UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

☐

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

For the transition period from to

Commission file number 001-35121

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		27-1840403
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2000 Avenue of the Stars, Suite 1000N Los Angeles, California		90067
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (310) 553-0555

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	AL	New York Stock Exchange
6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A	AL PRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~November~~May 6, ~~2019,~~2020, there were ~~112,704,349~~113,643,462 shares of Air Lease Corporation’s Class A common stock outstanding.

Table of Contents

Air Lease Corporation and Subsidiaries

Form 10-Q

For the Quarterly Period Ended ~~September 30, 2019~~March 31, 2020

TABLE OF CONTENTS

		Page
Note About Forward-Looking Statements		3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements	4
	Consolidated Balance Sheets—~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (unaudited)	4
	Consolidated Statements of Income and Comprehensive Income—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	5
	Consolidated Statement of Shareholders’ Equity—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	6
	Consolidated Statements of Cash Flows—~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	87
	Notes to Consolidated Financial Statements (unaudited)	98
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4	Controls and Procedures	33
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	3334
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3436
Item 3	Defaults Upon Senior Securities	3436
Item 4	Mine Safety Disclosures	3436
Item 5	Other Information	3436
Item 6	Exhibits	3537
	Signatures	3739

Table of Contents

NOTE ABOUT FORWARD-LOOKING STATEMENTS

Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

●

the extent to which the coronavirus (“COVID-19”) pandemic and measures taken to contain its spread ultimately impact our business, results of operation and financial condition;

●

our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

●

our inability to obtain refinancing prior to the time our debt matures;

●

our inability to make acquisitions of, or lease, aircraft on favorable terms;

●

our inability to sell aircraft on favorable terms or to predict the timing of such sales;

●

impaired financial condition and liquidity of our lessees;

●

changes in overall demand for commercial aircraft leasing and aircraft management services;

●

deterioration of economic conditions in the commercial aviation industry generally;

●

potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto;

●

increased maintenance, operating or other expenses or changes in the timing thereof;

●

changes in the regulatory environment, including tariffs and other restrictions on trade;

●

our inability to effectively oversee our managed fleet;

●

the failure of any manufacturer to meet its contractual aircraft delivery obligations to us, including or as a result of technical or other difficulties with aircraft before or after delivery, resulting in our inability to deliver the aircraft to our lessees;

●

other factors affecting our business or the business of our lessees and aircraft manufacturers or their suppliers that are beyond our or their control, including natural disasters, pandemics (such as COVID-19) and measures taken to contain its spread, and governmental actions; and

●

the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, “Part II — Item 1A. Risk ~~Factors,”~~Factors” in ~~our~~this Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019~~2020 and other SEC filings, including future SEC filings.

The factors noted above and the risks included in our other SEC filings may be increased or intensified as a result of the COVID-19 pandemic, including if there is a resurgence of the COVID-19 virus after the initial outbreak subsides. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. See the risk factor in “Part II — Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, “The coronavirus (COVID-19) pandemic and related efforts to mitigate the pandemic have impacted our business, and the extent to which the COVID-19 pandemic and measures taken to contain its spread ultimately impact our business will depend on future developments, which are highly uncertain and are difficult to predict.” All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Air Lease Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(unaudited)				(unaudited)
Assets
Cash and cash equivalents	$	291,772	$	300,127	$	732,719	$	317,488
Restricted cash		44,651		22,871		20,662		20,573
Flight equipment subject to operating leases		21,601,147		17,985,324		21,976,429		21,286,154
Less accumulated depreciation		(2,689,880)		(2,278,214)		(2,754,068)		(2,581,817)
		18,911,267		15,707,110		19,222,361		18,704,337
Deposits on flight equipment purchases		1,600,959		1,809,260		1,576,508		1,564,188
Other assets		761,052		642,440		1,130,095		1,102,569
Total assets	$	21,609,701	$	18,481,808	$	22,682,345	$	21,709,155
Liabilities and Shareholders’ Equity
Accrued interest and other payables	$	420,444	$	382,132	$	491,251	$	516,497
Debt financing, net of discounts and issuance costs		13,751,872		11,538,905		14,414,621		13,578,866
Security deposits and maintenance reserves on flight equipment leases		1,091,073		990,578		1,122,957		1,097,061
Rentals received in advance		134,635		119,526		134,779		143,692
Deferred tax liability		749,504		643,767		782,368		749,495
Total liabilities	$	16,147,528	$	13,674,908	$	16,945,976	$	16,085,611
Shareholders’ Equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (aggregate liquidation preference of $250,000) issued and outstanding at September 30, 2019 and 0 shares issued or outstanding at December 31, 2018		100		—
Class A common stock, $0.01 par value; 500,000,000 shares authorized; 112,701,349 and 110,949,850 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		1,127		1,110
Preferred Stock, $0.01 par value; 50,000,000 shares authorized; 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (aggregate liquidation preference of $250,000) issued and outstanding at March 31, 2020 and December 31, 2019, respectively						100		100
Class A common stock, $0.01 par value; 500,000,000 shares authorized; 113,639,911 and 113,350,267 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively						1,136		1,134
Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; 0 shares issued or outstanding		—		—		—		—
Paid-in capital		2,758,928		2,474,238		2,775,640		2,777,601
Retained earnings		2,702,018		2,331,552		2,962,368		2,846,106
Accumulated other comprehensive loss						(2,875)		(1,397)
Total shareholders’ equity	$	5,462,173	$	4,806,900	$	5,736,369	$	5,623,544
Total liabilities and shareholders’ equity	$	21,609,701	$	18,481,808	$	22,682,345	$	21,709,155

(See Notes to Consolidated Financial Statements)

Table of Contents

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
	(unaudited)								(unaudited)
Revenues
Rental of flight equipment	$	492,869	$	422,763	$	1,412,478	$	1,194,104	$	496,687	$	455,739
Aircraft sales, trading and other		38,033		27,935		55,870		35,617		14,700		10,312
Total revenues		530,902		450,698		1,468,348		1,229,721		511,387		466,051
Expenses
Interest		104,637		82,189		290,681		224,584		107,541		89,220
Amortization of debt discounts and issuance costs		9,078		8,199		26,330		24,231		10,528		8,540
Interest expense		113,715		90,388		317,011		248,815		118,069		97,760
Depreciation of flight equipment		183,788		149,703		514,948		428,437		188,895		159,471
Selling, general and administrative		34,715		26,377		92,188		71,194		28,322		29,702
Stock-based compensation		4,897		4,848		14,934		13,165		4,429		4,174
Total expenses		337,115		271,316		939,081		761,611		339,715		291,107
Income before taxes		193,787		179,382		529,267		468,110		171,672		174,944
Income tax expense		(38,000)		(32,808)		(107,081)		(95,674)		(34,521)		(36,850)
Net income	$	155,787	$	146,574	$	422,186	$	372,436	$	137,151	$	138,094
Preferred stock dividends		(3,844)		—		(8,115)		—		(3,844)		—
Net income available to common stockholders	$	151,943	$	146,574	$	414,071	$	372,436	$	133,307	$	138,094

Other Comprehensive Loss:
Change in foreign currency translation adjustment										23,477		—
Change from current period hedged transaction										(25,386)		—
Total tax benefit on other comprehensive loss										431		—
Other Comprehensive (loss)/income available for common stockholders, net of tax										(1,478)		—
Total comprehensive income available for common stockholders									$	131,829	$	138,094

Earnings per share of Class A and Class B common stock:
Basic	$	1.36	$	1.41	$	3.71	$	3.58	$	1.17	$	1.24
Diluted	$	1.34	$	1.32	$	3.67	$	3.36	$	1.17	$	1.23
Weighted-average shares outstanding
Basic		112,133,556		104,066,785		111,511,960		103,940,723		113,471,945		111,018,279
Diluted		113,263,396		112,509,612		112,837,526		112,377,870		113,785,028		112,380,856

Dividends declared per share of Class A common stock	$	0.13	$	0.10	$	0.39	$	0.30	$	0.15	$	0.13

(See Notes to Consolidated Financial Statements)

Table of Contents

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

Class B Non-

Class A

Voting

Preferred Stock

Common Stock

Common Stock

Paid-in

Retained

(unaudited)

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Total
Balance at December 31, 2018

—

$
—

110,949,850

$
1,110

—

$
—

$
2,474,238

$
2,331,552

$
4,806,900
Issuance of common stock upon vesting of restricted stock units and upon exercise of options

—

—

263,218

2

—

—

439

—

441
Issuance of preferred stock

10,000,000

100

—

—

—

—

242,141

—

242,241
Stock-based compensation

—

—

—

—

—

—

4,174

—

4,174
Cash dividends (declared $0.13 per share of Class A common stock)

—

—

—

—

—

—

—

(14,445)

(14,445)
Tax withholding related to vesting of restricted stock units and exercise of stock options

—

—

(94,899)

(1)

—

—

(3,587)

—

(3,588)
Net income

—

—

—

—

—

—

—

138,094

138,094
Balance at March 31, 2019

10,000,000

$
100

111,118,169

$
1,111

—

$
—

$
2,717,405

$
2,455,201

$
5,173,817
Issuance of common stock upon vesting of restricted stock units and upon exercise of options

—

—

547,957

6

—

—

10,791

—

10,797
Issuance of preferred stock

—

—

—

—

—

—

(111)

—

(111)
Dividends declared on preferred stock

—

—

—

—

—

—

—

(4,271)

(4,271)
Stock-based compensation

—

—

—

—

—

—

5,863

—

5,863
Cash dividends (declared $0.13 per share of Class A common stock)

—

—

—

—

—

—

—

(14,516)

(14,516)
Net income

—

—

—

—

—

—

—

128,305

128,305
Balance at June 30, 2019

10,000,000

$
100

111,666,126

$
1,117

—

$
—

$
2,733,948

$
2,564,719

$
5,299,884
Issuance of common stock upon vesting of restricted stock units and upon exercise of options

—

—

1,047,695

11

—

—

20,584

—

20,595
Dividends declared on preferred stock

—

—

—

—

—

—

—

(3,844)

(3,844)
Stock-based compensation

—

—

—

—

—

—

4,897

—

4,897
Cash dividends (declared $0.13 per share of Class A common stock)

—

—

—

—

—

—

—

(14,644)

(14,644)
Tax withholding related to vesting of restricted stock units and exercise of stock options

—

—

(12,472)

(1)

—

—

(501)

—

(502)
Net income

—

—

—

—

—

—

—

155,787

155,787
Balance at September 30, 2019

10,000,000

$
100

112,701,349

$
1,127

—

$
—

$
2,758,928

$
2,702,018

$
5,462,173

~~(See Notes to Consolidated Financial Statements)~~

~~Table of Contents~~

~~Air Lease Corporation and Subsidiaries~~

~~CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY~~

~~(In thousands, except share and per share amounts)~~


							Class B Non-															Class B Non-							Accumulated
				Class A			Voting												Class A			Voting							Other
	Preferred Stock			Common Stock			Common Stock			Paid-in		Retained				Preferred Stock			Common Stock			Common Stock			Paid-in		Retained		Comprehensive
(unaudited)	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Total		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Income		Total
Balance at December 31, 2017	—	$	—	103,621,629	$	1,036	—	$	—	$	2,260,064	$	1,866,342	$	4,127,442
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion	—		—	514,773		4	—		—		2,632		—		2,636
Balance at December 31, 2019																10,000,000	$	100	113,350,267	$	1,134	—	$	—	$	2,777,601	$	2,846,106	$	(1,397)	$	5,623,544
Issuance of common stock upon vesting of restricted stock units and upon exercise of options																—		—	480,978		4	—		—		2,021		—		—		2,025
Dividends declared on preferred stock																—		—	—		—	—		—		—		(3,844)		—		(3,844)
Stock-based compensation	—		—	—		—	—		—		3,432		—		3,432	—		—	—		—	—		—		4,429		—		—		4,429
Cash dividends (declared $0.10 per share of Class A common stock)	—		—	—		—	—		—		—		(10,397)		(10,397)
Cash dividends (declared $0.15 per share of Class A common stock)																—		—	—		—	—		—		—		(17,045)		—		(17,045)
Change in foreign currency translation adjustment and from current period hedged transactions																—		—	—		—	—		—		—		—		(1,478)		(1,478)
Tax withholding related to vesting of restricted stock units and exercise of stock options	—		—	(156,568)		—	—		—		(7,141)		—		(7,141)	—		—	(191,334)		(2)	—		—		(8,411)		—		—		(8,413)
Net income	—		—	—		—	—		—		—		110,651		110,651	—		—	—		—	—		—		—		137,151		—		137,151
Balance at March 31, 2018	—	$	—	103,979,834	$	1,040	—	$	—	$	2,258,987	$	1,966,596	$	4,226,623
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion	—		—	85,211		1	—		—		1,521		—		1,522
Balance at March 31, 2020																10,000,000	$	100	113,639,911	$	1,136	—	$	—	$	2,775,640	$	2,962,368	$	(2,875)	$	5,736,369

																						Class B Non-							Accumulated
																			Class A			Voting							Other
																Preferred Stock			Common Stock			Common Stock			Paid-in		Retained		Comprehensive
(unaudited)																Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Income		Total
Balance at December 31, 2018																—	$	—	110,949,850	$	1,110	—	$	—	$	2,474,238	$	2,331,552	$	—	$	4,806,900
Issuance of common stock upon vesting of restricted stock units and upon exercise of options																—		—	263,218		2	—		—		439		—		—		441
Issuance of preferred stock																10,000,000		100	—		—	—		—		242,141		—				242,241
Stock-based compensation	—		—	—		—	—		—		4,885		—		4,885	—		—	—		—	—		—		4,174		—		—		4,174
Cash dividends (declared $0.10 per share of Class A common stock)	—		—	—		—	—		—		—		(10,399)		(10,399)
Cash dividends (declared $0.13 per share of Class A common stock)																—		—	—		—	—		—		—		(14,445)		—		(14,445)
Tax withholding related to vesting of restricted stock units and exercise of stock options																—		—	(94,899)		(1)	—		—		(3,587)		—		—		(3,588)
Net income	—		—	—		—	—		—		—		115,211		115,211	—		—	—		—	—		—		—		138,094		—		138,094
Balance at June 30, 2018	—	$	—	104,065,045	$	1,041	—	$	—	$	2,265,393	$	2,071,408	$	4,337,842
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion	—		—	3,034		—	—		—		61		—		61
Stock-based compensation	—		—	—		—	—		—		4,848		—		4,848
Cash dividends (declared $0.10 per share of Class A common stock)	—		—	—		—	—		—		—		(10,407)		(10,407)
Net income	—		—	—		—	—		—		—		146,574		146,574
Balance at September 30, 2018	—	$	—	104,068,079	$	1,041	—	$	—	$	2,270,302	$	2,207,575	$	4,478,918
Balance at March 31, 2019																10,000,000	$	100	111,118,169	$	1,111	—	$	—	$	2,717,405	$	2,455,201	$	—	$	5,173,817

(See Notes to Consolidated Financial Statements)

Table of Contents

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2019		2018		2020		2019
	(unaudited)				(unaudited)
Operating Activities
Net income	$	422,186	$	372,436	$	137,151	$	138,094
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of flight equipment		514,948		428,437		188,895		159,471
Stock-based compensation		14,934		13,165		4,429		4,174
Deferred taxes		97,566		95,674		33,302		36,825
Amortization of debt discounts and issuance costs		26,330		24,231		10,528		8,540
Amortization of prepaid lease costs		24,190		18,713		10,454		7,180
Gain on aircraft sales, trading and other activity		(45,123)		(24,469)		(5,554)		(17,167)
Changes in operating assets and liabilities:
Other assets		(149,740)		(62,528)		(88,411)		(93,788)
Accrued interest and other payables		51,156		110		(47,858)		20,789
Rentals received in advance		15,109		4,335		(8,913)		(2,869)
Net cash provided by operating activities		971,556		870,104		234,023		261,249
Investing Activities
Acquisition of flight equipment under operating lease		(3,021,758)		(1,874,094)		(511,232)		(725,300)
Payments for deposits on flight equipment purchases		(727,982)		(548,225)		(174,589)		(305,284)
Proceeds from aircraft sales, trading and other activity		426,382		239,067		65,070		247,264
Acquisition of aircraft furnishings, equipment and other assets		(236,847)		(204,449)		(51,576)		(111,162)
Net cash used in investing activities		(3,560,205)		(2,387,701)		(672,327)		(894,482)
Financing Activities
Issuance of common stock upon exercise of options		31,823		4,188		2,025		440
Cash dividends paid on Class A common stock		(43,383)		(31,155)		(17,003)		(14,421)
Preferred dividends paid		(8,115)		—		(3,844)		—
Tax withholdings on stock-based compensation		(4,089)		(7,141)		(8,413)		(3,587)
Net change in unsecured revolving facility		8,000		(847,000)		495,000		225,000
Proceeds from debt financings		3,135,918		3,358,885		1,449,873		995,779
Payments in reduction of debt financings		(947,837)		(1,131,206)		(1,093,268)		(896,098)
Net proceeds from preferred stock issuance		242,139		—		-		242,241
Debt issuance costs		(9,443)		(9,327)		(2,902)		(2,455)
Security deposits and maintenance reserve receipts		230,966		173,754		50,083		73,145
Security deposits and maintenance reserve disbursements		(33,905)		(52,764)		(17,927)		(11,567)
Net cash provided by financing activities		2,602,074		1,458,234		853,624		608,477
Net increase/(decrease) in cash		13,425		(59,363)		415,320		(24,756)
Cash, cash equivalents and restricted cash at beginning of period		322,998		308,282		338,061		322,998
Cash, cash equivalents and restricted cash at end of period	$	336,423	$	248,919	$	753,381	$	298,242
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, including capitalized interest of $46,314 and $38,947 at September 30, 2019 and 2018, respectively	$	358,237	$	278,297
Cash paid during the period for interest, including capitalized interest of $13,261 and $16,226 at March 31, 2020 and 2019, respectively					$	141,060	$	137,481
Cash paid for income taxes	$	9,515	$	2,506	$	2,149	$	25
Supplemental Disclosure of Noncash Activities
Buyer furnished equipment, capitalized interest and deposits on flight equipment purchases applied to acquisition of flight equipment	$	1,161,573	$	663,223	$	191,318	$	298,962
Cash dividends declared on Class A common stock, not yet paid	$	14,644	$	10,407	$	17,046	$	14,445

(See Notes to Consolidated Financial Statements)

Table of Contents

Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Company Background and Overview

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. ~~We are~~The Company is principally engaged in purchasing new commercial jet transport aircraft directly from ~~aircraft~~ manufacturers, such as The Boeing Company (“Boeing”) and Airbus ~~S.A.S.~~S.A.S (“Airbus”)~~, and leasing those~~. The Company leases these aircraft to airlines throughout the world with the intention to generate attractive returns on equity. As of March 31, 2020, the Company owned a fleet of 300 aircraft in its operating lease portfolio, managed 82 aircraft and had 399 aircraft on order with aircraft manufacturers. In addition to ~~our~~its leasing activities, ~~we sell~~the Company sells aircraft from ~~our~~its operating lease portfolio to third parties, including other leasing companies, financial services companies, airlines and ~~through our asset-backed securities platform. We~~other investors. The Company also ~~provide~~provides fleet management services to investors and owners of aircraft portfolios for a management fee. ~~As of September 30, 2019, we owned a fleet of 307 aircraft, managed 64 aircraft and had 316 aircraft on order with aircraft manufacturers.~~

Note 2. Basis of Preparation and Critical Accounting Policies

The Company consolidates financial statements of all entities in which ~~we have~~the Company has a controlling financial interest, including the accounts of any Variable Interest Entity in which ~~we have~~the Company has a controlling financial interest and for which ~~we are~~it is the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying unaudited Consolidated Financial Statements include all adjustments, consisting only of normal, recurring adjustments, which are in the opinion of management necessary to present fairly the Company’s financial position, results of operations and cash flows at ~~September 30, 2019,~~March 31, 2020, and for all periods presented. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the operating results expected for the year ending December 31, ~~2019.~~2020. These financial statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~Recently adopted accounting standards~~

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842).” The amendments in ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Subsequently, the FASB issued additional ASUs that further clarified ASU 2016-02. The Company adopted the amendments to Accounting Standards Codification (“ASC”) 842 on January 1, 2019 using the Effective Date Method. As a result, the Company continues to disclose comparative reporting periods under the previous accounting guidance, ASC 840. Based on our evaluation of the guidance, the Company noted that lessor accounting is similar to the current model, but the guidance impacted us in scenarios where we are the lessee.

For scenarios where we are the lessee, the Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) lease assets under Other assets, and long-term lease obligations under Accrued interest & other payables on the Company’s Consolidated Balance Sheets. ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected to exclude recognition of leases with a term of 12 months or less (short-term leases) from the Consolidated Balance Sheets.

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As of January 1, 2019, the Company recognized operating ROU lease assets and obligations in the amounts of $44.6 million and $51.2 million, respectively, on its Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

Note 3.Recently Issued Accounting Standards

~~In July 2019,~~On April 10, 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU No. 2019-07 ("ASU 2019-07"), Codification Updates to SEC Sections. This ASU amends various Securities~~a question-and-answer document regarding accounting for lease concessions and ~~Exchange Commission ("SEC") paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification. One~~other effects of the ~~changes in~~coronavirus (“COVID-19”) pandemic. The document clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the ~~ASU requires~~economic effects of COVID-19 on lessees is a presentation of changes in stockholders' equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods.lease modification under Leases ASC 842. The Company ~~presented changes~~has chosen to continue accounting for lease concessions in stockholders' equity as separate financial statements for the current and comparative year-to-date interim periods beginning on January 1, 2019. The additional elements of the ASU did not have a material impact on the Company's Consolidated Financial Statements. Thisaccordance with lease modification accounting guidance ~~was effective immediately upon issuance.~~in Topic 842.

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Note 4. Debt Financing

The Company’s consolidated debt ~~financing was comprised~~as of ~~the following at September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollars in thousands):


	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Unsecured
Senior notes	$	12,050,000	$	10,043,445	$	12,834,333	$	12,357,811
Term financings		813,150		607,340		877,950		883,050
Revolving credit facilities		610,000		602,000
Revolving credit facility						515,000		20,000
Total unsecured debt financing		13,473,150		11,252,785		14,227,283		13,260,861
Secured
Term financings		392,593		371,203		322,320		428,824
Export credit financing		33,274		38,265		29,947		31,610
Total secured debt financing		425,867		409,468		352,267		460,434

Total debt financing		13,899,017		11,662,253		14,579,550		13,721,295
Less: Debt discounts and issuance costs		(147,145)		(123,348)		(164,929)		(142,429)
Debt financing, net of discounts and issuance costs	$	13,751,872	$	11,538,905	$	14,414,621	$	13,578,866

The Company’s secured obligations as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are summarized below (dollars in thousands):


	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Nonrecourse	$	138,797	$	167,245	$	120,381	$	128,460
Recourse		287,070		242,223		231,886		331,974
Total secured debt financing	$	425,867	$	409,468	$	352,267	$	460,434
Number of aircraft pledged as collateral		17		20		12		15
Net book value of aircraft pledged as collateral	$	915,211	$	1,132,111	$	652,351	$	890,693

Senior unsecured notes (including Medium-Term Note Program)

As of ~~September 30, 2019,~~March 31, 2020, the Company had ~~$12.1~~$12.8 billion in senior unsecured notes outstanding. As of December 31, ~~2018,~~2019, the Company had $~~10.0~~12.4 billion in senior unsecured notes outstanding.

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company issued ~~$2.85~~$1.4 billion in aggregate principal amount of Medium-Term Notes comprised of (i) ~~$700.0~~$750.0 million due ~~2024~~2025 at a fixed rate of ~~4.25%,~~2.30% and (ii) ~~$750.0~~$650.0 million due ~~2026~~2030 at a fixed rate of ~~3.75%, (iii) $300.0~~3.00%.

Unsecured revolving credit facilities

The Company has an unsecured revolving credit facility with JPMorgan Chase Bank, N.A. as agent (the “Revolving Credit Facility”). During the quarter ended March 31, 2020, the Company increased the aggregate capacity of the Revolving Credit Facility by $250.0 million ~~due 2021 that~~to $6.1 billion. The total amount outstanding under the Revolving Credit Facility was $515.0 million and $20.0 million as of March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020, borrowings under the Revolving Credit Facility will generally bear interest at ~~a floating rate of three-month~~either (a) LIBOR plus ~~0.67%, (iv) $600.0 million due 2023 at~~ a ~~fixed~~margin of 1.05% per year or (b) an alternative base rate plus a margin of ~~2.25%~~0.05% per year, subject, in each case, to increases or decreases based on declines in the credit ratings for our debt. The Company is required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines in the credit ratings for the Company’s debt) in respect of total commitments under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are used to finance the Company’s working capital needs in the ordinary course of business and ~~(v) $500.0 million due 2029 at a fixed rate of 3.25%.~~for other general corporate purposes.

On May 5, 2020, commitments totaling $92.7 million of the Revolving Credit Facility matured. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0

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~~Unsecured revolving credit facilities~~

As of September 30, 2019, the total outstanding balance on the Company's unsecured revolving credit facilities was approximately $610.0 million. The total outstanding balance under the Company's unsecured revolving credit facilities was approximately $602.0 million as of December 31, 2018.

In May 2019, the Company amended and extended its committed unsecured revolving credit facility whereby, among other things, the Company extended the final maturity date from May 5, 2022 to May 5, 2023 and, after giving effect to commitments that matured on May 5, 2019, increased the total revolving commitments to approximately $5.8 billion, representing an increase of 26.6% from December 31, 2018, with a 0.20% facility fee and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%. On July 31, 2019, the Company executed a commitment increase to its unsecured revolving credit facility, which increased the aggregate facility capacity by an additional $58.0 million. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on May 5, 2022 and commitments totaling ~~approximately~~ $5.0 million that mature on May 5, ~~2021, and~~2021. As of May 7, 2020, after giving effect to the commitments ~~totaling $92.7 million~~ that ~~mature~~matured on May 5, ~~2020.~~2020, the aggregate capacity of the Revolving Credit Facility was approximately $6.0 billion.

Maturities

Maturities of debt outstanding as of ~~September 30, 2019~~March 31, 2020 are as follows (in thousands):


Years ending December 31,
2019	$	31,189
2020		1,456,585	$	319,372
2021		1,993,870		2,049,294
2022		2,696,599		2,751,269
2023		2,966,461		2,988,154
2024				1,534,552
Thereafter		4,754,313		4,936,909
Total	$	13,899,017	$	14,579,550

Note 5. Commitments and Contingencies

As of ~~September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the table below,~~March 31, 2020, updated through May 7, 2020, the Company had commitments to acquire a total of ~~316~~399 new aircraft for delivery through ~~2024~~2026 as follows:


								Estimated Delivery Years
Aircraft Type	2019	2020	2021	2022	2023	Thereafter	Total	2020	2021	2022	2023	2024	Thereafter	Total
Airbus A320/321neo⁽¹⁾	7	28	32	25	25	—	117
Airbus A220-300⁽¹⁾								—	—	8	13	10	19	50
Airbus A320/321neo⁽²⁾								13	24	26	26	29	36	154
Airbus A330-900neo	1	3	3	6	3	—	16	—	3	7	5	—	—	15
Airbus A350-900/1000	—	3	6	3	2	—	14	3	3	6	2	6	—	20
Boeing 737-7/8/9 MAX⁽²⁾	—	31	46	28	25	5	135
Boeing 787-9/10⁽²⁾	1	15	7	6	5	—	34
Total⁽³⁾⁽⁴⁾	9	80	94	68	60	5	316
Boeing 737-7/8/9 MAX								2	28	24	42	30	—	126
Boeing 787-9/10								8	6	8	10	2	—	34
Total								26	64	79	98	77	55	399

(1)	In addition to the Company’s commitments, as of March 31, 2020, the Company had options to acquire up to 25 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2028.

(2)	Our Airbus A320/321neo aircraft orders include 5647 long-range ~~variants.~~

~~(2)~~

~~The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to 5~~ Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing. The table also reflects our estimate of future Boeing 737 MAX aircraft delivery delays based on information currently available to us. The actual delivery dates of such Boeing 737 MAX aircraft may differ from our estimatevariants and ~~could be further impacted by the length of the grounding and the pace at which Boeing can deliver aircraft following the lifting of the grounding, among other factors.~~

~~(3)~~

~~In addition to the aircraft from our order book, we have a commitment to purchase 1 used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019.~~

~~(4)~~

Excluded from the table above are memorandums of understanding (“MOU”) with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft.29 extra long-range variants.

Pursuant to ~~our~~the Company’s purchase agreements with Boeing and Airbus for new aircraft, the Company and each manufacturer ~~agrees~~agree to contractual delivery dates for each aircraft ordered. ~~However, these~~These dates can change for a variety of ~~reasons.~~

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Inreasons, and in the last ~~few~~several years ~~Airbus and Boeing have had delivery delays, and these~~manufacturing delays have significantly impacted ~~when our aircraft have been delivered.~~

~~Our leases typically provide that~~ the ~~Company and our airline customers each have a cancellation right related to aircraft~~Company’s actual delivery delays. The lease cancellation rights typically parallel our cancellation rights in our purchase agreements with Boeing and Airbus, and typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.

dates. For several years, ~~we have~~the Company has experienced delivery delays for certain of ~~our~~its Airbus orderbook aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. ~~Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2021.~~

The worldwide grounding of the Boeing 737 MAX aircraft (“737 MAX”) began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted ~~deliveries~~production and delivery of all ~~Boeing~~ 737 MAX ~~aircraft.~~aircraft and our new 737 MAX aircraft have been significantly delayed. Lifting of the grounding is subject to the approval of global regulatory authorities and ~~we are~~the Company is unable to speculate as to when this may occur. Boeing 737 MAX deliveries may be impacted by the duration of the grounding and the speed by which Boeing can deliver aircraft following the lifting of the grounding. We expect that if the grounding continues for an extended time, or if there are significant Boeing 737 MAX delivery delays evenEven after the grounding is lifted, ~~some of our customers may seek~~Boeing’s ability to ~~cancel their lease contracts with us. It is unclear at this point if we will cancel some of our Boeing~~deliver 737 MAX ~~delivery positions with Boeing or find replacement lessees. We are~~aircraft may be impacted as a result of the COVID-19 pandemic. The Company is currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of, and the delivery delays associated with the ~~Boeing~~ 737 MAX aircraft that ~~we own and have~~the Company owns or has on ~~order.~~order, which could result in changes to the commitment table.

~~Commitments for the acquisition~~The ongoing COVID-19 pandemic has caused delivery delays and is expected to continue to cause delays of aircraft and other equipment, calculated at an estimated aggregate purchase price (including adjustments for inflation) was approximately $22.5 billion at September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the ~~table above,~~Company’s orderbook. As discussed in further detail in Note 13, “Subsequent Events,” the COVID-19 pandemic has resulted in numerous travel restrictions and ~~are due as follows (in thousands):~~

Years ending December 31,

2019

$
771,134
2020

6,419,215
2021

6,647,270
2022

4,750,559
2023

3,678,420
Thereafter

225,142
Total

$
22,491,740

~~In addition to~~business shutdowns, including a temporary closure of final aircraft assembly facilities for each of Boeing and Airbus. Given the ~~Company's commitments, as~~dynamic nature of ~~September 30, 2019,~~the ongoing COVID-19 pandemic, the Company ~~had options~~is in ongoing discussions with Boeing and Airbus to ~~acquire up~~determine the impact and duration of delivery delays. However, the Company is not yet able to ~~5 Airbus A350-1000 aircraft~~determine the impact of the delivery delays, and ~~45 Boeing 737-8 MAX aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.~~

~~We have made non-refundable deposits on~~as such, the aircraft for which we have commitments to purchase of $1.6 billion and $1.8 billion as of September 30, 2019 and December 31, 2018, respectively, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may be forced to forfeit our deposits. Further, we would be exposed to breach of contract claims by our lessees and manufacturers.delivery dates listed above could materially change.

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The aircraft purchase commitments discussed above also could be impacted by lease cancellation. The Company’s leases typically provide that the Company and the airline customer each have a cancellation right related to certain aircraft delivery delays. Our purchase agreements with Boeing and Airbus also generally provide that the Company and the manufacturer each have cancellation rights that typically are parallel with the Company’s cancellation rights in its leases. Our leases and our purchase agreements with Boeing and Airbus typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.

Commitments for the acquisition of these aircraft, calculated at an estimated aggregate purchase price (including adjustments for anticipated inflation) of approximately $26.8 billion at March 31, 2020, updated through May 7, 2020, are due as follows (in thousands):


Years ending December 31,
2020	$	2,206,538
2021		4,900,832
2022		6,519,111
2023		6,171,228
2024		4,456,237
Thereafter		2,542,133
Total	$	26,796,079

The Company has made non-refundable deposits on the aircraft for which the Company has commitments to purchase of $1.6 billion as of March 31, 2020 and December 31, 2019, respectively, which are subject to manufacturer performance commitments. If the Company is unable to satisfy its purchase commitments, the Company may be forced to forfeit its deposits. Further, the Company would be exposed to breach of contract claims by our lessees and manufacturers.

Note 6. Rental Income

At ~~September 30, 2019,~~March 31, 2020, minimum future rentals on non-cancellable operating leases of flight equipment in ~~our~~the Company’s fleet, which have been delivered as of ~~September 30, 2019,~~March 31, 2020, are as follows (in thousands):


Years ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	503,359
2020		1,999,804
2020 (excluding the three months ended March 31, 2020)			$	1,533,739
2021		1,908,650		1,987,225
2022		1,765,865		1,864,731
2023		1,561,393		1,666,500
2024				1,521,571
Thereafter		6,404,246		5,656,114
Total	$	14,143,317	$	14,229,880

Note 7. Earnings Per Share

Basic net earnings per share is computed by dividing net income ~~available to common stockholders~~ by the weighted-average number of common shares outstanding for the period. ~~Preferred stock dividends are subtracted from net income in determining net income available to common stockholders.~~ Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s 2 classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock. As of ~~September 30, 2019, we~~March 31, 2020, the Company did not have any Class B Non-Voting common stock outstanding.

Diluted earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method. For the three and nine months ended September 30, 2019, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share. The Company excluded 946,406 and 950,761 shares related to restricted stock units for which the performance metric had yet to be achieved as of September 30, 2019 and 2018, respectively.

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Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method. For the three months ended March 31, 2020, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share. The Company excluded 990,100 and 940,470 shares related to restricted stock units for which the performance metric had yet to be achieved as of March 31, 2020 and 2019, respectively.

The following table sets forth the reconciliation of basic and diluted net earnings per share (in thousands, except share and per share amounts):


	Three Months Ended				Nine Months Ended				Three Months Ended March 31,
	September 30,				September 30,				2020		2019
	2019		2018		2019		2018
Basic earnings per share:
Numerator
Net income	$	155,787	$	146,574	$	422,186	$	372,436	$	137,151	$	138,094
Preferred stock dividends		(3,844)		—		(8,115)		—		(3,844)		—
Net income available to common stockholders	$	151,943	$	146,574	$	414,071	$	372,436	$	133,307	$	138,094
Denominator
Weighted-average common shares outstanding		112,133,556		104,066,785		111,511,960		103,940,723		113,471,945		111,018,279
Basic earnings per share	$	1.36	$	1.41	$	3.71	$	3.58	$	1.17	$	1.24
Diluted earnings per share:
Numerator
Net income	$	155,787	$	146,574	$	422,186	$	372,436	$	137,151	$	138,094
Preferred stock dividends		(3,844)		—		(8,115)		—		(3,844)		—
Assumed conversion of convertible senior notes		—		1,823		—		5,309
Net income available to common stockholders plus assumed conversions	$	151,943	$	148,397	$	414,071	$	377,745
Net income available to common stockholders									$	133,307	$	138,094
Denominator
Number of shares used in basic computation		112,133,556		104,066,785		111,511,960		103,940,723		113,471,945		111,018,279
Weighted-average effect of dilutive securities		1,129,840		8,442,827		1,325,566		8,437,147		313,083		1,362,577
Number of shares used in per share computation		113,263,396		112,509,612		112,837,526		112,377,870		113,785,028		112,380,856
Diluted earnings per share	$	1.34	$	1.32	$	3.67	$	3.36	$	1.17	$	1.23

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Note 8. Fair Value Measurements

Assets and ~~liabilities measured~~Liabilities Measured at ~~fair value~~Fair Value on a ~~recurring~~Recurring and ~~non-recurring basis~~Non-recurring Basis

The Company had ~~0 assets or liabilities which are measured at~~a cross-currency swap related to its Canadian dollar notes issued in December 2019. The fair value of the swap as a foreign currency exchange derivative is categorized as a Level 2 measurement in the fair value hierarchy and is measured on a recurring ~~or non-recurring basis as~~basis. As of ~~September 30, 2019 or~~March 31, 2020, the estimated fair value of the foreign currency exchange derivative liability was $19.9 million. As of December 31, ~~2018.~~2019, the estimated fair value of the foreign currency exchange derivative asset was $5.4 million.

Financial ~~instruments not measured~~Instruments Not Measured at ~~fair value~~Fair Values

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value of debt financing as of ~~September 30, 2019~~March 31, 2020 was approximately ~~$14.2~~$13.1 billion compared to a book value of ~~$13.9~~$14.6 billion. The estimated fair value of debt financing as of December 31, ~~2018~~2019 was ~~$11.4~~$14.1 billion compared to a book value of ~~$11.7~~$13.7 billion.

The following financial instruments are not measured at fair value on the Company’s Consolidated Balance Sheets at ~~September 30, 2019,~~March 31, 2020, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at ~~September 30,~~ March 31, 2020~~2019~~ and December 31, ~~2018~~2019 approximates their carrying value as reported on the Consolidated Balance Sheets. The fair value of all these instruments would be categorized as Level 1 in the fair value hierarchy.

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Note 9. Shareholders’ Equity

The Company was authorized to issue 500,000,000 shares of Class A common stock, $0.01 par value, at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~112,701,349~~113,639,911 and ~~110,949,850~~113,350,267 Class A common shares issued and outstanding, respectively. The Company did not have any shares of Class B non-voting common stock, $0.01 par value, issued or outstanding as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

The Company was authorized to issue 50,000,000 shares of preferred stock, $0.01 par value, at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. As of ~~September 30,~~March 31, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock issued and outstanding with an aggregate liquidation preference of $250.0 million. ~~The Company did not have any shares of preferred stock issued or outstanding as of December 31, 2018.~~

On March 5, 2019, the Company issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. The Company will pay dividends on the ~~preferred stock~~Series A Preferred Stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.

The Company may redeem shares of the Series A Preferred Stock at its option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. The Company may also redeem shares of the Series A Preferred Stock at the Company’s option under certain other limited conditions.

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Note 10. Stock-based Compensation

On May 7, 2014, the stockholders of the Company approved the Air Lease Corporation 2014 Equity Incentive Plan (the “2014 Plan”). Upon approval of the 2014 Plan, 0 new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of ~~September 30, 2019,~~March 31, 2020, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) ~~remaining~~authorized under the 2014 Plan ~~was~~is approximately ~~5,282,848, which includes 282,848 shares which were previously reserved for issuance under the 2010 Plan.~~4,948,064. Stock Options are generally granted for a term of 10 years and ~~generally~~ vest ratably over a three-year period. The Company has issued RSUs with 4 different vesting criteria: those RSUs that vest based on the attainment of book value goals, those RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals, time based RSUs that vest ratably over a time period of three years and RSUs that cliff-vest at the end of a ~~one-~~one or ~~two-year~~two year period. The Company has two types of book value RSUs; those that vest ratably over a three-year period if the performance condition has been met, and those that ~~cliff-vest~~vest at the end of a three-year period if the performance condition has been met. For the book value RSUs that cliff-vest at the end of a three-year period, the number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the percentage change in the Company’s book value per share at the end of the vesting period. At each reporting period, the Company reassesses the probability of the performance condition being achieved and a stock-based compensation expense is recognized based upon management’s assessment. Book value RSUs for which the performance metric has not been met are forfeited. The TSR RSUs ~~cliff-vest~~vest at the end of a three-year period. The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.

The Company recorded ~~$4.9~~$4.4 million and ~~$4.8~~$4.2 million of stock-based compensation expense related to RSUs for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively. The Company recorded $14.9 million and $13.2 million of stock-based compensation expense related to RSUs for the nine months ended September 30, 2019 and 2018,~~ respectively.

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Stock Options

A summary of stock option activity for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 follows:


				Remaining	Aggregate					Remaining	Aggregate
		Exercise		Contractual Term	Intrinsic Value			Exercise		Contractual Term	Intrinsic Value
	Shares	Price		(in years)	(in thousands)⁽¹⁾		Shares	Price		(in years)	(in thousands)⁽¹⁾
Balance at December 31, 2018	2,620,295	$	20.40	1.49	$	25,697
Balance at December 31, 2019							364,153	$	22.90	0.75	$	8,965
Granted	—	$	—	—	$	—	—	$	—	—	$	—
Exercised	(1,603,139)	$	20.00	—	$	29,909	(101,200)	$	20.00	—	$	1,460
Forfeited/canceled	—	$	—	—	$	—	—	$	—	—	$	—
Balance at September 30, 2019	1,017,156	$	21.04	0.80	$	21,138
Vested and exercisable as of September 30, 2019	1,017,156	$	21.04	0.80	$	21,138
Balance at March 31, 2020							262,953	$	24.02	0.62	$	306
Vested and exercisable as of March 31, 2020							262,953	$	24.02	0.62	$	306

(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A common stock as of the respective date.

~~As of September 30, 2019, all~~All of the Company’s outstanding employee stock options had fully vested ~~and~~as of June 30, 2013. As of March 31, 2020 there were 0 unrecognized compensation costs related to outstanding stock ~~options as of September 30, 2019. As a result,~~options. For the three months ended March 31, 2020 and 2019 there ~~was~~were 0 stock-based compensation ~~expense~~expenses related to Stock ~~Options for the three and nine months ended September 30, 2019 and 2018.~~Options.

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The following table summarizes additional information regarding outstanding exercisable and vested stock options at ~~September 30, 2019:~~March 31, 2020:



	Stock Options Exercisable		Stock Options Exercisable
	and Vested		and Vested
		Weighted-		Weighted-
		Average		Average
	Number of	Remaining Life	Number of	Remaining Life
Range of exercise prices	Shares	(in years)	Shares	(in years)
$20.00	897,156	0.69	142,953	0.24
$28.80	120,000	1.57	120,000	1.07
$20.00 - $28.80	1,017,156	0.80	262,953	0.62

Restricted Stock Units

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period. The fair value of book value and time based ~~and book value~~ RSUs is determined based on the closing market price of the Company’s Class A common stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company granted ~~670,279~~527,246 RSUs of which ~~139,895~~143,237 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:


	Unvested Restricted Stock Units			Unvested Restricted Stock Units
		Weighted-Average			Weighted-Average
	Number of	Grant-Date		Number of	Grant-Date
	Shares	Fair Value		Shares	Fair Value
Unvested at December 31, 2018	1,055,325	$	41.66
Unvested at December 31, 2019				1,254,904	$	43.62
Granted	670,279	$	39.64	527,246	$	45.85
Vested	(271,037)	$	34.58	(379,778)	$	47.54
Forfeited/canceled	(202,621)	$	32.40	—	$	—
Unvested at September 30, 2019	1,251,946	$	43.62
Expected to vest after September 30, 2019	1,341,575	$	43.45
Unvested at March 31, 2020				1,402,372	$	43.40
Expected to vest after March 31, 2020				1,499,715	$	43.26

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As of ~~September 30, 2019,~~March 31, 2020, there was ~~$29.2~~$41.7 million of unrecognized compensation cost related to unvested stock-based payments granted to employees. Total unrecognized compensation cost will be recognized over a weighted-average remaining period of ~~1.86~~2.14 years.

Note 11. ~~Investments~~Aircraft Under Management

~~The Company entered into an agreement with~~As of March 31, 2020, we managed 82 aircraft across 3 aircraft management platforms. We managed 52 aircraft through our Thunderbolt platform, 26 aircraft through the Blackbird investment funds and 4 on behalf of a ~~co-investment vehicle arranged by Napier Park Global Capital (US) LP to participate in~~financial institution.

We managed 26 aircraft on behalf of third-party investors, through 2 ~~joint ventures and formed~~investment funds, Blackbird ~~Capital~~ I ~~LLC~~ and Blackbird ~~Capital II, LLC for the purpose of investing~~II. These funds invest in commercial aircraft and ~~leasing~~lease them to airlines throughout the world. We ~~also~~ provide management services to these ~~joint ventures~~funds for a ~~fee based upon aircraft assets under management. The Company’s~~fee. As of March 31, 2020, the Company's non-controlling interests in each ~~joint venture~~fund is 9.5% and are accounted for ~~as investments~~ under the equity method of accounting. The Company’s investment in these ~~joint ventures was $45.9~~funds aggregated $48.5 million and ~~$40.6~~$46.5 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, and is ~~recorded~~included in Other assets on the Consolidated Balance Sheets. We continue to source aircraft investment opportunities for Blackbird II. As of ~~September 30, 2019, the Company’s total unfunded commitment~~March 31, 2020, Blackbird II has remaining equity capital commitments to ~~Blackbird Capital II, LLC was $30.5 million.~~acquire up to approximately $1.2 billion in aircraft assets, for which we have committed to fund up to $29.1 million related to these potential investments.

~~Table~~Additionally, we continue to manage aircraft that we sell through our Thunderbolt platform. As of ~~Contents~~

~~On August 1, 2018,~~March 31, 2020, we ~~entered into an agreement to sell 18~~managed 52 aircraft ~~to Thunderbolt Aircraft Lease Limited II (“Thunderbolt II”)~~sold across 3 separate transactions. We have non-controlling interests in 2 of these entities of approximately 5.0%, ~~an asset-backed securities platform that will facilitate the continued management and eventual sale of the aircraft assets. The Company’s non-controlling interest in Thunderbolt II is 5.1% and it is~~which are accounted for ~~as an investment~~ under the cost method of accounting. ~~The Company manages all of the aircraft in Thunderbolt II’s portfolio.~~ During the ~~nine months ended September 30, 2019,~~period ending March 31, 2020, we completed the sale of 3 aircraft from our operating lease portfolio tothrough our Thunderbolt ~~II. We expect the sale of the remaining 3 aircraft to be completed in 2019.~~platform. The Company’s total investment in aircraft sold through our Thunderbolt IIplatform was ~~$5.4~~$9.9 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, and is ~~recorded~~included in Other assets on the Consolidated Balance Sheets.

Note 12. Flight Equipment Held for Sale

As of ~~September 30, 2019,~~March 31, 2020, we had 65 aircraft, with a carrying value of ~~$208.5~~$175.1 million, which were held for sale and included in ~~Flight equipment subject to operating leases~~Other assets on the Consolidated Balance Sheets. WeThese aircraft will be sold through our Thunderbolt platform and we expect the sale of all 65 aircraft to be completed in ~~2019.~~2020. We cease recognition of depreciation expense once an aircraft is classified as held for sale. As of December 31, ~~2018,~~2019, we had 68 aircraft classified as held for sale, with a carrying value of ~~$241.6~~$249.6 million.

Note 13. Subsequent Events

On October 31, 2019, we initiated a portfolio sale of 19 aircraft to Thunderbolt Aircraft Lease Limited III (“Thunderbolt III”), an asset-backed securities platform. We anticipate closing the transaction on November 8, 2019 and will continue management of these aircraft assets. The Company’s non-controlling interest in Thunderbolt III will be approximately 5.0% and will be accounted for as an investment under the cost method of accounting. We expect a majority of the aircraft transfers to be completed over the next two quarters.Dividend Distribution

On ~~November~~May 6, ~~2019,~~2020, our board of directors approved a quarterly cash dividend of $0.15 per share on our outstanding Class A common stock. The dividend will be paid on ~~January 6,~~July 9, 2020 to holders of record of our Class A common stock as of ~~December 20, 2019.~~June 5, 2020. Our board of directors also approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock, which will be paid on ~~December~~June 15, ~~2019~~2020 to holders of record of our Series A Preferred Stock as of ~~November~~May 31, 2020.

COVID-19 Pandemic

On January 30, ~~2019.~~2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by WHO. On March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closures, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses). These measures, coupled with a decrease in consumer spending on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including for our airline customers. It is unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period of time. Aircraft manufacturers and suppliers also have been impacted, including causing the temporary closure of Boeing and Airbus’ final assembly facilities and also closures of various facilities across their supply chain. As the virus has spread in March and April, the relatively limited impacts the Company saw in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid decline in global air travel.

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Beginning in the first quarter of 2020 and continuing in the second quarter, the Company began receiving requests from most of its customers for accommodations such as deferral of lease payments or other lease concessions. The Company evaluates such requests on a case-by-case basis and has worked out accommodation arrangements with approximately 46% of its lessees, generally in the form of partial lease deferrals for payments due in the first and second quarter of 2020, typically with a short-term repayment period, with the majority of the deferrals repaid by the end of this year. In many cases, lease extensions were also negotiated as part of the deferral accommodations. The Company remains in active discussions with its other airline customers and may continue to provide accommodation arrangements on a case-by-case basis.

While lease deferrals may delay our receipt of cash, we generally recognize the lease revenue during the period even if a deferral is provided to the lessee, unless we determine collection is not reasonably assured. We monitor all lessees with past due lease payments and discuss relevant operational and financial issues facing those lessees in order to determine an appropriate course of action. In addition, if collection is not reasonably assured, we will not recognize rental income for amounts due under our lease contracts and will recognize revenue for such lessees on a cash basis.

Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on its business, results of operations and financial condition for the foreseeable future.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”), and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies, airlines and ~~through our asset-backed securities platform.~~other investors. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our owned fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales, trading and other activities and our management fees.

COVID-19 Pandemic

On January 30, 2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”). On March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closures, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses). It is unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period of time. These measures, coupled with a decrease in consumer spending on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including for our airline customers. Aircraft manufacturers and suppliers also have been impacted, including causing the temporary closure of Boeing and Airbus’ final assembly facilities and also closures of various facilities across their supply chain.

In January and February of 2020, the primary impact of the virus was limited to Asia. As the virus has spread in March and April, the relatively limited impacts we saw in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid decline in global air travel.

Beginning in the first quarter of 2020 and continuing in the second quarter, we began receiving requests from our customers for accommodations such as deferral of lease payments or other lease concessions. As of May 7, 2020, most of our lessees have requested some form of rental relief. We evaluate such requests on a case-by-case basis and have worked out accommodation arrangements with approximately 46% of our lessees, generally in the form of partial lease deferrals for payments due in the first and second quarter of 2020, typically with a short-term repayment period, with the majority of the deferrals repaid by the end of this year. In many cases, lease extensions were also negotiated as part of the deferral accommodations. As of May 7, 2020, the Company has agreed to defer approximately $124.6 million in lease payments which represents approximately 6% of our total revenue for fiscal year 2019. We remain in active discussions with our other airline customers and expect to continue to provide accommodation arrangements on a case-by-case basis.

Our collection rate during the first quarter of 2020 and the month of April 2020 was 90% and 86%, respectively. Collection rate is defined as the sum of cash collected from lease rentals and maintenance reserves, and includes cash recovered from outstanding receivables from previous periods, as a percentage of the total contracted receivables due for the period. The collection rate is calculated after giving effect to lease deferral arrangements made as of May 7, 2020. Our lease utilization rate for the period ended March 31, 2020 was 99.7%. For the month of April 2020, our lease utilization rate was 99.8%. The lease utilization rate is calculated based on the number of days each aircraft was subject to a lease or letter of intent during the period, weighted by the net book value of the aircraft. It is possible that our collection rate or lease utilization rate could decline in the near future as a result of accommodation arrangements we

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have made or could make in the future, including providing additional lease concessions to airline customers already receiving a concession or if our airline customers do not make their lease payments even absent lease concessions.

Depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of COVID-19, some of our lessees may return aircraft to us before the return date in their lease agreement or experience insolvency or initiate bankruptcy or similar proceedings that result in aircraft being returned to us. If this occurs, we may not be able to reposition the aircraft with other airlines as quickly as we have historically been able to do or we may incur increased costs in repositioning such aircraft. As a result, our revenues and collection rates would decline. In addition, as of March 31, 2020, we had commitments to purchase 399 aircraft from Airbus and Boeing for delivery through 2026, and we had placed approximately 84% of our committed order book on long-term leases for aircraft delivering through 2022. The impact of the COVID-19 pandemic on airlines could result in the cancellation of leases that we have in place for our committed orderbook or a decline in the number of aircraft in our order book that we can place into leases prior to their delivery. If we are not able to place aircraft from our orderbook into leases prior to delivery, it may cause a downward pressure on our lease rates or require us to sell aircraft in our fleet sooner than anticipated.

COVID-19 has disrupted some of our operations. While our employees are working remotely, due to travel restrictions and business limitations and shutdowns, some transitions of our aircraft from one lessee to another lessee have been delayed. Some planned aircraft sales have been delayed or terminated as a result of business limitations and shutdowns. We expect these disruptions to continue and they could worsen. We also expect that demand for used aircraft will decline in the near-term and that we will sell fewer used aircraft in 2020 and perhaps 2021 than we initially planned to sell.

We also experienced delivery delays related to COVID-19. While the commitment table in Note 5, “Commitments and Contingencies” above and the discussion of “Our Fleet” below reflects our current delivery expectations, we are in ongoing discussions with Boeing and Airbus to determine the extent and duration of delivery delays. The delays could result in a cancellation of leases for those aircraft. Pursuant to such contractual provisions, we are in discussions with lessees who are considering cancelling a small number of our 737 MAX leases with us. Given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery delays, and we expect such delivery dates could materially change, and as a result, our future growth will be negatively impacted.

COVID-19 has caused disruption in the financial markets and have caused volatility and uncertainty in the bond market. We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and debt financings. As of March 31, 2020, we had an undrawn balance of $5.6 billion under our committed unsecured revolving credit facility with JPMorgan Chase Bank, N.A. as agent, which reflects our recent increase in our facility size by $250.0 million in March 2020. We believe we continue to have access to the unsecured debt capital markets, although we have not accessed this market since January 2020 when we issued $1.4 billion in aggregate principal amount of Medium-Term Notes. We could also seek to enter into more secured debt financings, including financings supported through the Export-Import Bank of the United States or other export credit agencies (“ECAs”) to fund future aircraft deliveries from our orderbook. Our liquidity is discussed below in more detail under “Liquidity and Capital Resources.”

While we cannot currently reasonably estimate the extent to which the COVID-19 pandemic and measures taken to contain its spread will ultimately impact our business, we believe the airline industry will eventually recover and aircraft travel will return to historical levels over the long term. We believe we are well positioned to offer solutions for airlines, because we can offer the ability to lease younger, more fuel-efficient aircraft at a time when airlines will be focused on managing costs.

As the COVID-19 pandemic and efforts to mitigate its spread continue, we expect our business, results of operations and financial condition to be negatively impacted, and could have a larger impact on our results of operations for the second quarter and remainder of this year than has been reflected in our first quarter results for 2020. Depending on the severity and longevity of the COVID-19 pandemic, the related efforts taken to reduce its spread, and the possibility of a resurgence of COVID-19, the COVID-19 pandemic could have a material, adverse impact on future revenue growth, liquidity and cash flow. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our business, results of operations and financial condition for the foreseeable future.

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First Quarter Overview

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we purchased and took delivery of 42eight aircraft from our new order pipeline, purchased one aircraft in the secondary market and sold 11three aircraft from our held for sale portfolio ending the period with a total of ~~307~~300 aircraft with a net book value of ~~$18.9~~$19.2 billion. The weighted average lease term remaining on our operating lease portfolio was 7.2 years and the weighted average age of our ~~owned~~ fleet was ~~3.6~~3.7 years as of ~~September 30, 2019.~~March 31, 2020. Our fleet grew by ~~20.4%~~2.8% based on net book value of ~~$18.9~~$19.2 billion as of ~~September 30, 2019,~~March 31, 2020, compared to ~~$15.7~~$18.7 billion as of December 31, ~~2018.~~2019. In addition, we had a managed fleet of 6482 aircraft as of ~~September 30, 2019,~~March 31, 2020, compared to a managed fleet of 6183 aircraft as of December 31, ~~2018.~~2019. We ~~have~~had a globally diversified customer base comprised of 108 airlines in 5961 countries. As of ~~November~~May 7, ~~2019,~~2020, all aircraft, except for two aircraft, in our operating lease portfolio, ~~except for one aircraft,~~ were subject to letters of intent or lease agreements.

~~In June 2019,~~During the first three months of 2020, we entered into ~~memorandums of understanding (“MOU”)~~supplemental agreements with ~~Airbus~~Boeing to ~~launch the A321 XLR aircraft and~~convert nine Boeing 737 MAX to ~~order the A220~~three Boeing 787-9 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft.

As of ~~September 30, 2019,~~March 31, 2020, we had commitments to purchase ~~316~~399 aircraft from Airbus and Boeing for delivery through ~~2024,~~2026, with an estimated aggregate commitment of ~~$22.5~~$26.8 billion. ~~Our purchase commitments include supplemental agreements entered into with Boeing in October 2019 to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft.~~ We ended the ~~third~~first quarter of ~~2019~~2020 with ~~$28.7~~$28.8 billion in committed minimum future rental payments and ~~had~~ placed approximately ~~83%~~84% of our committed order book on long-term leases for aircraft delivering through ~~2021.~~2022. This includes ~~$14.1~~$14.2 billion in contracted minimum rental payments on the aircraft in our existing fleet and $14.6 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of ~~2019~~2020 through ~~2023.~~2024.

~~On October 31,~~In November 2019, we ~~initiated a portfolio~~entered into an agreement to sell 19 aircraft through our Thunderbolt platform to investors. Our Thunderbolt platform facilitates the sale of 19mid-life aircraft to ~~Thunderbolt Aircraft Lease Limited III (“Thunderbolt III”), an asset-backed securities platform. We anticipate closing~~investors while allowing to continue the ~~transaction on November 8, 2019 and will continue~~ management of these aircraft ~~assets. The Company’s~~for a fee. Through this transaction, we retained a non-controlling interest ~~in Thunderbolt III will be~~of approximately 5.0% ~~and will be accounted~~in the entity. During the three months ended March 31, 2020, we sold a total of three aircraft into our Thunderbolt platform for ~~as an investment under~~proceeds of approximately $65.2 million. As of March 31, 2020, we completed the ~~cost method~~sales of ~~accounting. We expect a majority~~14 of the 19 aircraft ~~transfers~~and expect to ~~be completed over~~complete the ~~next two quarters.~~sale of the remaining five aircraft in 2020. As of March 31, 2020 these five aircraft were classified as held for sale and included in Other assets on our Consolidated Balance Sheets

~~In 2019, we raised approximately $4.5 billion in debt to finance the growth of our fleet and refinance existing debt maturities, increasing our liquidity position to $5.6 billion.~~ During the first ~~nine~~three months of ~~2019,~~2020, we ~~have~~ issued ~~$2.85~~$1.4 billion in Medium-Term Notes, with maturities ranging between ~~2021~~2025 and ~~2029~~2030 and that bear interest at fixed rates between ~~2.25%~~2.30% and ~~4.25%, and floating rate notes that bear interest at three-month LIBOR plus 0.67%~~3.00%. In ~~May 2019,~~addition, we ~~amended and extended~~increased the aggregate capacity of our ~~unsecured revolving credit facility and increased our~~committed unsecured revolving credit facility by ~~an aggregate~~$250.0 million to $6.1 billion, ending the quarter with total liquidity of $1.3 billion to $5.8 billion and extended the final maturity date to 2023 while maintaining our pricing with a facility fee of 0.20% and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%.$6.3 billion. We ended the ~~third~~first quarter of ~~2019~~2020 with total debt outstanding, net of discounts and issuance costs, of ~~$13.8~~$14.4 billion, of which ~~84.7%~~

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86.4% was at a fixed rate and ~~96.9%~~97.6% of which was unsecured. Our composite cost of funds was ~~3.37%~~3.16% as of ~~September 30, 2019.~~March 31, 2020.

Our total revenues for the quarter ended ~~September 30, 2019~~March 31, 2020 increased by ~~17.8%~~9.7% to ~~$530.9~~$511.4 million, compared to the quarter ended ~~September 30, 2018.~~March 31, 2019. This increase was principally driven by the continued growth of our fleet, ~~and an increase~~partially offset by a lower amount of end of lease revenue recognized as compared to the same period in ~~our aircraft sales, trading and other activity.~~2019. Our net income available to common stockholders for the quarter ended ~~September 30, 2019~~March 31, 2020 was ~~$151.9~~$133.3 million compared to ~~$146.6~~$138.1 million for the quarter ended ~~September 30, 2018.~~March 31, 2019. Our diluted earnings per share for the quarter ended ~~September 30, 2019~~March 31, 2020 was ~~$1.34~~$1.17 compared to ~~$1.32~~$1.23 for the quarter ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in net income available to common stockholders in the ~~third~~first quarter of ~~2019~~2020 as compared to ~~2018~~2019 was primarily due to the ~~continued growth~~decrease in the amount of ~~our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~end of lease revenue recognized.

Our adjusted net income before income taxes excludes the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items. Our adjusted net income before income taxes for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$203.9~~$182.8 million or ~~$1.80~~$1.61 per diluted share, compared to ~~$192.4~~$187.7 million or ~~$1.73~~$1.67 per diluted share for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in our adjusted net income before income taxes iswas primarily ~~driven by~~due to the ~~continued growth~~decrease in the amount of ~~our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~end of lease revenue recognized. Our adjusted pre-tax profit margin for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~38.4%~~35.7% compared to ~~42.7%~~40.3% for the three months ended ~~September 30, 2018.~~March 31, 2019. Adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by U.S. ~~generally accepted accounting principles~~Generally Accepted Accounting Principles (“GAAP”). See Note 1 under the “Results of Operations” table for a discussion of adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.

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Our Fleet

Portfolio metrics of our fleet as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:


					March 31, 2020		December 31, 2019
	September 30, 2019		December 31, 2018
Aggregate fleet net book value	$	18.9 billion	$	15.7 billion	$	19.2 billion	$	18.7 billion
Weighted-average fleet age⁽¹⁾		3.6 years		3.8 years		3.7 years		3.5 years
Weighted-average remaining lease term⁽¹⁾		7.2 years		6.8 years		7.2 years		7.2 years

Owned fleet		307		275
Managed fleet		64		61
Aircraft on order⁽²⁾⁽³⁾		316		372
Aircraft purchase options⁽⁴⁾		50		50
Owned fleet⁽²⁾						300		292
Managed fleet⁽²⁾						82		83
Aircraft on order						399		413
Aircraft purchase options⁽³⁾						25		70
Total		737		758		806		858

Current fleet contracted rentals	$	14.1 billion	$	11.8 billion	$	14.2 billion	$	14.1 billion
Committed fleet rentals	$	14.6 billion	$	13.9 billion	$	14.6 billion	$	15.0 billion
Total committed rentals	$	28.7 billion	$	25.7 billion	$	28.8 billion	$	29.1 billion

(1)	Weighted-average fleet age and remaining lease term calculated based on net book value.

(2)

~~Excluded~~As of March 31, 2020 and December 31, 2019, we had five and eight aircraft, respectively, classified as flight equipment held for sale which are included in Other assets on the Consolidated Balance Sheet. All of these aircraft are excluded from the ~~table above are MOUs with Airbus, signed~~owned fleet count and included in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft and we have purchase options for an additional 25 A220 aircraft.our managed fleet count.

(3)	~~The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to five Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing.~~

~~(4)~~

As of ~~September 30, 2019 and December~~March 31, ~~2018,~~2020, we had options to acquire up to ~~five~~25 Airbus ~~A350-1000 aircraft and~~A220 aircraft. As of December 31, 2019, we had options to acquire up to 45 Boeing 737-8 MAX aircraft, that have since expired without being exercised, and up to 25 Airbus A220 aircraft.

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The following table sets forth the net book value and percentage of the net book value of our flight equipment subject to operating lease in the indicated regions based on each airline’s principal place of business as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands, except percentages):


	September 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Net Book				Net Book				Net Book				Net Book
Region	Value		% of Total		Value		% of Total		Value		% of Total		Value		% of Total
Europe	$	5,506,649	29.2	%	$	4,692,341	29.9	%	$	5,624,068	29.2	%	$	5,438,775	29.0	%
Asia (excluding China)		4,866,953	25.7	%		3,846,785	24.5	%		5,316,199	27.7	%		4,985,525	26.7	%
China		3,063,894	16.2	%		2,663,903	17.0	%		2,878,482	15.0	%		2,930,752	15.7	%
The Middle East and Africa		2,252,077	11.9	%		1,952,900	12.4	%		2,326,758	12.1	%		2,242,215	12.0	%
Central America, South America and Mexico		1,262,891	6.7	%		1,078,900	6.9	%		1,106,317	5.8	%		1,116,814	6.0	%
U.S. and Canada		1,006,765	5.3	%		757,884	4.8	%		986,031	5.1	%		996,398	5.3	%
Pacific, Australia and New Zealand		952,038	5.0	%		714,397	4.5	%		984,506	5.1	%		993,858	5.3	%
Total	$	18,911,267	100.0	%	$	15,707,110	100.0	%	$	19,222,361	100.0	%	$	18,704,337	100.0	%

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The following table sets forth the number of aircraft we owned by aircraft type as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

September 30, 2019

December 31, 2018

Number of

Number of

Aircraft type

Aircraft

% of Total

Aircraft

% of Total

Airbus A319-100

1

0.3
%
1

0.4
%
Airbus A320-200

30

9.8
%
35

12.7
%
Airbus A320-200neo

11

3.6
%
6

2.2
%
Airbus A321-200

33

10.7
%
34

12.4
%
Airbus A321-200neo

29

9.4
%
14

5.1
%
Airbus A330-200

14

4.6
%
15

5.4
%
Airbus A330-300

6

2.0
%
5

1.8
%
Airbus A330-900neo

6

2.0
%
1

0.4
%
Airbus A350-900

10

3.3
%
6

2.2
%
Boeing 737-700

4

1.3
%
4

1.4
%
Boeing 737-800

95

30.9
%
98

35.6
%
Boeing 737-8 MAX

15

4.9
%
14

5.1
%
Boeing 767-300ER

1

0.3
%
1

0.4
%
Boeing 777-200ER

1

0.3
%
1

0.4
%
Boeing 777-300ER

24

7.8
%
24

8.7
%
Boeing 787-9

23

7.5
%
15

5.4
%
Boeing 787-10

3

1.0
%
—

—
%
Embraer E190

1

0.3
%
1

0.4
%
Total⁽¹⁾

307

100.0
%
275

100.0
%

~~(1)~~

~~As of September 30, 2019 and December 31, 2018, we had six aircraft held for sale at the end of both periods.~~


	March 31, 2020			December 31, 2019
	Number of			Number of
Aircraft type	Aircraft	% of Total		Aircraft	% of Total
Airbus A319-100	1	0.3	%	1	0.3	%
Airbus A320-200	21	7.0	%	21	7.2	%
Airbus A320-200neo	15	5.0	%	13	4.5	%
Airbus A321-200	28	9.3	%	28	9.6	%
Airbus A321-200neo	39	13.1	%	35	12.0	%
Airbus A330-200	12	4.0	%	12	4.1	%
Airbus A330-300	8	2.7	%	7	2.4	%
Airbus A330-900neo	7	2.3	%	7	2.4	%
Airbus A350-900	10	3.3	%	10	3.4	%
Boeing 737-700	4	1.3	%	4	1.4	%
Boeing 737-800	85	28.4	%	85	29.1	%
Boeing 737-8 MAX	15	5.0	%	15	5.1	%
Boeing 767-300ER	—	—	%	1	0.3	%
Boeing 777-200ER	1	0.3	%	1	0.3	%
Boeing 777-300ER	24	8.0	%	24	8.2	%
Boeing 787-9	23	7.7	%	23	8.0	%
Boeing 787-10	6	2.0	%	4	1.4	%
Embraer E190	1	0.3	%	1	0.3	%
Total	300	100.0	%	292	100.0	%

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								Estimated Delivery Years
Aircraft Type	2019	2020	2021	2022	2023	Thereafter	Total	2020	2021	2022	2023	2024	Thereafter	Total
Airbus A320/321neo⁽¹⁾	7	28	32	25	25	—	117
Airbus A220-300⁽¹⁾								—	—	8	13	10	19	50
Airbus A320/321neo⁽²⁾								13	24	26	26	29	36	154
Airbus A330-900neo	1	3	3	6	3	—	16	—	3	7	5	0	—	15
Airbus A350-900/1000	—	3	6	3	2	—	14	3	3	6	2	6	—	20
Boeing 737-7/8/9 MAX⁽²⁾	—	31	46	28	25	5	135
Boeing 787-9/10⁽²⁾	1	15	7	6	5	—	34
Total⁽³⁾⁽⁴⁾	9	80	94	68	60	5	316
Boeing 737-7/8/9 MAX								2	28	24	42	30	—	126
Boeing 787-9/10								8	6	8	10	2	—	34
Total								26	64	79	98	77	55	399

(1)	In addition to the Company’s commitments, as of March 31, 2020, the Company had options to acquire up to 25 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2028.

(2)	Our Airbus A320/321neo aircraft orders include 5647 long-range ~~variants.~~

~~(2)~~

The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to five Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing. The table also reflects our estimate of future Boeing 737 MAX aircraft delivery delays based on information currently available to us. The actual delivery dates of such Boeing 737 MAX aircraft may differ from our estimatevariants and ~~could be further impacted by the length of the grounding and the pace at which Boeing can deliver aircraft following the lifting of the grounding, among other factors.~~

~~(3)~~

~~In addition to the aircraft from our order book, we have a commitment to purchase one used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019.~~

~~(4)~~

Excluded from the table above are MOUs with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft.29 extra long-range variants.

In addition to our commitments, as of September 30, 2019, we had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.Aircraft Delivery Delays

Pursuant to our purchase agreements with Boeing and Airbus for new aircraft, ~~the Company~~we and each manufacturer ~~agrees~~agree to contractual delivery dates for each aircraft ordered. ~~However, these~~These dates can change for a variety of ~~reasons. In~~reasons, and in the last ~~few~~several years ~~Airbus and Boeing have had delivery delays, and these~~manufacturing delays have significantly impacted ~~when~~ our ~~aircraft have been delivered.~~

~~Our leases typically provide that the Company and our airline customers each have a cancellation right related to aircraft~~actual delivery delays. The lease cancellation rights typically parallel our cancellation rights in our purchase agreements with Boeing and Airbus, and typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.

dates. For several years, we have experienced delivery delays for certain of our Airbus orderbook aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. ~~Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2021.~~

The worldwide grounding of the Boeing 737 MAX aircraft (“737 MAX”) began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted ~~deliveries~~production and delivery of all ~~Boeing~~ 737 MAX ~~aircraft.~~ aircraft and our new 737 MAX aircraft have been significantly delayed. Lifting of the grounding is subject to the approval of global regulatory authorities and we are unable to speculate as to when this may ~~occur~~. Boeing 737 MAX deliveries may be impacted by the duration of the grounding and the speed by which Boeing can deliver aircraft following the lifting of the grounding. We expect that if the grounding continues for an extended time, or if there are significant Boeing 737 MAX delivery delays evenoccur. Even after the grounding is lifted, ~~some of our customers may seek~~Boeing’s ability to ~~cancel their lease contracts with us. It is unclear at this point if we will cancel some of our Boeing~~deliver 737 MAX ~~delivery positions with Boeing or find replacement lessees.~~aircraft may be impacted as a result of the COVID-19 pandemic. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of, and the delivery delays associated with the ~~Boeing~~ 737 MAX aircraft that we own ~~and~~or have on ~~order.~~

order, which could result in changes to the commitment table.

2221

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The ongoing COVID-19 pandemic has caused delivery delays of aircraft in our orderbook and is expected to continue to cause delays of aircraft. As discussed in further detail above in “COVID-19 Pandemic,” the pandemic has resulted in numerous travel restrictions and business shutdowns, including the temporary closure of final aircraft assembly facilities for each of Boeing and Airbus. Given the dynamic nature of the ongoing COVID-19 pandemic, we are in ongoing discussions with Boeing and Airbus to determine the impact and duration of delivery delays. However, we are not yet able to determine the impact of the delivery delays, and as such, the delivery dates listed above could materially change.

The aircraft purchase commitments discussed above also could be impacted by lease cancellation. Our leases typically provide that we and our airline customer each have a cancellation right related to certain aircraft delivery delays. Our purchase agreements with Boeing and Airbus also generally provide that the Company and the manufacturer each have cancellation rights that typically are parallel with our cancellation rights in our leases. Our leases and our purchase agreements with Boeing and Airbus generally provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause. Pursuant to such contractual provisions, we are in discussions with lessees who are considering cancelling a small number of 737 MAX leases with us.

The following table, which is subject to change based on Airbus and Boeing delivery delays, ~~and the Boeing 737 MAX grounding,~~ shows the number of new aircraft scheduled to be delivered as of ~~September 30, 2019, as adjusted~~March 31, 2020. As noted above, we expect delivery delays for all aircraft deliveries in our orderbook, including Boeing 737 MAX delivery delays after the ~~conversion referenced in footnote 2 in the table above, along with the lease placements~~grounding of such aircraft asis lifted. We are currently in discussions with Boeing and Airbus to determine the extent and duration of ~~November 7, 2019:~~delivery delays, but given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery delays.


	Number of	Number			Number of	Number
Delivery Year	Aircraft	Leased	% Leased		Aircraft	Leased	% Leased
2019	9	9	100.0	%
2020	80	76	95.0	%	26	26	100.0	%
2021	94	67	71.3	%	64	62	96.9	%
2022	68	28	41.2	%	79	54	68.4	%
2023	60	6	10.0	%	98	34	34.7	%
2024					77	10	13.0	%
Thereafter	5	—	—	%	55	—	—	%
Total	316	186			399	186

Aircraft Industry and Sources of Revenues

Our revenues are principally derived from operating leases with scheduled and charter airlines throughout the world. WeAs of March 31, 2020, we have a globally diversified customer base comprised of 108 airlines in 5961 different countries, with over 95% of our business ~~being sourced~~revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.

~~Demand for~~Performance of the commercial airline industry is linked to global economic health and development, which may be negatively impacted by economic disruption, macroeconomic conditions and geopolitical and policy risks, among other factors. COVID-19 has caused significant disruption to the commercial airline industry resulting in a meaningful decline in air travel ~~has consistently grown in terms of both passenger traffic~~demand and ~~number of~~subsequent flight cancellations, negatively impacting airlines, aircraft ~~in service.~~manufacturers, and other related businesses. The International Air Transport Association (“IATA”) reported that, primarily due to COVID-19, passenger traffic fell 22% year-over-year for the first ~~nine~~three months of ~~2019 grew 4.5%. The number of aircraft~~2020 and 53% year-over-year for March 2020 and IATA expects airline passenger volumes to fall 48% in ~~service has grown steadily and the number of leased aircraft in the global fleet has increased. The long-term outlook for aircraft demand remains robust due~~2020 as compared to ~~increased passenger traffic and the need to replace aging aircraft.~~2019.

~~From time to time,~~We expect a significant increase in financial difficulties for our airline customers ~~face financial difficulties. In September 2019, Thomas Cook Airlines, a British~~through 2020 and perhaps longer, including the need for lease deferrals or other lease concessions, requests to return aircraft early or defaults. We expect increased airline ~~ceased all operations~~reorganizations, liquidations, or other forms of bankruptcies, which may include our aircraft customers and ~~filed for bankruptcy. At~~result in the ~~time~~early return of aircraft or changes in our lease terms. As of the date of this filing, we had ~~seven~~six aircraft ~~from~~across three airlines which were subject to various forms of insolvency proceedings.

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Approximately 75% of the net book value of our ~~owned~~ fleet ~~and four aircraft from our managed fleet~~are leased to ~~Thomas Cook Airlines. Despite~~flag carriers or airlines that have some form of governmental ownership; however, this does not guarantee our ability to collect contractual rent payments. We believe that having a large portion of the ~~bankruptcy~~net book value of ~~Thomas Cook Airlines,~~our fleet on lease with flag carriers or airlines with some form of governmental ownership, coupled with the overall quality of our aircraft and security deposits and maintenance reserves under our leases will help mitigate our customer risk.

We expect the aviation industry to recover over time from the impact of COVID-19, and in the long-term we remain optimistic. While we believe some aircraft lessors may consolidate or cease operations as a result of the pandemic, we believe the overall aircraft leasing industry has remained resilient over time across a variety of global economic conditions and remain optimistic about the long-term fundamentals of our business. As a result of the COVID-19 pandemic, some airlines have accelerated their plans to retire older, less fuel-efficient aircraft that have higher maintenance costs in the current environment, and we anticipate that airlines will continue to ~~see airlines globally performing well. We experienced strong~~accelerate the retirement of this type of aircraft, ultimately increasing demand for ~~the~~newer aircraft over time. We also anticipate that ~~were previously leased~~when airlines need to ~~Thomas Cook Airlines~~add new aircraft to their fleet, they will increasingly elect to lease aircraft instead of purchasing aircraft to reduce capital requirements and ~~as of November 7, 2019,~~manage other operating expenses, and that we ~~have entered into leases or letters of intent for all of these aircraft.~~will benefit from that trend.

We and airlines around the world have continued to experience delivery delays from Boeing and Airbus, from which we have 399 aircraft on order as of March 31, 2020, as discussed above in “Our Fleet.” The Airbus delays and the 737 MAX grounding have impacted the growth of our company as well as the growth of our airline customers, passenger growth and airline profitability and we expect this to continue. The impact of COVID-19 has also resulted in temporary closures and lower production rates and deliveries for both Boeing and Airbus, which is expected to cause further delivery delays.

The worldwide grounding of the ~~Boeing~~ 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted ~~deliveries~~production and delivery of all ~~Boeing~~ 737 MAX aircraft. AsSince March of ~~September 30,~~ 2019, ~~we owned and leased 15 Boeing 737 MAX aircraft and we have 135 Boeing 737 MAX aircraft on order.~~ ~~Lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur. Because of this uncertainty, we have curtailed our leasing of our orderbook aircraft since the grounding.~~

With respect to the 15 Boeing 737 MAX aircraft we own and lease, our airline customers are obligated to continue to make payments under the lease, irrespective of any difficulties in which the lessees may encounter, including an aircraft fleet grounding. However, the airlines affected by this grounding have had to adjust flight schedules or cancel flights, back fill aircraft with other aircraft types or keep older aircraft in service longer. These operational changes and the uncertainty of when the ~~Boeing~~ 737 MAX aircraft will return to service and when Boeing will resume deliveries have impacted the profitability of certain airlines.

As of March 31, 2020, we owned and leased 15 737 MAX aircraft and we have 126 737 MAX aircraft on order. Lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur. Because of this uncertainty, we have curtailed our leasing of MAX aircraft in our orderbook aircraft since the grounding. With respect to the 15 737 MAX aircraft we own and lease, our airline customers are obligated to continue to make payments under the lease, irrespective of any difficulties in which the lessees may encounter, including an aircraft fleet grounding. Some of our airline customers for these 15 737 MAX aircraft lease payments are in arrears.

We expect that if the grounding continues for an extended time, or if there are significant ~~Boeing~~ 737 MAX delivery delays even after the grounding is lifted as a result of the impact of the COVID-19 pandemic, some of our customers may seek to cancel their lease contracts with us. We are in discussions with lessees who are considering cancelling a small number of 737 MAX leases with us. It is unclear at this point if we will cancel some of our ~~Boeing~~ 737 MAX delivery positions with Boeing or attempt to find replacement lessees. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with the ~~Boeing~~ 737 MAX aircraft that we own and have on order.

For several years, Airbus has also had delivery delays for certain of its aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. Those delays are continuing and have worsened. Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through ~~2021.~~2022. These delays also have impacted airline operations and the profitably of certain airlines.

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~~The~~Further as it relates to Airbus ~~delays and~~aircraft, in October 2019, the ~~Boeing 737 MAX grounding may impact airline growth, passenger growth and airline profitability.~~

~~The success~~Office of the ~~commercial airline industry is linked to the strength of global economic development, which may be negatively impacted by macroeconomic conditions and geopolitical and policy risks. For example, the~~U.S. Trade Representative announced a 10% tariff on new aircraft imported from Europe, including Airbus aircraft. The U.S. government has recently made statements and taken certain actions that have led to, and may lead to, further changes to U.S. and international trade policies, including recently imposed tariffs affecting certain products exported by a number of U.S. trading partners, such as Europe and China. In response, many U.S. trading partners, including Europe and China, have imposed or proposed new or higher tariffs on U.S. products. ~~In October 2019, the Office of the U.S. Trade Representative announced a 10% tariff on new aircraft imported from Europe, including Airbus aircraft.~~ We are currently monitoring the impact of this announcement on our future Airbus deliveries to U.S. customers. We cannot predict what further actions may ultimately be taken with respect

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to tariffs or trade relations between the U.S. and U.S. trading partners. Accordingly, it is difficult to predict exactly how, and to what extent, such actions may impact our business, or the business of our lessees or aircraft manufacturers. Any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for aircraft, increase the cost of aircraft components, further delay production, impact the competitive position of certain aircraft manufacturers or prevent aircraft manufacturers from being able to sell aircraft in certain countries. Our leases are primarily structured as triple net leases, whereby the lessee is responsible for all operating costs including taxes, insurance, and aircraft maintenance.

~~We believe~~Given the impact of COVID-19 on our industry, it is unclear at this time how competition within the aircraft leasing industry has remained resilient over time across a variety of global economic conditions, and we remain optimistic about the long-term growth prospects for air transportation. We see a growing demand for aircraft leasingwill evolve or change in the ~~broader industry~~coming months and what the corresponding impact on lease rates will be as a ~~role for us in helping airlines modernize their fleets to support the growth~~result of the ~~airline industry. However, with~~change in the ~~growth in~~competitive landscape, COVID-19, trade matters, the aircraft ~~leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.~~delays from Airbus and Boeing or other items.

Liquidity and Capital Resources

Overview

We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and debt financings. We have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis. We currently have an undrawn balance of $5.6 billion under our revolving credit facility, which does not condition our ability to borrow on the lack of a material adverse effect to us or the general economy. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. ~~In addition, we may,~~We also have the ability to ~~a limited extent, utilize~~seek debt financing secured by our assets, as well as financings supported through the Export-Import Bank of the United States and other export credit ~~financing or other forms of secured financing in support of our new~~agencies for future aircraft deliveries. Additionally, we only have approximately $319.4 million in debt maturities for the remainder of 2020, which serves to limit our near-term financing needs. Aircraft delivery delays as a product of the COVID-19 pandemic and the 737 MAX grounding are expected to further reduce our debt financing needs this year and potentially beyond. We continue to monitor COVID-19 and its impact on our overall liquidity position and outlook.

We ended the ~~third~~first quarter of ~~2019~~2020 with total debt outstanding, net of discounts and issuance costs, of ~~$13.8~~$14.4 billion compared to ~~$11.5~~$13.6 billion as of December 31, ~~2018.~~2019. Our unsecured debt increased to ~~$13.5~~$14.2 billion as of ~~September 30, 2019~~March 31, 2020 from ~~$11.3~~$13.3 billion as of December 31, ~~2018.~~2019. Our unsecured debt as a percentage of total debt increased to ~~96.9%~~97.6% as of ~~September 30, 2019~~March 31, 2020 from ~~96.5%~~96.6% as of December 31, ~~2018.~~2019.

~~We increased our~~Our cash flows provided by operating activities decreased by ~~11.7%~~10.4% or ~~$101.5~~$27.2 million, to ~~$971.6~~$234.0 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~$870.1~~$261.2 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in our cash flow provided by operating activities is due to ~~the~~an increase in ~~our net income and growth~~deferred lease payments during the quarter as a result of ~~our fleet.~~the COVID-19 pandemic. Our cash flow used in investing activities was ~~$3.6 billion~~$672.3 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, which resulted primarily from the purchase of aircraft, partially offset by proceeds from our sales and trading activity. Our cash flow provided by financing activities was ~~$2.6 billion~~$853.6 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, which resulted primarily from the issuance of unsecured notes ~~and the issuance of preferred stock during the first nine months of 2019,~~ partially offset by the repayment of outstanding debt. We expect the impact of COVID-19, including as a result of rent deferrals and other lease concessions made or that we may make in the future to our customers, will continue to have negative impact on cash flow from operating activities.

We ended the ~~third~~first quarter of ~~2019~~2020 with available liquidity of ~~$5.6~~$6.3 billion which is comprised of unrestricted cash of ~~$291.8~~$732.7 million and an ~~undrawn balance~~available borrowing capacity under our committed unsecured revolving credit facility of ~~$5.3~~$5.6 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next ~~twelve~~12 months. A key component of the ongoing liquidity available to us is our committed unsecured revolving credit facility, for which the substantial majority of the commitments mature in 2023. Our committed unsecured revolving credit facility is syndicated across 53 financial institutions from around various regions of the world, diversifying our reliance on any individual lending institution. We continue to utilize our committed unsecured revolving credit facility in the normal course of business.

The ultimate impact the COVID-19 pandemic may have on our business, results of operations and financial condition over the next 12 months is currently uncertain and will depend on certain developments, including, among

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~~Our financing plan for~~others, the impact of the COVID-19 pandemic on our airline customers and the magnitude and duration of the pandemic. We currently believe that our cash on hand, current debt arrangements and general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures, including aircraft acquisition over the next ~~twelve months is focused on funding~~12 months. We also have the purchase of aircraft, including the increased aircraft deliveries we expect in 2019, and our business with available cash balances, internally generated funds, including through aircraft sales and trading activities, and debt financings. Ourability to seek debt financing ~~plan continues to focus on raising unsecured debt in~~secured by our assets, as well as financings supported through the ~~global bank~~Export-Import Bank of the United States and ~~investment grade capital markets. In addition, we may utilize, to a limited extent,~~other export credit ~~financing in support of our new~~agencies, or ECAs for future aircraft deliveries.

~~We are~~As of March 31, 2020, we were in compliance in all material respects with the covenants contained in our debt agreements. ~~While a~~A ratings downgrade ~~would~~will not result in a default under any of our debt agreements, but it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the costs of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, and in ~~our~~this Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019.~~2020.

Debt

Our debt financing was comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands, except percentages):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Unsecured
Senior notes	$	12,050,000		$	10,043,445		$	12,834,333		$	12,357,811
Term financings		813,150			607,340			877,950			883,050
Revolving credit facilities		610,000			602,000
Revolving credit facility								515,000			20,000
Total unsecured debt financing		13,473,150			11,252,785			14,227,283			13,260,861
Secured
Term financings		392,593			371,203			322,320			428,824
Export credit financing		33,274			38,265			29,947			31,610
Total secured debt financing		425,867			409,468			352,267			460,434

Total debt financing		13,899,017			11,662,253			14,579,550			13,721,295
Less: Debt discounts and issuance costs		(147,145)			(123,348)			(164,929)			(142,429)
Debt financing, net of discounts and issuance costs	$	13,751,872		$	11,538,905		$	14,414,621		$	13,578,866
Selected interest rates and ratios:
Composite interest rate⁽¹⁾		3.37	%		3.46	%		3.16	%		3.34	%
Composite interest rate on fixed-rate debt⁽¹⁾		3.41	%		3.42	%		3.31	%		3.39	%
Percentage of total debt at fixed-rate		84.74	%		86.41	%		86.41	%		88.40	%

(1)	This rate does not include the effect of upfront fees, facility fees, undrawn fees or amortization of debt discounts and issuance costs.

Senior unsecured notes (including Medium-Term Note Program)

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$12.1~~$12.8 billion in senior unsecured notes outstanding. As of December 31, ~~2018,~~2019, we had ~~$10.0~~$12.4 billion in senior unsecured notes outstanding.

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we issued ~~$2.85~~$1.40 billion in aggregate principal amount of Medium-Term Notes comprised of (i) ~~$700.0~~$750.0 million due ~~2024~~2025 at a fixed rate of ~~4.25%,~~2.30% and (ii) ~~$750.0~~$650.0 million due ~~2026~~2030 at a fixed rate of 3.75%, (iii) $300.0 million due 2021 that bear interest at a floating rate of three-month LIBOR plus 0.67%, (iv) $600.0 million due 2023 at a fixed rate of 2.25% and (v) $500.0 million due 2029 at a fixed rate of 3.25%3.00%.

Unsecured revolving credit ~~facilities~~facility

We have an unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as agent. During the quarter ended March 31,2020, we increased the aggregate capacity of our unsecured revolving credit facility by $250.0 million to $6.1 billion. As of ~~September 30, 2019,~~March 31, 2020, the total outstanding balance on our unsecured revolving credit ~~facilities~~facility was approximately ~~$610.0~~$515.0 million. The total outstanding balance under our unsecured revolving credit ~~facilities~~facility was approximately ~~$602.0~~$20.0 million as of December 31, ~~2018.~~2019.

In May 2019, we amended and extended our committed unsecured revolving credit facility whereby, among other things, we extended the final maturity date from May 5, 2022 to May 5, 2023 and, after giving effect to commitments

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~~that matured on~~

On May 5, ~~2019, increased the total revolving~~2020, commitments ~~to approximately $5.8 billion, representing an increase~~totaling $92.7 million of ~~26.6% from December 31, 2018, with a 0.20% facility fee and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%. On July 31, 2019, we executed a commitment increase to~~ our committed unsecured revolving credit facility ~~which increased the aggregate facility capacity by an additional $58.0 million.~~matured. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on May 5, 2022 and commitments totaling ~~approximately~~ $5.0 million that mature on May 5, ~~2021, and~~2021. As of May 7, 2020, after giving effect to the commitments ~~totaling $92.7 million~~ that ~~mature~~matured on May 5, ~~2020.~~2020, the aggregate capacity of our committed unsecured revolving credit facility was approximately $6.0 billion.

As of ~~September 30, 2019,~~March 31, 2020, borrowings under ~~the~~our committed unsecured revolving credit facility will generally bear interest at either (a) LIBOR plus a margin of 1.05% per year or (b) an alternative base rate plus a margin of 0.05% per year, subject, in each case, to increases or decreases based on declines in the credit ratings for our debt. We are required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines in the credit ratings for our debt) in respect of total commitments under ~~the committed~~our unsecured revolving credit facility. Borrowings under ~~the~~our committed unsecured revolving credit facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes.

Preferred equity

On March 5, 2019, we issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. We will pay dividends on the ~~preferred stock~~Series A Preferred Stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.

We may redeem shares of the Series A Preferred Stock at our option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. We may also redeem shares of the Series A Preferred Stock at our option under certain other limited conditions.

On May 8, 2019, our board of directors approved a quarterly cash dividend of $0.427083 per share on our outstanding Series A Preferred Stock, which was paid on June 15, 2019 to holders of record of our Series A Preferred Stock as of May 31, 2019.

~~On August 7, 2019,~~February 14, 2020, our board of directors also approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock, which was paid on ~~September~~March 15, ~~2019~~2020 to holders of record of our Series A Preferred Stock as of ~~August~~February 29, 2020.

Potential Impact of LIBOR Transition

As of March 31, ~~2019.~~2020, we had approximately $2.0 billion of floating rate debt outstanding that used LIBOR as the applicable reference rate to calculate the interest on such debt. Additionally, our Series A Preferred Stock will in the future accrue dividends at a floating rate determined by reference to LIBOR, if available. The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021. The U.S. Federal Reserve and the Bank of England have begun publishing a Secured Overnight Funding Rate and a reformed Sterling Overnight Index Average, respectively, which are currently intended to serve as alternative reference rates to LIBOR. At this time, however, it is not possible to predict the establishment of any market-accepted alternative reference rates or any other reforms to LIBOR and the effect of any such changes.

Furthermore, due to the uncertainty surrounding the discontinuation of LIBOR and the effects resulting therefrom, financial market participants have yet to establish standard fallback provisions governing the calculation of floating rate interest and dividends in the event LIBOR is unavailable. The lack of a market practice and inconsistency in fallback provisions is reflected across our floating rate debt and Series A Preferred Stock and the discontinuation of LIBOR could lead to unexpected outcomes that may vary between our various debt and equity securities that reference LIBOR to determine the rate in which interest or dividends, as applicable, accrue. For example, if LIBOR is discontinued, the various fallback provisions contained in our floating rate debt agreements could lead to such debt bearing interest at, among other things, a rate of interest equal to the interest rate last in effect for which LIBOR was determinable, a floating rate determined in reference to a predetermined fallback reference rate or an alternative reference rate to be

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agreed upon by the parties to such agreement, and a rate of interest representative of the cost to applicable lenders of funding their participation in the debt.

If the rate used to calculate interest on our outstanding floating rate debt that currently uses LIBOR and our Series A Preferred Stock were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of an alternative reference rate determined under the fallback provisions in the applicable debt if LIBOR is discontinued, we would expect to incur additional interest expense on such indebtedness as of March 31, 2020 of approximately $19.8 million on an annualized basis. Further, if LIBOR is discontinued and there is no acceptable alternative reference rate, some of our floating rate debt, including certain senior unsecured notes issued under our Medium-Term Note Program, may effectively become fixed rate debt. As a result, the cost of this debt would increase to us if and as interest rates decreased.

While we do not expect the potential impact of any LIBOR transition to have a material effect on our financial results based on our currently outstanding debt, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR as the applicable reference rate and our Series A Preferred Stock. In addition, any alternative reference rates to LIBOR may result in interest or dividend payments that do not correlate over time with the payments that would have been made on our indebtedness or Series A Preferred Stock, respectively, if LIBOR was available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the cost of future indebtedness, which could have a material adverse effect on our financial condition, cash flow and results of operations. We intend to closely monitor the financial markets and the use of fallback provisions and alternative reference rates in 2020 in anticipation of the discontinuance or modification of LIBOR by the end of 2021.

Credit ratings

Our investment-grade corporate and long-term debt credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital. In July 2019, Fitch Ratings reaffirmed its issuer and senior unsecured debt ratings and outlook. The following table summarizes our current credit ratings:


Rating Agency	Long-term Debt	Corporate Rating	Outlook	Date of Last Ratings Action
Kroll Bond Ratings	A-	A-	~~Stable~~Negative	~~December 14, 2018~~March 26, 2020
Standard and Poor's	BBB	BBB	~~Stable~~Negative	~~December 18, 2018~~April 10, 2020
Fitch Ratings	BBB	BBB	~~Stable~~Negative	~~July 15, 2019~~March 23, 2020

While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.

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Results of Operations

The following table presents our historical operating results for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands, except per share amounts and percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(unaudited)												(unaudited)
Revenues
Rental of flight equipment	$	492,869		$	422,763		$	1,412,478		$	1,194,104		$	496,687		$	455,739
Aircraft sales, trading and other		38,033			27,935			55,870			35,617			14,700			10,312
Total revenues		530,902			450,698			1,468,348			1,229,721			511,387			466,051
Expenses
Interest		104,637			82,189			290,681			224,584			107,541			89,220
Amortization of debt discounts and issuance costs		9,078			8,199			26,330			24,231			10,528			8,540
Interest expense		113,715			90,388			317,011			248,815			118,069			97,760
Depreciation of flight equipment		183,788			149,703			514,948			428,437			188,895			159,471
Selling, general and administrative		34,715			26,377			92,188			71,194			28,322			29,702
Stock-based compensation		4,897			4,848			14,934			13,165			4,429			4,174
Total expenses		337,115			271,316			939,081			761,611			339,715			291,107
Income before taxes		193,787			179,382			529,267			468,110			171,672			174,944
Income tax expense		(38,000)			(32,808)			(107,081)			(95,674)			(34,521)			(36,850)
Net income	$	155,787		$	146,574		$	422,186		$	372,436		$	137,151		$	138,094
Preferred stock dividends		(3,844)			—			(8,115)			—			(3,844)			—
Net income available to common stockholders	$	151,943		$	146,574		$	414,071		$	372,436		$	133,307		$	138,094

Earnings per share of Class A and B common stock
Basic	$	1.36		$	1.41		$	3.71		$	3.58		$	1.17		$	1.24
Diluted	$	1.34		$	1.32		$	3.67		$	3.36		$	1.17		$	1.23

Other financial data
Pre-tax profit margin		36.5	%		39.8	%		36.0	%		38.1	%		33.6	%		37.5	%
Adjusted net income before income taxes⁽¹⁾	$	203,918		$	192,429		$	562,416		$	505,506		$	182,785		$	187,658
Adjusted pre-tax profit margin⁽¹⁾		38.4	%		42.7	%		38.3	%		41.1	%		35.7	%		40.3	%
Adjusted diluted earnings per share before income taxes⁽¹⁾	$	1.80		$	1.73		$	4.98		$	4.55		$	1.61		$	1.67
Pre-tax return on common equity (trailing twelve months)		14.3	%		15.6	%		14.3	%		15.6	%		13.8	%		14.7	%
Adjusted pre-tax return on common equity (trailing twelve months)⁽¹⁾		15.4	%		16.8	%		15.4	%		16.8	%		14.9	%		15.9	%

(1)

Adjusted net income before income taxes (defined as net income available to common stockholders excluding the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items), adjusted pre-tax profit margin (defined as adjusted net income before income taxes divided by total revenues), adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes ~~plus assumed conversions~~ divided by the weighted average diluted common shares outstanding) and adjusted pre-tax return on common equity (defined as adjusted net income before income taxes divided by average common shareholders’ equity) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income available to common stockholders, pre-tax profit margin, earnings per share, diluted earnings per share and pre-tax return on common equity, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.

Management and our board of directors use adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity to assess our consolidated financial and operating performance. Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results. Adjusted net income before income taxes, adjusted

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~~Adjusted net income before income taxes, adjusted~~ pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity do not reflect our cash expenditures or changes in our cash requirements for our working capital needs. In addition, our calculation of adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity may differ from the adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.

The following tables show the reconciliation of net income available to common stockholders to adjusted net income before income taxes and adjusted pre-tax profit margin (in thousands, except percentages):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
	(unaudited)												(unaudited)
Reconciliation of net income available to common stockholders to adjusted net income before income taxes and adjusted pre-tax profit margin:
Net income available to common stockholders	$	151,943		$	146,574		$	414,071		$	372,436		$	133,307		$	138,094
Amortization of debt discounts and issuance costs		9,078			8,199			26,330			24,231			10,528			8,540
Stock-based compensation		4,897			4,848			14,934			13,165			4,429			4,174
Provision for income taxes		38,000			32,808			107,081			95,674			34,521			36,850
Adjusted net income before income taxes	$	203,918		$	192,429		$	562,416		$	505,506		$	182,785		$	187,658

Total revenues	$	530,902		$	450,698		$	1,468,348		$	1,229,721		$	511,387		$	466,051
Adjusted pre-tax profit margin⁽¹⁾		38.4	%		42.7	%		38.3	%		41.1	%		35.7	%		40.3	%

(1)	Adjusted pre-tax profit margin is adjusted net income before income taxes divided by total revenues

The following table shows the reconciliation of net income available to common stockholders to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
	(unaudited)								(unaudited)
Reconciliation of net income available to common stockholders to adjusted diluted earnings per share before income taxes:
Net income available to common stockholders	$	151,943	$	146,574	$	414,071	$	372,436	$	133,307	$	138,094
Amortization of debt discounts and issuance costs		9,078		8,199		26,330		24,231		10,528		8,540
Stock-based compensation		4,897		4,848		14,934		13,165		4,429		4,174
Provision for income taxes		38,000		32,808		107,081		95,674		34,521		36,850
Adjusted net income before income taxes	$	203,918	$	192,429	$	562,416	$	505,506	$	182,785	$	187,658
Assumed conversion of convertible senior notes		—		1,823		—		5,309
Adjusted net income before income taxes plus assumed conversions	$	203,918	$	194,252	$	562,416	$	510,815
Weighted-average diluted common shares outstanding		113,263,396		112,509,612		112,837,526		112,377,870		113,785,028		112,380,856
Adjusted diluted earnings per share before income taxes	$	1.80	$	1.73	$	4.98	$	4.55	$	1.61	$	1.67

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The following table shows the reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity (in thousands, except percentages):


	Trailing Twelve Months
	September 30,						Trailing Twelve Months March 31,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
Reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity:
Net income available to common stockholders	$	552,470		$	843,538		$	570,376		$	538,278
Amortization of debt discounts and issuance costs		34,805			31,297			38,679			33,224
Stock-based compensation		19,247			18,534			21,000			18,220
Provision for income taxes		140,710			(209,764)			146,235			135,485
Adjusted net income before income taxes	$	747,232		$	683,605		$	776,290		$	725,207

Common shareholders' equity as of beginning of the period	$	4,478,918		$	3,655,583
Common shareholders' equity as of end of the period	$	5,212,173		$	4,478,918
Common shareholders’ equity as of beginning of the period							$	4,923,817		$	4,226,623
Common shareholders’ equity as of end of the period								5,486,369			4,923,817
Average common shareholders' equity	$	4,845,546		$	4,067,251		$	5,205,093		$	4,575,220

Adjusted pre-tax return on common equity		15.4	%		16.8	%		14.9	%		15.9	%

Three months ended ~~September 30, 2019,~~March 31, 2020, compared to the three months ended ~~September 30, 2018~~March 31, 2019

Rental revenue

As of ~~September 30, 2019,~~March 31, 2020, we owned ~~307~~300 aircraft with a net book value of ~~$18.9~~$19.2 billion and recorded ~~$492.9~~$496.7 million in rental revenue for the quarter then ended, which included ~~$4.6~~$5.5 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of ~~September 30, 2018,~~March 31, 2019, we owned ~~268~~280 aircraft with a net book value of ~~$15.1~~$16.3 billion and recorded ~~$422.8~~$455.7 million in rental revenue for the quarter ended ~~September 30, 2018,~~March 31, 2019, which included overhaul revenue, net of amortization expense related to initial direct costs, of ~~$0.3~~$18.0 million. ~~The~~This increase ~~in rental revenue~~ was ~~primarily due to~~principally driven by the ~~increase in net book value~~continued growth of our ~~operating~~fleet, partially offset by a reduction in end of lease ~~portfolio~~revenue recognized in the period as compared to ~~$18.9 billion as~~prior year. In the prior period, we recognized $20.2 million of ~~September 30, 2019 from $15.1 billion as~~end of ~~September 30, 2018.~~lease revenue in connection with an airline bankruptcy whereas we did not recognize end of lease revenue in the current period.

Aircraft sales, trading and other revenue

Aircraft sales, trading and other revenue totaled ~~$38.0~~$14.7 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$27.9~~$10.3 million for the three months ended ~~September 30, 2018.~~March 31, 2019. During the quarter ended ~~September 30, 2019,~~March 31, 2020, we recorded ~~$17.3~~$1.6 million in gains from the sale of ~~five~~three aircraft from our ~~operating lease portfolio.~~held for sale portfolio and $5.9 million in other revenue from the forfeiture of security deposits. During the quarter ended ~~September 30, 2018,~~March 31, 2019, we recorded ~~$24.1~~$3.6 million in gains from the sale of 10six aircraft from our operating lease ~~portfolio~~portfolio. As noted above, we expect the COVID-19 pandemic to ~~Thunderbolt II. The increase~~have an adverse impact on demand for used aircraft and that we will sell fewer used aircraft in ~~aircraft sales, trading~~2020 and ~~other revenue was primarily due~~potentially 2021 than we initially planned to ~~an increase in forfeitures of security deposits and servicing fee revenue from our managed fleet.~~sell.

Interest expense

Interest expense totaled ~~$113.7~~$118.1 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$90.4~~$97.8 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase was primarily due to an increase in our aggregate debt balance partially offset by a decrease in our composite interest rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.

Depreciation expense

We recorded ~~$183.8~~$188.9 million in depreciation expense of flight equipment for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$149.7~~$159.5 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase in depreciation expense for the ~~three months ended September 30, 2019, compared to the three months ended September 30, 2018, is primarily attributable to the acquisition of additional aircraft during the last twelve months.~~

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three months ended March 31, 2020, compared to the three months ended March 31, 2019, is primarily attributable to the acquisition of additional aircraft in our operating fleet during the last twelve months.

Selling, general and administrative expenses

We recorded selling, general and administrative expenses of ~~$34.7~~$28.3 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$26.4~~$29.7 million for the three months ended ~~September 30, 2018.~~March 31, 2019. Selling, general and administrative expense as a percentage of total revenue ~~increased~~decreased to ~~6.5%~~5.5% for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~5.9%~~6.4% for the three months ended ~~September 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period.~~March 31, 2019. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.

Taxes

The effective tax rate was ~~19.6%~~20.1% and ~~18.3%~~21.1% for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Changes in the tax rate were primarily driven by variances in permanent items.

Net income available to common stockholders

For the three months ended ~~September 30, 2019,~~March 31, 2020, we reported consolidated net income available to common stockholders of ~~$151.9~~$133.3 million, or ~~$1.34~~$1.17 per diluted share, compared to a consolidated net income available to common stockholders of ~~$146.6~~$138.1 million, or ~~$1.32~~$1.23 per diluted share, for the three months ended ~~September 30, 2018.~~March 31, 2019. Net income available to common stockholders ~~increased~~decreased in the ~~third~~first quarter of ~~2019~~2020 as compared to ~~2018, primarily due to~~2019, principally driven by a reduction in end of lease revenue, partially offset by the continued growth of our ~~fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~fleet.

Adjusted net income before income taxes

For the three months ended ~~September 30, 2019,~~March 31, 2020, we recorded adjusted net income before income taxes of ~~$203.9~~$182.8 million, or ~~$1.80~~$1.61 per diluted share, compared to an adjusted net income before income taxes of ~~$192.4~~$187.7 million, or ~~$1.73~~$1.67 per diluted share, for the three months ended ~~September 30, 2018.~~March 31, 2019. Our adjusted net income before income taxes ~~increased primarily due to~~decreased principally driven by a reduction in end of lease revenue, partially offset by the continued growth of our ~~fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~fleet.

Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.

~~Nine months ended September 30, 2019, compared to the nine months ended September 30, 2018~~

~~Rental revenue~~

As of September 30, 2019, we owned 307 aircraft with a net book value of $18.9 billion and recorded $1.4 billion in rental revenue for the nine months then ended, which included overhaul revenue, net of amortization expense related to initial direct costs, of $11.3 million. In the prior year, as of September 30, 2018, we owned 268 aircraft with a net book value of $15.1 billion and recorded $1.2 billion in rental revenue for the nine months ended September 30, 2018, which included $2.4 million in amortization expense related to initial direct costs, which is net of overhaul revenue. The increase in rental revenue was primarily due to the increase in net book value of our operating lease portfolio to $18.9 billion as of September 30, 2019 from $15.1 billion as of September 30, 2018.

~~Aircraft sales, trading and other revenue~~

Aircraft sales, trading and other revenue totaled $55.9 million for the nine months ended September 30, 2019 compared to $35.6 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we recorded $18.9 million in gains from the sale of 11 aircraft from our operating lease portfolio. During the nine months ended September 30, 2018, we recorded $24.1 million in gains from the sale of 10 aircraft from our operating lease portfolio to Thunderbolt II. The increase in aircraft sales, trading and other revenue was primarily due to an increase in forfeitures of security deposits and servicing fee revenue from our managed fleet.

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~~Interest expense~~

Interest expense totaled $317.0 million for the nine months ended September 30, 2019 compared to $248.8 million for the nine months ended September 30, 2018. The increase was primarily due to an increase in our aggregate debt balance partially offset by a decrease in our composite rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.

~~Depreciation expense~~

We recorded $514.9 million in depreciation expense of flight equipment for the nine months ended September 30, 2019 compared to $428.4 million for the nine months ended September 30, 2018. The increase in depreciation expense for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is primarily attributable to the acquisition of additional aircraft during the last twelve months.

~~Selling, general and administrative expenses~~

We recorded selling, general and administrative expenses of $92.2 million for the nine months ended September 30, 2019 compared to $71.2 million for the nine months ended September 30, 2018. Selling, general and administrative expense as a percentage of total revenue increased to 6.3% for the nine months ended September 30, 2019 compared to 5.8% for the nine months ended September 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.

~~Taxes~~

~~The effective tax rate was 20.2% and 20.4% for the nine months ended September 30, 2019 and 2018, respectively. Changes in the tax rate were primarily driven by variances in permanent items.~~

~~Net income available to common stockholders~~

For the nine months ended September 30, 2019, we reported consolidated net income available to common stockholders of $414.1 million, or $3.67 per diluted share, compared to a consolidated net income available to common stockholders of $372.4 million, or $3.36 per diluted share, for the nine months ended September 30, 2018. Net income available to common stockholders increased in the third quarter of 2019 as compared to 2018, primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.

~~Adjusted net income before income taxes~~

For the nine months ended September 30, 2019, we recorded adjusted net income before income taxes of $562.4 million, or $4.98 per diluted share, compared to an adjusted net income before income taxes of $505.5 million, or $4.55 per diluted share, for the nine months ended September 30, 2018. Our adjusted net income before income taxes increased primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.

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Contractual Obligations

Our contractual obligations as of ~~September 30, 2019,~~March 31, 2020, are as follows (in thousands):


	2019		2020		2021		2022		2023		Thereafter		Total		2020		2021		2022		2023		2024		Thereafter		Total
Long-term debt obligations	$	31,189	$	1,456,585	$	1,993,870	$	2,696,599	$	2,966,461	$	4,754,313	$	13,899,017	$	319,372	$	2,049,294	$	2,751,269	$	2,988,154	$	1,534,552	$	4,936,909	$	14,579,550
Interest payments on debt outstanding⁽¹⁾		84,716		453,489		400,871		338,513		247,512		494,986		2,020,087		327,433		433,416		373,547		290,823		210,269		446,761		2,082,249
Purchase commitments⁽²⁾		771,134		6,419,215		6,647,270		4,750,559		3,678,420		225,142		22,491,740		2,206,538		4,900,832		6,519,111		6,171,228		4,456,237		2,542,133		26,796,079
Operating leases		1,472		6,879		7,050		6,506		6,386		37,582		65,875		5,188		7,059		6,506		6,387		4,545		33,045		62,730
Total	$	888,511	$	8,336,168	$	9,049,061	$	7,792,177	$	6,898,779	$	5,512,023	$	38,476,719	$	2,858,531	$	7,390,601	$	9,650,433	$	9,456,592	$	6,205,603	$	7,958,848	$	43,520,608

(1)Future interest payments on floating rate debt are estimated using floating rates in effect at ~~September 30, 2019.~~March 31, 2020.

(2)Purchase commitments reflect our estimate of future Boeing and Airbus aircraft deliveries based on information currently available to us. The actual delivery dates of such aircraft and expected time for payment of such aircraft may differ from our estimates and could be further impacted by ongoing COVID-19 pandemic and the length of the grounding and the pace at which Boeing can deliver aircraft following the lifting of the 737 MAX grounding, among other factors. Purchase commitments include only the costs of aircraft in our committed order book and do not include costs of aircraft that we have the option to purchase or have the right to purchase through memorandums of understanding or letters of ~~intent~~intent.

The above table does not include any dividends we may pay on our Series A Preferred Stock or common stock.

Off-Balance Sheet Arrangements

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated.

We have ~~investments~~non-controlling interests in two ~~joint ventures~~investment funds in which we own 9.5% of the equity of each ~~joint venture.~~fund. We account for our ~~investment~~interest in these ~~joint ventures using~~funds under the equity method of accounting due to our level of influence and involvement in the ~~joint ventures. We also~~funds. Also, we manage aircraft that we have asold through our Thunderbolt platform. In connection with the sale of these aircraft portfolios through our Thunderbolt platform, we hold non-controlling ~~interest~~interests of approximately 5.0% in ~~Thunderbolt Aircraft Lease Limited II of 5.1% and it is~~two entities. These investments are accounted for ~~as an investment~~ under the cost method of accounting.

Critical Accounting Policies

Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our Consolidated Financial Statements. Accordingly, there have been no material changes to critical accounting policies in the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.

Interest Rate Risk

The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a

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significant portion of our aircraft acquisitions. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$2.1~~$2.0 billion and $1.6 billion in floating-rate debt outstanding, respectively. If interest rates increase, we would be obligated to make higher interest payments to our lenders. If we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense. If our composite interest rate were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately ~~$21.2~~$19.8 million and $15.9 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~

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2019, respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of ~~September 30, 2019, 84.7%~~March 31, 2020, 86.4% of our total debt incurred interest at a fixed rate.

We also have interest rate risk on our forward lease placements. This is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft. The delivery date is when a majority of the financing for an aircraft is arranged. We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if certain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.

Foreign Exchange Rate Risk

We attempt to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars. Approximately ~~0.6%~~1.0% and 0.7% of our lease revenues were denominated in foreign currency as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. As our principal currency is the U.S. dollar, fluctuations in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.

In December 2019, we issued C$400.0 million in aggregate principal amount of 2.625% notes due 2024. We effectively hedged our foreign currency exposure on this transaction through a cross-currency swap that converts the borrowing rate to a fixed 2.535% U.S. dollar denominated rate. See Note 8 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the fair value of the swap.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as the Company’s controls are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.

We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of ~~September 30, 2019.~~March 31, 2020. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at ~~September 30, 2019.~~March 31, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any enforcement proceedings or litigation related to regulatory compliance matters or material legal proceedings. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

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ITEM 1A. RISK FACTORS

~~There~~Other than stated below, there have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019.

The coronavirus (COVID-19) pandemic and ~~“Part II—Item 1A. Risk Factors,”~~related efforts to mitigate the pandemic have impacted our business, and the extent to which the COVID-19 pandemic and measures taken to contain its spread ultimately impact our business will depend on future developments, which are highly uncertain and are difficult to predict.

The global pandemic resulting from the coronavirus (“COVID-19”) pandemic has disrupted some of our operations and the operations of our lessees beginning in the first quarter of 2020. The COVID-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closures, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses). These measures may remain in place for a significant amount of time. These measures, coupled with a decrease in consumer spending on travel as a result of the COVID-19 pandemic, have materially impacted airline traffic and operations throughout the world as well as our operations and the operations of our lessees and aircraft manufacturers and suppliers, including causing the temporary closure of Boeing and Airbus’ final assembly facilities. As the virus has spread in the last few months, the relatively limited impacts we saw in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid deterioration of global air travel. As a result of the spread of the COVID-19 pandemic, we may experience financial losses due to a number of operational factors, including but not limited to:

●

lease deferments, lease abatements and aircraft return requests from our lessees;

●

impairment or delay in our ability to remarket aircraft or otherwise re-lease aircraft on a timely basis at favorable rates;

●

default, bankruptcy or reorganization of our lessees;

●

default, bankruptcy or reorganization of airlines generally, which would place pressure on aircraft values and lease rates generally;

●

further delays in delivery of aircraft in our orderbook from Boeing and Airbus, including due to delays or bankruptcies of Boeing and Airbus suppliers;

●

cancellations of, or a decline in, placements of aircraft in our orderbook for long-term leases;

●

increased costs of borrowing, including if our credit ratings are ultimately downgraded;

●

delays and other adverse impacts on our plans to grow the size of our operating fleet;

●

reduced sale proceeds received in aircraft sales due to weaker market demand; and

●

charges recognized by us or some of our lessees as a result of the measures implemented to contain the spread of COVID-19, including impairment of aircraft and engines and other long-lived assets.

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided. In addition, if a resurgence of the COVID-19 virus occurs after the initial outbreak subsides, these factors will be exacerbated.

As of May 7, 2020, most of our lessees have requested some form of rental relief. We evaluate such requests on a case-by-case basis and have worked out accommodation arrangements with approximately 46% of our lessees. We remain in active discussions with a number of our airline customers for accommodation arrangements, such as lease payment deferrals and other lease concessions. As of May 7, 2020, the Company has agreed to defer approximately $124.6 million in lease payments, which represents approximately 6% of our total revenue for fiscal year 2019. So far,

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such solutions have generally been in the form of partial lease deferrals for payments due in the first and second quarter of 2020, typically with a short-term repayment period, with the majority of the deferrals granted so far repaid by the end of this year. In many cases, lease extensions were also negotiated as part of the deferral accommodations. We remain in active discussions with our other airline customers and may continue to provide accommodation arrangements on a case-by-case basis. While a majority of our customers are flag carriers or have some form of governmental ownership, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 pandemic, some of our lessees may still experience insolvency or initiate bankruptcy or similar proceedings. If this occurs, we may not be able to reposition the aircraft with other lessors and it could result in a significant decrease in our ~~Quarterly~~revenue and cash position. In addition, as of March 31, 2020, we had commitments to purchase 399 aircraft from Airbus and Boeing for delivery through 2026, and we had placed approximately 84% of our committed order book on long-term leases for aircraft delivering through 2022.The impact of the COVID-19 pandemic on airlines could result in the cancellation of leases that we have in place for our committed orderbook or a decline in the number of aircraft in our order book that we can place into leases prior to their delivery.If we are not able to place aircraft from our orderbook into leases prior to delivery, it may cause a downward pressure on our lease rates or require us to sell aircraft in our fleet sooner than anticipated.

We also expect delivery delays for all aircraft deliveries in our orderbook, including 737 MAX delivery delays after the grounding of such aircraft is lifted. We are currently in discussions with Boeing and Airbus to determine the extent and duration of delivery delays. The delays could result in cancellation of leases for those aircraft.We are in discussions with lessees who are considering cancelling a small number of our 737 MAX leases with us.If our customers cancel leases for aircraft that have been delayed, we typically have a cancellation right with the aircraft manufacturer that parallels our lessee’s cancellation rights. Given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery days.

While we currently expect delays in delivery of new aircraft from our orderbook, we will be required to raise additional capital to finance these deliveries and our access to and cost of financing depends on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. As a result of COVID-19, in March and April of 2020, S&P, Fitch and Kroll each changed their outlook on our long-term issuer and senior unsecured debt ratings from “stable” to “negative.” Such change in outlook may ultimately lead to a downgrade in our credit rating.If our credit ratings are downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt financings will be available in the future to fund our orderbook deliveries, or that such financing will be available on terms consistent with our historical agreements or expectations. Although we have sufficient liquidity to satisfy the operating requirements of our business through the next 12 months, the availability of certain sources is contingent upon our ability to continue to satisfy covenants contained in our debt agreements.

We have also experienced delays and terminations of some planned aircraft sales as a result of business limitations and shutdowns resulting from the pandemic. We also expect that demand for used aircraft will decline in the near-term and that we will sell fewer used aircraft in 2020 and perhaps 2021 than we initially planned to sell.This decline in demand for used aircraft may also result in impairment charges to the aircraft in our fleet.

As this situation is ongoing and the duration and severity of the COVID-19 pandemic is uncertain at this time, it is difficult to forecast the eventual long-term impacts on our future operating results or financial condition. We expect the COVID-19 pandemic will negatively impact our financial results, including having a larger impact on our results of operations for the second quarter and remainder of this year than has been reflected in our first quarter results for 2020. Depending on the severity and longevity of the COVID-19 pandemic, the related efforts taken to reduce its spread, and the possibility of a resurgence of the COVID-19 pandemic, we could recognize a significant adverse impact to our liquidity position due to lease deferrals and other lease concessions and a significant reduction in aircraft sales. Our earnings could also be adversely impacted by decreased revenue from airlines if airlines are forced to cease operations, decreased market prices for aircraft sales and lower volumes of aircraft sales. The extent to which the coronavirus pandemic and measures taken to contain its spread ultimately impact our business will depend on future developments, which are highly uncertain and are difficult to predict.

The spread of COVID-19 has also caused us to modify our business practices, including transitioning all of our employees to work remotely, restricting employee travel, and cancelling physical participation events and conferences.

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We may take further actions as may be required by government authorities or as we determine are in the best interests of our employees.

The COVID-19 pandemic is emerging as one of the largest disruptions to the airline industry in decades. There are no comparable recent events that provide guidance as to the long-term effect the COVID-19 pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s global economic impact, including the availability of credit generally and our ability to obtain capital on favorable terms, adverse impacts on our liquidity, increases in our borrowing costs, decreases in consumer discretionary spending and any recession that has occurred or may occur in the future. Risks related to our ability to obtain capital on favorable terms and increased costs of borrowing are more fully described in our risk factors titled, “Our success depends in large part on our ability to obtain capital on favorable terms to finance our growth through the purchase of aircraft and to repay or refinance our outstanding debt obligations as they mature. If we are not able to obtain capital on terms acceptable to us, or at all, it would significantly impact our ability to compete effectively in the commercial aircraft leasing market and would negatively affect our financial condition, cash flow and results of operations ” and “An increase in our borrowing costs would negatively affect our financial condition, cash flow and results of operations” under “Risk Factors - Risks Relating to our Business” in our Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, 2019.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

3.1

Restated Certificate of Incorporation of Air Lease Corporation.

S-1

333-171734

3.1

January 14, 2011

3.2

Fourth Amended and Restated Bylaws of Air Lease Corporation.

8-K

001-35121

3.1

March 27, 2018

3.3

Certificate of Designations with respect to the 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, of Air Lease Corporation, dated March 4, 2019, filed with the Secretary of State of Delaware and effective on March 4, 2019.

8-A

001-35121

3.2

March 4, 2019

10.1

Commitment Increase Supplement, dated July 31, 2019, to the Second Amended and Restated Credit Agreement, among Air Lease Corporation, as Borrower, the several lenders from time to time parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

10-Q

001-35121

10.3

August 8, 2019

10.2†

Amendment No. 7 to A330-900 NEO Purchase Agreement, dated, August 8, 2019, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

31.1

Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

31.2

Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

32.1

Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Furnished herewith

32.2

Certification of the Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Furnished herewith

101.INS

XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date

3.1	Restated Certificate of Incorporation of Air Lease Corporation	S-1	333-171734	3.1	January 14, 2011

3.2	Fourth Amended and Restated Bylaws of Air Lease Corporation.	8-K	001-35121	3.1	March 27, 2018

3.3	Certificate of Designations with respect to the 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, of Air Lease Corporation, dated March 4, 2019, filed with the Secretary of State of Delaware and effective on March 4, 2019.	8-A	001-35121	3.2	March 4, 2019

4.1	Description of Capital Stock	10-K	001-35121	4.1	February 14, 2020

10.1	New Lender Supplement, dated March 5, 2020, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014, among Air Lease Corporation, as Borrower, the several lenders from time to time parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent				Filed herewith

10.2†	Supplemental Agreement No. 25 to Purchase Agreement No. PA-03791, dated February 28, 2020, by and between Air Lease Corporation and The Boeing Company				Filed herewith

10.3†	Supplemental Agreement No. 15 to Purchase Agreement No. PA-03659, dated February 28, 2020, by and between Air Lease Corporation and The Boeing Company				Filed herewith

10.4†	Amendment No. 13 to A350XWB Family Purchase Agreement, dated February 21, 2020, by and between Air Lease Corporation and Airbus S.A.S.				Filed herewith

10.5	Form of Indemnification Agreement with Company directors and Section 16 officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended), adopted February 13, 2020				Filed herewith

31.1	Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

31.2	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

32.1	Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				Furnished herewith

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		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	��	File No.	Exhibit	Filing Date

32.2	Certification of the Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					Furnished herewith

101.INS	XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

104	The cover page from Air Lease Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in Inline XBRL


†	†Portions of the referenced exhibit have been omitted pursuant to Item 601(b) of Regulation S-K because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

§	Management contract or compensatory plan or arrangement.

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SIGNATURES

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.

	AIR LEASE CORPORATION

~~November~~May 7, ~~2019~~2020	/s/ John L. Plueger
	John L. Plueger
	Chief Executive Officer and President
	(Principal Executive Officer)

~~November~~May 7, ~~2019~~2020	/s/ Gregory B. Willis
	Gregory B. Willis
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

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