Interest income (2,089 ) (768 )
Less: Capitalized interest (345 ) (75 )
Interest, net $ 185,376
$ 188,490


~~(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 million as compared to the nine months ended September 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, primarily as a result of $5.1 million of separation and disability compensation expense related to our former Chief Executive Officer under the terms of his employment and share-based award agreements.

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

~~Maintenance and other costs~~ were $7.8 million for the nine months ended September 30, 2017, an increase of $2.3 million over the same period in 2016. The net increase is primarily related to higher maintenance costs of $2.2 million related to terminations and transitions for the nine months ended September 30, 2017 versus the same period in 2016.

~~Other income (expense)~~

~~Gain on sale of flight equipment~~ increased by $21.0 million to $35.9 million for the nine months ended September 30, 2017, as compared to gains of $14.9 million for the same period in 2016. During the nine months ended September 30, 2017, we sold 29 aircraft. During the nine months ended September 30, 2016, we recorded gains totaling $26.7 million that were offset by losses totaling $11.8 million, including a loss of $5.2 million for a wide-body aircraft’s lease extension classified as a sales-type lease.

~~Income tax provision~~

~~Our~~ ~~provision for income taxes~~ ~~for the nine months ended September 30, 2017 and 2016 was $8.5 million and $8.8~~$0.6 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.~~States and Ireland. The ~~decrease~~increase in our income tax ~~provision~~benefit of ~~approximately $0.2~~$7.7 million ~~for the nine months ended September 30, 2017 as compared to the same period in 2016~~ was primarily attributable to changes in ~~operating income subject to tax~~the mix of pre-tax book income/(loss) in Bermuda, Ireland ~~Singapore,~~and the United ~~States~~States. Further, the three-month period ended May 31, 2020 included discrete items related to stock compensation 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 subsidiariesimpact of the ~~Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.~~

CARES Act.

~~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 months ended September 30, 2017, as a result of a $9.0 million increase in net income, partially offset by a decrease of $7.3 million in amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.

Summary of Recoverability Assessment and Other Impairments

~~Transactional Impairments~~Impairment of Flight Equipment

During the ~~second quarter of 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at~~three months ended May 31, 2021, the ~~end of their respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in~~Company recorded transactional impairment charges totaling ~~$79.2~~$20.6 million ~~partially offset by~~which related to two narrow-body aircraft and were the result of an early lease termination and a scheduled lease expiration. The Company recognized $21.1 million of maintenance revenue ~~of $13.5 million.~~ for these two aircraft.

During the ~~third quarter of 2017, we sold one production freighter~~three months ended May 31, 2020, the Company recorded transactional impairment charges totaling $77.3 million, which related to ten narrow-body and one ~~converted freighter~~wide-body aircraft. ~~We expect to sell one production freighter~~The Company recognized $83.3 million of maintenance and security deposits into revenue for these eleven aircraft. The impairment charges and revenue were recognized as a result of the early lease terminations of nine aircraft ~~in the first quarter~~and scheduled lease expirations of ~~2018.~~

~~Annual Recoverability Assessment~~two aircraft.

If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in ~~the annual~~our recoverability ~~assessment~~assessments 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~~have historically generated a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including:

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

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

•asset sales; and

•sales of common and preferred shares.

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

During the ~~first nine~~three months ~~of 2017,~~ended May 31, 2021, we met our liquidity and capital resource needs with ~~$393.5~~$70.0 million of cash flow from operations ~~$500.0 million in gross proceeds from the issuance of our Senior Notes due 2024~~ and ~~$765.0~~$63.4 million of cash from the sale of aircraft ~~sales.~~and other flight equipment.

As of ~~September 30, 2017,~~May 31, 2021, the weighted-average maturity of our secured and unsecured debt financings was ~~3.9~~3.5 years and we ~~are~~were in compliance with all applicable covenants.

We have agreed to defer lease payments with certain of our airline customers. As of July 9, 2021, we have agreed to defer approximately $111.7 million of lease payments with 22 airlines, which they are obligated 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 previously granted. We may ultimately be unable to collect all the amounts we have deferred. As of May 31, 2021, we hold $78.3 million in security deposits, $524.0 million in maintenance payments and $147.9 million in letters of credit from our lessees.

We believe ~~that~~we have sufficient liquidity to meet our contractual obligations over the next twelve months and as of July 1, 2021, total liquidity of $2.88 billion includes $1.38 billion of undrawn credit facilities, $1.02 billion of unrestricted cash, ~~on hand,~~$103 million of contracted asset sales and $375 million of projected operating cash flows through June 30, 2022. 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,
2017 2016
(Dollars in thousands)
Net cash flow provided by operating activities $ 393,458
$ 367,413
Net cash flow provided by (used in) investing activities 173,821
(395,533 )
Net cash flow (used in) provided by financing activities (392,911 ) 484,326


	Three Months Ended May 31,
	2021		2020
	(Dollars in thousands)
Net cash flow provided by (used in) operating activities	$	69,990	$	(44,475)
Net cash flow provided by investing activities	4,549		17,848
Net cash flow (used in) provided by financing activities	(9,534)		186,235

Operating Activities:

The COVID-19 pandemic has severely impacted the demand for air travel over the past fifteen months, which has negatively impacted our customers’ financial performance. The impact of COVID-19, together with lease concessions given to many of our airline customers in the form of lease rental deferrals, has resulted in slower cash collections during the three months ended May 31, 2021 and 2020.

Cash flow provided by operations was ~~$393.5~~$70.0 million ~~and~~ ~~$367.4 million~~ for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~ May 31, 2021 as compared to cash flow used in operations of $44.5 million for the three months ended May 31, 2020. The net increase in cash flow provided by operations of ~~approximately $26.0~~$114.5 million ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~versus the same period in~~ ~~2016~~ was primarily a result of:

•a ~~$30.7~~$98.7 million decrease in accounts receivable and other assets, primarily due to deferred lease rentals;

•a $32.1 million increase in cash ~~received~~as the three months ended May 31, 2020, included higher banking and legal costs resulting from ~~maintenance revenue;~~the Merger; and

•a ~~$12.0~~$7.2 million increase ~~in cash from~~as the three months ended May 31, 2020, included advance lease rentals ~~net of finance and sales-type leases; and~~

~~a $9.3 million decrease in cash paid for taxes.~~recognized into revenue, primarily due to lease terminations.

These inflows were offset by a ~~$10.9~~$39.9 million decrease in cash due to lower lease rental revenue resulting from ~~working capital~~early lease terminations and the recognition of lease rental revenue for certain customers using a ~~$14.8 million increase in~~ cash ~~paid for interest.~~basis of accounting rather than an accrual method.

Investing Activities:

Cash flow provided by investing activities was ~~$173.8~~$4.5 million and $17.8 million for the ~~nine~~three months ended ~~September 30, 2017 as compared to cash flow used in investing activities of $395.5 million for the nine months endedSeptember 30, 2016.~~May 31, 2021 and 2020, respectively. The ~~net increase~~decrease in cash flow provided by investing activities of ~~$569.4~~$13.3 million ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~versus the same period in~~ ~~2016~~ was primarily a result ~~of:~~

of a ~~$280.1~~$42.4 million ~~net decrease~~increase in the acquisition and improvement of flight ~~equipment and net investments in finance and sales-type leases;~~equipment.

These outflows were offset by a ~~$276.2~~$17.2 million increase in aircraft purchase deposits and progress payments, net of returned deposits and an $11.5 million increase in aircraft proceeds from the sale of flight ~~equipment; and~~

•~~a $12.7 million decrease in unconsolidated equity method investments.~~equipment.

Financing Activities:

Cash flow used in financing activities was ~~$392.9~~$9.5 million for the ~~nine~~three months ended ~~September 30, 2017~~ May 31, 2021 as compared to cash flow provided by financing activities of ~~$484.3~~$186.2 million for the ~~nine~~three months ended~~September 30, 2016.~~ May 31, 2020. The net ~~increase in cash flow used in financing activities~~decrease of ~~$877.2~~$195.8 million ~~for the nine months ended September 30, 2017 versus the same period in 2016~~ was primarily a result ~~of:~~

of a ~~$499.4~~$253.3 million decrease in proceeds from secured and unsecured ~~financings;~~financings, net of repayments.

These outflows were offset by a ~~$363.3~~$38.1 million ~~increase in securitization and term debt financing repayments; and~~

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

~~These outflows were partially offset by~~received, and a ~~$31.7~~$24.0 million decrease in ~~shares repurchased and an $8.7 million decrease in deferred financing costs.~~dividends paid.

Debt Obligations

For complete information on our debt obligations, please refer to Note ~~7 -~~6 – “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~~$6.71 billion at ~~September 30, 2017~~May 31, 2021 from ~~$6.50~~

$6.82 billion at ~~December 31, 2016 due primarily to~~February 28, 2021. The decrease in principal and interest payments was roughly offset by an increase in purchase obligations ~~for aircraft~~from February 28, 2021 to ~~be acquired, partially offset by the amortization of our other financings.~~May 31, 2021.

The following table presents our actual contractual obligations and their payment due dates as of ~~September 30, 2017~~:May 31, 2021:


	Payments Due by Period as of September 30, 2017											Payments Due by Period as of May 31, 2021
Contractual Obligations	Total		1 year or less		2-3 years		4-5 years		More than 5 years		Contractual Obligations	Total		1 year or less		2-3 years		4-5 years		More than 5 years
	(Dollars in thousands)											(Dollars in thousands)
Principal payments:											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 2022 - 2028											Senior Notes due 2022 - 2028	$	4,200,000	$	500,000	$	1,650,000	$	650,000	$	1,400,000
DBJ Term Loan											DBJ Term Loan	215,000		60,000		155,000		—		—
Revolving Credit Facilities	—		—		—		—		—		Revolving Credit Facilities	—		—		—		—		—
ECA Financings	236,879		38,071		80,321		80,475		38,012		ECA Financings	27,164		7,478		15,632		4,054		—
Bank Financings	652,138		76,123		134,734		125,244		316,037		Bank Financings	720,388		72,478		288,189		359,721		—
Total principal payments	4,209,017		114,194		1,535,055		1,205,719		1,354,049		Total principal payments	5,162,552		639,956		2,108,821		1,013,775		1,400,000


Interest payments on debt obligations⁽¹⁾	827,298		211,809		356,308		178,026		81,155		Interest payments on debt obligations(1)	752,956		215,849		322,658		157,887		56,562
Office leases⁽²⁾	21,335		1,259		4,971		4,901		10,204		Office leases(2)	12,878		1,938		3,451		3,551		3,938
Purchase obligations⁽³⁾	1,803,810		896,818		765,349		141,643		—		Purchase obligations(3)	779,372		175,031		453,016		151,325		—

Total	$	6,861,460	$	1,224,080	$	2,661,683	$	1,530,289	$	1,445,408	Total	$	6,707,758	$	1,032,774	$	2,887,946	$	1,326,538	$	1,460,500


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


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


~~(3)~~	At September 30, 2017, we had commitments to acquire 64 aircraft for $1.80 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, we have commitments to acquire 55 aircraft for $1.68 billion.

(1)Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at May 31, 2021.

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

(3) At May 31, 2021, we had commitments to acquire 23 aircraft for $779.4 million. These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments.

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~~three months ended ~~September 30, 2017~~May 31, 2021 and ~~2016,~~2020, we incurred a total of ~~$24.4~~$6.5 million and ~~$27.0~~$7.1 million, respectively, of capital expenditures (including lease incentives) related to the ~~acquisition and~~ improvement of aircraft.

As of ~~September 30, 2017,~~May 31, 2021, the weighted average age by net book value of our aircraft was approximately ~~8.7~~10.8 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~~ Annual Report on Form ~~10-K.~~10-K for the year ended February 28, 2021.

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 30, 2017,~~venture with Mizuho Leasing and as of May 31, 2021, the net book value of ~~our two joint ventures’ thirteen~~its nine aircraft was ~~approximately $661~~$308.6 million.

Foreign Currency Risk and Foreign Operations

At ~~September 30, 2017~~,May 31, 2021, 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~~three months ended~~September 30, 2017~~, May 31, 2021, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately ~~$14.2~~$4.5 million in U.S. dollar equivalents and represented ~~approximately 26%~~28.9% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, our international operations and our exposure to foreign currency risk will likely increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk. For the ~~nine~~three months ended ~~September 30, 2017~~ May 31, 2021 and ~~2016,~~2020, 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~~ months ended ~~September 30, 2017~~May 31, 2021 and ~~2016:~~2020:

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 May 31,
		2021		2020
		(Dollars in thousands)
Net loss		$	(9,753)	$	(26,539)
Depreciation		82,391		89,212
Amortization of lease premiums, discounts and incentives		5,325		7,347
Interest, net		58,037		58,726
Income tax benefit		(8,292)		(551)
EBITDA		127,708		128,195
Adjustments:
Impairment of flight equipment		20,583		77,298

Loss on extinguishment of debt		24		8
Non-cash share-based payment expense		—		28,049
Merger related expenses(1)		—		34,637
Loss on mark-to-market of interest rate derivative contracts		—		17


Adjusted EBITDA		$	148,315	$	268,204

______________

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

~~(2) Included~~$32.1 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; and

~~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 and 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 30, 2017~~May 31, 2021 by ~~$2.3~~$0.5 million and ~~$2.3~~$0.1 million, respectively, over the next twelve months. As of ~~September 30, 2017,~~May 31, 2021, 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 million and ~~$5.3~~$0.9 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~~$220.0 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 30, 2017~~.May 31, 2021. 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 30, 2017~~.May 31, 2021.

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 30, 2017~~May 31, 2021 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 impact of the COVID-19 pandemic on our internal controls to minimize this impact on their design and operating effectiveness.

PART II. — OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

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.~~February 28, 2021, as filed with the SEC.


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

~~Issuer Purchases of Equity Securities~~

~~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:~~None.

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~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	~~OTHER INFORMATION~~

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


~~ITEM 6.~~Exhibit No.			~~EXHIBITS~~

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 ~~No.~~	~~Description of 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 March 27, 2020).

3.3		Certificate of Designations, dated June 8, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June ~~20, 2012)~~8, 2021).

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,~~December 5, 2013, 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~~	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~~4.4		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~~4.5		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~~4.6		~~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~~4.7		~~Amendment No. 4~~Seventh Supplemental Indenture, dated as of June 13, 2019, between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to ~~Purchase Agreement COM0270-15,~~Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 13, 2019).

4.8		Indenture, dated as of August 11, ~~2017,~~2020, by and 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 August 11, 2020).

~~10.5~~4.9		~~Amendment No. 2 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15,~~Indenture, dated as of ~~August 11, 2017,~~January 26, 2021, by and between Aircastle ~~Holding Corporation~~ 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 January 26, 2021).

~~31.1~~4.10		Deposit Agreement, dated June 8, 2021, among Aircastle Limited, Computershare Inc. and Computershare Trust Company, N.A., acting jointly as depositary, and the holders from time to time of depositary receipts issued thereunder (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 8, 2021).

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.~~32.1		~~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~~101		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 30, 2017,~~May 31, 2021, formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September 30, 2017~~May 31, 2021, and ~~December 31, 2016;~~February 28, 2021; (ii) Consolidated Statements of ~~Income~~Loss and Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2017~~May 31, 2021 and ~~2016;~~2020; (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~~three months ended ~~September 30, 2017~~May 31, 2021 and ~~2016;~~2020; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended May 31, 2021 and 2020; and (v) Notes to Unaudited Consolidated Financial Statements.*


Exhibit No.						Description of Exhibit

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~~

July 14, 2021



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

5040



			Fair Value Measurements at September 30, 2017 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
Assets:
Cash and cash equivalents	$	662,649	$	662,649	$	—	$	—	Market
Restricted cash and cash equivalents	20,536		20,536		—		—		Market
Derivative assets	2,663		—		2,663		—		Market
Total	$	685,848	$	683,185	$	2,663	$	—



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



	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



	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