Document
false0001362988Aircastle LTD 0001362988 2019-08-06 2019-08-06 0001362988 2019-08-07 2019-08-07
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 7, 2019 (August 6, 2019)
 
 
Aircastle Limited
(Exact name of registrant as specified in its charter)
 
 
 
Bermuda
 
001-32959
 
98-0444035
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
c/o Aircastle Advisor LLC, 201 Tresser Boulevard,
Suite 400
 
 
Stamford
 
 
Connecticut
 
06901
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (203) 504-1020
(Former name or former address, if changed since last report.)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.  ☐

 



Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition.
On August 6, 2019, Aircastle Limited announced financial results for its second quarter 2019 as described in the press release furnished hereto as Exhibit 99.1, which is incorporated herein by reference.
The information furnished pursuant to this Current Report on Form 8-K, including the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1
Press Release dated August 6, 2019 which is being furnished hereto pursuant to Item 2.02.






SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
AIRCASTLE LIMITED
            (Registrant)
 
/s/ Aaron Dahlke
Aaron Dahlke
Chief Financial Officer
Date: August 7, 2019






EXHIBIT INDEX 
Exhibit Number
Description



Exhibit
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13048124&doc=8    

FOR IMMEDIATE RELEASE
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 Announces Second Quarter 2019 Results
Total Revenues Rose 9.4% to $223.4 million; Book Value per Share increased 7.4% versus Q2:18
Declared Third Quarter 2019 Dividend of $0.30 per Common Share

Key Second Quarter 2019 Financial Metrics
Total revenues were $223.4 million
Total lease rental and direct financing and sales-type lease revenues were $201.1 million
Net income was $31.1 million, or $0.41 per diluted common share
The timing of aircraft sales shifted approximately $0.05 of diluted earnings per share from the second quarter into the third quarter
Adjusted net income(1) was $36.2 million, or $0.48 per diluted common share
Adjusted EBITDA(1) was $210.9 million
Cash ROE(1) was 11.8%; net cash interest margin was 7.4%
Highlights
Successfully transitioned seventeen aircraft from Avianca Brazil and Jet Airways; lease signed for last remaining A320 aircraft
Acquired ten narrow-body aircraft for $325 million; committed to acquire sixteen additional narrow-bodies for $404 million; $1.2 billion of total closed and committed acquisitions for 2019
Raised $1.13 billion of secured and unsecured debt at an average fixed rate of 3.91%
Repaid $500 million of 6.25% senior unsecured notes in July
Declared our 53rd consecutive quarterly dividend; repurchased $12.0 million of our shares year-to-date at an average price of $18.29 per share
Stamford, CT.  August 6, 2019 – Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported second quarter 2019 net income of $31.1 million, or $0.41 per diluted common share, and adjusted net income of $36.2 million, or $0.48 per diluted common share. The second quarter results included total

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



lease rental and direct financing and sales-type lease revenues of $201.1 million, versus $187.4 million in the second quarter of 2018, an increase of 7.4%.
Commenting on the results, Mike Inglese, Aircastle’s Chief Executive Officer, stated, “Aircastle had an extremely active second quarter during which we delivered strong financial results for our shareholders. The strength of our leasing platform enabled us to quickly and successfully transition the aircraft that we repossessed from Avianca Brazil and Jet Airways, and our third quarter guidance includes $8.3 million of incremental rent associated with the re-leased aircraft. We also closed the acquisition of ten additional narrow-body aircraft during the second quarter. Presently, our 2019 acquisitions and commitments approximate $1.2 billion, and Aircastle's fleet count currently totals 268 aircraft versus 228 a year ago.”
Mr. Inglese continued, “We were also very active on the financing front, raising $1.13 billion of attractively priced capital during the quarter as part of a continued effort to reduce our cost of capital. In early June we issued our second senior unsecured investment grade note for $650 million, at a coupon of 4.25%. In addition, in the early part of the third quarter we repaid $500 million of higher coupon, 6.25% debt. The resulting annual expense savings on the $500 million of retired debt is approximately $0.13 per diluted share.”
Mr. Inglese concluded, “Aircastle's robust leasing capabilities and disciplined capital management positions the Company well for profitable growth throughout the aviation cycle. By focusing on the more liquid, in-demand single-aisle segment, we are further enhancing our ability to rapidly secure attractive lease terms for our fleet and minimize transitional issues. This approach, combined with our strong balance sheet and commitment to a stable, growing dividend and opportunistic share repurchases, enhances our ability to create long-term value for our shareholders.”
Financial Results
(In thousands, except share data)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Lease rental and direct financing and sales-type lease revenues
$
201,144

 
$
187,354

 
$
390,821

 
$
374,279

Total revenues
$
223,416

 
$
204,276

 
$
437,343

 
$
406,956

Adjusted EBITDA(1)
$
210,900

 
$
192,623

 
$
410,247

 
$
383,768

Net income
$
31,112

 
$
50,203

 
$
65,922

 
$
107,750

   Per common share - Diluted
$
0.41

 
$
0.64

 
$
0.87

 
$
1.37

Adjusted net income(1)
$
36,204

 
$
52,378

 
$
75,820

 
$
109,129

   Per common share - Diluted
$
0.48

 
$
0.67

 
$
1.00

 
$
1.38

_______________

(1)
Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.
Second Quarter Results
Lease rental and direct financing and sales-type lease revenues rose to $201.1 million, up $13.8 million, or 7.4%, versus the second quarter of 2018. The increase was primarily due to net year-over-year fleet growth. Second quarter rental revenues would have been $8.3 million higher if all of the repossessed Avianca Brazil and Jet Airways aircraft had transitioned at the beginning of the quarter. Total revenues were $223.4 million, an increase of $19.1 million, or 9.4%, from the previous year. We recognized $26.6 million of maintenance revenue in the second quarter of 2019, driven by return compensation associated with several aircraft which transitioned, versus no maintenance revenue in the second quarter of 2018. The

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second quarter of 2019 included $17.6 million of maintenance revenue associated with aircraft that were leased to Jet Airways which successfully transitioned. This more than offset transactional impairment charges of $7.4 million associated with the transition of these aircraft.
We completed our annual fleet review during the second quarter with no additional impairment charges.
Total operating expenses increased by $33.2 million, or 21.6%. This was due to higher depreciation of $13.4 million associated with fleet expansion, higher interest expense $9.0 million associated with higher debt balances in the second quarter of 2019, and the $7.4 million transactional impairment charge previously referenced.
Net income in the second quarter was $31.1 million, versus net income of $50.2 million the prior year, while adjusted net income for the quarter was $36.2 million, versus $52.4 million. Lower gains from the sale of aircraft of $19.5 million, higher depreciation of $13.4 million and higher interest expense of $9.0 million were all partially offset by higher maintenance revenue, net of transactional impairments, of $19.2 million. We had no aircraft sales in the second quarter of 2019; several aircraft sales initially scheduled to close during the second quarter were completed early in the third quarter. This timing difference reduced net and adjusted diluted earnings per share in the second quarter of 2019 by approximately $0.05. Depreciation expense increased mainly due to the net addition of 40 aircraft since the second quarter of 2018, while interest expense rose due to higher average debt balances during the quarter. We raised more than $1.1 billion of secured and unsecured debt during the second quarter of 2019.
Adjusted EBITDA for the second quarter was $210.9 million, an increase of $18.3 million, or 9.5%, from the second quarter of 2018. Higher combined lease rental and maintenance revenue of $40.4 million were partly offset by lower year-over-year gains from flight equipment sold of $19.5 million.
Aviation Assets
During the second quarter of 2019, we acquired ten narrow-body aircraft for $325 million. In the first half of 2019, we acquired a total of 24 narrow-body aircraft for $770 million. We have committed to acquire another sixteen narrow-body aircraft for $404 million for a full year 2019 total of $1.2 billion. These 40 aircraft have a weighted average age of approximately 8.7 years and a weighted average remaining lease term of 4.9 years.
We recorded no aircraft sales during the second quarter of 2019. In the first half of 2019 we sold four aircraft for total proceeds of approximately $56.9 million. Year-to-date gains from the sale of flight equipment totaled $12.3 million.
As of June 30, 2019, Aircastle owned and managed 283 aircraft with a net book value of $8.5 billion.

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Owned Aircraft
As of
June 30, 2019
(1)
 
As of
June 30, 2018
(1)
Net Book Value of Flight Equipment ($ mils.)
$
7,842

 
$
6,776

Net Book Value of Unencumbered Flight Equipment ($ mils.)
$
5,957

 
$
5,419

Number of Aircraft
268

 
228

Number of Unencumbered Aircraft
226

 
199

Weighted Average Fleet Age (years)(2)
9.5

 
9.5

Weighted Average Remaining Lease Term (years)(2)
4.6

 
4.7

Weighted Average Fleet Utilization for the quarter ended(3)
94.0
%
 
99.5
%
Portfolio Yield for the quarter ended(2)(4)
10.7
%
 
11.5
%
Net Cash Interest Margin(5)
7.4
%
 
8.3
%
 
 
 
 
Managed Aircraft on behalf of Joint Ventures
 
 
 
Net Book Value of Flight Equipment ($ mils.)
$
678

 
$
628

Number of Aircraft
15

 
12

_______________
(1)
Calculated using net book value of flight equipment held for lease and net investment in direct financing and sales-type 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. The decrease from our historical utilization rate was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.
(4)
Lease rental revenue, interest income and cash collections on our net investment in direct financing and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized. The decrease from our historical portfolio yield was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways. The calculation of portfolio yield includes our net investment in direct financing and sales-type leases in the average net book value, and the interest income and cash collections from our net investment in direct financing and sales-type leases in lease rentals.
(5)
Net Cash Interest Margin = Lease rental yield including direct financing and sales-type 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.

Financing Activity
During the second quarter of 2019, the Company issued $650 million of unsecured Senior Notes due 2026 bearing a coupon of 4.25%. This was our second senior unsecured note issued with investment grade credit ratings and priced at a spread of 230 basis points over the seven year treasury.
During the quarter we raised an additional $480 million of fixed rate, secured bank financing for eleven Airbus A320neo aircraft and two Boeing 737-800 aircraft, and we increased the size of one of our unsecured revolving credit facilities to $300 million from $280 million. The fixed rate secured bank financing was priced at a weighted average blended rate of 3.45%.

Common Dividend

On August 2, 2019, Aircastle’s Board of Directors declared a third quarter 2019 cash dividend on its common shares of $0.30 per share, payable on September 16, 2019, to shareholders of record on August 30, 2019. This is our 53rd consecutive dividend.

Share Repurchases

During the second quarter of 2019, Aircastle’s Board of Directors re-authorized a $100 million share repurchase program. There is $96.7 million currently remaining under this authorization. Since the

4



beginning of the year, the Company has acquired approximately 658,000 shares at an average price of $18.29 per share. Since 2011, the Company has repurchased 18.7 million shares at an average price of $14.62 per share.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Tuesday, August 6, 2019 at 10:00 A.M. Eastern time. All interested parties are welcome to participate on the live call. The conference call can be accessed by dialing (800) 289-0438 (from within the U.S. and Canada) or (720) 543-0214 (from outside of the U.S. and Canada) ten minutes prior to the scheduled start and referencing the passcode "9390195".

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.aircastle.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for one month following the call. In addition to this earnings release, an accompanying power point presentation has been posted to the Investor Relations section of Aircastle’s website.

For those who are not available to listen to the live call, a replay will be available until 1:00 P.M. Eastern time on Thursday, September 5, 2019 by dialing (888) 203-1112 (from within the U.S. and Canada) or (719) 457-0820 (from outside of the U.S. and Canada); please reference passcode “9390195”.

About Aircastle Limited

Aircastle Limited acquires, leases and sells commercial jet aircraft to airlines throughout the world. As of June 30, 2019, Aircastle owned and managed on behalf of its joint ventures 283 aircraft leased to 89 customers located in 47 countries.

Safe Harbor

All statements in this press release, other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our proposed public offering of notes and our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA, Adjusted Net Income, Cash Return on Equity and Net Cash Interest Margin and the global aviation industry and aircraft leasing sector. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this press release. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle's filings with the SEC and previously disclosed under "Risk Factors" in Item 1A of Aircastle's 2018 Annual Report on Form 10-K. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor

5



that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

6



Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)

 
June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
500,373

 
$
152,719

Restricted cash and cash equivalents
14,751

 
15,134

Accounts receivable
12,841

 
15,091

Flight equipment held for lease, net of accumulated depreciation of $1,371,515 and $1,221,985, respectively
7,341,097

 
6,935,585

Net investment in direct financing and sales-type leases
500,918

 
469,180

Unconsolidated equity method investments
78,793

 
69,111

Other assets
185,702

 
214,361

Total assets
$
8,634,475

 
$
7,871,181

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Borrowings from secured financings, net of debt issuance costs and discounts
$
1,214,402

 
$
798,457

Borrowings from unsecured financings, net of debt issuance costs and discounts
4,277,731

 
3,962,896

Accounts payable, accrued expenses and other liabilities
164,585

 
153,341

Lease rentals received in advance
96,973

 
87,772

Security deposits
124,867

 
120,962

Maintenance payments
734,433

 
739,072

Total liabilities
6,612,991

 
5,862,500

 
 
 
 
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, 74,983,114 shares issued and outstanding at June 30, 2019; and 75,454,511 shares issued and outstanding at December 31, 2018
750

 
754

Additional paid-in capital
1,460,534

 
1,468,779

Retained earnings
560,200

 
539,332

Accumulated other comprehensive loss

 
(184
)
Total shareholders’ equity
2,021,484

 
2,008,681

Total liabilities and shareholders’ equity
$
8,634,475

 
$
7,871,181



7



Aircastle Limited and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Lease rental revenue
$
192,823

 
$
178,486

 
$
374,057

 
$
355,969

Direct financing and sales-type lease revenue
8,321

 
8,868

 
16,764

 
18,310

Amortization of lease premiums, discounts and incentives
(5,345
)
 
(3,534
)
 
(11,056
)
 
(6,662
)
Maintenance revenue
26,567

 

 
42,968

 
11,991

Total lease revenue
222,366

 
183,820

 
422,733

 
379,608

Gain on sale of flight equipment
346

 
19,864

 
12,348

 
25,632

Other revenue
704

 
592

 
2,262

 
1,716

Total revenues
223,416

 
204,276

 
437,343

 
406,956

Operating expenses:
 
 
 
 
 
 
 
Depreciation
89,578

 
76,181

 
174,313

 
151,183

Interest, net
66,377

 
57,398

 
129,840

 
114,506

Selling, general and administrative (including non-cash share-based payment expense of $3,177 and $3,076 for the three months ended and $5,903 and $5,454 for the six months ended June 30, 2019 and 2018, respectively)
18,317

 
18,583

 
36,317

 
36,418

Impairment of flight equipment
7,404

 

 
7,404

 

Maintenance and other costs
5,213

 
1,561

 
12,617

 
2,549

Total operating expenses
186,889

 
153,723

 
360,491

 
304,656

 
 
 
 
 
 
 
 
Total other income (expense)
(1,910
)
 
901

 
(3,971
)
 
4,075

 


 


 


 


Income from continuing operations before income taxes and earnings of unconsolidated equity method investments
34,617

 
51,454

 
72,881

 
106,375

Income tax provision
5,992

 
3,132

 
9,090

 
2,288

Earnings of unconsolidated equity method investments, net of tax
2,487

 
1,881

 
2,131

 
3,663

Net income
$
31,112

 
$
50,203

 
$
65,922

 
$
107,750

Earnings per common share — Basic:
 
 
 
 
 
 
 
Net income per share
$
0.41

 
$
0.64

 
$
0.88

 
$
1.37

Earnings per common share — Diluted:
 
 
 
 
 
 
 
Net income per share
$
0.41

 
$
0.64

 
$
0.87

 
$
1.37

Dividends declared per share
$
0.30

 
$
0.28

 
$
0.60

 
$
0.56





8



Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
65,922

 
$
107,750

Adjustments to reconcile net income to net cash and restricted cash provided by operating activities:
 
 
 
Depreciation
174,313

 
151,183

Amortization of deferred financing costs
6,958

 
7,042

Amortization of lease premiums, discounts and incentives
11,056

 
6,662

Deferred income taxes
7,957

 
3,126

Non-cash share-based payment expense
5,903

 
5,454

Cash flow hedges reclassified into earnings
184

 
595

Collections on direct financing and sales-type leases
10,971

 
13,127

Security deposits and maintenance payments included in earnings
(24,162
)
 
(554
)
Gain on sale of flight equipment
(12,348
)
 
(25,632
)
Impairment of flight equipment
7,404

 

Other
209

 
(7,491
)
Changes in certain assets and liabilities:
 
 
 
Accounts receivable
(7,899
)
 
(7,315
)
Other assets
3,582

 
(3,086
)
Accounts payable, accrued expenses and other liabilities
(11,619
)
 
(14,799
)
Lease rentals received in advance
7,181

 
16,908

Net cash and restricted cash provided by operating activities
245,612

 
252,970

Cash flows from investing activities:
 
 
 
Acquisition and improvement of flight equipment
(660,723
)
 
(365,505
)
Proceeds from sale of flight equipment
56,924

 
178,185

Net investment in direct financing and sales-type leases

 
(16,256
)
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits
18,054

 
(3,965
)
Unconsolidated equity method investments and associated costs
(7,551
)
 

Other
2,241

 
2,956

Net cash and restricted cash used in investing activities
(591,055
)
 
(204,585
)
Cash flows from financing activities:
 
 
 
Repurchase of shares
(14,288
)
 
(14,987
)
Proceeds from secured and unsecured debt financings
1,841,848

 

Repayments of secured and unsecured debt financings
(1,105,353
)
 
(128,342
)
Deferred financing costs
(12,165
)
 
(1,615
)
Security deposits and maintenance payments received
92,514

 
108,653

Security deposits and maintenance payments returned
(64,788
)
 
(38,718
)
Dividends paid
(45,054
)
 
(43,993
)
Net cash and restricted cash used in financing activities
692,714

 
(119,002
)
Net increase in cash and restricted cash
347,271

 
(70,617
)
Cash and restricted cash at beginning of period
167,853

 
233,857

Cash and restricted cash at end of period
$
515,124

 
$
163,240

 
 
 
 
Reconciliation to Consolidated Balance Sheets:
 
 
 
Cash and cash equivalents
$
500,373

 
$
142,360

Restricted cash and cash equivalents
14,751

 
20,880

 
 
 
 
Unrestricted and restricted cash and cash equivalents
$
515,124

 
$
163,240

_______________
(1)
As part of the Company’s adoption of FASB ASC 842, we classified collections on direct financing and sales-type leases within operating activities on our Consolidated Statement of Cash Flows for the six months ended June 30, 2019. This had previously been included in investing activities. The presentation for the six months ended June 30, 2018, 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.

9



Aircastle Limited and Subsidiaries
Selected Financial Guidance Elements for the Third Quarter of 2019
($ in millions, except for percentages)
(Unaudited)

Guidance Item
Q3:19
Lease rental revenue(1)
$200 - $204
Direct financing and sales-type lease revenue
$7 - $8
Amortization of net lease discounts and lease incentives
$(5) - $(6)
Maintenance revenue
$7 - $11
Gain on sale of flight equipment
$9 - $15
Depreciation
$90 - $93
Interest, net
$65 - $68
SG&A(2)
$18 - $19
Full year effective tax rate
9% - 11%
_______________
(1)
Reflects new aircraft acquisitions and the return to service of Avianca Brazil and Jet Airways aircraft which commenced in late Q2:19.
(2)
Includes $3.4M of non-cash share-based payment expense.

10



Aircastle Limited and Subsidiaries
Supplemental Financial Information
(Amount in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
223,416

 
$
204,276

 
$
437,343

 
$
406,956

 
 
 
 
 
 
 
 
EBITDA(1)
$
198,404

 
$
190,448

 
$
390,221

 
$
382,389

 
 
 
 
 
 
 
 
Adjusted EBITDA(1)
$
210,900

 
$
192,623

 
$
410,247

 
$
383,768

 
 
 
 
 
 
 
 
Net income
$
31,112

 
$
50,203

 
$
65,922

 
$
107,750

Net income allocable to common shares
$
30,895

 
$
49,884

 
$
65,501

 
$
107,113

Per common share - Basic
$
0.41

 
$
0.64

 
$
0.88

 
$
1.37

Per common share - Diluted
$
0.41

 
$
0.64

 
$
0.87

 
$
1.37

 
 
 
 
 
 
 
 
Adjusted net income(1)
$
36,204

 
$
52,378

 
$
75,820

 
$
109,129

Adjusted net income allocable to common shares
$
35,951

 
$
52,045

 
$
75,336

 
$
108,483

Per common share - Basic
$
0.48

 
$
0.67

 
$
1.01

 
$
1.39

Per common share - Diluted
$
0.48

 
$
0.67

 
$
1.00

 
$
1.38

 
 
 
 
 
 
 
 
Basic common shares outstanding
74,650

 
77,911

 
74,677

 
78,137

Diluted common shares outstanding(2)
75,442

 
78,248

 
75,357

 
78,420

_______________
(1)
Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.
(2)
For the three and six months ended June 30, 2019 and 2018, dilutive shares represented contingently issuable shares related to the Company’s PSUs.

11



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
EBITDA and Adjusted EBITDA Reconciliation
(Dollars in thousands)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
31,112

 
$
50,203

 
$
65,922

 
$
107,750

Depreciation
89,578

 
76,181

 
174,313

 
151,183

Amortization of lease premiums, discounts and incentives
5,345

 
3,534

 
11,056

 
6,662

Interest, net
66,377

 
57,398

 
129,840

 
114,506

Income tax provision
5,992

 
3,132

 
9,090

 
2,288

EBITDA
198,404

 
190,448

 
390,221

 
382,389

Adjustments:
 
 
 
 
 
 
 
Impairment of flight equipment
7,404

 

 
7,404

 

Equity share of joint venture impairment

 

 
2,724

 

Non-cash share-based payment expense
3,177

 
3,076

 
5,903

 
5,454

Loss (gain) on mark-to-market of interest rate derivative contracts
1,915

 
(901
)
 
3,995

 
(4,075
)
Adjusted EBITDA
$
210,900

 
$
192,623

 
$
410,247

 
$
383,768


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.

12



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Adjusted Net Income Reconciliation
(Dollars in thousands)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
31,112

 
$
50,203

 
$
65,922

 
$
107,750

Loss (gain) on mark-to-market of interest rate derivative contracts(1)
1,915

 
(901
)
 
3,995

 
(4,075
)
Non-cash share-based payment expense(2)
3,177

 
3,076

 
5,903

 
5,454

 
 
 
 
 
 
 
 
Adjusted net income
$
36,204

 
$
52,378

 
$
75,820

 
$
109,129

_______________
(1)
Included in Other income (expense).
(2)
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.

13



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Cash Return on Equity Calculation
(Dollars in thousands)
(Unaudited)

Period
CFFO
 
Gain on
Sale of
Flight
Equipment
 
Deprec.
 
Cash Earnings
 
Average
Shareholders
Equity
 
Trailing Twelve Month Cash ROE
Q2:15
$
503,275

 
$
48,507

 
$
301,868

 
$
249,914

 
$
1,711,152

 
14.6
%
Q2:16
$
523,973

 
$
45,667

 
$
318,286

 
$
251,354

 
$
1,774,568

 
14.2
%
Q2:17
$
509,549

 
$
38,405

 
$
310,927

 
$
237,027

 
$
1,817,414

 
13.0
%
Q2:18
$
511,452

 
$
66,515

 
$
292,419

 
$
285,548

 
$
1,903,097

 
15.0
%
Q2:19
$
545,195

 
$
23,482

 
$
333,980

 
$
234,697

 
$
1,993,041

 
11.8
%
Pro-forma Q2:19
$
553,458

 
$
23,482

 
$
333,980

 
$
242,960

 
$
1,993,041

 
12.2
%


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.

Pro-forma Q2:19 estimates the full impact of the Avianca Brazil and Jet Airways bankruptcies on Cash ROE by adding $8.3 million to Cash Flow From Operations in the second quarter of 2019. Assumes all eighteen aircraft transitioned on the first day of Q2:19.


14



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)
Q1:15
 
$
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
%
Q4:18
 
$
7,136,627

 
$
200,027

 
$
60,348

 
7.8
%
Q1:19
 
$
7,449,957

 
$
195,601

 
$
60,279

 
7.3
%
Q2:19
 
$
7,729,676

 
$
205,960

 
$
63,639

 
7.4
%
Pro-forma Q2:19
 
$
7,729,676

 
$
214,223

 
$
63,639

 
7.8
%
_______________
(1)
Based on the growing level of direct financing and sales-type lease revenue, management revised the calculation of net cash interest margin to include our net investment in direct financing and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in direct financing 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 $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.

We define net cash interest margin as lease rentals from operating leases, interest income and cash collections from direct financing 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 direct financing 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.
Pro-forma Q2:19 estimates the full impact of the Avianca Brazil and Jet Airways bankruptcies on Cash ROE by adding $8.3 million to Cash Flow From Operations in the second quarter of 2019. Assumes all eighteen aircraft transitioned on the first day of Q2:19.


15



Aircastle Limited and Subsidiaries
Presentation of Reclassification of Collections on Direct Financing and Sales-Type Leases
(Dollars in thousands)
(Unaudited)

As part of the Company’s adoption of FASB ASC 842, we classified collections on direct financing and sales-type leases within operating activities on our Consolidated Statement of Cash Flows for the six months ended June 30, 2019. This had previously been included in investing activities. The presentation for the six months ended June 30, 2018, has also been reclassified to conform to the current period presentation:

 
Six Months Ended June 30, 2018
Net cash and restricted cash provided by operating activities as previously reported
$
239,843

Collections on direct financing and sales-type leases
13,127

Net cash and restricted cash provided by operating activities
$
252,970






16



Aircastle Limited and Subsidiaries
Supplemental Financial Information
(Amount in thousands, except per share amounts)
(Unaudited)

 
 
Shares Issued and Outstanding
 
Shareholders' Equity
 
Book Value
per share
 
% Change
Q2:15
 
81,181
 
1,785,558
 
21.99
 
8.6%
Q2:16
 
78,778
 
1,776,486
 
22.55
 
2.5%
Q2:17
 
78,714
 
1,835,089
 
23.31
 
3.4%
Q2:18
 
78,244
 
1,963,406
 
25.09
 
7.6%
Q2:19
 
74,983
 
2,021,484
 
26.96
 
7.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2:15 - Q2:19 CAGR
 
5.2%



17



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
June 30, 2019
 
Six Months Ended
June 30, 2019
Weighted-average shares:
Shares
 
Percent
 
Shares
 
Percent
Common shares outstanding – Basic
74,650

 
99.30
 %
 
74,677

 
99.36
 %
Unvested restricted common shares
524

 
0.70
 %
 
480

 
0.64
 %
Total weighted-average shares outstanding
75,175

 
100.00
 %
 
75,157

 
100.00
 %
 
 
 
 
 
 
 
 
Common shares outstanding – Basic
74,650

 
98.95
 %
 
74,677

 
99.10
 %
Effect of dilutive shares(1)
791

 
1.05
 %
 
681

 
0.90
 %
Common shares outstanding – Diluted
75,442

 
100.00
 %
 
75,357

 
100.00
 %
 
 
 
 
 
 
 
 
Net income allocation
 
 
 
 
 
 
 
Net income
$
31,112

 
100.00
 %
 
$
65,922

 
100.00
 %
Distributed and undistributed earnings allocated to unvested restricted shares(2)
(217
)
 
(0.70
)%
 
(421
)
 
(0.64
)%
Earnings available to common shares
$
30,895

 
99.30
 %
 
$
65,501

 
99.36
 %
 
 
 
 
 
 
 
 
Adjusted net income allocation
 
 
 
 
 
 
 
Adjusted net income
$
36,204

 
100.00
 %
 
$
75,820

 
100.00
 %
Amounts allocated to unvested restricted shares
(253
)
 
(0.70
)%
 
(484
)
 
(0.64
)%
Amounts allocated to common shares – Basic and Diluted
$
35,951

 
99.30
 %
 
$
75,336

 
99.36
 %
_______________
(1)
For the three and six months ended June 30, 2019, distributed and undistributed earnings to restricted shares were 0.70% and 0.64%, 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 six months ended June 30, 2019, dilutive shares represented contingently issuable shares.

18



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
June 30, 2018
 
Six Months Ended
June 30, 2018
Weighted-average shares:
Shares
 
Percent
 
Shares
 
Percent
Common shares outstanding – Basic
77,911

 
99.36
 %
 
78,137

 
99.41
 %
Unvested restricted common shares
498

 
0.64
 %
 
465

 
0.59
 %
Total weighted-average shares outstanding
78,409

 
100.00
 %
 
78,602

 
100.00
 %
 
 
 
 
 
 
 
 
Common shares outstanding – Basic
77,911

 
99.57
 %
 
78,137

 
99.64
 %
Effect of dilutive shares(1)
338

 
0.43
 %
 
283

 
0.36
 %
Common shares outstanding – Diluted
78,248

 
100.00
 %
 
78,420

 
100.00
 %
 
 
 
 
 
 
 
 
Net income allocation
 
 
 
 
 
 
 
Net income
$
50,203

 
100.00
 %
 
$
107,750

 
100.00
 %
Distributed and undistributed earnings allocated to unvested restricted shares(2)
(319
)
 
(0.64
)%
 
(637
)
 
(0.59
)%
Earnings available to common shares
$
49,884

 
99.36
 %
 
$
107,113

 
99.41
 %
 
 
 
 
 
 
 
 
Adjusted net income allocation
 
 
 
 
 
 
 
Adjusted net income
$
52,378

 
100.00
 %
 
$
109,129

 
100.00
 %
Amounts allocated to unvested restricted shares
(333
)
 
(0.64
)%
 
(646
)
 
(0.59
)%
Amounts allocated to common shares – Basic and Diluted
$
52,045

 
99.36
 %
 
$
108,483

 
99.41
 %
_______________
(1)
For the three and six months ended June 30, 2018, distributed and undistributed earnings to restricted shares were 0.64% and 0.59%, 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 six months ended June 30, 2018, dilutive shares represented contingently issuable shares.

19