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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 August 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File number 001-32959
_______________________________________________________________
AIRCASTLE LIMITED
(Exact name of registrant as specified in its charter)
_______________________________________________________________
Bermuda98-0444035
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
c/o Aircastle Advisor LLC
201 Tresser Boulevard, Suite 400
Stamford
Connecticut
06901
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code:     (203) 504-1020
_______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class                             Trading Symbol Name of Each Exchange on Which Registered
Common Shares, par value $0.01 per share N/A NONE
Preference Shares, par value $0.01 per shareN/ANONE
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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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  
The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on August 31, 2022 (the last business day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was $0 because the Registrant’s Common Shares were not publicly traded as of that date. For purposes of the foregoing calculation, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and executive officers and shareholders owning 10% or more of the outstanding common shares of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.
As of October 7, 2022, there were 14,048 outstanding shares of the registrant’s common shares, par value $0.01 per share.



Aircastle Limited and Subsidiaries
Form 10-Q
Table of Contents
 
  Page
No.
Item 1.
Consolidated Balance Sheets as of August 31, 2022 and February 28, 2022
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and six months ended August 31, 2022 and 2021
Consolidated Statements of Cash Flows for the six months ended August 31, 2022 and 2021
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2


PART I. — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)

August 31,
2022
February 28,
2022
(Unaudited)
ASSETS
Cash and cash equivalents$246,713 $167,891 
Restricted cash and cash equivalents650 2,791 
Accounts receivable54,960 63,666 
Flight equipment held for lease, net6,355,679 6,313,950 
Net investment in leases, net137,619 150,325 
Unconsolidated equity method investments39,494 38,317 
Other assets327,141 356,326 
Total assets$7,162,256 $7,093,266 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured financings, net$626,776 $684,039 
Borrowings from unsecured financings, net3,915,114 3,835,841 
Accounts payable, accrued expenses and other liabilities195,004 177,424 
Lease rentals received in advance43,040 37,361 
Security deposits65,366 69,189 
Maintenance payments498,768 459,713 
Total liabilities5,344,068 5,263,567 
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Preference shares, $0.01 par value, 50,000,000 shares authorized, 400 (aggregate liquidation preference of $400,000) shares issued and outstanding at August 31, 2022 and February 28, 2022
  
Common shares, $0.01 par value, 250,000,000 shares authorized, 14,048 shares issued and outstanding at August 31, 2022 and February 28, 2022
  
Additional paid-in capital1,878,774 1,878,774 
Accumulated deficit(60,586)(49,075)
Total shareholders’ equity1,818,188 1,829,699 
Total liabilities and shareholders’ equity$7,162,256 $7,093,266 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3


Aircastle Limited and Subsidiaries
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Dollars in thousands)
(Unaudited)
Three Months Ended August 31,Six Months Ended
 August 31,
2022202120222021
Revenues:
Lease rental revenue$146,508 $137,589 $290,652 $269,714 
Direct financing and sales-type lease revenue2,265 2,776 4,863 5,653 
Amortization of lease premiums, discounts and incentives(5,518)(5,835)(10,906)(11,159)
Maintenance revenue 20,114 21,218 47,213 47,694 
Total lease revenue163,369 155,748 331,822 311,902 
Gain on sale of flight equipment10,049 1,502 13,736 10,524 
Other revenue161 402 3,585 1,036 
Total revenues173,579 157,652 349,143 323,462 
Operating expenses:
Depreciation82,106 83,391 163,424 165,782 
Interest, net50,587 55,413 100,881 113,450 
Selling, general and administrative17,393 15,990 37,309 31,573 
Provision for credit losses109 6 689 12 
Impairment of flight equipment33,671 21,232 38,099 41,815 
Maintenance and other costs5,212 8,087 13,277 15,615 
Total operating expenses189,078 184,119 353,679 368,247 
Other income (expense):
Loss on extinguishment of debt (14,132)(463)(14,156)
Other2,072 57,609 2,072 57,619 
Total other income2,072 43,477 1,609 43,463 
Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments(13,427)17,010 (2,927)(1,322)
Income tax provision (benefit)(4,068)7,665 (739)(627)
Earnings of unconsolidated equity method investments, net of tax666 458 1,177 745 
Net income (loss)$(8,693)$9,803 $(1,011)$50 
Preference share dividends(10,500)(5,658)(10,500)(5,658)
Net income (loss) available to common shareholders$(19,193)$4,145 $(11,511)$(5,608)
Total comprehensive income (loss) available to common shareholders$(19,193)$4,145 $(11,511)$(5,608)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4


Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended August 31,
20222021
Cash flows from operating activities:
Net income (loss)$(1,011)$50 
Adjustments to reconcile net income (loss) to net cash and restricted cash provided by operating activities:
Depreciation163,424 165,782 
Amortization of deferred financing costs7,095 8,384 
Amortization of lease premiums, discounts and incentives10,906 11,159 
Deferred income taxes6,588 4,240 
Collections on net investment in leases4,016 8,065 
Security deposits and maintenance payments included in earnings(2,133)(30,420)
Gain on sale of flight equipment(13,736)(10,524)
Loss on extinguishment of debt463 14,156 
Impairment of flight equipment38,099 41,815 
Provision for credit losses689 12 
Other(1,179)(745)
Changes in certain assets and liabilities:
Accounts receivable5,808 (5,479)
Other assets(8,223)(15,413)
Accounts payable, accrued expenses and other liabilities(2,284)(10,664)
Lease rentals received in advance7,094 (704)
Net cash and restricted cash provided by operating activities215,616 179,714 
Cash flows from investing activities:
Acquisition and improvement of flight equipment(372,474)(370,187)
Proceeds from sale of flight equipment171,065 77,900 
Aircraft purchase deposits and progress payments, net of deposits returned and aircraft sales deposits4,504 10,003 
Other1,500 (64)
Net cash and restricted cash used in investing activities(195,405)(282,348)
Cash flows from financing activities:
Net proceeds from preference share issuance 393,362 
Proceeds from secured and unsecured debt financings75,000  
Repayments of secured and unsecured debt financings(58,355)(546,903)
Debt extinguishment costs(291)(13,372)
Deferred financing costs(1,903)(4,748)
Security deposits and maintenance payments received63,758 44,111 
Security deposits and maintenance payments returned(11,239)(10,219)
Dividends paid(10,500) 
Net cash and restricted cash provided by (used in) financing activities56,470 (137,769)
Net increase in cash and restricted cash:76,681 (240,403)
Cash and restricted cash at beginning of period170,682 580,598 
Cash and restricted cash at end of period$247,363 $340,195 
The accompanying notes are an integral part of these unaudited consolidated financial statements.




5


Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
(Unaudited)
Six Months Ended August 31,
20222021
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents$246,713 $337,455 
Restricted cash and cash equivalents650 2,740 
Unrestricted and restricted cash and cash equivalents$247,363 $340,195 
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized$93,007 $107,102 
Cash paid for income taxes$200 $1,201 
Supplemental disclosures of non-cash investing activities:
Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets assumed in asset acquisitions$6,100 $1,158 
Advance lease rentals, security deposits, maintenance payments, other liabilities and other assets settled in sale of flight equipment$14,791 $12,506 
Transfers from flight equipment held for lease to Net investment in leases and Other assets
$8,895 $3,554 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6


Aircastle Limited and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except share amounts)
(Unaudited)
 Common SharesPreference SharesAdditional Paid-In CapitalAccumulated DeficitTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance, February 28, 2022
14,048 $ 400 $ $1,878,774 $(49,075)$1,829,699 
Net income— — — — — 7,682 7,682 
Balance, May 31, 2022
14,048 $ 400 $ $1,878,774 $(41,393)$1,837,381 
Net loss— — — — — (8,693)(8,693)
Preference share dividends— — — — — (10,500)(10,500)
Balance, August 31, 2022
14,048 $ 400 $ $1,878,774 $(60,586)$1,818,188 
Common SharesPreference SharesAdditional Paid-In CapitalRetained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance, February 28, 202114,048 $  $ $1,485,777 $245,293 $1,731,070 
Net loss— — — — — (9,753)(9,753)
Balance, May 31, 202114,048 $  $ $1,485,777 $235,540 $1,721,317 
Net loss— — — — — 9,803 9,803 
Issuance of preference shares— — 400 — 393,362 — 393,362 
Preference share dividends— — — — — (5,658)(5,658)
Balance, August 31, 2021
14,048 $ 400 $ $1,879,139 $239,685 $2,118,824 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022

Note 1. Summary of Significant Accounting Policies
Organization
Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business consists of acquiring, leasing, managing and selling commercial jet aircraft.
The Company is controlled by affiliates of Marubeni Corporation (“Marubeni”) and Mizuho Leasing Company, Limited (“Mizuho Leasing”). Aircastle is a holding company and conducts its business through subsidiaries that are wholly-owned, either directly or indirectly, by Aircastle.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. However, we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2022.
The consolidated financial statements include the accounts of Aircastle and all its subsidiaries, including any Variable Interest Entity (“VIE”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We manage and analyze our business and report on our results of operations based on one operating segment: leasing, financing, selling and managing commercial flight equipment. Our Chief Executive Officer is the chief operating decision maker.
The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure subsequent to the balance sheet date of August 31, 2022, through the date on which the consolidated financial statements included in this Form 10-Q were issued.
Risk and Uncertainties
In the normal course of business, Aircastle encounters several significant types of economic risk including credit, market, aviation industry and capital market risks. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments and to fulfill its other contractual obligations to Aircastle. Market risk reflects the change in the value of financings due to changes in interest rate spreads or other market factors, including the value of collateral underlying financings. Aviation industry risk is the risk of a downturn in the commercial aviation industry which could adversely impact a lessee’s ability to make payments, increase the risk of early lease terminations and depress lease rates and the value of the Company’s aircraft. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of its business or to refinance existing debt facilities.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While
8

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Aircastle believes the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.
Lease Revenue Recognition
We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals.
In certain instances, we may provide lease concessions to customers, generally in the form of lease rental deferrals. While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease term is generally the same as that which was required under the original lease agreement. We account for the deferrals as if no modifications to the lease agreements were made and record the deferred rentals as a receivable within other assets.
Should we determine that the collectability of rental payments is no longer probable (including any deferral thereof), we will recognize lease rental revenue using a cash basis of accounting rather than an accrual method. In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease rental revenue.
Impairment of Flight Equipment
We perform an annual recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis. A recoverability assessment is also performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in an aircraft type’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates and maintenance payments, transition costs, estimated down time, and estimated residual or scrap values for an aircraft. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 in the Notes to Unaudited Consolidated Financial Statements.
Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors, such as the location of the aircraft and accessibility to records and technical documentation.
We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform Topic 848 (“ASC 848”), in response to the market transition from the London interbank
9

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
offered rates (“LIBOR”) and other interbank offered rates (“IBORs”) to alternative reference rates. U.S. GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022, and cannot be applied to contract modifications that occur after December 31, 2022. Reference rate reform will primarily impact our lease and debt arrangements for which floating-rate lease rentals and interest expense are based on LIBOR. As of August 31, 2022, less than 1% of our fleet have floating-rate lease rentals and for the three and six months ended August 31, 2022, 8.0% and 6.5%, respectively, of our interest expense was derived from floating-rate debt which is referenced to LIBOR. We have not adopted ASC 848 and are evaluating the election available to us under the standard.
Note 2. Fair Value Measurements
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs.
The following tables set forth our financial assets as of August 31, 2022 and February 28, 2022 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
  
Fair Value Measurements at August 31, 2022
Using Fair Value Hierarchy
 
Fair Value as of
August 31, 2022
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Valuation
Technique
Assets:
Cash and cash equivalents$246,713 $246,713 $ $ Market
Restricted cash and cash equivalents650 650   Market
Total$247,363 $247,363 $ $ 
  
Fair Value Measurements at February 28, 2022
Using Fair Value Hierarchy
 
Fair Value as of February 28, 2022
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Valuation
Technique
Assets:
Cash and cash equivalents$167,891 $167,891 $ $ Market
Restricted cash and cash equivalents2,791 2,791   Market
Total$170,682 $170,682 $ $ 
Our cash and cash equivalents and our restricted cash and cash equivalents consist largely of money market securities that are highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.
For the three and six months ended August 31, 2022, we had no transfers into or out of Level 3.
We measure the fair value of certain assets and liabilities on a non-recurring basis when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate the carrying amounts of these assets may not be recoverable. Assets subject to these measurements include our aircraft and investment in unconsolidated joint
10

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
venture. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.
We account for our investment in unconsolidated joint ventures under the equity method of accounting. Our investment is recorded at cost and is adjusted by undistributed earnings and losses and the distributions of dividends and capital. This investment is reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.
Aircraft Valuation
Impairment of Flight Equipment
Excluding asset write-offs related to Russia, during the three and six months ended August 31, 2022, the Company recorded impairment charges totaling $6.2 million related to the scheduled lease expiration of one narrow-body aircraft and other flight equipment. The Company recognized $6.1 million of maintenance revenue for this one aircraft during the three and six months ended August 31, 2022.
The Company wrote off the remaining book value of eight narrow-body and one freighter aircraft in Russia which have not been returned to us. As a result, the Company recorded impairment charges totaling $27.5 million and $31.9 million during the three and six months ended August 31, 2022, respectively – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. During the six months ended August 31, 2022, the Company recognized $9.5 million of maintenance and other revenue for these nine aircraft related to payments received on maintenance and general security letters of credit. No revenue was recognized for these nine aircraft during the three months ended August 31, 2022.
During the three months ended August 31, 2021, the Company recorded impairment charges totaling $21.2 million, of which $18.0 million were transactional impairments primarily related to two narrow-body aircraft resulting from early lease terminations. The Company recognized $16.1 million of maintenance revenue for these two aircraft.
During the six months ended August 31, 2021, the Company recorded impairment charges totaling $41.8 million, of which $38.6 million were transactional impairments, primarily related to four narrow-body aircraft resulting from three early lease terminations and one scheduled lease expiration. The Company recognized $37.1 million of maintenance revenue for these four aircraft.
Annual Recoverability Assessment
We plan to perform our annual recoverability assessment of all our aircraft during the third quarter of 2022.
We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.
The recoverability assessment is a comparison of the carrying value of each aircraft to its estimated undiscounted future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors, such as the location of the aircraft and accessibility to records and technical documentation.
11

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in our recoverability assessments are appropriate, actual results could differ from those estimates.
Financial Instruments
Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and amounts borrowed under financings. The fair value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.
The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of our financial instruments at August 31, 2022 and February 28, 2022 were as follows:
 August 31, 2022February 28, 2022
 Carrying  Amount
of Liability
Fair Value
of Liability
Carrying
Amount
of Liability
Fair Value
of Liability
Credit Facilities$95,000 $95,000 $20,000 $20,000 
Unsecured Term Loan155,000 152,968 155,000 152,195 
Export Credit Agency (“ECA”) Financings  21,576 21,931 
Bank Financings629,479 613,383 666,258 675,667 
Senior Notes3,700,000 3,481,227 3,700,000 3,776,997 
All our financial instruments are classified as Level 2 except for our senior notes, which are classified as Level 1.
Note 3. Flight Equipment Held for Lease, Net
The following table summarizes the activities for the Company’s flight equipment held for lease for the six months ended August 31, 2022:
Amount
Balance at February 28, 2022
$6,313,950 
Additions361,928 
Depreciation(162,752)
Disposals and transfers to net investment in leases and held for sale(122,366)
Impairments(35,081)
Balance at August 31, 2022
$6,355,679 
Accumulated depreciation as of August 31, 2022
$2,459,049 
Write-off of Russian Aircraft
As of August 31, 2022, nine of our aircraft that were previously leased to Russian airlines remain in Russia. Most of the operators of these aircraft have continued to fly the aircraft notwithstanding the sanctions imposed on Russia and leasing terminations. While we will continue to pursue repossession, it is unlikely we will regain possession of any of these nine aircraft. As a result, the Company wrote off the remaining book value of these nine aircraft, resulting in impairment charges totaling $4.4 million and $27.5 million during the three months ended May 31, 2022 and August 31,
12

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
2022, respectively. These nine aircraft have been removed from the Company’s owned fleet count. The Company is vigorously pursuing insurance claims to recover its losses relating to these aircraft, however, collection, timing and amounts of any insurance recoveries is uncertain.
We also had one freighter aircraft outside of Russia that we successfully repossessed during the three months ended August 31, 2022. Additionally, in response to a new wave of sanctions against Russia in the United Kingdom (“U.K.”), the Company terminated the lease of one freighter aircraft with a U.K.-based airline and successfully repossessed that aircraft during the three months ended August 31, 2022. We recognized $11.9 million of maintenance revenue as a result of this lease termination. Subsequent to August 31, 2022, these two freighter aircraft and one wide-body aircraft previously on lease to a Russian airline were sold for gains of approximately $53.0 million.
During the six months ended August 31, 2022, the Company recognized $25.4 million of maintenance and other revenue related to payments received on maintenance and general security letters of credit for our former Russian lessees. We are pursuing collection on remaining letters of credit totaling $24.1 million.
Note 4. Lease Rental Revenues
Minimum future lease rentals contracted to be received under our existing operating leases of flight equipment at August 31, 2022 were as follows:
Year Ending February 28/29,
Amount(1)
2023 (Remainder of fiscal year)$291,415 
2024546,501 
2025446,371 
2026331,792 
2027276,959 
Thereafter784,086 
Total$2,677,124 
_______________
(1)Reflects impact of lessee lease rental deferrals.
At August 31, 2022 and February 28, 2022, the amounts of lease incentive liabilities recorded in maintenance payments on our consolidated balance sheets were $20.1 million and $16.5 million, respectively.
Note 5. Net Investment in Leases, Net
At August 31, 2022 and February 28, 2022, our net investment in leases consisted of nine and eleven aircraft, respectively. The components of our net investment in leases at August 31, 2022 and February 28, 2022, were as follows:
August 31, 2022February 28, 2022
Lease receivable$46,444 $52,021 
Unguaranteed residual value of flight equipment93,620 100,068 
Net investment leases140,064 152,089 
Allowance for credit losses(2,445)(1,764)
Net investment in leases, net$137,619 $150,325 

13

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The activity in the allowance for credit losses related to our net investment in leases for the six months ended August 31, 2022 was as follows:
Amount
Balance at February 28, 2022
$1,764 
Provision for credit losses689 
Write-offs(8)
Balance at August 31, 2022
$2,445 
At August 31, 2022, future lease payments on net investment in leases are as follows:
Year Ending February 28/29,Amount
2023 (Remainder of fiscal year)$3,983 
20248,973 
20259,509 
20268,353 
20278,292 
Thereafter16,103 
Total lease payments to be received55,213 
Present value of lease payments - lease receivable(46,444)
Difference between undiscounted lease payments and lease receivable$8,769 
Note 6. Concentration of Risk
The classification of regions in the tables below is based on our customers’ principal place of business.
The geographic concentration of the net book value of our fleet (flight equipment held for lease and net investment in direct financing and sales-type leases, or “Net Book Value”) as of August 31, 2022 and February 28, 2022 was as follows:
 August 31, 2022February 28, 2022
RegionNumber
of
Aircraft
Net Book
Value %
Number
of
Aircraft
Net Book
Value %
Asia and Pacific65 29 %71 32 %
Europe90 29 %98 30 %
Middle East and Africa10 4 %10 4 %
North America37 19 %36 17 %
South America26 13 %25 13 %
Off-lease15 
(1)
6 %11 
(2)
4 %
Total243 100 %251 100 %
_______________
(1)Of the fifteen off-lease aircraft at August 31, 2022, we have two narrow-body aircraft and six wide-body aircraft which we are currently marketing for lease or sale.
(2)Of the eleven off-lease aircraft at February 28, 2022, we have three wide-body aircraft which we are currently marketing for lease or sale.


14

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The following table sets forth individual countries representing at least 10% of our Net Book Value as of August 31, 2022 and February 28, 2022:
 August 31, 2022February 28, 2022
CountryNet Book
Value
Net Book
Value %
Number
of
Lessees
Net Book
Value
Net Book
Value %
Number
of
Lessees
India$656,090 10%3$670,523 10%3
The geographic concentration of our lease rental revenue earned from flight equipment held for lease was as follows:
 Three Months Ended August 31,Six Months Ended August 31,
Region2022202120222021
Asia and Pacific35 %32 %34 %33 %
Europe29 %36 %29 %35 %
Middle East and Africa5 %5 %5 %5 %
North America18 %15 %17 %15 %
South America13 %12 %15 %12 %
Total100 %100 %100 %100 %
The following table shows the number of lessees with lease rental revenue of at least 5% of total lease rental revenue and their combined total percentage of lease rental revenue for the periods indicated:
Three Months Ended August 31,Six Months Ended August 31,
2022202120222021
Number of LesseesCombined % of Lease
Rental Revenue
Number of LesseesCombined % of Lease
Rental Revenue
Number of LesseesCombined % of Lease
Rental Revenue
Number of LesseesCombined % of Lease
Rental Revenue
Largest lessees by lease rental revenue428%430%323%534%
For the three months ended August 31, 2022, total revenue attributable to the U.K, the United States, and India was 11%, 11%, and 10%, respectively. Total revenue attributable to the U.K. included $11.9 million of maintenance revenue resulting from the lease termination of one freighter aircraft – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. For the three months ended August 31, 2021, total revenue attributable to India was 13% and less than 10% for the U.K. and the United States.
For the six months ended August 31, 2022 and 2021, total revenue attributable to India was 11% and 13%, respectively.
Judicial Insolvency Proceedings or Similar Protection
As of October 7, 2022, three of our customers, to which we lease sixteen aircraft, are subject to judicial insolvency proceedings or similar protection. We have signed restructured lease agreements for fifteen of these aircraft, subject only to the lessees emerging from their respective judicial insolvency processes, and a restructured lease commitment for one of these aircraft.

15

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Note 7. Unconsolidated Equity Method Investments
We have a joint venture with Mizuho Leasing which has nine aircraft with a net book value of $292.0 million at August 31, 2022.
Amount
Investment in joint venture at February 28, 2022
$38,317 
Earnings from joint venture, net of tax1,177 
Investment in joint venture at August 31, 2022
$39,494 
On June 30, 2022, the Company received full repayment of the unsecured loan facility it provided to the joint venture in the amount of $1.5 million.
Note 8. Borrowings from Secured and Unsecured Debt Financings
The outstanding amounts of our secured and unsecured debt financings were as follows:
 
At August 31, 2022
At
February 28, 2022
Debt ObligationOutstanding
Borrowings
Number of AircraftInterest RateFinal Stated
Maturity
Outstanding
Borrowings
Secured Debt Financings:
ECA Financings(1)
$  %N/A$21,576 
Bank Financings(2)
629,479 31 
3.13% to 4.55%
06/17/23 to 03/06/25666,258 
Less: Debt issuance costs and discounts(2,703) (3,795)
Total secured debt financings, net of debt issuance costs and discounts626,776 31 684,039 
Unsecured Debt Financings:
Senior 5.00% Notes due 2023500,000 5.00%04/01/23500,000 
Senior 4.40% Notes due 2023650,000 4.40%09/25/23650,000 
Senior Notes due 2024500,000 4.125%05/01/24500,000 
Senior Notes due 2025650,000 5.25%08/11/25650,000 
Senior Notes due 2026650,000 4.25%06/15/26650,000 
Senior Notes due 2028750,000 2.85%01/26/28750,000 
Unsecured Term Loans155,000 3.38%02/27/24155,000 
Revolving Credit Facilities95,000 
3.24% to 4.24%
02/28/23 to 05/24/2520,000 
   Less: Debt issuance costs and discounts(34,886)(39,159)
Total unsecured debt financings, net of debt issuance costs and discounts3,915,114 3,835,841 
Total secured and unsecured debt financings, net of debt issuance costs and discounts$4,541,890 $4,519,880 
        
(1)In May 2022, the Company repaid the principal and accrued interest outstanding under our remaining ECA Financing and incurred early extinguishment costs of $0.5 million.
(2)The borrowings under these financings at August 31, 2022 have a weighted-average fixed rate of interest of 3.81%.

16

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
Unsecured Debt Financings:
Revolving Credit Facilities
On May 24, 2022, we entered into an amendment for one of our unsecured revolving credit facilities that expanded the size and extended the term of the facility. As a result, the existing $230.0 million commitment was expanded to $280.0 million, with $35.0 million and $245.0 million of the commitment allocated to Tranche B and Tranche C, respectively. Tranche B will mature on February 28, 2023 and Tranche C will mature on May 23, 2025. Tranche A matured on its stated maturity date of December 27, 2021.
On June 27, 2022, a $100.0 million commitment under one of our unsecured revolving credit facilities, with a total commitment of $1.0 billion, matured on its stated maturity date. On September 8, 2022, we entered into an amendment that expanded the size of the facility from $900.0 million to $1.0 billion and replaced LIBOR with Term Secured Overnight Financing Rate (“SOFR”) as the benchmark interest rate. The facility bears interest at Adjusted Term SOFR (as defined in the amendment to the credit agreement) plus a margin of 1.625% per year and matures on April 26, 2025.
On July 30, 2022, a $50.0 million commitment under our revolving credit facility with Mizuho Bank Ltd., a related party, matured on its stated maturity date.
As of August 31, 2022, we had $95.0 million outstanding under our revolving credit facilities and had $1.2 billion available for borrowing.
As of August 31, 2022, we were in compliance with all applicable covenants in our financings.
Note 9. Shareholders' Equity
On March 15, 2022, the Company paid a quarterly dividend in the amount of $10.5 million for its Preference Shares, which was approved by the Company’s Board of Directors on January 6, 2022, and accrued as of February 28, 2022.
On September 15, 2022, the Company paid a quarterly dividend in the amount of $10.5 million for its Preference Shares, which was approved by the Company’s Board of Directors on July 6, 2022, and accrued as of August 31, 2022.
Note 10. Related Party Transactions
The Company incurred fees from Marubeni as part of its intra-company service agreement totaling $1.2 million and $0.9 million during the three months ended August 31, 2022 and 2021, respectively, and $2.6 million and $1.9 million during the six months ended August 31, 2022 and 2021, respectively, whereby Marubeni provides certain management and administrative services to the Company. In addition, the Company purchased parts under a parts management services and supply agreement with an affiliate of Marubeni totaling $2.3 million and $1.4 million during the three months ended August 31, 2022 and 2021, respectively, and $4.0 million and $2.0 million during the six months ended August 31, 2022 and 2021, respectively.
Note 11. Income Taxes
Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

17

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
August 31, 2022
The sources of income (loss) from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three and six months ended August 31, 2022 and 2021 were as follows:
 Three Months Ended August 31,Six Months Ended August 31,
 2022202120222021
U.S. operations$4,790 $4,479 $10,126 $8,190 
Non-U.S. operations(18,217)