Aircastle Announces Third Quarter 2018 Results

_______________

(1)

See Appendix for an explanation of the reclassification of the Gain on Sale of Flight Equipment.

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

(In thousands, except share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Lease rental and finance and sales-type lease revenues

$

190,836

$

178,099

$

565,115

$

567,734

Total revenues⁽¹⁾

$

190,829

$

213,053

$

597,785

$

655,144

Adjusted EBITDA⁽²⁾

$

179,233

$

199,535

$

563,001

$

617,031

Net income

$

36,332

$

57,431

$

144,082

$

92,754

   Per common share - Diluted

$

0.46

$

0.73

$

1.83

$

1.18

Adjusted net income⁽²⁾

$

38,225

$

64,387

$

147,354

$

112,526

   Per common share - Diluted

$

0.49

$

0.82

$

1.87

$

1.43

_______________

(1)

As part of the Company's adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and nine months ended September 30, 2017, have also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

Owned Aircraft

As of
September 30,

2018⁽¹⁾

As of

September 30,

2017⁽¹⁾

Net Book Value of Flight Equipment ($ mils.)

$

6,839

$

5,979

Net Book Value of Unencumbered Flight Equipment ($ mils.)

$

5,606

$

4,572

Number of Aircraft

234

192

Number of Unencumbered Aircraft

207

163

Weighted Average Fleet Age (years)⁽²⁾

9.6

8.7

Weighted Average Remaining Lease Term (years)⁽²⁾

4.5

4.7

Weighted Average Fleet Utilization for the quarter ended⁽³⁾

100.0

%

100.0

%

Portfolio Yield for the quarter ended⁽²⁾⁽⁴⁾

11.8

%

12.3

%

Net Cash Interest Margin⁽⁵⁾

8.6

%

8.8

%

Managed Aircraft on behalf of Joint Ventures

Net Book Value of Flight Equipment ($ mils.)

$

621

$

661

Number of Aircraft

12

13

_______________

(1)

Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.

(2)

Weighted by net book value.

(3)

Aircraft on-lease days as a percent of total days in period weighted by net book value.

(4)

Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.  Based on the growing level of finance and sales-type lease revenue management revised the calculation of portfolio yield to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type leases in lease rentals.

(5)

Net Cash Interest Margin = Lease rental yield plus finance lease revenue and collections minus interest on borrowings, net of settlements on interest rate derivatives, and other liabilities  / average NBV of flight equipment for the period calculated on a quarterly basis, annualized.

Contact:

Aircastle Advisor LLC

The IGB Group

Frank Constantinople, SVP Investor Relations

Leon Berman

Tel: +1-203-504-1063

Tel: +1-212-477-8438

fconstantinople@aircastle.com

lberman@igbir.com

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

September 30,
 2018

December 31,
 2017

(Unaudited)

ASSETS

Cash and cash equivalents

$

593,922

$

211,922

Restricted cash and cash equivalents

16,275

21,935

Accounts receivable

27,365

12,815

Flight equipment held for lease, net of accumulated depreciation of $1,212,799 and
$1,125,594, respectively

6,321,622

6,188,469

Net investment in finance and sales-type leases

517,221

545,750

Unconsolidated equity method investments

82,146

76,982

Other assets

172,718

141,210

Total assets

$

7,731,269

$

7,199,083

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Borrowings from secured financings, net of debt issuance costs and discounts

$

717,305

$

849,874

Borrowings from unsecured financings, net of debt issuance costs and discounts

3,938,568

3,463,732

Accounts payable, accrued expenses and other liabilities

149,583

140,221

Lease rentals received in advance

81,594

57,630

Security deposits

131,000

130,628

Maintenance payments

754,522

649,434

Total liabilities

5,772,572

5,291,519

Commitments and Contingencies

SHAREHOLDERS' EQUITY

Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued
and outstanding

—

—

Common shares, $0.01 par value, 250,000,000 shares authorized, 77,179,863
shares issued and outstanding at September 30, 2018; and 78,707,963 shares issued
and outstanding at December 31, 2017

772

787

Additional paid-in capital

1,500,030

1,527,796

Retained earnings

458,362

380,331

Accumulated other comprehensive loss

(467)

(1,350)

Total shareholders' equity

1,958,697

1,907,564

Total liabilities and shareholders' equity

$

7,731,269

$

7,199,083

Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Revenues:

Lease rental revenue

$

182,043

$

171,687

$

538,012

$

551,371

Finance and sales-type lease revenue

8,793

6,412

27,103

16,363

Amortization of lease premiums, discounts and incentives

(4,044)

(2,388)

(10,706)

(8,780)

Maintenance revenue

—

14,507

11,991

55,738

Total lease revenue

186,792

190,218

566,400

614,692

Gain on sale of flight equipment⁽¹⁾

2,954

21,642

28,586

35,926

Other revenue

1,083

1,193

2,799

4,526

Total revenues⁽¹⁾

190,829

213,053

597,785

655,144

Operating expenses:

Depreciation

78,059

70,018

229,242

227,446

Interest, net

57,131

60,636

171,637

185,376

Selling, general and administrative (including non-cash share-based
payment expense of $2,798 and $2,506 for the three months ended and
$8,252 and $10,636 for the nine months ended September 30, 2018 and
2017, respectively)

18,306

17,137

54,724

55,491

Impairment of flight equipment

—

—

—

80,430

Maintenance and other costs

2,179

2,572

4,728

7,846

Total operating expenses

155,675

150,363

460,331

556,589

Total other income (expense)

368

(360)

4,443

(3,069)

Income from continuing operations before income taxes and earnings of
unconsolidated equity method investments

35,522

62,330

141,897

95,486

Income tax provision

1,236

6,195

3,524

8,536

Earnings of unconsolidated equity method investments, net of tax

2,046

1,296

5,709

5,804

Net income

$

36,332

$

57,431

$

144,082

$

92,754

Earnings per common share — Basic:

Net income per share

$

0.47

$

0.73

$

1.84

$

1.18

Earnings per common share — Diluted:

Net income per share

$

0.46

$

0.73

$

1.83

$

1.18

Dividends declared per share

$

0.28

$

0.26

$

0.84

$

0.78

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and nine months ended September 30, 2017, has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Nine Months Ended
September 30,

2018

2017

Cash flows from operating activities:

Net income

$

144,082

$

92,754

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

229,242

227,446

Amortization of deferred financing costs

10,802

15,860

Amortization of lease premiums, discounts and incentives

10,706

8,780

Deferred income taxes

3,850

(1,369)

Non-cash share-based payment expense

8,252

10,636

Cash flow hedges reclassified into earnings

883

1,725

Security deposits and maintenance payments included in earnings

821

(17,147)

Gain on sale of flight equipment

(28,586)

(35,926)

Impairment of flight equipment

—

80,430

Other

(11,377)

2,078

Changes in certain assets and liabilities:

Accounts receivable

(9,731)

415

Other assets

1,541

(6,980)

Accounts payable, accrued expenses and other liabilities

6,476

17,648

Lease rentals received in advance

26,336

(2,892)

Net cash and restricted cash provided by operating activities

393,297

393,458

Cash flows from investing activities:

Acquisition and improvement of flight equipment

(626,022)

(353,492)

Proceeds from sale of flight equipment

276,165

764,984

Net investment in finance and sales-type leases

(15,783)

(246,871)

Collections on finance and sales-type leases

22,645

23,673

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits

(9,544)

(14,068)

Other

3,880

(405)

Net cash and restricted cash used in investing activities

(348,659)

173,821

Cash flows from financing activities:

Repurchase of shares

(36,955)

(4,862)

Proceeds from secured and unsecured debt financings

873,902

500,000

Repayments of secured and unsecured debt financings

(535,808)

(852,451)

Deferred financing costs

(6,628)

(8,540)

Security deposits and maintenance payments received

155,567

138,813

Security deposits and maintenance payments returned

(52,513)

(104,475)

Dividends paid

(65,863)

(61,396)

Net cash and restricted cash used in financing activities

331,702

(392,911)

Net increase in cash and restricted cash

376,340

174,368

Cash and restricted cash at beginning of period

233,857

508,817

Cash and restricted cash at end of period

$

610,197

$

683,185

Reconciliation to Consolidated Balance Sheets:

Cash and cash equivalents

$

593,922

$

662,649

Restricted cash and cash equivalents

16,275

20,536

Unrestricted and restricted cash and cash equivalents

$

610,197

$

683,185

Aircastle Limited and Subsidiaries

Selected Financial Guidance Elements for the Fourth Quarter of 2018

($ in millions, except for percentages)

(Unaudited)

Guidance Item

Q4:18

Lease rental revenue

$187 - $191

Finance lease revenue

$8 - $9

Amortization of net lease discounts and lease incentives

$(4) - $(5)

Maintenance revenue

$14 - $18

Gain on sale

$5 - $8

Depreciation

$79 - $83

Interest, net

$62 - $64

SG&A⁽¹⁾

$17 - $18

Full year effective tax rate

4% - 6%

(1)

Includes ~$3.0M of non-cash share-based payment expense.

Aircastle Limited and Subsidiaries

Supplemental Financial Information

(Amount in thousands, except per share amounts)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Revenues⁽¹⁾

$

190,829

$

213,053

$

597,785

$

655,144

EBITDA⁽²⁾

$

176,802

$

196,668

$

559,191

$

522,892

Adjusted EBITDA⁽²⁾

$

179,233

$

199,535

$

563,001

$

617,031

Net income

$

36,332

$

57,431

$

144,082

$

92,754

Net income allocable to common shares

$

36,105

$

57,016

$

143,213

$

92,083

Per common share - Basic

$

0.47

$

0.73

$

1.84

$

1.18

Per common share - Diluted

$

0.46

$

0.73

$

1.83

$

1.18

Adjusted net income⁽²⁾

$

38,225

$

64,387

$

147,354

$

112,526

Adjusted net income allocable to common shares

$

37,986

$

63,922

$

146,465

$

111,712

Per common share - Basic

$

0.49

$

0.82

$

1.88

$

1.43

Per common share - Diluted

$

0.49

$

0.82

$

1.87

$

1.43

Basic common shares outstanding

77,600

78,237

77,956

78,197

Diluted common shares outstanding⁽³⁾

77,895

78,375

78,243

78,366

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statements of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and nine months ended September 30, 2017, have also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

(2)

Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.

(3)

For all periods presented, dilutive shares represented contingently issuable shares.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Net income

$

36,332

$

57,431

$

144,082

$

92,754

Depreciation

78,059

70,018

229,242

227,446

Amortization of lease premiums, discounts and incentives

4,044

2,388

10,706

8,780

Interest, net

57,131

60,636

171,637

185,376

Income tax provision

1,236

6,195

3,524

8,536

EBITDA

176,802

196,668

559,191

522,892

Adjustments:

Impairment of flight equipment

—

—

—

80,430

Non-cash share-based payment expense

2,798

2,506

8,252

10,636

(Gain) loss on mark-to-market of interest rate derivative contracts

(367)

361

(4,442)

3,073

Adjusted EBITDA

$

179,233

$

199,535

$

563,001

$

617,031

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

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

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

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

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Adjusted Net Income Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Net income

$

36,332

$

57,431

$

144,082

$

92,754

Loan termination (gain) fee⁽¹⁾

(838)

1,070

(838)

2,058

(Gain) loss on mark-to-market of interest rate derivative contracts⁽²⁾

(367)

361

(4,442)

3,073

Write-off of deferred financing fees⁽¹⁾

300

3,019

300

4,005

Non-cash share-based payment expense⁽³⁾

2,798

2,506

8,252

10,636

Adjusted net income

$

38,225

$

64,387

$

147,354

$

112,526

_______________

  (1)   Included in Interest, net.

  (2)   Included in Other income (expense).

  (3)   Included in Selling, general and administrative expenses.

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

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Cash Return on Equity Calculation

(Dollars in thousands)

(Unaudited)

Period

CFFO

Finance

Lease

Collections

Gain on
Sale of
Flt. Eqt.

Deprec.

Distributions

in excess

(less than)

Equity
Earnings

Cash
Earnings

Average

Shareholders

Equity

Trailing
Twelve
Month
Cash
ROE

2012

$

427,277

$

3,852

$

5,747

$

269,920

$

—

$

166,956

$

1,425,658

11.7

%

2013

$

424,037

$

9,508

$

37,220

$

284,924

$

—

$

185,841

$

1,513,156

12.3

%

2014

$

458,786

$

10,312

$

23,146

$

299,365

$

667

$

193,546

$

1,661,228

11.7

%

2015

$

526,285

$

9,559

$

58,017

$

318,783

$

(530)

$

274,548

$

1,759,871

15.6

%

2016

$

468,092

$

19,413

$

39,126

$

305,216

$

(1,782)

$

219,633

$

1,789,256

12.3

%

2017

$

490,871

$

32,184

$

55,167

$

298,664

$

(1,011)

$

278,547

$

1,861,005

15.0

%

LTM Q3:18

$

489,710

$

31,156

$

47,827

$

300,460

$

(4,815)

$

263,418

$

1,927,819

13.7

%

Note: LTM Average Shareholders' Equity is the average of the most recent five quarters period end Shareholders' Equity.  Management believes that the cash return on equity metric ("Cash ROE") when viewed in conjunction  with the Company's results under U.S. GAAP and the above reconciliation, provide useful information about operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting impacts related to non-cash revenue and expense items and interest rate derivative accounting, while recognizing the depreciating nature of our assets.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Net Cash Interest Margin Calculation

(Dollars in thousands)

(Unaudited)

     Period      

Average NBV

Quarterly Rental
Revenue⁽¹⁾

Cash Interest⁽²⁾

Annualized Net Cash

Interest Margin⁽¹⁾⁽²⁾

Q1:12

$

4,388,008

$

152,242

$

44,969

9.8

%

Q2:12

$

4,542,477

$

156,057

$

48,798

9.4

%

Q3:12

$

4,697,802

$

163,630

$

41,373

10.4

%

Q4:12

$

4,726,457

$

163,820

$

43,461

10.2

%

Q1:13

$

4,740,161

$

162,319

$

48,591

9.6

%

Q2:13

$

4,840,396

$

164,239

$

44,915

9.9

%

Q3:13

$

4,863,444

$

167,876

$

47,682

9.9

%

Q4:13

$

5,118,601

$

176,168

$

49,080

9.9

%

Q1:14

$

5,312,651

$

181,095

$

51,685

9.7

%

Q2:14

$

5,721,521

$

190,574

$

48,172

10.0

%

Q3:14

$

5,483,958

$

182,227

$

44,820

10.0

%

Q4:14

$

5,468,637

$

181,977

$

44,459

10.1

%

Q1:15

$

5,743,035

$

181,027

$

50,235

9.1

%

Q2:15

$

5,967,898

$

189,238

$

51,413

9.2

%

Q3:15

$

6,048,330

$

191,878

$

51,428

9.3

%

Q4:15

$

5,962,874

$

188,491

$

51,250

9.2

%

Q1:16

$

5,988,076

$

186,730

$

51,815

9.0

%

Q2:16

$

5,920,030

$

184,469

$

55,779

8.7

%

Q3:16

$

6,265,175

$

193,909

$

57,589

8.7

%

Q4:16

$

6,346,361

$

196,714

$

58,631

8.7

%

Q1:17

$

6,505,355

$

200,273

$

58,839

8.7

%

Q2:17

$

6,512,100

$

199,522

$

55,871

8.8

%

Q3:17

$

5,985,908

$

184,588

$

53,457

8.8

%

Q4:17

$

6,247,581

$

187,794

$

53,035

8.6

%

Q1:18

$

6,700,223

$

193,418

$

53,978

8.3

%

Q2:18

$

6,721,360

$

193,988

$

53,979

8.3

%

Q3:18

$

6,787,206

$

200,354

$

54,521

8.6

%

_______________

(1)

Management's Use of Net Cash Interest Margin: Beginning with the earnings release for the three months ended September 30, 2016, based on the growing level of finance and sales-type lease revenue, management revised the calculation of net cash interest margin to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type lease in lease rentals.  The calculation of net cash interest margin for all prior periods presented is revised to be comparable with the current period presentation.

(2)

Excludes loan termination payments of $3.0 million in the second quarter of 2013, $1.5 million and $3.5 million in the first quarter and fourth quarter of 2016, respectively, and loan termination payments of $1.0 million in both the second and third quarters of 2017, and a loan termination gain of $0.8 million in the third quarter of 2018.

We define net cash interest margin as lease rentals from operating leases, interest income and cash collections from finance and sales-type leases minus interest on borrowings, net settlements on interest rate derivatives and other liabilities adjusted for loan termination payments divided by the average net book of flight equipment (which includes net investment on finance and sales-type leases) for the period calculated on a quarterly and annualized basis.

Management believes that net cash interest margin, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about the effective deployment of our capital in the context of the yield on our aircraft assets, the utilization of those assets by our lessees, and our ability to borrow efficiently.

Aircastle Limited and Subsidiaries

Presentation of Reclassification of Gain on Sale of Flight Equipment

(Dollars in thousands)

(Unaudited)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and nine months ended September 30, 2017, has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017

Total revenues as previously reported

$

191,411

$

619,218

Gain on sale of flight equipment

21,642

35,926

Total revenues

$

213,053

$

655,144

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended

September 30, 2018

Nine Months Ended

September 30, 2018

Weighted-average shares:

Shares

Percent

Shares

Percent

Common shares outstanding – Basic

77,600

99.37

%

77,956

99.40

%

Unvested restricted common shares

489

0.63

%

473

0.60

%

Total weighted-average shares outstanding

78,089

100.00

%

78,429

100.00

%

Common shares outstanding – Basic

77,600

99.62

%

77,956

99.63

%

Effect of dilutive shares⁽¹⁾

296

0.38

%

287

0.37

%

Common shares outstanding – Diluted

77,895

100.00

%

78,243

100.00

%

Net income allocation

Net income

$

36,332

100.00

%

$

144,082

100.00

%

Distributed and undistributed earnings allocated to unvested restricted
shares⁽²⁾

(227)

(0.63)

%

(869)

(0.60)

%

Earnings available to common shares

$

36,105

99.37

%

$

143,213

99.40

%

Adjusted net income allocation

Adjusted net income

$

38,225

100.00

%

$

147,354

100.00

%

Amounts allocated to unvested restricted shares

(239)

(0.63)

%

(889)

(0.60)

%

Amounts allocated to common shares – Basic and Diluted

$

37,986

99.37

%

$

146,465

99.40

%

_______________

(1)

For the three and nine months ended September 30, 2018, distributed and undistributed earnings to restricted shares were 0.63% and 0.60%, respectively, of net income and adjusted net income.  The amount of restricted share forfeitures for the periods presented are immaterial to the allocation of distributed and undistributed earnings.

(2)

For the three and nine months ended September 30, 2018, dilutive shares represented contingently issuable shares.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended

September 30, 2017

Nine Months Ended

September 30, 2017

Weighted-average shares:

Shares

Percent

Shares

Percent

Common shares outstanding – Basic

78,237

99.28

%

78,197

99.28

%

Unvested restricted common shares

570

0.72

%

569

0.72

%

Total weighted-average shares outstanding

78,807

100.00

%

78,767

100.00

%

Common shares outstanding – Basic

78,237

99.82

%

78,197

99.78

%

Effect of dilutive shares⁽¹⁾

138

0.18

%

169

0.22

%

Common shares outstanding – Diluted

78,375

100.00

%

78,366

100.00

%

Net income allocation

Net income

$

57,431

100.00

%

$

92,754

100.00

%

Distributed and undistributed earnings allocated to unvested restricted
shares⁽²⁾

(415)

(0.72)

%

(671)

(0.72)

%

Earnings available to common shares

$

57,016

99.28

%

$

92,083

99.28

%

Adjusted net income allocation

Adjusted net income

$

64,387

100.00

%

$

112,526

100.00

%

Amounts allocated to unvested restricted shares

(465)

(0.72)

%

(814)

(0.72)

%

Amounts allocated to common shares – Basic and Diluted

$

63,922

99.28

%

$

111,712

99.28

%

_______________

(1)

For the three and nine months ended September 30, 2017, distributed and undistributed earnings to restricted shares were 0.72% of net income and adjusted net income for both periods presented.  The amount of restricted share forfeitures for the periods presented are immaterial to the allocation of distributed and undistributed earnings.

(2)

For the three and nine months ended September 30, 2017, dilutive shares represented contingently issuable shares.