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A N N U A L R E P O RT 2 0 15
DEAR SHAREHOLDERS:
Aircastle closed a very successful 2015 with a surge of activity
amidst an evolving market. Over the past year, the business
climate changed considerably, with sharply lower fuel prices and
slowing economic growth in several parts of the world. More
recently, financial markets volatility has increased. Such changes
are not unique over time and, indeed, are to be expected in one
form or another. Aircastle is built not only to withstand market
variations, but also to prosper from them.
Three basic investment propositions comprise the core of our
point of view and our approach:
1. Air travel demand is likely to remain strong over the
long term. Over the past decade, passenger traffic has
increased more than 5% per annum, or nearly twice global
GDP. In 2015, the growth rate rose to 6.5%, spurred by lower
ticket prices made possible by cheap fuel.
2. More air travel bodes well for a healthy demand for
modern aircraft and for leasing. Indeed, last year, the
global airline industry achieved record load factors which
exceeded 80%. To further evidence the growth in lease
demand, leasing companies now own more than 40% of
the world’s fleet versus around 25% a decade ago.
3. Because economic conditions vary with time and
region, prime investment opportunities tend to arise
during times of doubt or volatility.
Aircastle is, by design, not the world’s largest aircraft leasing
company. We are, nonetheless, the largest such value investor
and our approach differs from our competitors. We’re
disciplined, contrarian investors who create value when market
conditions are not entirely conventional and straightforward.
Based on our strategy of expert execution, flexible capital and
ability to act decisively in fluid situations, we’ve staked out a
strategically unique and vital position in the market. We believe
ours is a necessary, profitable and pivotal role in our category.
We are ideally situated to take advantage of this unique position
and to define the inherent opportunities on our terms.
We enjoy limited long-term capital commitments —by design.
We maintain a conservative capital structure that affords
significant investment flexibility and have a team with top-notch
investment sourcing and asset management capabilities through
which to deploy that capital. We can also rely on two long-term
minded strategic shareholders, Marubeni Corporation of Japan
and Ontario Teachers’ Pension Plan, with whom we’re working
together closely to make Aircastle a better company.
Taking advantage of strong market conditions over the past
year, we methodically upgraded our portfolio and de-risked our
business. Our success in doing so was borne out in our strong
financial results for 2015 as well as in the Company’s positioning
going forward.
Year in Review
Aircastle’s financial results for 2015 were solid. We recorded net
income of nearly $122 million, an improvement of more than
20% versus the preceding year. We increased our profitability,
despite taking write-downs to address suboptimal assets
and redeploying equipment out of difficult jurisdictions such
as Russia. Aircastle’s results reflect our consistently excellent
operational performance. Our fleet utilization was more than
99% throughout the year.
Our results and the quality of our portfolio were also bolstered
by our successes in selling assets. We seized on strong investor
demand to produce a record $58 million in gains on asset sales
encompassing 31 aircraft with an average age of more than 15
years. These sales not only helped improve our portfolio, they
also drove our cash ROE to 15.6%, its highest level ever. These
excellent sales results were the latest examples in a history of
such successes. In fact, over the past three years we’ve sold more
than 100 aircraft relative to a fleet of some 160 aircraft, while
continuing to grow the asset base. These results demonstrate
our effectiveness as asset managers and asset optimizers.
Our liquidity position and cash flows are robust. In fact,
operating cash flow during 2015 was a record $526 million.
Our liquidity profile also benefited from more than $560 million
in asset sales during the year and from increasing our unsecured
revolver facility to $600 million and extending its maturity to
spring 2019. Moreover, our unencumbered asset base now
stands at around $4 billion, providing us with financial flexibility.
These actions and results solidify our foundation and position us
well with regards to our goal of achieving an investment grade
credit rating over time.
Our investment activity during 2015 was very good, particularly
when considering the strong competition we faced. We
completed $1.4 billion in aircraft acquisitions. While this is
lower than 2014’s exceptional $1.8 billion result, it is an excellent
example of our investment discipline. Of the 46 aircraft we
acquired, 43 were narrow-bodies. This change in our assets is
part of a broader fleet transformation as we’ve nearly doubled
the number of current generation narrow-body aircraft in our
portfolio since 2010.
In a demonstration of how we purchase new aircraft when
appropriate, we also agreed to buy 25 new E-Jet E2 aircraft
from Embraer. These aircraft deliver over four years, beginning
in 2018, and represent a promising long-term partnership
with Embraer as it looks to build on its existing customer
base of more than 70 operators around the world. Unlike its
competitors, Embraer is continuing to record new sales, and we
believe the E2s are very competitively positioned.
Fuel prices continue to have an important and multi-faceted
impact on our business as their movements are capturing recent
news headlines. The cost of jet fuel now stands at around one
third the level it was 30 months ago. Cheap fuel is a major
driver of airline profitability and it benefits aircraft leasing
companies like Aircastle. In many cases, low fuel costs effectively
counteract the impacts of local currency weakness versus the
US dollar and they also bolster demand for increasingly cost-
competitive current technology aircraft.
Aircastle took advantage of excellent demand and addressed
nearly all our aircraft placement needs over the next year. We
pushed the average remaining lease term out to nearly six years
in a strategy designed to provide us with a good steady flow of
revenue and operational stability.
We remain devoted to deploying capital efficiently and
intelligently and doing right by our shareholders in both up
and in down markets. This commitment includes growing our
business in a way that is consistent with our philosophy and our
strategic plan. It also entails sharing a portion of our sustainable
earnings with our shareholders as we have for 39 straight
quarters. On those occasions when we believe the market hasn’t
appropriately valued our equity, we’ve further demonstrated our
faith in that equity as we did recently through share repurchases.
The Future
Aircastle was built for and has always been proactively
responsive to the ebbs and flows of the business environment.
Increases in economic volatility are bound to happen every
few years as that has proven to be the historical reality. We
expect this will continue to be the case. This is why providing for
changing circumstances is a fundamental part of our business
model and, we believe, a positive risk mitigator. Nevertheless,
we believe there is likely to be a strong, steady and continuing
trend in the growth in air travel and, in turn, in the demand for
aircraft and aircraft leasing. This is the trend that provides the
underlying support of our sector.
I would like to leave you with two key points about our past year
and about Aircastle going forward:
1. We are not burdened by large, inflexible long-term capital
commitments, so we are strategically and tactically in a
position to seize on prime opportunities as they present
themselves.
2. We improved our portfolio and de-risked our business so as
to have a strong foundation and an expanded capability to
act on the opportunities at hand.
Our differentiating strategic approach is actually quite
straightforward. It’s to put our capital to work in moments
where we can earn strong returns. It’s not about tying up our
capital or our team. As this is a different path than most of
our competitors have chosen, we believe it is intrinsically more
conducive to lower risk and higher returns.
We really like where we’ve positioned Aircastle. I would like to
express my sincere appreciation to all who have contributed
to and provided support for our historical successes and for
building a solid foundation for the future.
Sincerely,
Ron Wainshal
Chief Executive Officer, Aircastle Limited
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2015
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)
Bermuda
(State or other Jurisdiction of
Incorporation or organization)
98-0444035
(I.R.S. Employer
Identification No.)
300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902
(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
Name of Each Exchange on Which Registered
Common Shares, par value $.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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
No
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on June 30, 2015 (the last business
day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was approximately $1.24 billion. 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.
No
As of February 5, 2016, there were 78,564,901 outstanding shares of the registrant’s common shares, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Documents of Which Portions
Are Incorporated by Reference
Parts of Form 10-K into Which Portion
Of Documents Are Incorporated
Proxy Statement for Aircastle Limited
2016 Annual General Meeting of Shareholders
Part III
(Items 10, 11, 12, 13 and 14)
TABLE OF CONTENTS
Page
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
1
10
28
28
29
29
31
34
37
63
63
64
64
66
66
66
66
66
66
67
S - 1
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements included or incorporated by reference in this Annual Report on Form 10-K (this “report”), other than
characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including
the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily
limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase
revenues, earnings, EBITDA, Adjusted EBITDA and Adjusted Net Income and the global aviation industry and aircraft
leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,”
“could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such
forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on
our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially
different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will
be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject
to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of
this report. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings
with the Securities and Exchange Commission (“SEC”), including as described in Item 1A, and elsewhere in this report. In
addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the
impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements.
Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims any obligation to
revise or update publicly any forward-looking statement to reflect future events or circumstances.
WEBSITE AND ACCESS TO COMPANY’S REPORTS
The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Forms 10-K, quarterly
reports on Forms 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website under “Investors — SEC Filings”
as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S.
taxpayers are also available free of charge through our website under “Investors — SEC Filings”.
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board of Directors committee
charters (including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate
Governance Committee) are available free of charge through our website under “Investors — Corporate Governance”. In
addition, our Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to our Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, is available in print, free of charge, to
any shareholder upon request to Investor Relations, Aircastle Limited, c/o Aircastle Advisor LLC, 300 First Stamford Place,
5th Floor, Stamford, Connecticut 06902.
The information on the Company’s website is not part of, or incorporated by reference, into this report, or any other
report we file with, or furnish to, the SEC.
ITEM 1. BUSINESS
PART I.
Unless the context suggests otherwise, references in this report to “Aircastle,” the “Company,” “we,” “us,” or “our”
refer to Aircastle Limited and its subsidiaries. References in this report to “Aircastle Bermuda” refer to Aircastle Holding
Corporation Limited and its subsidiaries. Throughout this report, when we refer to our aircraft, we include aircraft that
we have transferred into grantor trusts or similar entities for purposes of financing such assets through securitizations and
term financings. These grantor trusts or similar entities are consolidated for purposes of our financial statements. All
amounts in this report are expressed in U.S. dollars and the financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (“U.S. GAAP”).
We acquire, lease, and sell commercial jet aircraft with large, global operator bases and long useful lives. As of
December 31, 2015, our aircraft portfolio consisted of 162 aircraft leased to 53 lessees located in 34 countries. Our aircraft
fleet is managed by an experienced team based in the United States, Ireland and Singapore. Typically, our aircraft are subject
to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance
and insurance costs arising during the term of the lease. We also may occasionally make investments in other aviation assets,
including debt investments secured by commercial jet aircraft. As of December 31, 2015, the net book value of our flight
equipment and finance and sales-type lease aircraft was $6.07 billion compared to $5.69 billion at the end of 2014. Our
revenues and net income for the year ended December 31, 2015 were $819.2 million and $121.7 million, respectively, and
for the fourth quarter of 2015 were $208.3 million and $50.6 million, respectively.
Growth in commercial air traffic is broadly correlated with world economic activity and, in recent years, has been
expanding at a rate of one and a half to two times that of global GDP growth. The expansion of air travel has driven a rise
in the world aircraft fleet. There are currently 19,000 commercial mainline passenger and freighter aircraft in operation
worldwide. This fleet is expected to continue expanding at an average annual rate of three to four percent per annum over
the next 20 years. In addition, aircraft leasing companies own an increasing share of the world’s commercial jet aircraft
and now account for approximately 40% of this fleet.
Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject
to economic variability, as well as to changes in macroeconomic relations such as fuel price levels and foreign exchange
rates. The industry is susceptible to external shocks, such as regional conflicts and terrorist events. Mitigating these risks
is the portability of the assets, allowing aircraft to be redeployed in locations where demand is higher.
Air traffic data for the past several years has shown strong passenger market growth. According to the International
Air Transport Association, during 2015, global passenger traffic increased 6.5% compared to 2014. This strong growth was,
in part, stimulated by lower air fare prices resulting from the significant drop in fuel prices. Air cargo demand, which is
more sensitive to economic conditions, appears to have stabilized. However, the air cargo market continues to be hampered
by oversupply arising from the production of dedicated freighter aircraft as well as the rapid growth in belly cargo capacity
in passenger aircraft. During 2015, air cargo traffic increased 2.2% on a year over year basis, but capacity increased 6.1%,
further depressing load factors.
There are large regional variations in demand for air travel. Emerging market economies have been experiencing
significant increases in air traffic, driven by rising levels of per capita income. Air traffic growth in some regions is being
driven by the proliferation of low cost carriers, which have stimulated demand through lower prices, and by the expansion
of long-haul “hub and spoke” traffic, such as that flowing through the Persian Gulf. Mature markets, such as North America
and Western Europe, are likely to grow more slowly in tandem with their economies. Also, airlines operating in areas with
political instability or weakening economies, such as those in Russia and Brazil, will face increasing pressures, and their
near-term outlook is more uncertain. On balance, we believe air travel will increase over time, and as a result, we expect
demand for modern aircraft will continue to remain strong over the long-term.
Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our
business and if pursued properly, represents an important source of opportunity. Both debt and equity markets have improved
globally over the past several years with the recovery from the global financial crisis. Strong U.S. debt capital market
conditions benefited borrowers by permitting access to financing at historic lows while higher fees have driven down export
credit agency (“ECA”) demand. Commercial bank debt continues to play a critical role in the air finance market, although
we believe regulatory pressures will ultimately limit its role. However, recent heightened financial markets volatility
1
stemming from global growth concerns and falling oil prices may increase capital costs and limit availability going forward.
We believe these market forces could generate attractive new investment and trading opportunities upon which we are well
placed to capitalize given our access to different financing sources and our limited capital commitments. Over the longer
term, our strategy is to achieve an investment grade credit rating, which we believe will reduce our borrowing costs and
enable more reliable access to debt capital throughout the business cycle.
We believe our business approach is differentiated from those of other large leasing companies. Our investment strategy
is to seek out the best risk-adjusted return opportunities across the commercial jet market, regardless of aircraft type or
investment source, so our acquisition targets vary with market opportunities. Additionally, our business approach is much
less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments, as we prefer to limit large,
long-term future capital commitments. In general, we focus on discerning investment value in situations that are often more
bespoke and generally less competitive.
Competitive Strengths
We believe that the following competitive strengths will allow us to capitalize on future growth opportunities in the
global aviation industry:
•
• Flexible, disciplined acquisition approach and broad investment sourcing network. Our investment strategy
is to seek out the best risk-adjusted return opportunities across the commercial jet market, so our acquisition
targets vary with market opportunities. Indeed, we consider Aircastle to be the industry’s largest “value investor.”
We source our acquisitions through well-established relationships with airlines, other aircraft lessors,
manufacturers, financial institutions and other aircraft owners. Since our formation in 2004, we built our aircraft
portfolio through more than 125 transactions with 75 counterparties.
Strong capital raising track record and access to a wide range of financing sources. Aircastle is a publicly
listed company and our shares have traded on the New York Stock Exchange since 2006. Since our inception in
late 2004, we raised approximately $1.7 billion in equity capital from private and public investors. Our two
largest shareholders are Marubeni Corporation (“Marubeni”) and Ontario Teachers’ Pension Plan (“Teachers’”)
with whom we maintain strong, strategic relationships. We also obtained $11.7 billion in debt capital from a
variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization
markets and the unsecured bond market. The diversity and global nature of our financing sources demonstrates
our ability to adapt to changing market conditions and seize new opportunities.
• Our capital structure is long-dated and provides investment flexibility. Our aircraft are currently financed under
debt financings with a weighted average debt maturity of 4.0 years. We also have a $600 million unsecured
revolving credit facility that expires in 2019, thereby limiting our near-term financial markets exposure. As such,
and given our relatively limited future capital commitments, we have resources to take advantage of what we
anticipate will be a more attractive investment environment. We also believe that our access to the unsecured
bond market and our unsecured revolving line of credit, which are enabled by our large unencumbered asset base,
allow us to pursue a flexible and opportunistic investment strategy.
•
• Experienced management team with significant expertise. Each member of our management team has more
than twenty years of industry experience and has expertise in the acquisition, leasing, financing, technical
management, restructuring/repossession or sale of aviation assets. This experience spans several industry cycles
and a wide range of business conditions and is global in nature. We believe our management team is highly
qualified to manage and grow our aircraft portfolio and to address our long-term capital needs.
Significant experience in successfully selling aircraft throughout their life cycle. Since our formation, we sold
141 aircraft for $3.1 billion. These sales produced net gains of $192 million and involved a wide range of aircraft
types and buyers. Our team is adept at managing and executing the sale of both new and used aircraft. We sold
100 aircraft that were 15 or more years old at the time of sale, with many of these being sold on a part-out
disposition basis, where the airframe and engines may be sold to various buyers. We believe this sales experience
with older aircraft is an essential portfolio management skill and one of the capabilities that sets us apart from
many of our larger competitors.
• Diversified portfolio of modern aircraft. We have a portfolio of modern aircraft that is diversified with respect
to lessees, geographic markets, lease maturities and aircraft types. As of December 31, 2015, our aircraft portfolio
consisted of 162 aircraft, comprising a variety of aircraft types leased to 53 lessees located in 34 countries. Our
lease expirations are well dispersed, with a weighted average remaining lease term of 5.9 years as of December 31,
2
2015. This provides the company with a long-dated base of contracted revenues. We believe our focus on portfolio
diversification reduces the risks associated with individual lessee defaults and adverse geopolitical or economic
issues, and results in generally predictable cash flows.
• Global and scalable business platform. We operate through offices in the United States, Ireland and Singapore,
using a modern asset management system designed specifically for aircraft operating lessors and capable of
handling a significantly larger aircraft portfolio. We believe that our current facilities, systems and personnel are
capable of supporting an increase in our revenue base and asset base without a proportional increase in overhead
costs.
Business Strategy
The overall financing environment has improved in recent years and aircraft owners generally have benefited from
the low interest rate environment. Particularly strong conditions in the debt capital markets have provided select borrowers,
including Aircastle, with access to attractively priced, flexible financing providing a competitive advantage over airlines
and lessors that lack similar access. Moreover, traditional asset-based financing for aircraft from commercial banks remains
limited, particularly for older aircraft. Going forward, recent heightened financial markets volatility stemming from global
growth concerns and falling oil prices may increase capital costs and limit availability. This may enable more attractive
investment opportunities for Aircastle.
We plan to grow our business and profits over the long-term by continuing to employ the following elements of our
fundamental business strategy:
• Pursuing a disciplined and differentiated investment strategy. In our view, aircraft values change in different
ways over time. As a consequence, we carefully evaluate investments across different aircraft models, ages,
lessees and acquisition sources and re-evaluate these choices periodically as market conditions and relative
investment values change. We believe the financing flexibility offered through unsecured debt and our team’s
experience with a wide range of asset types enables our value oriented strategy and provides us with a competitive
advantage for many investment opportunities. We view orders from equipment manufacturers to be part of our
investment opportunity set but choose to limit long term capital commitments unless we believe there is an
adequate return premium to compensate for risks and opportunity costs.
• Originating investments from many different sources across the globe. Our strategy is to seek out worthwhile
investments broadly leveraging our team’s wide range of contacts around the world. We utilize a multi-channel
approach to sourcing acquisitions and have purchased aircraft from a large number of airlines, lessors, original
equipment manufacturers, lenders and other aircraft owners. Since our formation in 2004, we have acquired
aircraft from 75 different sellers.
• Maintaining a conservative capital commitment profile. We choose to limit long term capital commitments
unless we believe there to be an adequate return premium to compensate for risks and opportunity costs. This
approach sets us apart from most other large aircraft leasing companies.
• Leveraging our strategic relationships. We intend to capture the benefits provided through the extensive global
contacts and relationships maintained by Marubeni Corporation, which is our biggest shareholder and one of the
largest Japanese trading companies. Our joint venture with Teachers’ provides us with an opportunity to pursue
larger transactions, manage portfolio concentrations on improve our return on deployed capital.
• Maintaining efficient access to capital from a wide range of sources while targeting an investment grade credit
rating. We believe the aircraft investment market is subject to forces related to the business cycle and our strategy
is to increase our purchase activity when prices are low and to emphasize asset sales when competition for assets
is high. To implement this approach, we believe it is very important to maintain access to a wide variety of
financing sources. Our strategy is to improve our corporate credit ratings to an investment grade level by
maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth.
We believe improving our credit rating will not only reduce our borrowing costs but also facilitate more reliable
access to both secured and unsecured debt capital throughout the business cycle.
Selling assets when attractive opportunities arise and for portfolio management purposes. We pursue asset
sales, as opportunities arise over the course of the business cycle, with the aim of realizing profits and reinvesting
proceeds where more accretive investments are available. We also use asset sales for portfolio management
purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft
types, and as an exit from investments when a sale would provide the greatest expected cash flow for us.
•
3
•
• Capturing the value of our efficient operating platform and strong operating track record. We believe our
team’s capabilities in the global aircraft leasing market place us in a favorable position to source and manage
new income-generating activities. We intend to continue to focus our efforts in areas where we believe we have
competitive advantages, including new direct investments as well as ventures with strategic business partners.
Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels.
Aircastle has paid dividends each quarter since our initial public offering in 2006. On October 30, 2015, our
Board of Directors declared a regular quarterly dividend of $0.24 per common share, or an aggregate of $19.4
million for the three months ended December 31, 2015, which was paid on December 15, 2015 to holders of
record on November 30, 2015. These dividend amounts may not be indicative of any future dividends. Our
ability to pay quarterly dividends will depend upon many factors, including those as described in Item 1A. “Risk
Factors” and elsewhere in this report.
Declaration Date
Dividend
per Common
Share
Aggregate
Dividend
Amount
(Dollars in thousands)
October 30, 2015
August 4, 2015
May 4, 2015
February 17, 2015
October 31, 2014
July 28, 2014
May 5, 2014
February 21, 2014
October 29, 2013
August 2, 2013
May 1, 2013
February 18, 2013
$
$
$
$
$
$
$
$
$
$
$
$
0.240
0.220
0.220
0.220
0.220
0.200
0.200
0.200
0.200
0.165
0.165
0.165
$
$
$
$
$
$
$
$
$
$
$
$
19,377
17,860
17,863
17,860
17,817
16,201
16,202
16,201
16,163
13,330
11,297
11,268
Record Date
Payment Date
November 30, 2015
December 15, 2015
August 31, 2015
September 15, 2015
May 29, 2015
March 6, 2015
June 15, 2015
March 13, 2015
November 28, 2014
December 15, 2014
August 29, 2014
September 12, 2014
May 30, 2014
March 7, 2014
June 13, 2014
March 14, 2014
November 29, 2013
December 13, 2013
August 30, 2013
September 13, 2013
May 31, 2013
March 4, 2013
June 14, 2013
March 15, 2013
We believe our team’s capabilities in the global aircraft leasing market place us in a favorable position to explore new
income-generating activities as capital becomes available for such activities. We intend to continue to focus our efforts on
investment opportunities in areas where we believe we have competitive advantages and on transactions that offer attractive
risk/return profiles after taking into consideration available financing options. In any case, there can be no assurance that
we will be able to access capital on a cost-effective basis and a failure to do so could have a material adverse effect on our
business, financial condition or results of operations.
Acquisitions and Sales
We originate acquisitions and sales through well-established relationships with airlines, other aircraft lessors, financial
institutions and brokers, as well as other sources. We believe that sourcing such transactions both globally and through
multiple channels provides for a broad and relatively consistent set of opportunities.
Our objective is to develop and maintain a diverse and stable operating lease portfolio. We review our operating lease
portfolio periodically to sell aircraft opportunistically, to manage our portfolio diversification and to exit from aircraft
investments when we believe selling will achieve better expected risk-adjusted cash flows than reinvesting in and re-leasing
the aircraft. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview
— Acquisitions and Sales.”
We have an experienced acquisitions and sales team based in Stamford, Connecticut; Dublin, Ireland and Singapore
that maintains strong relationships with a wide variety of market participants throughout the world. We believe that our
seasoned personnel and extensive industry contacts facilitate our access to acquisition and sales opportunities and that our
strong operating track record facilitates our access to debt and equity capital markets.
Potential investments and sales are evaluated by teams comprised of marketing, technical, risk management, financial
and legal professionals. These teams consider a variety of aspects before we commit to purchase or sell an aircraft, including
4
price, specification/configuration, age, condition and maintenance history, operating efficiency, lease terms, financial
condition and liquidity of the lessee, jurisdiction, industry trends and future redeployment potential and values, among other
factors. We believe that utilizing a cross-functional team of experts to consider the investment parameters noted above will
help us assess more completely the overall risk and return profile of potential acquisitions and will help us move forward
expeditiously on letters of intent and acquisition documentation. Our letters of intent are typically non-binding prior to
internal approval, and upon internal approval, are binding subject to the fulfillment of customary closing conditions.
Finance
We intend to fund new investments through cash on hand, cash flows from operations, our revolving credit facility
and medium to long-term financings. We may repay all or a portion of such borrowings from time to time with the net
proceeds from subsequent long-term debt financings, additional equity offerings, cash generated from operations and asset
sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft
or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms
we deem attractive.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Secured Debt Financings” and “ — Unsecured Debt Financings” under Item 7.
Segments
The Company manages, analyzes and reports on its business and results of operations on the basis of one operating
segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief
operating decision maker.
Aircraft Leases
Nearly all of our aircraft are contracted on operating leases. Under an operating lease, we retain the benefit, and bear
the risk, of re-leasing and of the residual value of the aircraft at the end of the lease. Operating leasing can be an attractive
alternative to ownership for an airline because leasing increases their fleet flexibility, requires lower capital commitments,
and significantly reduces aircraft residual value risks. Under these leases, the lessee agrees to lease an aircraft for a fixed
term, although certain of our operating leases allow the lessee the option to extend the lease for an additional term or, in
rare cases, terminate the lease prior to its expiration. As a percentage of lease rental revenue for the year ended December 31,
2015, our three largest customers, LATAM Airlines Group S.A., Iberia Lineas Aereas de Espana S.A. and South African
Airways Pty. Ltd., accounted for 6%, 6% and 5%, respectively.
The scheduled maturities of our aircraft leases by aircraft type grouping currently are as follows, taking into account
lease placement and renewal commitments as of February 5, 2016:
A319/A320/A321
A330-200/300
737-700/800/900ER
757-200
777-200ER/300ER
—
1
—
—
—
2
5
2
5
1
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
1
1
3
5
2
5
8
1
9
14
4
3
2
11
— —
10
3
9
3
4
4
5
4
1
1
1
1
1 — —
1 —
4 — —
1 — — —
— — — — — — — —
1
2 —
1
E195
Freighters
Total
____________
— — — — — —
1
2
4
19
4 — — —
11
14
18
22
—
—
1
13
1
1
1
1 — — — —
4 — — — — —
1 — — — — — —
17
21
11
5
6
1
1
Off-
Lease(1)
Total
—
—
1
—
—
—
—
1
63
24
45
6
8
5
11
162
(1) Includes one new Boeing 737-800 purchased in February 2016 which is being marketed for lease.
5
2016 Lease Expirations and Lease Placements
We began 2016 with three aircraft having scheduled lease expirations in 2016 that did not already have signed lease
commitments in place and one off lease aircraft. We have since extended the lease for one of these aircraft. The remaining
three aircraft, which account for 1.3% of our net book value of flight equipment (including flight equipment held for lease
and net investment in finance and sales-type leases) at December 31, 2015, represent our best estimate for the aircraft which
we will need to place on lease or sell this year. We now expect to sell two of these three aircraft. In February 2016, we
agreed to purchase three new Boeing 737-800 aircraft delivering between the first and third quarters of 2016. We are actively
marketing these aircraft and expect to have them on lease by the delivery of the final aircraft.
2017-2020 Lease Expirations and Lease Placements
Taking into account lease and sale commitments, we currently have the following number of aircraft with lease
expirations scheduled in the period 2017-2020 representing the percentage of our net book value of flight equipment
(including flight equipment held for lease and net investment in finance and sales-type leases) at December 31, 2015 specified
below:
• 2017: 19 aircraft, representing 12%;
• 2018: 11 aircraft, representing 9%;
• 2019: 14 aircraft, representing 10%; and
• 2020: 18 aircraft, representing 6%.
Lease Payments and Security. Each of our leases requires the lessee to pay periodic rentals during the lease term. As
of December 31, 2015, rentals on more than 92% of our leases then in effect, as a percentage of net book value, are fixed
and do not vary according to changes in interest rates. For the remaining leases, rentals are payable on a floating interest-
rate basis. Most lease rentals are payable either monthly or quarterly in advance, and all lease rentals are payable in
U.S. dollars.
Under our leases, the lessee must pay operating expenses accrued or payable during the term of the lease, which would
normally include maintenance, overhaul, fuel, crew, landing, airport and navigation charges, certain taxes, licenses, consents
and approvals, aircraft registration and insurance premiums. Typically, under an operating lease, the lessee is required to
make payments for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These
maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and
are required to be made monthly in arrears or at the end of the lease term. Our determination of whether to permit a lessee
to make maintenance payments at the end of the lease term, rather than requiring such payments to be made monthly, depends
on a variety of factors, including the creditworthiness of the lessee, the amount of security deposit which may be provided
by the lessee and market conditions at the time. If a lessee is making monthly maintenance payments, we would typically
be obligated to use the funds paid by the lessee during the lease term to reimburse the lessee for costs they incur for heavy
maintenance, overhaul or replacement of certain high-value components, usually shortly following completion of the relevant
work. If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its
utilization of the aircraft during the lease; however, in some cases, we may owe a net payment to the lessee in the event
heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better
condition than at lease inception.
Many of our leases also contain provisions requiring us to pay a portion of the cost of modifications to the aircraft
performed by the lessee at its expense, if such modifications are mandated by recognized airworthiness authorities. Typically,
these provisions would set a threshold, below which the lessee would not have a right to seek reimbursement and above
which we may be required to pay a portion of the cost incurred by the lessee. The lessees are obliged to remove liens on
the aircraft other than liens permitted under the leases.
Our leases generally provide that the lessees’ payment obligations are absolute and unconditional under any and all
circumstances and require lessees to make payments without withholding payment on account of any amounts the lessor
may owe the lessee or any claims the lessee may have against the lessor for any reason, except that under certain of the
leases a breach of quiet enjoyment by the lessor may permit a lessee to withhold payment. The leases also generally include
an obligation of the lessee to gross up payments under the lease where lease payments are subject to withholding and other
taxes, although there may be some limitations to the gross up obligation, including provisions which do not require a lessee
to gross up payments if the withholdings arise out of our ownership or tax structure. In addition, changes in law may result
6
in the imposition of withholding and other taxes and charges that are not reimbursable by the lessee under the lease or that
cannot be so reimbursed under applicable law. Lessees may fail to reimburse us even when obligated under the lease to do
so. Our leases also generally require the lessee to indemnify the lessor for tax liabilities relating to the leases and the aircraft,
including in most cases, value added tax and stamp duties, but excluding income tax or its equivalent imposed on the lessor.
Portfolio Risk Management
Our objective is to build and maintain an operating lease portfolio which is balanced and diversified and delivers
returns commensurate with risk. We have portfolio concentration objectives to assist in portfolio risk management and
highlight areas where action to mitigate risk may be appropriate, and take into account the following:
•
•
•
•
•
individual lessee exposures;
geographic concentrations;
aircraft type concentrations;
portfolio credit quality distribution; and
lease maturity distribution.
We have a risk management team which undertakes detailed credit due diligence on lessees when aircraft are being
acquired with a lease already in place and for placement of aircraft with new lessees following lease expiration or termination.
Lease Management and Remarketing
Our aircraft re-leasing strategy is to develop opportunities proactively, well in advance of scheduled lease expiration,
to enable consideration of a broad set of alternatives, including passenger or freighter deployments, or part-out or other
sales, and to allow for reconfiguration or maintenance lead times where needed. We also take a proactive approach to
monitoring the credit quality of our customers, and seek early return and redeployment of aircraft if we feel that a lessee is
unlikely to perform its obligations under a lease. We have invested significant resources in developing and implementing
what we consider to be state-of-the-art lease management information systems and processes to enable efficient management
of aircraft in our portfolio.
Other Aviation Assets and Alternative New Business Approaches
As of December 31, 2015, our investment base consisted almost entirely of commercial jet aircraft. We believe
investment opportunities may arise in related areas such as financing secured by commercial jet aircraft as well as jet engine
and spare parts leasing, trading and financing. In the future, we may make opportunistic investments in these or other sectors
or in other aviation-related assets, and we intend to continue to explore other income-generating activities and investments.
We established a joint venture with Teachers’ in December 2013 to invest in leased aircraft. This joint venture is aimed
at leveraging our capabilities and to allow us to pursue larger opportunities than we would have on our own. As of December
31, 2015, the joint venture’s total assets were $516 million. At February 5, 2016, Teachers’ holds 10.0% of our outstanding
common shares. Therefore, each of the joint venture and the sales of the aircraft were arm's length related party transactions
under our related party policy and were approved by our Audit Committee.
We believe we have a world class servicing platform and may also pursue opportunities to capitalize on these capabilities
such as providing aircraft management services for third party aircraft owners.
Competition
The aircraft leasing and trading industry is highly competitive with a significant number of active participants. We
face competition for the acquisition of aircraft from airlines and other aircraft owners, for the placement of aircraft on lease
with airlines and for buyers of aircraft assets which we may wish to divest.
Competition for aircraft acquisitions comes from large established aircraft leasing companies, smaller players, and
new entrants. The improvement in financial markets conditions over the past several years has increased competition across
most asset types and has drawn many new investors to our business.
Larger lessors are generally more focused on acquiring new aircraft via both purchase and lease-back transactions
7
with airlines and through direct orders with the original equipment manufacturers. These larger lessors include GE Capital
Aviation Services, AerCap Holdings NV, Air Lease Corporation, Aviation Capital Group, CIT Aerospace, SMBC Aviation
Capital, BOC Aviation and Avolon Holdings/Bohai Leasing. In addition, several major Asian financial institutions have
entered the market for new aircraft over the past several years through new leasing subsidiaries and have been pursuing
business aggressively.
Many aircraft leasing companies appear to be in the midst of significant changes, which have the potential to affect
the industry structure. Avolon Holdings was recently acquired by Bohai Leasing, a Chinese leasing company affiliated with
HNA Group, and AWAS’ ownership group is exploring exit alternatives. Further, in late 2015, CIT announced it was
exploring strategic alternatives for CIT Aerospace, and Pacific Mutual Life announced it was contemplating a possible initial
public offering for its Aviation Capital Group unit. Bank of China and Development Bank of China are also exploring initial
public offerings for their leasing subsidiaries.
Competition for mid-aged and older aircraft typically comes from smaller players that, in many cases, rely on private
equity or hedge fund capital sources. Such competitors include Apollo Aviation Group, Deucalion, Castlelake, Alterna
Capital Partners and a number of relatively new players funded by alternative investment funds and companies. These
companies are typically fund-based, rather than having permanent capital structures, and have benefited from the substantially
improved availability of debt financing for mid-aged aircraft.
Competition for leasing or re-leasing of aircraft, as well as aircraft sales is based principally upon the availability, type
and condition of aircraft, lease rates, prices and other lease terms. Aircraft manufacturers, airlines and other operators,
distributors, equipment managers, leasing companies, financial institutions and other parties engaged in leasing, managing,
marketing or remarketing aircraft compete with us, although their focus may be on different market segments and aircraft
types.
Some of our competitors have, or may obtain, greater financial resources than we have and may have a lower cost of
capital. A number also commit to speculative orders of new aircraft to be placed on operating lease upon delivery from the
manufacturer, which compete with new and used aircraft offered by other lessors. However, we believe that we are able to
compete favorably in aircraft acquisition, leasing and sales activities due to the reputation of our team of experienced
professionals, extensive market contacts and expertise in sourcing and acquiring aircraft. We also believe our access of
unsecured capital markets debt provides us with a competitive advantage in pursuing investments quickly and reliably and
in acquiring aircraft in situations for which it may be more difficult to finance on a secured, non-recourse basis.
Employees
As of December 31, 2015, we had 103 employees. None of our employees are covered by a collective bargaining
agreement, and we believe that we maintain excellent employee relations. We provide certain employee benefits, including
retirement benefits, and health, life, disability and accident insurance plans.
Insurance
We require our lessees to carry airline general third-party legal liability insurance, all-risk aircraft hull insurance (both
with respect to the aircraft and with respect to each engine when not installed on our aircraft) and war-risk hull and legal
liability insurance. We are named as an additional insured on liability insurance policies carried by our lessees, and we or
one of our lenders would typically be designated as a loss payee in the event of a total loss of the aircraft. We maintain
contingent hull and liability insurance coverage with respect to our aircraft which is intended to provide coverage for certain
risks, including the risk of cancellation of the hull or liability insurance maintained by any of our lessees without notice to
us, but which excludes coverage for other risks such as the risk of insolvency of the primary insurer or reinsurer.
We maintain insurance policies to cover non-aviation risks related to physical damage to our equipment and property,
as well as with respect to third-party liabilities arising through the course of our normal business operations (other than
aircraft operations). We also maintain limited business interruption insurance to cover a portion of the costs we would expect
to incur in connection with a disruption to our main facilities, and we maintain directors’ and officers’ liability insurance
providing coverage for liabilities related to the service of our directors, officers and certain employees. Consistent with
industry practice, our insurance policies are generally subject to deductibles or self-retention amounts.
We believe the insurance coverage currently carried by our lessees and by Aircastle provides adequate protection
against the accident-related and other covered risks involved in the conduct of our business. However, there can be no
8
assurance that we have adequately insured against all risks, that lessees will at all times comply with their obligations to
maintain insurance, that our lessees’ insurers and re-insurers will be or will remain solvent and able to satisfy any claims,
that any particular claim will ultimately be paid or that we will be able to procure adequate insurance coverage at commercially
reasonable rates in the future.
Government Regulation
The air transportation industry is highly regulated. In general, we are not directly subject to most air transportation
regulations because we do not operate aircraft. In contrast, our lessees are subject to extensive, direct regulation under the
laws of the jurisdictions in which they are registered and under which they operate. Such laws govern, among other things,
the registration, operation, security, and maintenance of our aircraft, as well as environmental and financial oversight
regulation of their operations.
Our customers may also be subject to noise or emissions regulations in the jurisdictions in which they operate our
aircraft. For example, the United States and other jurisdictions may impose stringent limits on nitrogen oxide (“NOx”),
carbon monoxide (“CO”) and carbon dioxide (“CO2”) emissions from engines. In June 2015, the U.S. Environmental
Protection Agency (“EPA”) started a regulatory process to find that Greenhouse Gas (“GHG”) emissions from certain engines
endangers public health and welfare and announced its intention to promulgate new rules to adopt CO2 standards promulgated
by the International Civil Aviation Organization (“ICAO”), which are anticipated in 2016. In addition, European countries
generally have strict environmental regulations and, in particular, the European Union (“E.U.”) has included aviation in the
European Emissions Trading Scheme (“ETS”), although the United States, China and other countries continue to oppose
the inclusion of aviation emissions in ETS. Other environmental regulations our customers may be subject to include those
relating to discharges to surface and subsurface waters, management of hazardous substances, oils, and waste materials, and
other regulations affecting their aircraft operations.
Inflation
Inflation affects our lease rentals, asset values and costs, including SG&A expenses and other expenses. We do not
believe that our financial results have been, or will be, adversely affected by inflation in a material way.
Subsequent Events
The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or
disclosure since the balance sheet date of December 31, 2015 through the date of this filing, the date on which the consolidated
financial statements included in this Form 10-K were issued.
9
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following factors, which
could materially adversely affect our business, financial condition, results of operations or ability to pay dividends in
future periods or to meet our debt obligations. The risks described below are not the only risks facing our Company.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition, results of operations or ability to pay dividends in future periods.
Risks Related to Our Business
Risks Related to Our Operations
Volatile financial market conditions may adversely impact our liquidity, our access to capital and our cost of capital and
may adversely impact the airline industry and the financial condition of our lessees.
The financial crisis that began in the second half of 2008 resulted in significant global market volatility and disruption
and a lack of liquidity. While these conditions have stabilized and many segments of the capital markets have improved
substantially since the first quarter of 2009, the availability and pricing of capital in the commercial bank market and in the
unsecured bond market remain susceptible to global events, including, for example, the recent decision by the U.S. Federal
Reserve to begin raising interest rates, concerns over China’s economy and global growth implications following a precipitous
drop in oil prices. If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative
conditions in the capital markets or otherwise, our business, financial condition, results of operations or our ability to pay
dividends to our shareholders could be materially adversely affected. Additionally, such inability to obtain capital on
satisfactory terms, or at all, could prevent us from pursuing attractive future growth opportunities.
Risks affecting the airline industry may adversely affect our customers and have a material adverse impact on our financial
results.
We operate as a supplier to airlines and are indirectly impacted by all the risks facing airlines today. The ability of
each lessee to perform its obligations under the relevant lease will depend primarily on the lessee’s financial condition and
cash flow, which may be affected by factors beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
passenger and air cargo demand;
competition;
passenger fare levels and air cargo rates;
the continuing availability of government support, whether through subsidies, loans, guarantees, equity
investments or otherwise;
availability of financing and other circumstances affecting airline liquidity, including covenants in financings,
terms imposed by credit card issuers, collateral posting requirements contained in fuel hedging contracts and the
ability of airlines to make or refinance principal payments as they come due;
geopolitical and other events, including war, acts or threats of terrorism, outbreaks of epidemic diseases and
natural disasters;
aircraft accidents;
operating costs, including the price and availability of jet fuel, labor costs and insurance costs and coverages;
restrictions in labor contracts and labor difficulties;
economic conditions, including recession, financial system distress and currency fluctuations in the countries and
regions in which the lessee operates or from which the lessee obtains financing; and
governmental regulation of, or affecting the air transportation business, including noise regulations, emissions
regulations, climate change initiatives, and aircraft age limitations.
These factors, and others, may lead to defaults by our customers, or may delay or prevent aircraft deliveries or transitions,
result in payment restructurings or other lease term restructurings, and may increase our costs from repossessions and reduce
our revenues due to downtime or lower re-lease rates.
10
We bear the risk of re-leasing and selling our aircraft in order to meet our debt obligations, finance our growth and
operations, pay dividends and, ultimately, realize upon the investment in the aircraft in our portfolio.
We bear the risk of re-leasing and selling or otherwise disposing of our aircraft in order to continue to generate revenues.
In certain cases we commit to purchase aircraft that are not subject to lease and therefore are subject to lease placement risk.
Because only a portion of an aircraft’s value is covered by contractual cash flows from an operating lease, we are exposed
to the risk that the residual value of the aircraft will not be sufficient to permit us to fully recover or realize a gain on our
investment in the aircraft and to the risk that we may have to record impairment charges. Further, our ability to re-lease,
lease or sell aircraft on favorable terms, or at all, or without significant off-lease time and transition costs is likely to be
adversely impacted by risks affecting the airline industry generally.
Other factors that may affect our ability to realize upon the investment in our aircraft and that may increase the likelihood
of impairment charges, include higher fuel prices which may reduce demand for older, less fuel efficient aircraft, additional
environmental regulations, customer preferences and other factors that may effectively shorten the useful life of older aircraft.
We have written down the value of some of our assets in 2015 and in prior years, and if conditions worsen, or in the event
of a customer default, we may be required to record further write-downs.
We test our assets for recoverability whenever events or changes in circumstances indicate that the carrying amounts
for such assets are not recoverable from their expected, undiscounted cash flows. We also perform our annual fleet-wide
recoverability assessment during the third quarter of each year. This recoverability assessment is a comparison of the carrying
value of each aircraft to its undiscounted expected future cash flows. We develop the assumptions used in the recoverability
assessment, including those relating to current and future demand for each aircraft type, based on management’s experience
in the aircraft leasing industry as well as information received from third party sources. We refer to impairments arising
from this analysis as “Annual Fleet-Wide Review.” During our 2015 assessment, we recorded an aggregate of $34.6 million
in impairments during the third quarter as a result of reduced forecasted cash flows for four Boeing 747-400 converted
freighter aircraft.
If anticipated aircraft lease cash flows or sales values worsen due to a decline in market conditions, or a lessee customer
defaults, we may have to reassess the carrying value of one or more of our aircraft assets. In particular, we believe that as
aircraft approach the end of their economic useful lives, their carrying values may be more susceptible to non-recoverable
declines in value because such assets will have a shorter opportunity in which to benefit from a market recovery. As such,
it is possible that additional impairments may be triggered for other long-lived assets and any such impairment amounts
may be material. As of December 31, 2015, based on net book value, 13% of our aircraft portfolio was 15 years or older
and 3% of our aircraft portfolio was 20 years or older.
Our financial reporting for lease revenue may be significantly impacted by a proposed new model for lease accounting.
We anticipate the Financial Accounting Standards Board (“FASB”) will issue Accounting Standards Codification
(“ASC”) 842 (“ASC 842”), “Leases” which will replace the existing guidance in ASC 840, Leases, in early 2016. Based
on the FASB’s tentative decisions, the accounting for leases by lessors would basically remain unchanged from the concepts
existing in current ASC 840 accounting. The FASB tentatively decided that lessors would be precluded from recognizing
selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of
the underlying asset to the lessee. This requirement aligns the notion of what constitutes a sale in the lessor accounting
guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the
customer’s perspective. We anticipate that the standard will be effective for public entities beginning after December 15,
2018. Based on the original Leases re-exposure draft and the FASB’s tentative decisions, we believe the standard will not
have a material impact on our consolidated financial statements. We do not believe that the adoption of the standard will
significantly impact our existing or potential lessees' economic decisions to lease aircraft.
Our ability to obtain debt financing and our cost of debt financing is, in part, dependent upon our credit ratings and a
credit downgrade could adversely impact our financial results.
Our ability to obtain debt financing and our cost of debt financing is dependent, in part, on our credit ratings. Maintaining
our credit ratings depends in part on strong financial results and in part on other factors, including the outlook of the ratings
agencies on our sector and on the market generally. A credit rating downgrade may result in higher pricing or less favorable
terms under secured financings, including ECA backed financings, or may make it more difficult or more costly for us to
11
raise debt financing in the unsecured bond market. Credit rating downgrades may therefore make it more difficult to satisfy
our funding requirements.
An increase in our borrowing costs may adversely affect our earnings and cash available for distribution to our
shareholders.
Our aircraft are financed under long-term debt financings. As these financings mature, we will be required to either
refinance these instruments by entering into new financings, which could result in higher borrowing costs, or repay them
by using cash on hand or cash from the sale of our assets.
Departure of key officers could harm our business and financial results.
Our senior management’s reputations and relationships with lessees, sellers, buyers and financiers of aircraft are a
critical element of our business. We encounter intense competition for qualified employees from other companies in the
aircraft leasing industry, and we believe there are only a limited number of available qualified executives in our industry.
Our future success depends, to a significant extent, upon the continued service of our senior management personnel, and if
we lose one or more of these individuals, our business could be adversely affected.
We may not be able to pay or maintain dividends, or we may choose not to pay dividends, and the failure to pay or maintain
dividends may adversely affect our share price.
On October 30, 2015, our Board of Directors declared a regular quarterly dividend of $0.24 per common share, or an
aggregate of approximately $19.4 million, which was paid on December 15, 2015 to holders of record on November 30,
2015. This dividend may not be indicative of the amount of any future quarterly dividends. Our ability to pay, maintain or
increase cash dividends to our shareholders is subject to the discretion of our Board of Directors and will depend on many
factors, including: our ability to comply with financial covenants in our financing documents that limit our ability to pay
dividends and make certain other restricted payments; the difficulty we may experience in raising, and the cost of, additional
capital and our ability to finance our aircraft acquisition commitments; our ability to re-finance our long-term financings;
our ability to negotiate and enforce favorable lease rates and other contractual terms; the level of demand for our aircraft in
the lease placement or sales markets; the economic condition of the commercial aviation industry generally; the financial
condition and liquidity of our lessees; unexpected or increased aircraft maintenance or other expenses; the level and timing
of capital expenditures, principal repayments and other capital needs; maintaining our credit ratings, our results of operations,
financial condition and liquidity; legal restrictions on the payment of dividends, including a statutory dividend test and other
limitations under Bermuda law; and general business conditions and other factors that our Board of Directors deems relevant.
Some of these factors are beyond our control. In the future we may not choose to pay dividends or may not be able to pay
dividends, maintain our current level of dividends, or increase them over time. The failure to maintain or pay dividends
may adversely affect our share price.
We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to compete
with our competitors.
General Risks
As of December 31, 2015, our total indebtedness was approximately $4.0 billion, representing approximately 69.4%
of our total capitalization. Aircastle Limited has guaranteed most of this indebtedness and we are responsible on a full
recourse basis for timely payment when due and compliance with covenants under the related debt documentation. As a
result of our substantial amount of indebtedness, we may be unable to generate sufficient cash to pay, when due, the principal
of, interest on or other amounts due with respect to our indebtedness, and our substantial amount of indebtedness may
increase our vulnerability to adverse economic and industry conditions, reduce our flexibility in planning for or reaction to
changes in the business environment or in our business or industry, and adversely affect our cash flow and our ability to
operate our business and compete with our competitors.
Our indebtedness subjects us to certain risks, including:
•
a significant percentage of our aircraft and aircraft leases serve as collateral for our secured indebtedness, and
the terms of certain of our indebtedness require us to use proceeds from sales of aircraft, in part, to repay amounts
outstanding under such indebtedness;
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•
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our failure to comply with the terms of our indebtedness, including restrictive covenants contained therein, may
result in additional interest being due or defaults that could result in the acceleration of the principal, and unpaid
interest on, the defaulted debt, as well as the forfeiture of any aircraft pledged as collateral; and
non-compliance with covenants prohibiting certain investments and other restricted payments, including
limitations on our ability to pay dividends, repurchase our common shares, raise additional capital or refinance
our existing debt, may reduce our operational flexibility and limit our ability to refinance or grow the business.
Risks Relating to Our Long-term Financings
The provisions of our long-term financings require us to comply with financial and other covenants. Our compliance
with these ratios, tests and covenants depends upon, among other things, the timely receipt of lease payments from our
lessees and upon our overall financial performance.
• ECA Term Financings. Our ECA term financings contain a $500 million minimum net worth covenant and also
contain, among other customary provisions, a material adverse change default and a cross-default to certain other
financings of the Company.
• Bank Financings. Our bank financings contain, among other customary provisions, a $500 million minimum net
•
worth covenant and a cross-default to certain other financings of the Company.
Senior Notes. Our senior notes indenture imposes operating and financial restrictions on our activities. These
restrictions limit our ability to, or in certain cases prohibit us from, incurring or guaranteeing additional
indebtedness, refinancing our existing indebtedness, paying dividends, repurchasing our common shares, making
other restricted payments, making certain investments or entering into joint ventures and a cross-default to certain
other financings of the Company.
• Revolving Credit Facility. Our Revolving Credit Facility contains a $750 million minimum net worth covenant,
a minimum unencumbered asset ratio, a minimum interest coverage ratio and a cross-default to certain other
financings of the Company.
The terms of our financings also restrict our ability to incur or guarantee additional indebtedness or engage in mergers,
amalgamations or consolidations among our subsidiary companies or between a subsidiary company and a third party or
otherwise dispose of all or substantially all of our assets.
We are subject to various risks and requirements associated with transacting business in foreign jurisdictions.
The international nature of our business exposes us to trade and economic sanctions and other restrictions imposed
by the U.S. and other governments. The U.S. Departments of Justice, Commerce and Treasury, as well as other agencies
and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations
of export controls, the Foreign Corrupt Practices Act (“FCPA”), and other federal statutes, sanctions and regulations, including
those established by the Office of Foreign Assets Control (“OFAC”) and, increasingly, similar or more restrictive foreign
laws, rules and regulations, including the U.K. Bribery Act (“UKBA”), which may also apply to us. By virtue of these laws
and regulations, and under laws and regulations in other jurisdictions, we may be obliged to limit our business activities,
we may incur costs for compliance programs and we may be subject to enforcement actions or penalties for noncompliance.
In recent years, U.S. and foreign governments have increased their oversight and enforcement activities with respect to these
laws, and we expect the relevant agencies to continue to increase these activities.
We have compliance policies and training programs in place for our employees with respect to FCPA, OFAC
Regulations, UKBA and similar laws, but there can be no assurance that our employees, consultants or agents will not engage
in conduct for which we may be held responsible. Violations of FCPA, OFAC Regulations, UKBA and other laws, sanctions
or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities.
We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks
associated with implementation and integration.
We are dependent upon information technology systems to manage, process, store and transmit information associated
with our operations, which may include proprietary business information and personally identifiable information of our
customers and employees. Our information technology systems are subject to disruption, damage or failure from a variety
of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, employee error, natural disasters
and defects in design. Damage, disruption, or failure of one or more information technology systems may result in
13
interruptions to our operations in the interim or may require a significant investment to fix or replace them or may result in
significant damage to our reputation. Although various measures have been implemented to manage our risks related to the
information technology systems and network disruptions, a cyber-attack could lead to the loss of sensitive information,
including our own proprietary information or that of our customers and employees, and could harm our reputation and result
in lost revenues and additional costs and potential liabilities.
Risks Related to Our Aviation Assets
The variability of supply and demand for aircraft could depress lease rates for our aircraft, which would have an adverse
effect on our financial results and growth prospects.
The aircraft leasing and sales industry has experienced periods of aircraft oversupply and undersupply. In recent years,
we believe the market has been characterized by oversupply of certain older, less fuel efficient aircraft and certain freighter
aircraft types. More recently, the values of certain types of wide-body aircraft have been under stress but it is unclear whether
this is a temporary market imbalance or a long term trend. The oversupply of a specific type of aircraft in the market is
likely to depress aircraft lease rates for, and the value of, that type of aircraft.
The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are not under our
control, including:
passenger and air cargo demand;
operating costs, including fuel costs, and general economic conditions affecting our lessees’ operations;
geopolitical events, including war, prolonged armed conflict and acts of terrorism;
outbreaks of communicable diseases and natural disasters;
governmental regulation;
interest rates;
foreign exchange rates;
airline restructurings and bankruptcies;
the availability of credit;
changes in control of, or restructurings of, other aircraft leasing companies;
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• manufacturer production levels and technological innovation;
•
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discounting by manufacturers on aircraft types nearing end of production;
climate change initiatives, technological change, aircraft noise and emissions regulations, aircraft age limits and
other factors leading to reduced demand for, early retirement or obsolescence of aircraft models;
• manufacturers merging, exiting the industry or ceasing to produce aircraft types;
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new-entrant manufacturers producing additional aircraft models, or existing manufacturers producing newly
engined aircraft models or new aircraft models, in competition with existing aircraft models;
reintroduction into service of aircraft previously in storage; and
airport and air traffic control infrastructure constraints.
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These and other factors may produce sharp decreases or increases in aircraft values and lease rates, which would
impact our cost of acquiring aircraft and our ability to grow the business, or which may result in lease defaults and also
prevent the aircraft from being re-leased or sold on favorable terms. This could have an adverse effect on our financial
results and growth prospects.
Other factors that increase the risk of decline in aircraft value and lease rates could have an adverse effect on our financial
results and growth prospects.
In addition to factors linked to the aviation industry generally, other factors that may affect the value and lease rates
of our aircraft include:
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the age of the aircraft;
the particular maintenance and operating history of the airframe and engines;
the number of operators using that type of aircraft;
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• whether the aircraft is subject to a lease and, if so, whether the lease terms are favorable to us;
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applicable airworthiness directives or manufacturer’s service bulletins that have not yet been performed to the
aircraft;
grounding orders or other regulatory action that could prevent or limit utilization of our aircraft;
any regulatory and legal requirements that must be satisfied before the aircraft can be purchased, sold or re-
leased; and
compatibility of our aircraft configurations or specifications with those desired by the operators of other aircraft
of that type.
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Any decrease in the values of and lease rates for commercial aircraft which may result from the above factors or other
unanticipated factors may have a material adverse effect on our financial results and growth prospects.
The advent of superior aircraft technology and higher production levels could cause our existing aircraft portfolio to
become outdated and therefore less desirable.
As manufacturers introduce technological innovations and new types of aircraft, including the Boeing 787 and Airbus
A350 and re-engined and/or replacement types for the Boeing 737, Boeing 777, Airbus A320, Airbus A330 and Embraer
E-Jet families of aircraft, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees or
purchasers. This next generation of aircraft is expected to deliver improved fuel consumption and reduced noise and emissions
with lower operating costs compared to current-technology aircraft. The Boeing 787 is currently in production while the
Boeing 777X is expected to enter service in 2020-2021. The first variant of the Airbus A350 entered service in December
2014. The A320neo, A330neo and 737 MAX families of aircraft are expected to enter service between 2016 and 2017 and
first deliveries for Embraer’s second generation of E-Jets, the E-2 family, is expected to begin in 2018. Further, Bombardier
Inc., Commercial Aircraft Corporation of China Ltd. and Sukhoi Company (JSC) are developing aircraft models that will
compete with the Airbus A319, the Boeing 737 and the Embraer E-Jet.
The introduction of these new models, and the potential resulting overcapacity in aircraft supply, could adversely affect
the residual values and the lease rates for our aircraft and our ability to lease or sell our aircraft on favorable terms, or at all.
The effects of energy, emissions, and noise regulations and policies may negatively affect the airline industry. This may
cause lessees to default on their lease payment obligations to us and may limit the market for certain aircraft in our
portfolio.
Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant
aircraft is registered and operated. For example, jurisdictions throughout the world have adopted noise regulations which
require all aircraft to comply with noise level standards. In addition to the current requirements, the United States and ICAO
have adopted a new, more stringent set of standards for noise levels which applies to engines manufactured or certified on
or after January 1, 2006. Currently, U.S. regulations would not require any phase-out of aircraft that qualify with the older
standards applicable to engines manufactured or certified prior to January 1, 2006, but the E.U. has established a framework
for the imposition of operating limitations on aircraft that do not comply with the new standards. These regulations could
limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell these non-compliant
aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the
aircraft and engines to make them compliant.
In addition to stringent noise restrictions, the U.S. and other jurisdictions have imposed stringent limits on aircraft
engine emissions, such as NOx, CO and CO2, consistent with current ICAO standards. European countries have relatively
strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. The E.U. has
included the aviation sector in its ETS, and has attempted to apply the ETS to flights outside of European airspace. This
effort has been opposed by the U.S. and other countries. The E.U. has since suspended the ETS for flights from or to non-
European countries due to a proposal issued by the ICAO in October 2013 for a global program to reduce aircraft GHGs,
which would become effective by 2020. As a result the E.U. has also proposed to amend the ETS to permanently exclude
all flights or portions thereof that do not take place in European regional airspace from the ETS until ICAO mechanism goes
into effect. Finally, ICAO has also adopted a resolution designed to cap GHGs from aircraft and further committed to
propose a GHG standard for aircraft engines by 2016. As noted above, the U.S. EPA has announced its intent to promulgate
and adopt a rule to incorporate these new standards.
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Over time, it is possible that governments will adopt additional regulatory requirements and/or market-based policies
that are intended to reduce energy usage, emissions, and noise levels from aircraft. Such initiatives may be based on concerns
regarding climate change, energy security, public health, local impacts, or other factors, and may also impact the global
market for certain aircraft and cause behavioral shifts that result in decreased demand for air travel. These concerns could
also result in greater limitations on the operation of our fleet, particularly aircraft equipped with other technology engines.
Compliance with current or future regulations, taxes or duties could cause our lessees to incur higher costs and lead
to higher ticket prices, which could mean lower demand for travel and adverse impacts on the financial condition of our
lessees. Such compliance may also affect our lessees’ ability to make rental and other lease payments and limit the market
for aircraft in our portfolio, which could have other negative effects on our financial position.
The older age, or older technology, of some of our aircraft may expose us to higher than anticipated maintenance related
expenses.
As of December 31, 2015, 13% of our aircraft portfolio, based on net book value, was 15 years or older. In general,
the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Additionally,
older aircraft typically are less fuel-efficient than newer aircraft and may be more difficult to re-lease or sell, particularly
if, due to increasing production rates by aircraft manufacturers or airline insolvencies or other distress, older aircraft are
competing with newer aircraft in the lease or sale market. Expenses like fuel, aging aircraft inspections, maintenance or
modification programs and related airworthiness directives could make the operation of older aircraft less economically
feasible and may result in increased lessee defaults. We may also incur some of these increased maintenance expenses and
regulatory costs upon acquisition or re-leasing of our aircraft. Re-leasing larger wide-body aircraft may result in higher
reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.
The concentration of aircraft types in our aircraft portfolio could lead to adverse effects on our business and financial
results should any difficulties specific to these particular types of aircraft occur.
Our owned aircraft portfolio is concentrated in certain aircraft types. Should any of these aircraft types (or other types
we acquire in the future) or aircraft manufacturers encounter technical, financial or other difficulties, it would cause a
decrease in value of these aircraft, an inability to lease the aircraft on favorable terms or at all, or a potential grounding of
these aircraft, which may adversely impact our financial results, to the extent the affected aircraft types comprise a significant
percentage of our aircraft portfolio.
We operate in a highly competitive market for investment opportunities in aviation assets and for the leasing and sale of
aircraft.
We compete with other operating lessors, airlines, aircraft manufacturers, financial institutions, aircraft brokers and
other investors with respect to aircraft acquisitions, leasing and sales. The aircraft leasing industry is highly competitive
and may be divided into three basic activities: (i) aircraft acquisition; (ii) leasing or re-leasing of aircraft; and (iii) aircraft
sales. Competition varies among these three basic activities.
A number of our competitors are substantially larger and have considerably greater financial, technical and marketing
resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available
to us. In addition, some of our competitors may have higher risk tolerances or different risk or residual value assessments,
which could allow them to consider a wider variety of investments, establish more relationships, bid more aggressively on
aviation assets available for sale and offer lower lease rates or sales prices than we can. Some of our competitors may provide
financial services, maintenance services or other inducements to potential lessees or buyers that we cannot provide. As a
result of competitive pressures, we may not be able to take advantage of attractive investment opportunities from time to
time, and we may not be able to identify and make investments that are consistent with our investment objectives. We are
beginning to see a greater supply of certain aircraft, engines and parts being offered for sale in the part-out market as other
leasing companies start addressing the older aircraft in their portfolios. Additionally, the barriers to entry in the aircraft
acquisition and leasing market are comparatively low, and new entrants with private equity, hedge fund, Asian bank or other
funding sources appear from time to time. We may not be able to compete effectively against present and future competitors
in the aircraft acquisition, leasing or sales market.
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Risks Related to our Order of New Embraer E-Jet E2 Aircraft
We do not have lease commitments or financing in place for the 25 E-Jet E2 aircraft that we contracted to purchase
from Embraer and are scheduled for delivery between 2018 and 2021. Our ability to lease these aircraft on favorable terms,
if at all, may be adversely affected by desirability of this new aircraft type and risks to the commercial airline industry
generally. If we are unable to obtain the necessary financing or otherwise satisfy our contractual obligations to Embraer,
we will be subject to several potential risks, including:
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forfeiting advance deposits and progress payments to Embraer, as well as incurring certain significant costs related
to these commitments such as actual damages and legal, accounting and financial advisory expenses;
• defaulting on any future lease commitments we may have entered into with respect to these aircraft, which could
result in monetary damages and strained relationships with lessees;
• failing to realize the benefits of purchasing and leasing such aircraft; and
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risking harm to our business reputation, which would make it more difficult to purchase and lease aircraft in the
future on agreeable terms, if at all.
In addition, the Embraer E-Jet E2 is a new aircraft variant under development and is not yet in production. While the
E-Jet E2 aircraft will incorporate a modified version of the recently introduced Pratt & Whitney geared turbofan engine,
this version is also not in production. Airframe and engine manufacturers have occasionally experienced delays and technical
difficulties in bringing new aircraft and engine types to market. If any aircraft for which we have made future lease
commitments is delayed or if Embraer is unable to produce the aircraft in compliance with the performance specifications,
some or all of our affected lessees might be able to terminate their leases with respect to such aircraft. Our purchase agreement
with Embraer and the anticipated future leases for these aircraft contain certain cancellation rights related to delays in
delivery. Any such termination could strain our relations with those lessees going forward. Lastly, we will rely on Embraer
to return any advance deposits and progress payments if they are unable to meet their obligations to us, and we may not be
able to recover such amounts if Embraer defaults or becomes insolvent. Any of these events could materially and adversely
affect our financial results and operations.
Risks Related to Our Leases
If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion
of the applicable lease.
The standards of maintenance observed by the various lessees and the condition of the aircraft at the time of lease or
sale may affect the future values and rental rates for our aircraft.
Under our leases, the relevant lessee is generally responsible for maintaining the aircraft and complying with all
governmental requirements applicable to the lessee and the aircraft, including, without limitation, operational, maintenance,
and registration requirements and airworthiness directives, although in certain cases we may agree to share certain of these
costs. Failure of a lessee to perform required aircraft maintenance or required airworthiness directives could result in a
decrease in value of such aircraft, an adverse effect on our ability to lease the aircraft at favorable rates or at all, or a potential
grounding of such aircraft, and will likely require us to incur increased maintenance and modification costs upon the expiration
or earlier termination of the applicable lease, which could be substantial, to restore such aircraft to an acceptable condition.
If any of our aircraft are not subject to a lease, we would be required to bear the entire cost of maintaining that aircraft and
performing any required airworthiness directives.
Certain of our leases provide that the lessee is required to make periodic payments to us during the lease term in order
to provide cash reserves for the major maintenance. In these leases there is an associated liability for us to reimburse the
lessee after such maintenance is performed. A substantial number of our leases do not provide for any periodic maintenance
reserve payments to be made to us. Typically, these lessees are required to make payments at the end of the lease term.
However, in the event such lessees default, the value of the aircraft could be negatively affected by the maintenance condition
and we may be required to fund the entire cost of performing major maintenance on the relevant aircraft without, in either
case, having received compensating maintenance payments from these lessees.
Even if we receive maintenance payments, these payments may not cover the entire expense of the scheduled
maintenance they are intended to fund. In addition, maintenance payments typically cover only certain scheduled maintenance
17
requirements and do not cover all required maintenance and all scheduled maintenance. As a result, we may incur
unanticipated or significant costs at the conclusion of a lease.
Failure to pay certain potential additional operating costs could result in the grounding or arrest of our aircraft and
prevent the re-lease, sale or other use of our aircraft.
As in the case of maintenance costs, we may incur other operational costs upon a lessee default or where the terms of
the lease require us to pay a portion of those costs. Such costs include:
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the costs of casualty, liability and political risk insurance and the liability costs or losses when insurance coverage
has not been or cannot be obtained as required, or is insufficient in amount or scope;
the costs of licensing, exporting or importing an aircraft, airport charges, customs duties, air navigation charges,
landing fees and similar governmental or quasi-governmental impositions, which can be substantial;
penalties and costs associated with the failure of lessees to keep aircraft registered under all appropriate local
requirements or obtain required governmental licenses, consents and approvals; and
carbon taxes or other fees, taxes or costs imposed under emissions limitations, climate change regulations or other
initiatives.
The failure to pay certain of these costs can result in liens on the aircraft and the failure to register the aircraft can
result in a loss of insurance. These matters could result in the grounding or arrest of the aircraft and prevent the re-lease,
sale or other use of the aircraft until the problem is cured.
Our lessees may have inadequate insurance coverage or fail to fulfill their respective indemnity obligations, which could
result in us not being covered for claims asserted against us.
By virtue of holding title to the aircraft, lessors may be held strictly liable for losses resulting from the operation of
aircraft or may be held liable for those losses based on other legal theories. Liability may be placed on an aircraft lessor in
certain jurisdictions around the world even under circumstances in which the lessor is not directly controlling the operation
of the relevant aircraft.
Lessees are required under our leases to indemnify us for, and insure against, liabilities arising out of the use and
operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we
may be deemed liable. Lessees are also required to maintain public liability, property damage and hull all risk and hull war
risk insurance on the aircraft at agreed upon levels. However, they are not generally required to maintain political risk
insurance. Following the terrorist attacks of September 11, 2001, aviation insurers significantly reduced the amount of
insurance coverage available to airlines for liability to persons other than employees or passengers for claims resulting from
acts of terrorism, war or similar events. At the same time, they significantly increased the premiums for such third-party
war risk and terrorism liability insurance and coverage in general. As a result, the amount of such third-party war risk and
terrorism liability insurance that is commercially available at any time may be below the amount stipulated in our leases.
Our lessees’ insurance, including any available governmental supplemental coverage, may not be sufficient to cover
all types of claims that may be asserted against us. Any inadequate insurance coverage or default by lessees in fulfilling
their indemnification or insurance obligations will reduce the proceeds that would be received by us upon an event of loss
under the respective leases or upon a claim under the relevant liability insurance.
Failure to obtain certain required licenses and approvals could negatively affect our ability to re-lease or sell aircraft.
A number of our lessees must obtain licenses, consents or approvals in order to import or operate the aircraft or comply
with the leases. These include consents from governmental or regulatory authorities for certain payments under the leases
and for the import, export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice
may increase such requirements and a governmental consent, once given, might be withdrawn. Furthermore, consents
needed in connection with future re-leasing or sale of an aircraft may not be forthcoming. Any of these events could adversely
affect our ability to re-lease or sell aircraft.
Due to the fact that many of our lessees operate in emerging markets, we are indirectly subject to many of the economic
and political risks associated with competing in such markets.
Emerging markets are countries which have less developed economies that are vulnerable to economic and political
problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil disturbances,
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government instability, nationalization and expropriation of private assets, unfavorable legal systems, change in law regarding
recognition of contracts or ownership rights, changes in governments or government policy and the imposition of taxes or
other charges by governments. The occurrence of any of these events in markets served by our lessees and the resulting
instability may adversely affect our ownership interest in an aircraft or the ability of lessees which operate in these markets
to meet their lease obligations and these lessees may be more likely to default than lessees that operate in developed economies.
For the year ended December 31, 2015, 42 of our lessees, which operated 119 aircraft and generated 63% of our lease rental
revenue, are domiciled or habitually based in emerging markets.
Risks Related to Our Lessees
Lessee defaults could materially adversely affect our business, financial condition and results of operations.
As a general matter, airlines with weak capital structures are more likely than well-capitalized airlines to seek operating
leases, and, at any point in time, investors should expect a varying number of lessees and sub-lessees to experience payment
difficulties. As a result of their weak financial condition and lack of liquidity, a portion of lessees over time may be
significantly in arrears in their rental or maintenance payments. This is likely to be the case in the future and with other
lessees and sub-lessees of our aircraft as well, particularly in a difficult economic or operating environment. These liquidity
issues will be more likely to lead to airline failures in the context of financial system distress, volatile fuel prices, and
economic slowdown, with additional liquidity being more difficult and expensive to source. Given the size of our aircraft
portfolio, we expect that from time to time some lessees will be slow in making, or will fail to make, their payments in full
under their leases.
We may not correctly assess the credit risk of each lessee or may not be in a position to charge risk-adjusted lease
rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future.
A delayed, reduced or missed rental payment from a lessee decreases our revenues and cash flow and may adversely affect
our ability to make payments on our indebtedness or to comply with debt service coverage or interest coverage ratios. While
we may experience some level of delinquency under our leases, default levels may increase over time, particularly as our
aircraft portfolio ages and if economic conditions deteriorate. A lessee may experience periodic difficulties that are not
financial in nature, which could impair its performance of maintenance obligations under the leases. These difficulties may
include the failure to perform required aircraft maintenance and labor-management disagreements or disputes.
In the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee may
not be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance and transition
expenses.
Adverse currency movements could negatively affect our lessees’ ability to honor the terms of their leases and could
materially adversely affect our business, financial condition and results of operations.
Many of our lessees are exposed to currency risk due to the fact that they earn revenues in their local currencies while
a significant portion of their liabilities and expenses, including fuel, debt service, and lease payments are denominated in
U.S. dollars. In the case of a devaluation of the local currency, our lessees may not be able to increase revenue sufficiently
to offset the impact of exchange rates on these expenses. This is particularly true for non-U.S. airlines whose operations
are primarily domestic. This difference is magnified in the event of an appreciating U.S. dollar, as we have seen over the
course of the last year, due to the strengthening of the U.S. economy and the expectation of rising U.S. interest rates. Currency
volatility, particularly as witnessed recently in Russia and other emerging market countries, could impact the ability of some
of our customers to meet their contractual obligations in a timely manner. Shifts in foreign exchange rates can be significant,
are difficult to predict, and can occur quickly.
If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result
in less favorable leases and in significant reductions in our cash flow or adversely affect our financial results.
When a lessee is late in making payments, fails to make payments in full or in part under the lease or has otherwise
advised us that it will in the future fail to make payments in full or in part under the lease, we may elect to or be required
to restructure the lease. Restructuring may involve anything from a simple rescheduling of payments to the termination of
a lease without receiving all or any of the past due amounts. If any requests for payment restructuring or rescheduling are
made and granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the
lease, although the terms of any revised payment schedules may be unfavorable and such payments may not be made. We
may be unable to agree upon acceptable terms for any requested restructurings and as a result may be forced to exercise our
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remedies under those leases. If we, in the exercise of our remedies, repossess the aircraft, we may not be able to re-lease
the aircraft promptly at favorable rates, or at all.
The terms and conditions of payment restructurings or reschedulings may result in significant reductions of rental
payments, which may adversely affect our cash flows or our financial results.
Significant costs resulting from lease defaults could have a material adverse effect on our business.
Although we have the right to repossess the aircraft and to exercise other remedies upon a lessee default, repossession
of an aircraft after a lessee default would lead to significantly increased costs for us. Those costs include legal and other
expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings or is in
bankruptcy, to obtain possession and/or de-registration of the aircraft and flight and export permissions. Delays resulting
from any of these proceedings would also increase the period of time during which the relevant aircraft is not generating
revenue. In addition, we may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed
to incur or pay and that are necessary to put the aircraft in suitable condition for re-lease or sale and we may be required to
pay off liens, claims, taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the
aircraft for re-lease or sale. We may also incur maintenance, storage or other costs while we have physical possession of
the aircraft.
We may also suffer other adverse consequences as a result of a lessee default and any termination of the lease and the
repossession of the related aircraft. Our rights upon a lessee default vary significantly depending upon the jurisdiction,
including the need to obtain a court order for repossession of the aircraft and/or consents for de-registration or re-export of
the aircraft. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional
limitations may apply. Certain jurisdictions will give rights to the trustee in bankruptcy or a similar officer to assume or
reject the lease or to assign it to a third party, or will entitle the lessee or another third party to retain possession of the aircraft
without paying lease rentals or without performing all or some of the obligations under the relevant lease. Certain of our
lessees are owned in whole or in part by government-related entities, which could complicate our efforts to repossess the
relevant aircraft. Accordingly, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and
in re-leasing or selling the affected aircraft.
If we repossess an aircraft, we will not necessarily be able to export or de-register and profitably redeploy the aircraft.
For instance, where a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered,
repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist de-
registration. Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the
aircraft and obtaining a certificate of airworthiness for the aircraft.
Airline reorganizations could have an adverse effect on our financial results.
As a result of economic conditions, significant volatility in oil prices and financial markets distress, airlines may be
forced to reorganize. Historically, airlines involved in reorganizations have undertaken substantial fare discounting to
maintain cash flows and to encourage continued customer loyalty. Such fare discounting has in the past led to lower
profitability for all airlines. Bankruptcies and reduced demand may lead to the grounding of significant numbers of aircraft
and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values. Additional
grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms,
or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively
would have an adverse effect on our financial results. We may not recover any of our claims or damages against an airline
under bankruptcy or insolvency protection.
If our lessees fail to appropriately discharge aircraft liens, we might find it necessary to pay such claims, which could
have a negative effect on our cash position and our business.
In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation
charges (including charges imposed by Eurocontrol), landing charges, crew wages, repairer’s charges, salvage or other liens,
are likely, depending on the jurisdiction in question, to attach to the aircraft. These liens may secure substantial sums that
may, in certain jurisdictions or for certain types of liens (particularly “fleet liens”), exceed the value of the relevant aircraft.
Although the financial obligations relating to these liens are the responsibility of our lessees, if they fail to fulfill their
obligations, these liens may attach to our aircraft and ultimately become our responsibility. Until these liens are discharged,
we may be unable to repossess, re-lease or sell the aircraft or unable to avoid detention or forfeiture of the aircraft.
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Our lessees may not comply with their obligations under their respective leases to discharge liens arising during the
terms of their leases, whether or not due to financial difficulties. If they do not do so, we may, in some cases, find it necessary
to pay the claims secured by any liens in order to repossess the aircraft.
Risks associated with the concentration of our lessees in certain geographical regions could harm our business or financial
results.
Our business is sensitive to local economic and political conditions that can influence the performance of lessees
located in a particular region.
European Concentration
Twenty three lessees in Europe accounted for 64 aircraft totaling 26% of the net book value of our aircraft at
December 31, 2015. Eighteen aircraft, representing 6% of the net book value of our aircraft at December 31, 2015, were
leased to a customer in Spain.
Commercial airlines in Europe continue to face increased competitive pressures due to the expansion of low cost
carriers, industry consolidation, as well as the growth of strong airlines in the Middle East. While several of the continent’s
larger airlines have announced comprehensive restructuring efforts, including significant cost cutting measures, we have
some concerns about the ability of smaller players to adapt to the changing environment.
The Russian airline industry has been severely hurt by events including the impact of sanctions against Russia, the
devaluation of the Ruble, the significant decline in oil prices, the destruction by terrorists of an aircraft flying from Egypt
and increased tensions with Turkey. Three lessees accounted for four aircraft totaling 4% of the net book value of our aircraft
at December 31, 2015. Continued uncertainty in Russia could lead to the early termination or repossession of more of our
aircraft from Russian airlines. Our lease placement opportunities and lease rates may also be negatively impacted if other
aircraft leased to Russian airlines are returned or new aircraft sales to Russian airlines fail to be consummated.
Asian Concentration
Fifteen lessees in Asia accounted for 49 aircraft totaling 39% of the net book value of our aircraft at December 31,
2015. Growth in most of Asia has been strong, driven in large part by emerging economies. Asian airlines continue to face
competition from new entrants and the growth of low cost carriers in the region. There is also risk of oversupply in the
future driven by large outstanding order books of some Asian airlines. Demand weaknesses, due to slowing economic
growth in the region, could adversely affect the Asian airlines industry. Seven lessees in southeast Asia accounted for 35
aircraft totaling 28% of the net book value of our aircraft at December 31, 2015.
North American Concentration
Six lessees in North America accounted for 17 aircraft totaling 6% of the net book value of our aircraft at December 31,
2015. Consolidation among major airlines in the U.S. has helped drive capacity discipline and pricing power, but despite
recent improvements in the financial results of many carriers, airlines remain highly susceptible to macroeconomic and
geopolitical factors outside their control.
South American Concentration
Five lessees in South America accounted for 22 aircraft totaling 19% of the net book value of our aircraft at December 31,
2015. The region’s largest economy, Brazil, has suffered from depressed commodity prices, currency devaluation and a
stalled economy, which has forced a reduction in capacity by the country’s airlines. Two lessees in Brazil accounted for 15
aircraft totaling 9% of the net book value of our aircraft at December 31, 2015.
Middle East and African Concentration
Four lessees in the Middle East and Africa accounted for nine aircraft totaling 10% of the net book value of our aircraft
at December 31, 2015. Middle Eastern lessees, and particularly Gulf-based carriers, have a large number of aircraft on order
and continue to capitalize on the region’s favorable geographic position as an East-West transfer hub. In recent years, a
number of countries in the Middle East and North Africa experienced significant political instability, negatively impacting
tourism and air travel. Continued unrest and instability would again negatively impact the financial performance of airlines
operating to, from, and within this region.
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Risks Related to the Aviation Industry
Fuel prices significantly impact the profitability of the airline industry. If fuel prices rise in the future, our lessees might
not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and
growth prospects.
Fuel costs represent a major expense to airlines. Fuel prices fluctuate widely depending primarily on international
market conditions, geopolitical and environmental events and currency/exchange rates. As a result, fuel costs are not within
the control of lessees and significant changes would materially affect their operating results.
While fuel prices have significantly declined since 2014, there can be no assurance that lower fuel prices will persist.
Due to the competitive nature of the airline industry, airlines have been, and may continue to be, unable to pass on increases
in fuel prices to their customers by increasing fares in a manner that fully compensates for the costs incurred. Higher and
more volatile fuel prices may also have an impact on consumer confidence and spending, and thus may adversely impact
demand for air transportation. In addition, airlines may not be able to successfully manage their exposure to fuel price
fluctuations. If fuel prices increase due to future terrorist attacks, acts of war, armed hostilities, rebellion or political instability,
natural disasters or for any other reason, they are likely to cause our lessees to incur higher costs and/or generate lower
revenues, resulting in an adverse impact on their financial condition and liquidity. Fuel cost volatility may contribute to the
reluctance of airlines to make future commitments to leased aircraft and reduce the demand for lease aircraft. Consequently,
these conditions may: (i) affect our lessees’ ability to make rental and other lease payments; (ii) result in lease restructurings
and/or aircraft repossessions; (iii) increase our costs of re-leasing or selling our aircraft; or (iv) impair our ability to re-lease
or sell our aircraft on a timely basis at favorable rates or terms, or at all.
If the effects of terrorist attacks and geopolitical conditions adversely impact the financial condition of the airlines, our
lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial
results and growth prospects.
War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase
the operating costs of our customers. The situations in Iraq, Afghanistan, Syria, North Africa and Ukraine remain unsettled,
and other international incidents, such as tension over North Korea’s nuclear program and territorial disputes in East Asia,
may lead to regional or broader international instability. Future terrorist attacks, war or armed hostilities, large protests or
government instability, or the fear of such events, could further negatively impact the airline industry and may have an
adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease
restructurings or aircraft repossessions, all of which could adversely affect our financial results.
Terrorist attacks and geopolitical conditions have negatively affected the airline industry, and concerns about
geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees) for
the foreseeable future, depending upon various factors, including: (i) higher costs to the airlines due to the increased security
measures; (ii) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security
measures; (iii) the price and availability of jet fuel; (iv) higher financing costs and difficulty in raising the desired amount
of proceeds on favorable terms, or at all; (v) the significantly higher costs of aircraft insurance coverage for future claims
caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has
been or will continue to be available; (vi) the ability of airlines to reduce their operating costs and conserve financial resources,
taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including
those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of
aircraft and other long lived assets stemming from the above conditions.
Epidemic diseases, severe weather conditions, natural disasters or their perceived effects may negatively impact the airline
industry and our lessees’ ability to meet their lease payment obligations to us, which, in turn, could have an adverse effect
on our financial results.
Over the past several years, there have been outbreaks of epidemic diseases which have spread to other parts of the
world. If an outbreak of epidemic diseases were to occur, numerous responses, including travel restrictions, might be
necessary to combat the spread of the disease. Even if restrictions are not implemented, it is likely that passengers would
voluntarily choose to reduce travel. There have been several outbreaks of epidemic diseases which have spread to other
parts of the world in the last ten years, although their impact was relatively limited. Additional outbreaks of epidemic
diseases, or the fear of such events, could result in travel bans or could have an adverse effect on our financial results.
Similarly, demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather
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conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’
ability to their lease payment obligations to us, which could negatively impact our financial results.
Risks Related to Our Organization and Structure
If the ownership of our common shares continues to be highly concentrated, it may prevent minority shareholders from
influencing significant corporate decisions and may result in conflicts of interest.
As of February 5, 2016, Marubeni owns 21,230,584 shares, or 27.0% of our common shares. Although the Shareholder
Agreement, dated as of June 6, 2013, among us, Marubeni and a subsidiary of Marubeni (as amended and restated from
time to time, the “Shareholder Agreement”), imposes certain restrictions on Marubeni’s and its affiliates’ ability to make
additional acquisitions of our common shares, Marubeni, nonetheless, may be able to influence fundamental corporate
matters and transactions, including the election of directors; mergers or amalgamations (subject to prior board approval);
consolidations or acquisitions; the sale of all or substantially all of our assets; in certain circumstances, the amendment of
our bye-laws; and our winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that
would be favored by our other shareholders. The interests of Marubeni may not always coincide with our interests or the
interests of our other shareholders. This concentration of ownership may also have the effect of delaying, preventing or
deterring a change in control of our company. Also, Marubeni may seek to cause us to take courses of action that, in its
judgment, could enhance its investment in us, but which might involve risks to our other shareholders or adversely affect
us or our other shareholders. In addition, under the Shareholder Agreement, based on the current ownership of our common
shares by Marubeni and the current size of our Board of Directors, Marubeni is entitled to designate three directors for
election to our Board of Directors. As a result of these or other factors, the market price of our common shares could decline
or shareholders might not receive a premium over the then-current market price of our common shares upon a change in
control. In addition, this concentration of share ownership may adversely affect the trading price of our common shares
because investors may perceive disadvantages in owning shares in a company with a significant shareholder.
We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary
to meet our financial obligations.
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly
or indirectly hold in our operating subsidiaries. As a result, we are dependent on loans, dividends and other payments from
our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends to our shareholders.
Although there are currently no material legal restrictions on our operating subsidiaries ability to distribute assets to us,
legal restrictions, including governmental regulations and contractual obligations, could restrict or impair our operating
subsidiaries ability to pay dividends or make loan or other distributions to us. Our subsidiaries are legally distinct from us
and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions.
We are a Bermuda company, and it may be difficult for securityholders to enforce judgments against us or our directors
and executive officers.
We are a Bermuda exempted company and, as such, the rights of holders of our common shares will be governed by
Bermuda law and our memorandum of association and bye-laws. The rights of securityholders under Bermuda law may
differ from the rights of securityholders of companies incorporated in other jurisdictions. A substantial portion of our assets
are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons
in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based
on the civil liability provisions of the U.S. securities laws. Uncertainty exists as to whether courts in Bermuda will enforce
judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the
securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities
laws of other jurisdictions.
Our bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our
behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure
of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims
against our officers and directors unless the act or failure to act involves fraud or dishonesty.
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We have anti-takeover provisions in our bye-laws that may discourage a change of control.
Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent
of our Board of Directors. These provisions include:
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provisions providing for a classified board of directors with staggered three-year terms;
provisions regarding the election of directors, classes of directors, the term of office of directors and amalgamations
to be rescinded, altered or amended only upon approval by a resolution of the directors and by a resolution of
our shareholders, including the affirmative votes of at least 66% of the votes attaching to all shares in issue
entitling the holder to vote on such resolution;
provisions in our bye-laws dealing with the removal of directors and corporate opportunity to be rescinded, altered
or amended only upon approval by a resolution of the directors and by a resolution of our shareholders, including
the affirmative votes of at least 80% of the votes attaching to all shares in issue entitling the holder to vote on
such resolution;
provisions providing for the removal of directors by a resolution, including the affirmative votes of at least 80%
of all votes attaching to all shares in issue entitling the holder to vote on such resolution;
provisions providing for our Board of Directors to determine the powers, preferences and rights of our preference
shares and to issue such preference shares without shareholder approval;
provisions providing for advance notice requirements by shareholders for director nominations and actions to be
taken at annual meetings; and
no provision for cumulative voting in the election of directors; all the directors standing for election may be
elected by our shareholders by a plurality of votes cast at a duly convened annual general meeting, the quorum
for which is two or more persons present in person or by proxy at the start of the meeting and representing in
excess of 50% of all votes attaching to all shares in issue entitling the holder to vote at the meeting.
In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in
control or takeover attempt that is opposed by our management and/or our Board of Directors. Public shareholders who
might desire to participate in these types of transactions may not have an opportunity to do so. These anti-takeover provisions
could substantially impede the ability of public shareholders to benefit from a change in control or change our management
and Board of Directors and, as a result, may adversely affect the market price of our common shares and your ability to
realize any potential change of control premium.
There are provisions in our bye-laws that may require certain of our non-U.S. shareholders to sell their shares to us or
to a third party.
Our bye-laws provide that if our Board of Directors determines that we or any of our subsidiaries do not meet, or in
the absence of repurchases of shares will fail to meet, the ownership requirements of a limitation on benefits article of any
bilateral income tax treaty with the U.S. applicable to us, and that such tax treaty would provide material benefits to us or
any of our subsidiaries, we generally have the right, but not the obligation, to repurchase, at fair market value (as determined
pursuant to the method set forth in our bye-laws), common shares from any shareholder who beneficially owns more than
5% of our issued and outstanding common shares and who fails to demonstrate to our satisfaction that such shareholder is
either a U.S. citizen or a qualified resident of the U.S. or the other contracting state of any applicable tax treaty with the
U.S. (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty).
We will have the option, but not the obligation, to purchase all or a part of the shares held by such shareholder (to the
extent the Board of Directors, in the reasonable exercise of its discretion, determines it is necessary to avoid or cure adverse
consequences), provided that the Board of Directors will use its reasonable efforts to exercise this option equitably among
similarly situated shareholders (to the extent feasible under the circumstances).
Instead of exercising the repurchase right described above, we will have the right, but not the obligation, to cause the
transfer to, and procure the purchase by, any U.S. citizen or a qualified resident of the U.S. or the other contracting state of
the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such
treaty) of the number of issued and outstanding common shares beneficially owned by any shareholder that are otherwise
subject to repurchase under our bye-laws as described above, at fair market value (as determined in the good faith discretion
of our Board of Directors).
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Our joint venture may have an adverse effect on our business.
The joint venture we entered into with an affiliate of Teachers’, which is referred to in “Other Aviation Assets and
Alternative New Business Approaches” above, involves significant risks that may not be present with other methods of
ownership, including:
• we may not realize a satisfactory return on our investment or the joint venture may divert management’s attention
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from our business;
our joint venture partner could have investment goals that are not consistent with our investment objectives,
including the timing, terms and strategies for any investments;
our joint venture partner might fail to fund its share of required capital contributions or fail to fulfill its obligations
as a joint venture partner; and
our joint venture partner may have competing interests in our markets that could create conflict of interest issues,
particularly if aircraft owned by the joint venture are being marketed for lease or sale at a time when the Company
also has comparable aircraft available for lease or sale.
As of February 5, 2016, Teachers’ owns 10.0% of our outstanding common shares.
Risks Related to Our Common Shares
The market price and trading volume of our common shares may be volatile or may decline regardless of our operating
performance, which could result in rapid and substantial losses for our shareholders.
If the market price of our common shares declines significantly, shareholders may be unable to resell their shares at
or above their purchase price. The market price or trading volume of our common shares could be highly volatile and may
decline significantly in the future in response to various factors, many of which are beyond our control, including:
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variations in our quarterly or annual operating results;
failure to meet any earnings estimates;
actual or perceived reduction in our growth or expected future growth;
actual or anticipated accounting issues;
publication of research reports about us, other aircraft lessors or the aviation industry or the failure of securities
analysts to cover our common shares or the decision to suspend or terminate coverage in the future;
additions or departures of key management personnel;
increased volatility in the capital markets and more limited or no access to debt financing, which may result in
an increased cost of, or less favorable terms for, debt financing or may result in sales to satisfy collateral calls or
other pressure on holders to sell our shares;
redemptions, or similar events affecting funds or other investors holding our shares, which may result in large
block trades that could significantly impact the price of our common shares;
adverse market reaction to any indebtedness we may incur or preference or common shares we may issue in the
future;
changes in or elimination of our dividend;
actions by shareholders;
changes in market valuations of similar companies;
announcements by us, our competitors or our suppliers of significant contracts, acquisitions, disposals, strategic
partnerships, joint ventures or capital commitments;
speculation in the press or investment community;
changes or proposed changes in laws or regulations affecting the aviation industry or enforcement of these laws
and regulations, or announcements relating to these matters; and
general market, political and economic conditions and local conditions in the markets in which our lessees are
located.
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In addition, the equity markets in general have frequently experienced substantial price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of companies traded in those markets. Changes
in economic conditions in the U.S., Europe or globally could also impact our ability to grow profitably. These broad market
and industry factors may materially affect the market price of our common shares, regardless of our business or operating
performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action
litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur
substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business,
financial condition and results of operations.
Future debt, which would be senior to our common shares upon liquidation, and additional equity securities, which
would dilute the percentage ownership of our then current common shareholders and may be senior to our common
shares for the purposes of dividends and liquidation distributions, may adversely affect the market price of our common
shares.
In the future, we may attempt to increase our capital resources by incurring debt or issuing additional equity securities,
including commercial paper, medium-term notes, senior or subordinated notes or loans and series of preference shares or
common shares. Upon liquidation, holders of our debt investments and preference shares and lenders with respect to other
borrowings would receive a distribution of our available assets prior to the holders of our common shares. Additional equity
offerings would dilute the holdings of our then current common shareholders and could reduce the market price of our
common shares, or both. Preference shares, if issued, could have a preference on liquidating distributions or a preference
on dividend payments. Restrictive provisions in our debt and/or preference shares could limit our ability to make a distribution
to the holders of our common shares. Because our decision to incur more debt or issue additional equity securities in the
future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of our future capital raising activities. Thus, holders of our common shares bear the risk of our future debt
and equity issuances reducing the market price of our common shares and diluting their percentage ownership.
The market price of our common shares could be negatively affected by sales of substantial amounts of our common
shares in the public markets.
As of February 5, 2016, there were 78,564,901 shares issued and outstanding, all of which are freely transferable, except
for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”). Approximately 37.1% of our outstanding common shares are held by our affiliates and can be resold into
the public markets in the future in accordance with the requirements of Rule 144 under the Securities Act.
One affiliate, Marubeni, currently holds 27.0% of our outstanding common shares. Beginning in July 2016, or earlier
upon the occurrence of certain events set forth in the Shareholders Agreement, Marubeni and permitted third-party transferees
have the ability to cause us to register the resale of their common shares into the public markets. Another investor, Teachers’,
currently holds 10.0% of our outstanding common shares and has the ability to cause us to register the resale of their common
shares into the public markets.
The issuance of additional common shares in connection with acquisitions or otherwise will dilute all other shareholdings.
As of February 5, 2016, we had an aggregate of 156,541,592 common shares authorized but unissued and not reserved
for issuance under our incentive plan. We may issue all of these common shares without any action or approval by our
shareholders. We intend to continue to actively pursue acquisitions of aviation assets and may issue common shares in
connection with these acquisitions. Any common shares issued in connection with our acquisitions, our incentive plan, and
the exercise of outstanding share options or otherwise would dilute the percentage ownership held by existing shareholders.
Risks Related to Taxation
If Aircastle were treated as engaged in a trade or business in the United States, it would be subject to U.S. federal income
taxation on a net income basis, which would adversely affect our business and result in decreased cash available for
distribution to our shareholders.
If, contrary to expectations, Aircastle were treated as engaged in a trade or business in the United States, the portion
of its net income, if any, that was “effectively connected” with such trade or business would be subject to U.S. federal income
taxation at a maximum rate of 35%. In addition, Aircastle would be subject to the U.S. federal branch profits tax on its
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effectively connected earnings and profits at a rate of 30%. The imposition of such taxes would adversely affect our business
and would result in decreased cash available for distribution to our shareholders.
If there is not sufficient trading in our shares, or if 50% of our shares are held by certain 5% shareholders, we could
lose our eligibility for an exemption from U.S. federal income taxation on rental income from our aircraft used in
“international traffic” and could be subject to U.S. federal income taxation which would adversely affect our business
and result in decreased cash available for distribution to our shareholders.
We expect that we are currently eligible for an exemption under Section 883 of the Internal Revenue Code of 1986,
as amended (the “Code”), which provides an exemption from U.S. federal income taxation with respect to rental income
derived from aircraft used in international traffic by certain foreign corporations. No assurances can be given that we will
continue to be eligible for this exemption as our stock is traded on the market and changes in our ownership or the amount
of our shares that are traded could cause us to cease to be eligible for such exemption. To qualify for this exemption in
respect of rental income, the lessor of the aircraft must be organized in a country that grants a comparable exemption to
U.S. lessors (Bermuda and Ireland each do), and certain other requirements must be satisfied. We can satisfy these
requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a
recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution
rules), do not collectively own more than 50% of our shares. Our shares will be considered to be primarily and regularly
traded on a recognized exchange in any year if: (i) the number of trades in our shares effected on such recognized stock
exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities
markets; (ii) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days
during every calendar quarter in the year; and (iii) the aggregate number of our shares traded on such stock exchanges during
the taxable year is at least 10% of the average number of our shares outstanding in that class during that year. If our shares
cease to satisfy these requirements, then we may no longer be eligible for the Section 883 exemption with respect to rental
income earned by aircraft used in international traffic. If we were not eligible for the exemption under Section 883 of the
Code, we expect that the U.S. source rental income of Aircastle Bermuda generally would be subject to U.S. federal taxation,
on a gross income basis, at a rate of not in excess of 4% as provided in Section 887 of the Code. If, contrary to expectations,
Aircastle Bermuda did not comply with certain administrative guidelines of the Internal Revenue Service, such that 90%
or more of Aircastle Bermuda’s U.S. source rental income were attributable to the activities of personnel based in the United
States, Aircastle Bermuda’s U.S. source rental income would be treated as income effectively connected with the conduct
of a trade or business in the United States. In such case, Aircastle Bermuda’s U.S. source rental income would be subject
to U.S. federal income taxation on its net income at a maximum rate of 35% as well as state and local taxation. In addition,
Aircastle Bermuda would be subject to the U.S. federal branch profits tax on its effectively connected earnings and profits
at a rate of 30%. The imposition of such taxes would adversely affect our business and would result in decreased cash
available for distribution to our shareholders.
One or more of our Irish subsidiaries could fail to qualify for treaty benefits, which would subject certain of their income
to U.S. federal income taxation, which would adversely affect our business and result in decreased cash available for
distribution to our shareholders.
Qualification for the benefits of the double tax treaty between the United States and Ireland (the “Irish Treaty”) depends
on many factors, including being able to establish the identity of the ultimate beneficial owners of our common shares. Each
of the Irish subsidiaries may not satisfy all the requirements of the Irish Treaty and thereby may not qualify each year for
the benefits of the Irish Treaty or may be deemed to have a permanent establishment in the United States. Moreover, the
provisions of the Irish Treaty may change. Failure to so qualify, or to be deemed to have a permanent establishment in the
United States, could result in the rental income from aircraft used for flights within the United States being subject to
increased U.S. federal income taxation. The imposition of such taxes would adversely affect our business and would result
in decreased cash available for distribution to our shareholders.
We may become subject to an increased rate of Irish taxation which would adversely affect our business and would result
in decreased earnings available for distribution to our shareholders.
Our Irish subsidiaries and affiliates are expected to be subject to corporation tax on their income from leasing, managing
and servicing aircraft at the 12.5% tax rate applicable to trading income. This expectation is based on certain assumptions,
including that we will maintain at least the current level of our business operations in Ireland. If we are not successful in
achieving trading status in Ireland, the income of our Irish subsidiaries and affiliates will be subject to corporation tax at
the 25% rate applicable to non-trading activities, which would adversely affect our business and would result in decreased
earnings available for distribution to our shareholders.
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We may be subject to an increased rate of Singapore taxation which would adversely affect our business and would result
in decreased earnings available for distribution to our shareholders.
Our Singapore subsidiaries are subject to Singapore income tax on their income from leasing, managing and servicing
aircraft. Singapore’s authorities have awarded our Singapore subsidiaries a reduced rate of tax until July 2017, provided
that we satisfy certain conditions and requirements. If we cannot meet such conditions and requirements, or if the award is
not renewed, we would be subject to additional Singapore income tax. This would adversely affect our business and would
result in decreased earnings available for distribution to our shareholders.
We may become subject to income or other taxes in the non-U.S. jurisdictions in which our aircraft operate, where our
lessees are located or where we perform certain services which would adversely affect our business and result in decreased
cash available for distributions to shareholders.
Certain Aircastle entities are expected to be subject to the income tax laws of Ireland, Mauritius, Singapore and the
United States. In addition, we may be subject to income or other taxes in other jurisdictions by reason of our activities and
operations, where our aircraft operate or where the lessees of our aircraft (or others in possession of our aircraft) are located.
Although we have adopted operating procedures to reduce the exposure to such taxation, we may be subject to such taxes
in the future and such taxes may be substantial. In addition, if we do not follow separate operating guidelines relating to
managing a portion of our aircraft portfolio through offices in Ireland and Singapore, income from aircraft not owned in
such jurisdictions would be subject to local tax. Changes in tax law could impose withholding taxes on lease payments
during the term of a lease. Our leases typically require our lessees to indemnify us in respect of taxes but some leases may
not require such indemnification or a lessee may fail to make such indemnification payment. The imposition of such taxes
could adversely affect our business and result in decreased earnings available for distribution to our shareholders.
We expect to continue to be a passive foreign investment company (“PFIC”) and may be a controlled foreign corporation
(“CFC”) for U.S. federal income tax purposes.
We expect to continue to be treated as a PFIC and may be a CFC for U.S. federal income tax purposes. If you are a
U.S. person and do not make a qualified electing fund (“QEF”) election with respect to us and each of our PFIC subsidiaries,
unless we are a CFC and you own 10% of our voting shares, you would be subject to special deferred tax and interest charges
with respect to certain distributions on our common shares, any gain realized on a disposition of our common shares and
certain other events. The effect of these deferred tax and interest charges could be materially adverse to you. Alternatively,
if you are such a shareholder and make a QEF election for us and each of our PFIC subsidiaries, or if we are a CFC and you
own 10% or more of our voting shares, you will not be subject to those charges, but could recognize taxable income in a
taxable year with respect to our common shares in excess of any distributions that we make to you in that year, thus giving
rise to so-called “phantom income” and to a potential out-of-pocket tax liability.
Distributions made to a U.S. person that is an individual will not be eligible for taxation at reduced tax rates generally
applicable to dividends paid by certain United States corporations and “qualified foreign corporations” on or after January 1,
2003. The more favorable rates applicable to regular corporate dividends could cause individuals to perceive investment
in our shares to be relatively less attractive than investment in the shares of other corporations, which could adversely affect
the value of our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
28
ITEM 2. PROPERTIES
We lease approximately 19,200 square feet of office space in Stamford, Connecticut for our corporate operations. The
lease for the Stamford facility expires in December 2022. We lease approximately 3,380 square feet of office space in
Dublin, Ireland and approximately 2,600 square feet of office space in Singapore for our operations in Europe and Asia.
The lease for our Irish office expires in June 2016, and the lease for our Singapore office expires in July 2016.
We believe our current facilities are adequate for our current needs and that suitable additional space will be available
as and when needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal or adverse regulatory proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Executive Officers of the Registrant
Executive officers are elected by our Board of Directors, and their terms of office continue until the next annual meeting
of the board or until their successors are elected and have been duly qualified. There are no family relationships among our
executive officers.
Set forth below is information pertaining to our executive officers who held office as of February 5, 2016:
Ron Wainshal, 51, became our Chief Executive Officer in May 2005 and a member of our Board in May 2010. Prior
to joining Aircastle, Mr. Wainshal was in charge of the Asset Management group of General Electric Capital Aviation Services
(“GECAS”) from 2003 to 2005. After joining GECAS in 1998, Mr. Wainshal led many of GECAS’ U.S. airline restructuring
efforts and its bond market activities, and played a major marketing and structured finance role in the Americas. Before
joining GECAS, he was a principal and co-owner of a financial advisory company specializing in transportation infrastructure
from 1994 to 1998 and prior to that held positions at Capstar Partners and The Transportation Group in New York and Ryder
System in Miami. He received a BS in Economics from the Wharton School of the University of Pennsylvania and an MBA
from the University of Chicago’s Booth Graduate School of Business.
Michael Inglese, 54, became our Chief Financial Officer in April 2007. Prior to joining the Company, Mr. Inglese
served as an Executive Vice President and Chief Financial Officer of PanAmSat Holding Corporation, where he served as
Chief Financial Officer from June 2000 until the closing of PanAmSat’s sale to Intelsat in July 2006. Mr. Inglese joined
PanAmSat in May 1998 as Vice President, Finance after serving as Chief Financial Officer for DIRECTV Japan, Inc. He
is a Chartered Financial Analyst who holds a BS in Mechanical Engineering from Rutgers University College of Engineering
and his MBA from Rutgers Graduate School of Business Management.
Michael Kriedberg, 54, became our Chief Commercial Officer in April 2013. Prior to joining the Company, Mr.
Kriedberg served as an Executive Vice President, Aviation Financing Operations of GECAS from August 2009. From
January 2008 to August 2009, Mr. Kriedberg was the Chief Investment Officer of GE Capital Corporation (“GECC”) and
President of the Bank Loan Group division of GECC from August 2006 to January 2008. Mr. Kriedberg holds a bachelor
degree in Economics from SUNY Albany and a Master’s degree in Accounting from Pace University.
29
Christopher L. Beers, 51, became our General Counsel in November 2014. Prior to joining Aircastle, Mr. Beers held
senior positions at GE Capital since 2000, including Senior Vice President and Associate General Counsel at GECAS from
2009 to 2014, and Senior Vice President and General Counsel of GE Transportation Finance from 2006 to 2009. Previously,
Mr. Beers was a Senior Associate at the law firm of Milbank Tweed Hadley and McCloy in New York City. Mr. Beers holds
a BS in Economics from Arizona State University and a JD from Pace Law School.
Joseph Schreiner, 58, became our Executive Vice President, Technical in October 2004. Prior to joining Aircastle,
Mr. Schreiner oversaw the technical department at AAR Corp, a provider of products and services to the aviation and defense
industries from 1998 to 2004 where he managed aircraft and engine evaluations and inspections, aircraft lease transitions,
reconfiguration and heavy maintenance. Prior to AAR, Mr. Schreiner spent 19 years at Boeing (McDonnell-Douglas) in
various technical management positions. Mr. Schreiner received a BS from the University of Illinois and an MBA from
Pepperdine University.
Aaron Dahlke, 47, became our Chief Accounting Officer in June 2005. Prior to that, Mr. Dahlke was Vice President
and Controller of Boullioun Aviation Services Inc. from January 2003 to May 2005. Prior to Boullioun, Mr. Dahlke was at
ImageX.com, Inc. and Ernst & Young LLP. He received a B.S. in Accounting from California State University, San
Bernardino. He is a Certified Public Accountant.
30
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTER AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares are listed for trading on the New York Stock Exchange under the symbol “AYR.” As of February 5,
2016, there were 19,775 record holders of our common shares.
The following table sets forth the quarterly high and low prices of our common shares on the New York Stock Exchange
for the periods indicated since our initial public offering and dividends during such periods:
Year Ending December 31, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ending December 31, 2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Dividends
Declared
per
Share ($)
$
$
$
$
$
$
$
$
23.82
25.52
24.70
23.49
20.07
19.49
19.55
21.58
$
$
$
$
$
$
$
$
19.64
22.15
18.50
19.13
17.82
16.38
16.36
15.73
$
$
$
$
$
$
$
$
0.220
0.220
0.220
0.240
0.200
0.200
0.200
0.220
Our ability to pay, maintain or increase cash dividends to our shareholders is subject to the discretion of our Board of
Directors and will depend on many factors, including the difficulty we may experience in raising capital in a market that
has experienced significant volatility in recent years and our ability to finance our aircraft acquisition commitments; our
ability to negotiate favorable lease and other contractual terms; the level of demand for our aircraft; the economic condition
of the commercial aviation industry generally; the financial condition and liquidity of our lessees; the lease rates we are able
to charge and realize; our leasing costs; unexpected or increased expenses; the level and timing of capital expenditures;
principal repayments and other capital needs; the value of our aircraft portfolio; our compliance with loan to value, debt
service coverage, interest rate coverage and other financial covenants in our financings; our results of operations, financial
condition and liquidity; general business conditions; restrictions imposed by our securitizations or other financings; legal
restrictions on the payment of dividends, including a statutory dividend test and other limitations under Bermuda law; and
other factors that our Board of Directors deems relevant. Some of these factors are beyond our control and a change in any
such factor could affect our ability to pay dividends on our common shares. In the future we may not choose to pay dividends
or may not be able to pay dividends, maintain our current level of dividends, or increase them over time. Increases in demand
for our aircraft and operating lease payments may not occur and may not increase our actual cash available for dividends
to our common shareholders. The failure to maintain or pay dividends may adversely affect our share price.
31
Issuer Purchases of Equity Securities
During the fourth quarter of 2015, we purchased our common shares as follows:
Total
Number
of Shares
Purchased
Average
Price
Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(a)
(Dollars in thousands, except per share amounts)
Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs(a)
— $
450,905
504,330
955,235
$
—
19.77
19.84
19.81
— $
450,905
504,330
955,235
$
100,000
91,086
81,079
81,079
Period
October
November
December
Total
______________
(a) On October 31, 2014, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common shares.
Performance Graph
The following stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the
Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as
amended.
The following graph compares the cumulative five year total return to holders of our common shares relative to the
cumulative total returns of the S&P 500 Index, the S&P Midcap 400 Index, and a customized peer group over the five year
period ended December 31, 2015. The peer group consists of three companies: AerCap Holdings NV (NYSE: AER), Air
Lease Corporation (NYSE: AL) and FLY Leasing Limited (NYSE: FLY). An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common shares, the S&P 500 Index, the S&P Midcap 400 Index and in the
peer group on December 31, 2010, and the relative performance of each is tracked through December 31, 2015. The stock
performance shown on the graph below represents historical stock performance and is not necessarily indicative of future
stock price performance. We believe that the S&P Midcap 400 Index is more representative of our peers than the S&P 500
Index. In addition, we may utilize the S&P 400 Midcap Index as a performance metric for share-based compensation.
32
* $100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Aircastle Limited
S&P 500
S&P Midcap 400
Peer Group
12/31/15
12/31/14
12/31/13
12/31/12
12/31/11
12/31/10
$
249.87
$
245.41
$
210.79
$
132.08
$
127.29
$
100.00
180.75
166.05
186.93
178.29
169.75
174.05
156.82
154.64
167.61
118.45
115.84
85.20
102.11
98.27
82.53
100.00
100.00
100.00
33
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial, operating and other data as of December 31, 2015 and 2014 and for
each of the three years in the period ended December 31, 2015 presented in this table are derived from our audited
consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report. The selected
consolidated financial data as of December 31, 2012 and 2011 presented in this table are derived from our audited
consolidated financial statements and related notes thereto, which are not included in this Annual Report. You should read
these tables along with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report.
Selected Financial Data:
Consolidated Statements of Income:
Lease rental revenue
Total revenues
Selling, general and administrative expenses
Depreciation
Interest, net
Net income
Earnings per common share — Basic:
Net income
Earnings per common share — Diluted:
Net income
Cash dividends declared per share
Other Operating Data:
EBITDA
Adjusted EBITDA
Adjusted net income
Consolidated Statements of Cash Flows:
Cash flows provided by operations
Cash flows used in investing activities
Year Ended December 31,
2015
2014
2013
2012
2011
(Dollars in thousands, except share data)
$ 733,417
$ 714,654
$ 644,929
$
623,503
$
580,209
819,202
56,198
318,783
243,577
121,729
818,602
55,773
299,365
238,378
100,828
708,645
53,436
284,924
243,757
29,781
686,572
48,370
269,920
222,808
32,868
605,197
45,953
242,103
204,150
124,270
$
$
$
1.50
1.50
0.90
$
$
$
1.25
1.25
0.82
$
$
$
0.40
0.40
0.695
$
$
$
0.46
0.46
0.615
$
$
$
1.64
1.64
0.50
$ 707,524
$ 658,606
$ 600,088
$
546,285
$
594,800
832,105
142,271
792,283
167,642
717,209
59,260
647,622
57,009
607,870
144,963
$ 526,285
$ 458,786
$ 424,037
$
427,277
$
359,377
(864,662)
(861,602)
(682,933)
(741,909)
(445,420)
Cash flows provided by (used in) financing activities
324,625
(82,141)
295,292
637,327
141,608
Consolidated Balance Sheet Data:
Cash and cash equivalents
Flight equipment held for lease, net of accumulated
depreciation
$ 155,904
$ 169,656
$ 654,613
$
618,217
$
295,522
5,867,062
5,579,718
5,044,410
4,662,661
4,387,986
Net investment in finance and sales-type leases
201,211
106,651
145,173
119,951
—
Total assets
6,569,964
6,175,146
6,199,429
5,757,073
5,188,499
Borrowings from secured and unsecured financings, net of
debt issuance costs
Shareholders’ equity
Other Data:
4,041,156
3,744,587
1,779,500
1,720,335
3,684,897
1,645,407
3,543,589
1,415,626
2,950,586
1,404,608
Number of Aircraft (at the end of period)
Total debt to total capitalization
Total unencumbered assets
162
69.4%
148
68.5%
162
69.1%
159
71.5%
144
67.7%
$ 3,928,230
$3,510,588
$ 3,309,821
$ 2,709,915
$
972,471
34
We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and
depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we
believe this non-U.S. GAAP measure is helpful in identifying trends in our performance. This measure provides an
assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate
meeting current financial goals as well as achieving optimal financial performance. It provides an indicator for management
to determine if adjustments to current spending decisions are needed. EBITDA provides us with a measure of operating
performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact
of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and
amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational
factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA
is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance
of our business.
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required
in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.
Adjusted EBITDA is a material component of these covenants.
The table below shows the reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011.
Net income
Depreciation
Amortization of net lease premiums (discounts) and lease incentives
Interest, net
Income tax provision
EBITDA
Adjustments:
Impairment of aircraft
Loss on extinguishment of debt
Non-cash share based payment expense
Loss (gain) on mark-to-market of interest rate derivative contracts
Contract termination expense
Adjusted EBITDA
Year Ended December 31,
2015
2014
2013
2012
2011
(Dollars in thousands)
$ 121,729
$ 100,828
$
29,781
$
32,868
$ 124,270
318,783
10,664
243,577
12,771
299,365
284,924
6,172
32,411
269,920
12,844
238,378
13,863
243,757
222,808
9,215
7,845
242,103
16,445
204,150
7,832
$ 707,524
$ 658,606
$ 600,088
$ 546,285
$ 594,800
119,835
—
5,537
(791)
—
93,993
36,570
4,244
(1,130)
—
117,306
96,454
—
4,569
(4,754)
—
—
4,232
(597)
1,248
6,436
—
5,786
848
—
$ 832,105
$ 792,283
$ 717,209
$ 647,622
$ 607,870
Management believes that Adjusted Net Income (“ANI”) when viewed in conjunction with the Company’s results
under U.S. GAAP and the below reconciliation, provides useful information about operating and period-over-period
performance, and provides 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.
35
The table below shows the reconciliation of net income to ANI for the years ended December 31, 2015, 2014, 2013,
2012 and 2011.
Net income
$ 121,729
$ 100,828
$ 29,781
$ 32,868
$ 124,270
Year Ended December 31,
2015
2014
2013
2012
2011
(Dollars in thousands)
Loss on extinguishment of debt(2)
Ineffective portion and termination of cash flow hedges(1)
Loss (gain) on mark-to-market of interest rate derivative contracts(2)
Loan termination payment(1)
Write-off of deferred financing fees(1)
Stock compensation expense(3)
Term Financing No. 1 hedge loss amortization charges(1)
Securitization No. 1 hedge loss amortization charges(1)
Contract termination expense
Adjusted net income
_____________
(1)
(2)
(3)
Included in Interest, net.
Included in Other income (expense).
Included in Selling, general and administrative expenses.
—
455
36,570
660
—
2,393
(791)
(1,130)
(4,754)
—
—
5,537
4,401
10,940
—
—
—
4,244
14,854
11,616
—
2,954
3,975
4,569
17,843
2,499
—
—
2,893
(597)
—
3,034
4,232
13,331
—
1,248
—
8,407
848
3,196
2,456
5,786
—
—
—
$ 142,271
$ 167,642
$ 59,260
$ 57,009
$ 144,963
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations contains forward-looking
statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with
Item 6. “Selected Financial Data” and our historical consolidated financial statements and the notes thereto appearing
elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results
that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-
looking statements as a result of various factors, including but not limited to those described under Item 1A. — “Risk
Factors” and elsewhere in this report. Please see “Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995” for a discussion of the uncertainties, risks and assumptions associated with these statements. Our consolidated
financial statements are prepared in accordance with U.S. GAAP and, unless otherwise indicated, the other financial
information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all
references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
OVERVIEW
We acquire, lease, and sell commercial jet aircraft with large, global operator bases and long useful lives. As of
December 31, 2015, our aircraft portfolio consisted of 162 aircraft that were leased to 53 lessees located in 34 countries.
We also may occasionally make investments in other aviation assets, including debt investments secured by commercial jet
aircraft. Our aircraft fleet is managed by an experienced team based in the United States, Ireland and Singapore. As of
December 31, 2015, the net book value of our flight equipment and finance and sales-type lease aircraft was $6.07 billion
compared to $5.69 billion at the end of 2014. Our revenues and net income for the year ended December 31, 2015 were
$819.2 million and $121.7 million respectively, and for the fourth quarter 2015 were $208.3 million and $50.6 million,
respectively.
Revenues
Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from
retained maintenance payments related to lease expirations, lease termination payments, lease incentive amortization and
interest recognized from finance and sales-type leases.
Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for
maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. Our
aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and
the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market
conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including
the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and defaults. Our lease rental
revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing
the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market
conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease
aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.
Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will
typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value
components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time,
depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance
payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these
payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record
maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation
in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance
revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve
payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance,
overhaul or parts replacement. The amount of maintenance revenue we recognize in any reporting period is inherently
volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and
unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.
37
Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance,
overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives,
which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such
costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units,
expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the
maintenance event and the estimated amounts the lessee is responsible to pay.
This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize
the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being
recorded as a lease incentive liability which is included in maintenance payments on the balance sheet. The payment to the
lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease
incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and
continues to amortize over the remaining life of the lease.
Operating Expenses
Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general
and administrative expenses, aircraft impairment charges and maintenance and other costs. Because our operating lease
terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and
other costs relating to aircraft reflected in our statement of income primarily relates to expenses for unscheduled lease
terminations.
Income Tax Provision
We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or
income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such
tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations
except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real
property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned
by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes,
primarily Ireland, Singapore and the United States.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-
U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically
are not subject to U.S. federal, state or local income taxes, unless they operate within the U.S., in which case they may be
subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore
are subject to tax in those respective jurisdictions.
We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to
U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management
services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
Segments
The Company manages, analyzes and reports on its business and results of operations on the basis of one operating
segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief
operating decision maker.
Acquisitions and Sales
During 2015, we acquired 46 aircraft for $1.42 billion, including 14 aircraft for $384.8 million during the fourth quarter.
The average age of the acquired aircraft during 2015 was 5.0 years and the leases had an average remaining lease term of
approximately 8.6 years. Of the 46 aircraft purchased during the year, 43 were narrow-bodies.
At December 31, 2015, we had commitments to acquire 35 aircraft for $1.35 billion, including 25 new E-Jet E-2
aircraft from Embraer with delivery beginning in 2018. As of February 5, 2016, we have commitments to acquire 37 aircraft
for $1.42 billion.
38
During 2015, we sold 31 aircraft for $562.5 million, which resulted in a net gain of $58.0 million. The weighted
average age of these aircraft was 15.5 years. We repaid $150.6 million of debt associated with this flight equipment.
Year Ended December 31, 2015
Narrow-body
Wide-body
Freighter
Total
Number
of
Aircraft
Weighted
Average Age of
Aircraft in Years
Maintenance
Revenue
Gain (Loss)
on Sale of
Flight
Equipment
Transactional
Impairment
Pre-tax
Impact
21
6
4
31
14.8
15.9
18.3
15.5
$
12,334
$
41,410
$
(5,328)
$
48,416
—
11,412
17,948
(1,341)
—
(17,852)
17,948
(7,781)
$
23,746
$
58,017
$
(23,180)
$
58,583
The following table sets forth certain information with respect to the aircraft owned by us as of December 31, 2015,
2014 and 2013:
AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)
Owned
Aircraft as of
December 31,
2015(1)
Owned
Aircraft as of
December 31,
2014(1)
Owned
Aircraft as of
December 31,
2013(1)
Flight Equipment Held for Lease
Unencumbered Flight Equipment included in Flight Equipment Held for Lease
$
$
6,068
3,928
$
$
Number of Aircraft
Number of Unencumbered Aircraft
Number of Lessees
Number of Countries
Weighted Average Age (years)(2)
Weighted Average Remaining Lease Term (years)(3)
Weighted Average Fleet Utilization during the Fourth Quarter(4)
Weighted Average Fleet Utilization for the Year Ended(4)
Portfolio Yield for the Fourth Quarter(5)
Portfolio Yield for the Year Ended(5)
____________
162
118
53
34
7.5
5.9
99.7%
99.3%
12.6%
12.6%
$
$
5,686
3,341
148
95
54
34
8.4
5.4
99.9%
99.6%
13.3%
13.3%
5,190
2,655
162
80
64
37
9.9
5.0
99.5%
98.7%
13.6%
13.6%
(1) Calculated using net book value of flight equipment held for lease and net investment in finance and sales-type leases as at period end.
(2) Weighted average age (years) by net book value.
(3) Weighted average remaining lease term (years) by net book value.
(4) Aircraft on-lease days as a percent of total days in period weighted by net book value.
(5) Lease rental revenue for the period as a percent of the average net book value of flight equipment held for lease for the period.
Our owned aircraft portfolio as of December 31, 2015 is listed in Exhibit 99.1 to this report.
39
PORTFOLIO DIVERSIFICATION
Aircraft Type
Passenger:
Narrow-body
Wide-body
Total Passenger
Freighter
Total
Manufacturer
Boeing
Airbus
Embraer
Total
Regional Diversification
Asia and Pacific
Europe
South America
Middle East and Africa
North America
Off-lease
Total
_______________
Owned Aircraft as of
December 31, 2015
Owned Aircraft as of
December 31, 2014
Number of
Aircraft
% of Net
Book Value
Number of
Aircraft
% of Net
Book Value
118
33
151
11
162
70
87
5
162
49
64
22
9
17
1 (1)
162
46%
44%
90%
10%
100%
45%
53%
2%
100%
39%
26%
19%
10%
6%
—%
100%
96
37
133
15
148
76
67
5
148
46
65
13
6
17
1 (2)
148
36%
50%
86%
14%
100%
51%
46%
3%
100%
40%
29%
14%
10%
7%
—%
100%
(1) Consisted of one Boeing 777-200ER aircraft that was being marketed for lease at December 31, 2015.
(2) Consisted of one Airbus A320-200, which was subject to a commitment to lease and was delivered to our customer in February 2015.
40
Our largest customer represents 7% of the net book value of flight equipment held for lease (includes net book value
of flight equipment held for lease and net investment in finance and sales-type leases) at December 31, 2015. Our top 15
customers for aircraft we owned at December 31, 2015, representing 87 aircraft and 68% of the net book value of flight
equipment held for lease, are as follows:
Percent of Net Book Value
Greater than 6% per customer
3% to 6% per customer
Less than 3% per customer
Customer
Avianca Brazil
LATAM
Lion Air
Iberia
South African Airways
Thai Airways
Singapore Airlines
Air Asia X
Air Berlin
Emirates
AirBridge Cargo(1)
Garuda
Air Asia
Virgin Australia
Avianca
Total top 15 customers
All other customers
Total all customers
Country
Brazil
Chile
Indonesia
Spain
South Africa
Thailand
Singapore
Malaysia
Germany
United Arab Emirates
Russia
Indonesia
Malaysia
Australia
Colombia
Number
of
Aircraft
10
3
11
18
4
2
4
3
12
2
2
4
8
2
2
87
75
162
(1) Guaranteed by Volga-Dnepr Airlines. If combined with one other affiliated customer, the two customers represents 5% of flight equipment held for lease.
Finance
Aircastle Limited is a publicly listed company and our shares have been trading on the New York Stock Exchange
since August 2006. Since our inception in late 2004, we raised approximately $1.7 billion in equity capital from private
and public investors. We also obtained $11.7 billion in debt capital from a variety of sources including export credit agency-
backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. The diversity and
global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth
opportunities.
We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments
received from lessees, secured borrowings for aircraft, draws on our Revolving Credit Facility and proceeds from any future
aircraft sales. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent
long-term debt financings, additional equity offerings or cash generated from operations and asset sales. Therefore, our
ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation
assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.
See “Liquidity and Capital Resources — Secured Debt Financings” and ”Liquidity and Capital Resources —
Unsecured Debt Financings” below.
41
Comparison of the year ended December 31, 2015 to the year ended December 31, 2014:
Revenues:
Lease rental revenue
Finance and sales-type lease revenue
Amortization of net lease discounts and lease incentives
Maintenance revenue
Total lease rentals
Other revenue
Total revenues
Expenses:
Depreciation
Interest, net
Selling, general and administrative
Impairment of aircraft
Maintenance and other costs
Total operating expenses
Other income (expense):
Gain on sale of flight equipment
Loss on extinguishment of debt
Other
Total other income (expense)
Income from continuing operations before income taxes
Income tax provision
Earnings of unconsolidated equity method investment, net of tax
Net income
Revenues:
Year Ended
December 31,
2015
2014
(Dollars in thousands)
$
733,417
$
714,654
7,658
(10,664)
71,049
801,460
17,742
819,202
318,783
243,577
56,198
119,835
11,502
749,895
58,017
—
919
58,936
128,243
12,771
6,257
10,906
(6,172)
88,006
807,394
11,208
818,602
299,365
238,378
55,773
93,993
7,239
694,748
23,146
(36,570)
1,207
(12,217)
111,637
13,863
3,054
$
121,729
$
100,828
Total revenues increased by $0.6 million for the year ended December 31, 2015 as compared to the year ended
December 31, 2014, primarily as a result of the following:
Lease rental revenue. The increase in lease rental revenue of $18.8 million for the year ended December 31, 2015 as
compared to the same period in 2014 was primarily the result of $171.1 million of revenue consisting of $97.4 million,
reflecting the full year impact of 31 aircraft purchased in 2014, and $73.7 million, reflecting the partial year impact of 42
aircraft purchased in 2015.
This increase was offset partially by a decrease in revenue of:
• $118.6 million, consisting of $67.5 million due to the sale of 41 aircraft in 2014 and $51.1 million from the sale
of 29 aircraft in 2015;
• $27.1 million due to lease extensions, amendments and transitions; and
• $6.6 million from the effect of lease terminations and other changes.
Finance and sales-type lease revenue. For the year ended December 31, 2015, $7.7 million of interest income from
finance and sales-type leases was recognized as compared to $10.9 million of interest income from finance and sales-type
42
leases recorded for the same period in 2014 due to the sale of three aircraft during 2015 and six aircraft during 2014, partially
offset by the addition of six aircraft in 2015.
Amortization of net lease discounts and lease incentives.
Amortization of lease incentives
Amortization of lease premiums
Amortization of lease discounts
Amortization of net lease discounts and lease incentives
Year Ended
December 31,
2015
2014
(Dollars in thousands)
$
(9,897) $
(10,922)
10,155
(6,584)
(9,099)
9,511
$
(10,664) $
(6,172)
As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost
for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the
related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a
related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The
increase in amortization of lease incentives of $3.3 million for the year ended December 31, 2015 as compared to the same
period in 2014 was primarily attributable to $7.1 million of lease incentive amortization related to aircraft that were
transitioned during the year ended December 31, 2015, partially offset by the reversal of $4.5 million of lease incentive
amortization related to the early termination of one lease.
As more fully described above under “Revenues,” lease premiums represent the present value of the amount above
current lease rates for acquired aircraft with attached leases. The increase in amortization of lease premiums of $1.8 million
for the year ended December 31, 2015 as compared to the same period in 2014 resulted primarily from 11 aircraft purchased
during 2015 and 13 aircraft purchased during 2014.
Maintenance revenue.
Unscheduled lease terminations
Scheduled lease terminations
Maintenance revenue
Year Ended December 31,
2015
2014
Dollars
(in thousands)
Number of
Leases
Dollars
(in thousands)
Number of
Leases
$
$
9,055
61,994
71,049
1
17
18
$
$
45,373
42,633
88,006
10
25
35
Unscheduled lease terminations. For the year ended December 31, 2015, we recorded maintenance revenue totaling
$9.1 million from unscheduled lease terminations related to one aircraft returned in 2015. Comparatively, for the same
period in 2014, we recorded maintenance revenue totaling $45.4 million from unscheduled lease terminations associated
with ten aircraft returned in 2014.
Scheduled lease terminations. For the year ended December 31, 2015, we recorded maintenance revenue from
scheduled lease terminations totaling $62.0 million associated with 17 aircraft returned in 2015. Comparatively, for the
same period in 2014, we recorded $42.6 million, associated with maintenance revenue from 25 scheduled lease terminations.
Other revenue was $17.7 million during the year ended December 31, 2015, which was primarily due to $12.9 million
recognized in additional fees paid by lessees in connection with early termination of leases, $3.2 million in fees related to
other lease revenue and $1.5 million in administrative fees from the joint venture with Teachers’. For the year ended
December 31, 2014, other revenue was $11.2 million, which was primarily due to $10.2 million recognized in additional
fees paid by lessees in connection with early termination of leases and $1.0 million in administrative fees from the joint
venture with Teachers’.
43
Operating Expenses:
Total operating expenses increased by 7.9%, or $55.1 million, for the year ended December 31, 2015 as compared to
the year ended December 31, 2014 primarily as a result of the following:
Depreciation expense increased by $19.4 million for the year ended December 31, 2015 over the same period in 2014.
The net increase is primarily the result of:
• a $56.4 million increase in depreciation for aircraft acquired;
•
•
a $10.3 million increase due to changes to asset lives and residual values; and
a $5.5 million increase due to capitalized aircraft improvements.
This increase was offset by a $52.8 million decrease in depreciation for aircraft sales.
Interest, net consisted of the following:
Year Ended
December 31,
2015
2014
(Dollars in thousands)
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
$
204,326
$
189,135
Hedge ineffectiveness losses
Amortization of interest rate derivatives related to deferred losses
Amortization of deferred financing fees and notes discount
Interest Expense
Less interest income
Interest, net
455
24,023
14,878
243,682
(105)
$
243,577
$
738
34,979
13,961
238,813
(435)
238,378
Interest, net increased by $5.2 million, or 2.2% over the twelve months ended December 31, 2014. This increase was
due to higher interest of $15.2 million primarily resulting from higher weighted average debt outstanding for the twelve
months ended December 31, 2015 versus the prior year, offset primarily by lower amortization of interest rate derivatives
related to deferred losses of $11.0 million.
Selling, general and administrative expenses for the year ended December 31, 2015 increased by $0.4 million over
the same period in 2014 due primarily to an increase in personnel costs and professional services. Non-cash share based
expense was $5.5 million and $4.2 million for the years ended December 31, 2015 and 2014, respectively.
Impairment of aircraft was $119.8 million during the year ended December 31, 2015. See “Summary of Impairments
and Recoverability Assessment” below for a detailed discussion of the related impairment charge for these aircraft.
Impairment of aircraft was $94.0 million during the year ended December 31, 2014.
Maintenance and other costs were $11.5 million for the year ended December 31, 2015, an increase of $4.3 million
over the same period in 2014. The net increase is primarily related to higher maintenance costs of $1.3 million related to
scheduled terminations and $4.1 million related to unscheduled terminations and transitions, partially offset by a decrease
in other costs of $1.2 million for the year ended December 31, 2015 versus the same period in 2014.
Other Income:
Total other income (expense) for the year ended December 31, 2015 was $58.9 million of income as compared to $12.2
million of expense versus the same period in 2014. The increase of $71.2 million is primarily a result of:
Gain on sale of flight equipment increased $34.9 million in 2015 resulting from gains of $58.0 million on sales of 31
aircraft primarily driven by strong investor demand during the period versus gains of $23.1 million on sales of 49 aircraft
in 2014.
44
Year Ended December 31, 2015
Narrow-body
Wide-body
Freighter
Total
Number
of
Aircraft
Weighted
Average Age of
Aircraft in Years
Maintenance
Revenue
Gain (Loss)
on Sale of
Flight
Equipment
Transactional
Impairment
Pre-tax
Impact
21
6
4
31
14.8
15.9
18.3
15.5
$
$
12,334
$
41,410
$
(5,328)
$
48,416
—
11,412
17,948
(1,341)
—
(17,852)
17,948
(7,781)
23,746
$
58,017
$
(23,180)
$
58,583
Loss on extinguishment of debt of $36.6 million in 2014 relates to the early payment of our 9.75% Senior Notes due
2018 in April, 2014. We did not record any loss on extinguishment of debt in 2015.
Income Tax Provision:
Our provision for income taxes for the years ended December 31, 2015 and 2014 was $12.8 million and $13.9 million,
respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which
operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The decrease in our
income tax provision of approximately $1.1 million for the year ended December 31, 2015 as compared to the same period
in 2014 was primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the United States and
other jurisdictions.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-
U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically
are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be
subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore
are subject to tax in those respective jurisdictions.
We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to
U.S. federal, state and local income taxes. In addition, we have Ireland and Singapore based subsidiaries which provide
management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local
income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded relates
to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose
income taxes, primarily the United States and Ireland.
Other Comprehensive Income:
Net income
Net change in fair value of derivatives, net of tax expense of $35 and $828, respectively
Derivative loss reclassified into earnings
Total comprehensive income
Year Ended
December 31,
2015
2014
(Dollars in thousands)
$
121,729
$
100,828
1,224
24,023
2,466
34,979
$
146,976
$
138,273
Other comprehensive income was $147.0 million for the year ended December 31, 2015, an increase of $8.7 million
from the $138.3 million of other comprehensive income for the year ended December 31, 2014. Other comprehensive
income for the year ended December 31, 2015 primarily consisted of:
•
$121.7 million of net income;
45
•
•
a $1.2 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily to
net settlements for the year ended December 31, 2015, including a slight gain due to an upward shift in the 1
Month LIBOR forward curve; and
$24.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated
interest rate derivatives.
Other comprehensive income for the year ended December 31, 2014 primarily consisted of:
•
•
•
$100.8 million of net income;
a $2.5 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily to
net settlements for the year ended December 31, 2014 partially offset by a slight loss due to a downward shift in
the 1 Month LIBOR forward curve; and
$35.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated
interest rate derivatives.
Summary of Impairments and Recoverability Assessment
Annual Fleet-Wide Review
We perform our annual fleet-wide recoverability assessment during the third quarter. This recoverability assessment
is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the
assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft
type, based on management’s experience in the aircraft leasing industry, as well as information received from third party
sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future
expected lease rates, residual values, expected scrap values, economic conditions and other factors.
In our 2015 assessment, we reduced forecasted future cash flows for our six Boeing 747-400 converted freighter aircraft
not subject to sales agreements, all of which are more than twenty years old. Our new forecast reflects the persisting glut
of supply in the air cargo market resulting from weak growth in demand combined with the growth in capacity arising from
new production air freighters and higher belly capacity in latest generation wide-body passenger aircraft. In addition to
these market-wide impacts, our older freighters were affected specifically by the imposition of age limits in certain countries
and by lower utilization levels.
As a result, we determined that each of our older converted freighter aircraft was on its last lease, and we reduced our
residual value assumptions for these aircraft and expect to scrap them following lease expiry. During the third quarter of
2015, we therefore impaired four of these aircraft, which had an aggregate net book value as of August 31, 2015 of $115.9
million, writing down their book values by a total of $34.6 million, with a fair value date of September 1, 2015. For one of
these aircraft, we recorded maintenance revenue of $5.9 million, as we no longer plan to reinvest these funds.
In the 2014 assessment, we determined that the cash flows expected to be generated by two of our McDonnell Douglas
MD-11 freighter aircraft did not support their carrying values. As a result, during the third quarter of 2014, we impaired
these two aircraft, which had an aggregate net book value as of June 30, 2014 of $53.8 million, writing down their book
values by a total of $19.5 million. We also shortened their expected lives from 25 to 21 years and reduced their residual
values.
Other Impairments
In December 2015, one of our Airbus A330-300 aircraft was returned to us early as a result of a lease termination. We
elected not to reinvest in certain major maintenance needed to release this aircraft and instead have classified it as held for
sale. As a result, we recorded an impairment of $16.9 million for this aircraft, partially offset by maintenance revenue of
$9.1 million, reversed lease incentives of $4.5 million and other revenue of $1.8 million.
In September 2015, MAS informed us that it was effectively rejecting the lease on our Boeing 777-200ER aircraft as
part of its restructuring. This aircraft, which was manufactured in 1998, was the only aircraft we had on lease to MAS. We
repossessed it in October 2015. We reduced the carrying value of this aircraft to our best estimate of scrap value. While
we had not decided to dispose of the aircraft, this write-down was driven by weak overall demand tor older wide-body
aircraft, an increase in the supply of competing aircraft and the difficulty of recovering high redeployment costs given the
46
proliferation of aircraft age limits across the world. This write-down resulted in an impairment of $37.8 million, partially
offset by $1.2 million of other revenue from a letter of credit we drew following the lease rejection.
Also in September 2015, we modified the lease agreement with respect to one Airbus A321-200 aircraft. We elected
not to reinvest in certain major maintenance events during the lease term, and the lessee agreed to release its rights to certain
maintenance payments. As a result, we recorded an impairment of $6.1 million and maintenance revenue of $7.1 million
for this aircraft.
In the second quarter of 2015, we impaired two McDonnell Douglas MD-11 freighter aircraft and one Boeing 737-800
aircraft and recorded impairment charges totaling $24.0 million and maintenance revenue of $18.2 million.
During 2014, we impaired three Boeing 747-400 converted freighter aircraft, two Boeing 737-400 aircraft, two Airbus
A320-200 aircraft and one Boeing 757-200 aircraft and recorded impairment charges totaling $73.6 million. For these
aircraft, we recorded maintenance revenue of $51.6 million and other revenue of $0.7 million and reversed lease incentives
of $4.1 million.
Other than the aircraft discussed above, management believes that the net book value of each of our aircraft is currently
supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no
other aircraft were impaired as a consequence of this recoverability assessment. However, if our estimates or assumptions
change, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates
and related assumptions used in the recoverability assessment are appropriate, actual results could differ from those estimates.
Aircraft Monitoring List
At December 31, 2015, we considered six freighter aircraft and three passenger aircraft with a total net book value of
$209.4 million to be more susceptible to failing our recoverability assessments due to their sensitivity to changes in contractual
cash flows, future cash flow estimates and aircraft residual or scrap values.
47
Comparison of the year ended December 31, 2014 to the year ended December 31, 2013:
Revenues:
Lease rental revenue
Finance and sales-type lease revenue
Amortization of net lease discounts and lease incentives
Maintenance revenue
Total lease rentals
Other revenue
Total revenues
Expenses:
Depreciation
Interest, net
Selling, general and administrative
Impairment of aircraft
Maintenance and other costs
Total operating expenses
Other income (expense):
Gain on sale of flight equipment
Loss on extinguishment of debt
Other
Total other income (expense)
Income from continuing operations before income taxes and earnings of unconsolidated equity method
investment
Income tax provision
Earnings of unconsolidated equity method investment, net of tax
Net income
Revenues:
Year Ended
December 31,
2014
2013
(Dollars in thousands)
$
714,654
$
644,929
10,906
(6,172)
88,006
807,394
11,208
818,602
299,365
238,378
55,773
93,993
7,239
694,748
23,146
(36,570)
1,207
(12,217)
111,637
13,863
3,054
16,165
(32,411)
68,342
697,025
11,620
708,645
284,924
243,757
53,436
117,306
13,631
713,054
37,220
—
6,132
43,352
38,943
9,215
53
$
100,828
$
29,781
Total revenues increased by 15.5%, or $110.0 million, for the year ended December 31, 2014 as compared to the year
ended December 31, 2013, primarily as a result of the following:
Lease rental revenue. The increase in lease rental revenue of $69.7 million for the year ended December 31, 2014 as
compared to the same period in 2013 was primarily the result of:
• $158.7 million of revenue reflecting the full year impact of 17 aircraft purchased in 2013 and the impact of 34
aircraft purchased in 2014; and
• $10.6 million due to lease extensions, amendments and transitions.
This increase was offset partially by a decrease in lease rental revenue of:
• $92.4 million due to aircraft sales; and
• $7.2 million from the effect of lease terminations and other changes.
Finance and sales-type lease revenue. For the year ended December 31, 2014, $10.9 million of interest income from
finance and sales-type leases was recognized as compared to $16.2 million of interest income from finance and sales-type
leases recorded for the same period in 2013 due to the sale of six aircraft during the second quarter of 2014.
48
Amortization of net lease discounts and lease incentives.
Amortization of lease incentives
Amortization of lease premiums
Amortization of lease discounts
Amortization of net lease discounts and lease incentives
Year Ended
December 31,
2014
2013
(Dollars in thousands)
$
$
(6,584) $
(25,356)
(9,099)
9,511
(9,003)
1,948
(6,172) $
(32,411)
As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost
for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the
related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a
related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The
decrease in amortization of lease incentives of $18.8 million primarily resulted from five unscheduled lease transitions, two
scheduled lease transitions and one change in lease incentive estimate as compared with ten unscheduled lease transitions,
three scheduled lease transitions, and one change in lease incentive estimate in 2013.
As more fully described above under “Revenues,” lease discounts represent the present value of the amount below
current lease rates for acquired aircraft with attached leases. The increase in amortization of lease discounts of $7.6 million
for the year ended December 31, 2014 as compared to the same period in 2013 primarily resulted from additional amortization
on six aircraft purchased in 2014 and the full year amortization from four aircraft purchased in 2013.
Maintenance revenue.
Unscheduled lease terminations
Scheduled lease terminations
Maintenance revenue
Year Ended December 31,
2014
2013
Dollars
(in thousands)
Number of
Leases
Dollars
(in thousands)
Number of
Leases
$
$
45,373
42,633
88,006
10
25
35
$
$
47,734
20,608
68,342
10
7
17
Unscheduled lease terminations. For the year ended December 31, 2014, we recorded maintenance revenue totaling
$45.4 million from unscheduled lease terminations primarily associated with ten aircraft returned in 2014. Comparatively,
for the same period in 2013, we recorded maintenance revenue totaling $47.7 million from unscheduled lease terminations
associated with ten aircraft returned in 2013.
Scheduled lease terminations. For the year ended December 31, 2014, we recorded maintenance revenue from
scheduled lease terminations totaling $42.6 million associated with 25 aircraft. Comparatively, for the same period in 2013,
we recorded $20.6 million, associated with maintenance revenue from seven scheduled lease terminations.
Other revenue was $11.2 million during the year ended December 31, 2014, which was primarily due to $10.2 million
recognized in additional fees paid by lessees in connection with early termination of leases. For the year ended December
31, 2013, other revenue was $11.6 million, which was primarily due to $9.9 million recognized in additional fees paid by
lessees in connection with the early termination of leases.
Operating Expenses:
Total operating expenses decreased by 2.6%, or $18.3 million, for the year ended December 31, 2014 as compared to
the year ended December 31, 2013 primarily as a result of the following:
Depreciation expense increased by $14.4 million for the year ended December 31, 2014 over the same period in 2013.
The net increase is primarily the result of:
49
• a $54.1 million increase in depreciation for aircraft acquired; and
• a $3.7 million increase due to changes to asset lives and residual values.
This increase was offset by:
• a $40.8 million decrease in depreciation for aircraft sales; and
• a $2.6 million decrease due to capitalized aircraft improvements being fully depreciated.
Interest, net consisted of the following:
Year Ended
December 31,
2014
2013
(Dollars in thousands)
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities(1)
$
189,135
$
196,176
Hedge ineffectiveness losses
Amortization of interest rate derivatives related to deferred losses
Amortization of deferred financing fees and notes discount(2)
Interest Expense
Less: Interest income
Interest, net
______________
738
34,979
13,961
371
33,265
14,719
238,813
244,531
(435)
(774)
$
238,378
$
243,757
(1)
(2)
For the year ended December 31, 2013, includes the loan termination fee of $2,954 related to two ECA financed aircraft sold in June 2013.
For the year ended December 31, 2013, includes the write-off of deferred financing fees of $3,975 related to the repayment of two ECA Financings.
Interest, net decreased by $5.4 million, or 2.2%, over the year ended December 31, 2013. The net decrease was
primarily a result of:
• a $7.0 million decrease in interest expense on our borrowings driven by loan breakage fees of $3.0 million in
connection with the early repayment of two ECA loans in 2013 and a $4.0 million decrease due primarily to a
lower weighted average interest rate on our borrowings; and
• a $0.8 million decrease in amortization of deferred financing fees primarily due to the write-off of fees related
to the early repayment of two ECA loans in June 2013.
These decreases were partially offset by a $1.7 million increase in amortization of deferred losses related to
terminated interest rate derivatives reflecting the repayment of Securitization No. 1.
Selling, general and administrative expenses for the year ended December 31, 2014 increased by $2.3 million or 4.4%
over the same period in 2013 primarily due to an increase in personnel costs. Non-cash share based expense was $4.2 million
and $4.6 million for the years ended December 31, 2014 and 2013, respectively.
Impairment of aircraft was $94.0 million during the year ended December 31, 2014 and $117.3 million during the
year ended December 31, 2013. See “Summary of Impairments and Recoverability Assessment” above for a detailed
discussion of the related impairment charge for these aircraft.
Maintenance and other costs were $7.2 million for the year ended December 31, 2014, a decrease of $6.4 million over
the same period in 2013. The net decrease was primarily related to lower maintenance costs of $3.4 million related to
unscheduled terminations for the year ended December 31, 2013 and $3.6 million related to scheduled terminations versus
the same period in 2013. This decrease was partially offset by an increase of $0.6 million in maintenance costs attributable
to scheduled terminations and returns as well as other routine costs such as inspections.
Other Income (Expense):
Total other income (expense) for the year ended December 31, 2014 was $12.2 million expense as compared to $43.4
million of income the same period in 2013. The decrease of $55.6 million was primarily a result of:
50
Gain on sale of flight equipment decreased $14.1 million in 2014 resulting from gains of $23.1 million on sales of 49
aircraft versus gains of $37.2 million on sales of 22 aircraft in 2013.
Year Ended December 31, 2014
Number
of
Aircraft
Weighted
Average Age
of Aircraft
in Years
Maintenance
Revenue
Lease
Incentive
Revenue(1)
Gain (Loss)
on Sale
of Flight
Equipment
Impairment
Narrow-body
Wide-body
Freighter(2)
Total
28
14
7
49
14.3
8.7
23.1
11.7
$
45,106
$
776
$
4,743
$
(11,952)
$
2,930
20,401
—
3,626
18,615
—
(212)
(43,865)
(20,050)
$
68,437
$
4,402
$
23,146
$
(55,817)
$
40,168
Pre-tax
Impact
38,673
21,545
(1) Included in Amortization of lease premiums, discounts and lease incentives on our Consolidated Statement of Income.
(2) Two Boeing 747-400 converted freighters included in Flight held for sale in Other assets on our Consolidated Balance Sheet.
Loss on extinguishment of debt of $36.6 million related to the early payment of our 9.75% Senior Notes due 2018 in
April, 2014.
Other decreased by $4.9 million, primarily related to the mark-to-market value of an undesignated interest rate
derivative.
Income Tax Provision:
Our provision for income taxes for the years ended December 31, 2014 and 2013 was $13.9 million and $9.2 million,
respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which
operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The increase in our
income tax provision of $4.6 million for the year ended December 31, 2014 as compared to the same period in 2013, was
primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the U.S. and other jurisdictions.
The loss on extinguishment of debt in 2014 of $36.6 million related to Bermuda operations and provided no tax benefit.
The impairment charge in 2013 of $117.3 million was related to Bermuda and Ireland, which resulted in a $2.0 million Irish
tax benefit.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-
U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically
are not subject to U.S. federal, state or local income taxes, unless they operate within the U.S., in which case they may be
subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore
are subject to tax in those respective jurisdictions.
We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to
U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management
services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local
income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded
related 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.
51
Other Comprehensive Income:
Net income
Net change in fair value of derivatives, net of tax expense of $828 and $482, respectively
Derivative loss reclassified into earnings
Total comprehensive income
Year Ended
December 31,
2014
2013
(Dollars in thousands)
$
100,828
$
2,466
34,979
$
138,273
$
29,781
17,120
33,265
80,166
Other comprehensive income was $138.3 million for the year ended December 31, 2014, an increase of $58.1 million
from the $80.2 million of other comprehensive income for the year ended December 31, 2013. Other comprehensive income
for the year ended December 31, 2014 primarily consisted of:
•
•
•
$100.8 million of net income;
a $2.5 million gain from a change in fair value of interest rate derivatives, net of taxes, which was due primarily
to net settlements for the year ended December 31, 2014 partially offset by a slight loss due to a downward shift
in the 1 Month LIBOR forward curve; and
$35.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated
interest rate derivatives.
Other comprehensive income for the year ended December 31, 2013 primarily consisted of:
•
•
•
$29.8 million of net income;
a $17.1 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily
to net settlements for the year ended December 31, 2013 partially offset by a slight downward shift in the 1 Month
LIBOR forward curve; and
$33.3 million of amortization of deferred net losses reclassified into earnings related to terminated interest rate
derivatives.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP, which requires us to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. Our
estimates and assumptions are based on historical experiences and currently available information. Actual results may differ
from such estimates under different conditions, sometimes materially. A summary of our significant accounting policies is
presented in the notes to our consolidated financial statements included elsewhere in this Annual Report. Critical accounting
policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results
and require our most subjective judgments, estimates and assumptions. Our most critical accounting policies and estimates
are described below.
Lease Revenue Recognition
Our operating lease rentals are recognized on a straight-line basis over the term of the lease. We will neither recognize
revenue nor record a receivable from a customer when collectability is not reasonably assured. Estimating whether
collectability is reasonably assured requires some level of subjectivity and judgment. When collectability is not reasonably
assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.
Management determines whether customers should be placed on non-accrual status. When we are reasonably assured that
payments will be received in a timely manner, the customer is placed on accrual status. The accrual/non-accrual status of
a customer is maintained at a level deemed appropriate based on factors such as the customer’s credit rating, payment
performance, financial condition and requests for modifications of lease terms and conditions. Events or circumstances
outside of historical customer patterns can also result in changes to a customer’s accrual status.
52
Maintenance Payments and Maintenance Revenue
Under our leases, the lessee must pay operating expenses accrued or payable during the term of the lease, which would
normally include maintenance, overhaul, fuel, crew, landing, airport and navigation charges; certain taxes, licenses, consents
and approvals; aircraft registration; and insurance premiums. Typically, our aircraft are subject to net operating leases
whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational,
maintenance and insurance costs, although in a majority of cases, we are obligated to pay a portion of specified maintenance
or modification costs. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent
over the life of the lease, and the amount of the contracted rent will depend upon the type, age, specification and condition
of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on a
number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and
defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket
aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft
is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the
percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.
Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will
typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value
components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time,
depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance
payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these
payments to the lessee upon completion of the relevant heavy maintenance, overhaul or parts replacement. We record
maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation
in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance
revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve
payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance,
overhaul or parts replacement. If a lease requires end of lease term maintenance payments, typically the lessee would be
required to pay us for its utilization of the aircraft during the lease; however, in some cases, we may owe a net payment to
the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is
returned to us in better condition that at lease inception. End of lease term maintenance payments made to us are recognized
as maintenance revenue, and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance
revenue.
The amount of maintenance revenue or contra maintenance revenue we recognize in any reporting period is inherently
volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and
unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.
Lease Incentives and Amortization
Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance,
overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives,
which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such
costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units,
expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the
maintenance event and the estimated amounts the lessee is responsible to pay.
This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize
the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being
recorded as a lease incentive liability, which is included in maintenance payments on the balance sheet. The payment to the
lessee for the lease incentive liability is first recorded against the lease incentive liability, and any excess above the lease
incentive liability is recorded as a prepaid lease incentive asset, which is included in other assets on the balance sheet and
continues to amortize over the remaining life of the lease.
Flight Equipment Held for Lease and Depreciation
Flight equipment held for lease is stated at cost and depreciated using the straight-line method, typically over a 25-
year life from the date of manufacture for passenger aircraft and over a 30 to 35-year life for freighter aircraft, depending
53
on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are
generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when
new and 5% to 10% for freighter aircraft when new. Management may make exceptions to this policy on a case-by-case
basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations
of value. Examples of situations where exceptions may arise include but are not limited to:
•
•
•
flight equipment where estimates of the manufacturers’ realized sales prices are not relevant (e.g., freighter
conversions);
flight equipment where estimates of the manufacturers’ realized sales prices are not readily available; and
flight equipment which may have a shorter useful life due to obsolescence.
In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of
attached leases, acquired maintenance liabilities and the estimated residual values. In making these estimates, we rely upon
actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft. As part of
our due diligence review of each aircraft we purchase, we prepare an estimate of the expected maintenance payments and
any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the
aircraft and the relevant provisions of any existing lease.
For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs
by applying the deferral method. Under the deferral method, we capitalize the actual cost of major maintenance events,
which are depreciated on a straight-line basis over the period until the next maintenance event is required.
When we acquire an aircraft with a lease, determining the fair value of the attached lease requires us to make assumptions
regarding the current fair values of leases for specific aircraft. We estimate a range of current lease rates of like aircraft in
order to determine if the attached lease is within a fair value range. If a lease is below or above the range of current lease
rates, we present value the estimated amount below or above fair value range over the remaining term of the lease. The
resulting lease discount or premium is amortized into lease rental income over the remaining term of the lease.
Impairment of Flight Equipment
We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis, at least annually.
In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, indicate
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 air traffic decline, 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 leases, future projected lease rates, 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.
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 contracted lease rates, residual values, economic
conditions, technology, airline demand for a particular aircraft type and many of the risk factors discussed in Item 1A. “Risk
Factors.” See further discussion of our aircraft more susceptible to failing our recoverability assessment under “Summary
of Impairments and Recoverability Assessment” above and “Fair Value Measurements” below.
Net Investment in Finance and Sales-Type Leases
If a lease meets specific criteria at the inception or at any lease modification date, we recognize the lease as a Net
investment in finance and sales-type leases on our Consolidated Balance Sheets. For sales-type leases, we recognize the
difference between the net book value of the aircraft and the Net investment in finance and sales-type leases as a gain or
loss on sale of fight equipment, less any initial direct costs and lease incentives. The Net investment in finance and sales-
type leases consists of lease receivables, less the unearned income, plus the estimated unguaranteed residual value of the
leased flight equipment at the lease end date. The unearned income is recognized as Finance and sales-type lease revenue
54
in our Consolidated Statements of Income over the lease term in a manner that produces a constant rate of return on the Net
investment in finance and sales-type leases.
Collectability of finance and sales-type leases is evaluated periodically on an individual customer level. The evaluation
of the collectability of the finance and sales-type leases considers the credit of the lessee and the value of the underlying
aircraft. An allowance for credit losses is established if there is evidence that we will be unable to collect all amounts due
according to the original contractual terms of the Net investment in finance and sales-type leases. At December 31, 2015,
we had no allowance for credit losses for our Net investment in finance and sales-type leases. When collectability is not
reasonably assured, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.
Fair Value Measurements
We measure the fair value of interest rate derivative assets and liabilities on a recurring basis. Fair value is the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Our valuation model for interest rate derivatives classified in Level 2 maximizes the use of observable
inputs, including contractual terms, interest rate curves, cash rates and futures rates and minimizes the use of unobservable
inputs, including an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative
assets, an evaluation of the Company’s credit risk in valuing derivative liabilities and an assessment of market risk in valuing
the derivative asset or liability. We use our interest rate derivative counterparty’s valuation of our interest rate derivatives
to validate our models. Our interest rate derivatives are sensitive to market changes in LIBOR as discussed in Item 7A.
“Quantitative and Qualitative Disclosures about Market Risk.”
We measure the fair value of certain assets and liabilities on a non-recurring basis, when US GAAP requires the
application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may
not be recoverable. Assets subject to these measurements include aircraft. We record aircraft at fair value when we determine
the carrying value may not be recoverable. Fair value measurements for aircraft impaired are based on an income approach
that uses Level 3 inputs, which include our assumptions and appraisal data as to future cash proceeds from leasing and
selling aircraft.
Income Taxes
Aircastle uses an asset and liability based approach in accounting for income taxes. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributed to differences between the financial statement and tax
basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to
affect taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount
estimated by us to be realizable. The Company recognizes the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any
unrecognized tax benefits.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies - Organization and Basis of Presentation in the Notes to
Consolidated Financial Statements below.
RECENTLY PROPOSED ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies - Proposed Accounting Pronouncements in the Notes to
Consolidated Financial Statements below.
55
LIQUIDITY AND CAPITAL RESOURCES
Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain
and improve our existing portfolio. Our operations generate a significant amount of cash, primarily from lease rentals and
maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time,
including:
•
various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization
financings, and export credit agency-backed financings for new aircraft acquisitions;
unsecured indebtedness, including our current unsecured revolving credit facility and unsecured senior notes;
sales of common shares; and
asset sales.
•
•
•
Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and
conditions we consider satisfactory.
During 2015, we met our liquidity and capital resource needs with $526.3 million of cash from operations, $500.0
million in gross proceeds from the issuance of our Senior Notes due 2022, $150.0 million of bank financings secured by
two aircraft, $225.0 million draw down on our Revolving Credit Facility and $562.5 million of cash from aircraft sales.
In addition, we increased our Revolving Credit Facility from $450.0 million to $600.0 million, and we extended its
maturity to May 13, 2019.
As of December 31, 2015, the weighted average maturity of our secured and unsecured debt financings was 4.0 years.
As of December 31, 2015, we are in compliance with all applicable covenants in our financings. We have also
determined as of December 31, 2015 that our consolidated subsidiaries’ restricted net assets, as defined by Rule 4-08(e)(3)
of Regulation S-X, are less than 25% of our consolidated net assets.
We believe that cash on hand, payments received from lessees and other funds generated from operations, secured
borrowings for aircraft, borrowings under our Revolving Credit Facility and other borrowings and proceeds from future
aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity
and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest
payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements
and lease incentive payments over the next twelve months.
Cash Flows
Net cash flow provided by operating activities
Net cash flow used in investing activities
Net cash flow provided by (used in) financing activities
Operating Activities:
Year Ended December 31,
2015
2014
2013
(Dollars in thousands)
$
526,285
$
458,786
$
424,037
(864,662)
(861,602)
(682,933)
324,625
(82,141)
295,292
Cash flow provided by operations was $526.3 million and $458.8 million for the years ended December 31, 2015 and
2014, respectively. The increase in cash flow provided by operations of $67.5 million for the year ended December 31,
2015 versus the same period in 2014 was primarily a result of:
• a $39.3 million increase in cash from maintenance revenue;
• a $24.1 million increase in cash from lease rentals, net of finance and sales-type leases;
• a $6.4 million decrease in cash paid for interest; and
• a $7.1 million increase in cash from working capital.
56
These inflows were offset partially by a $7.6 million increase in cash paid for taxes.
Cash flow provided by operations was $458.8 million and $424.0 million for the years ended December 31, 2014 and
2013, respectively. The increase in cash flow provided by operations of $34.7 million for the year ended December 31,
2014 versus the same period in 2013 was primarily a result of a $79.2 million increase in cash from lease rentals.
These inflows were offset partially by:
• a $17.9 million decrease in cash from working capital;
• a $13.8 million decrease in cash from maintenance revenue;
• a $6.3 million increase in cash paid for interest;
• a $5.3 million decrease in cash from finance and sales-type leases; and
• a $4.7 million increase in cash paid for taxes.
Investing Activities:
Cash flow used in investing activities was $864.7 million and $861.6 million for the years ended December 31, 2015
and 2014, respectively. The increase in cash flow used in investing activities of $3.1 million for the year ended December
31, 2015 versus the same period in 2014 was primarily a result of:
• a $270.4 million decrease in proceeds from the sale of flight equipment;
• a $78.1 million increase in net investments in finance and sales-type leases; and
• a $6.8 million increase in aircraft purchase deposits and progress payments, net of returned deposits and aircraft
sales deposits.
These outflows were offset partially by a $351.8 million decrease in the acquisition and improvement of flight
equipment.
Cash flow used in investing activities was $861.6 million and $682.9 million for the years ended December 31, 2014
and 2013, respectively. The increase in cash flow used in investing activities of $178.7 million for the year ended December
31, 2014 versus the same period in 2013 was primarily a result of:
• a $408.8 million increase in the acquisition and improvement of flight equipment; and
• a $42.0 million decrease in principal repayments on debt investments.
These outflows were offset partially by:
• a $264.9 million increase in the proceeds from the sale of flight equipment; and
• a $6.1 million decrease in aircraft purchase deposits and progress payments, net of returned deposits and aircraft
sales deposits.
Financing Activities:
Cash flow provided by financing activities was $324.6 million for the year ended December 31, 2015 as compared to
cash flow used in financing activities of $82.1 million for the year ended December 31, 2014. The net increase in cash flow
provided by financing activities of $406.8 million for the year ended December 31, 2015 versus the same period in 2014
was primarily a result of:
• a $335.9 million decrease in debt repayments primarily due to the repayment of Securitization No. 1 in February
2014 and repayment of our 9.75% Senior Notes due 2018 in April 2014, inclusive of debt extinguishment costs;
• a $93.1 million decrease in maintenance and security deposits returned, net of deposits received; and
• a $33.4 million decrease in payments for terminated cash flow hedges in 2014.
These inflows were offset partially by:
• a $28.2 million decrease in proceeds from notes and debt financings;
• an $18.8 million increase in issuances of common shares, net of repurchased shares; and
57
• a $6.5 million increase in dividends.
Cash flow used in financing activities was $82.1 million for the year ended December 31, 2014 as compared to cash
flow provided by financing activities of $295.3 million for the year ended December 31, 2013. The net increase in cash
flow used in financing activities of $377.4 million for the year ended December 31, 2014 versus the same period in 2013
was a result of:
• a $474.4 million increase in securitization and term debt repayments primarily due to the repayment of $219.9
million for Securitization No. 1 in February 2014 and $450.0 million for our 9.75% Senior Notes due 2018 in April
2014;
• a $199.5 million decrease in issuances of common shares, net of repurchased shares primarily due to the sale of
shares to Marubeni in July 2013;
• a $60.2 million decrease in maintenance deposits received net of maintenance deposits returned;
• a $33.4 million increase in payments for terminated interest rate derivatives;
• a $32.8 million increase in debt extinguishment costs related to the repayment of our 9.75% Senior Notes due 2018
in April 2014;
• a $32.5 million decrease in security deposits received net of security deposits returned;
• a $14.4 million increase in dividends; and
• $5.0 million of higher deferred financing costs.
The decreases were offset partially by:
• a $440.0 million increase in proceeds from notes and debt financings; and
• a $34.7 million decrease in restricted cash and cash equivalents related to security deposits and maintenance
payments.
Debt Obligations
For complete information on our debt obligations, please refer to Note 7 - “Borrowings from Secured and Unsecured
Debt” Financings in the Notes to Consolidated Financial Statements below.
Contractual Obligations
Our contractual obligations consist of principal and interest payments on variable and fixed rate liabilities, interest
payments on interest rate derivatives, aircraft acquisition and rent payments pursuant to our office leases. Total contractual
obligations increased to approximately $6.30 billion at December 31, 2015 from $5.30 billion at December 31, 2014 due
primarily to:
• an increase in borrowings their related interest obligations; and
• an increase in purchase obligations for aircraft to be acquired.
58
The following table presents our actual contractual obligations and their payment due dates as of December 31, 2015.
Contractual Obligations
Principal payments:
Senior Notes due 2017
Senior Notes due 2018
Senior Notes due 2019
Senior Notes due 2020
Senior Notes due 2021
Senior Notes due 2022
Revolving Credit Facility
Securitization No. 2(1)
ECA Term Financings
Bank Financings
Total principal payments
Interest payments on debt obligations and derivative instruments(2)
Office leases(3)
Purchase obligations(4)
Total
_____________
Payments Due by Period as of December 31, 2015
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
(Dollars in thousands)
$
500,000
$
— $ 500,000
$
— $
400,000
500,000
300,000
500,000
500,000
225,000
125,365
404,492
641,139
—
—
—
—
—
—
400,000
—
—
—
—
—
114,235
47,014
60,687
11,130
99,177
183,584
—
—
—
—
—
500,000
300,000
—
—
500,000
500,000
225,000
—
106,433
115,468
—
—
151,868
281,400
4,095,996
221,936
1,193,891
1,246,901
1,433,268
846,984
203,912
339,966
212,488
5,554
921
1,487
1,544
90,618
1,602
1,347,836
273,508
428,382
507,668
138,278
$ 6,296,370
$
700,277
$ 1,963,726
$ 1,968,601
$ 1,663,766
(1) Estimated principal payments for this non-recourse financing are based on excess cash flows available from forecasted lease rentals, net maintenance funding
and proceeds from asset dispositions after the payment of forecasted operating expenses and interest payments, including interest payments on existing
interest rate derivative agreements and policy provider fees.
(2) Future interest payments on variable rate, LIBOR-based debt obligations and derivative instruments are estimated using the interest rate in effect at December
31, 2015.
(3) Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.
(4) At December 31, 2015, we had commitments to acquire 35 aircraft for $1.35 billion, including 25 new E-Jet E-2 aircraft form Embraer, with delivery
beginning in 2018. These amounts include estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments. As of February
5, 2016, we have commitments to acquire 37 aircraft for $1.42 billion.
Capital Expenditures
We make capital expenditures from time to time in connection with improvements made to our aircraft. These
expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the
request of lessees. For the years ended December 31, 2015, 2014 and 2013, we incurred a total of $36.5 million, $14.0
million and $21.7 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and
improvement of aircraft.
As of December 31, 2015, the weighted average age (by net book value) of our aircraft was approximately 7.5 years.
In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Under
our leases, the lessee is primarily responsible for maintaining the aircraft. We may incur additional maintenance and
modification costs in the future in the event we are required to remarket an aircraft, or a lessee fails to meet its maintenance
obligations under the lease agreement. These maintenance reserves are paid by the lessee to provide for future maintenance
events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for
scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts
a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.
Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of
factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance
expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our
59
operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our
aircraft age. See Item 1A. “Risk Factors — Risks Related to Our Business — Risks related to our leases — If lessees are
unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable
lease.”
Off-Balance Sheet Arrangements
We have entered into a joint venture with an affiliate of Teachers’, in which we have a 30% equity interest, which does
not qualify for consolidated accounting treatment. The assets and liabilities of this joint venture are off our balance sheet
and we only record our net investment under the equity method of accounting. See Footnote 5 - “Unconsolidated Equity
Method Investment” in the Notes to Consolidated Financial Statements below.
Foreign Currency Risk and Foreign Operations
At December 31, 2015 all of our leases are payable to us in U.S. dollars. However, we incur Euro- and Singapore
dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the year ended December
31, 2015, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated
approximately $14.3 million in U.S. dollar equivalents and represented approximately 25.4% of total selling, general and
administrative expenses. Our international operations are a significant component of our business strategy and permit us
to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, it is
likely that our international operations and our exposure to foreign currency risk will increase over time. Although we have
not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency
exposure increases we may enter into hedging transactions in the future to mitigate this risk. For the years ended December 31,
2015, 2014 and 2013, we incurred insignificant net gains and losses on foreign currency transactions.
Hedging
For complete information on our derivative instruments, please refer to Note 16 - “Accumulated Other Comprehensive
Loss” in the Notes to Consolidated Financial Statements below.
Inflation
Inflation affects our lease rentals, asset values and costs, including selling, general and administrative expenses and
other expenses. We do not believe that our financial results have been, or will be, adversely affected by inflation in a material
way.
Management’s Use of EBITDA and Adjusted EBITDA
We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation
and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this
non-U.S. GAAP measure is helpful in identifying trends in our performance.
This measure provides an assessment of controllable expenses and affords management the ability to make decisions
which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It
provides an indicator for management to determine if adjustments to current spending decisions are needed.
EBITDA provides us with a measure of operating performance because it assists us in comparing our operating
performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our
outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this
metric measures our financial performance based on operational factors that management can impact in the short-term,
namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and
the Board of Directors to review the consolidated financial performance of our business.
60
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in
calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.
Adjusted EBITDA is a material component of these covenants.
The table below shows the reconciliation of net income to EBITDA for the years ended December 31, 2015, 2014 and
2013, respectively.
Net income
Depreciation
Amortization of net lease discounts and lease incentives
Interest, net
Income tax provision
EBITDA
Adjustments:
Impairment of aircraft
Loss on extinguishment of debt
Non-cash share based payment expense
Gain on mark-to-market of interest rate derivative contracts
Adjusted EBITDA
Year Ended December 31,
2015
2014
2013
(Dollars in thousands)
$ 121,729
$ 100,828
$
29,781
318,783
299,365
284,924
10,664
6,172
32,411
243,577
238,378
243,757
12,771
13,863
9,215
$ 707,524
$ 658,606
$ 600,088
119,835
—
5,537
(791)
93,993
36,570
4,244
(1,130)
117,306
—
4,569
(4,754)
$ 832,105
$ 792,283
$ 717,209
Management’s Use of Adjusted Net Income (“ANI”)
Management believes that ANI, when viewed in conjunction with the Company’s results under U.S. GAAP and the
below reconciliation, provide useful information about operating and period-over-period performance and provides
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 and gains or losses related to flight equipment and
debt investments.
The table below shows the reconciliation of net income to ANI for the years ended December 31, 2015, 2014 and
2013, respectively.
Net income
Loss on extinguishment of debt(2)
Ineffective portion and termination of cash flow hedges(1)
Gain on mark-to-market of interest rate derivative contracts(2)
Loan termination payment(1)
Write-off of deferred financing fees(1)
Stock compensation expense(3)
Term Financing No. 1 hedge loss amortization charges(1)
Securitization No. 1 hedge loss amortization charges(1)
Adjusted net income
______________
61
Year Ended December 31,
2015
2014
2013
(Dollars in thousands)
$
121,729
$
100,828
$
29,781
—
455
(791)
—
—
5,537
4,401
10,940
36,570
660
(1,130)
—
—
4,244
14,854
11,616
—
2,393
(4,754)
2,954
3,975
4,569
17,843
2,499
$
142,271
$
167,642
$
59,260
(1)
(2)
(3)
Included in Interest, net.
Included in Other income (expense).
Included in Selling, general and administrative expenses.
Weighted-average shares:
Common shares outstanding
Restricted common shares
Total weighted-average shares
Percentage of weighted-average shares:
Common shares outstanding
Restricted common shares(a)
Total
Weighted-average common shares outstanding — Basic and Diluted(b)
Adjusted net income allocation:
Adjusted net income
Less: Distributed and undistributed earnings allocated to restricted common shares(a)
Adjusted net income allocable to common shares — Basic and Diluted
Adjusted net income per common share — Basic
Adjusted net income per common share — Diluted
____________
Year Ended December 31,
2015
2014
2013
80,489,391
80,389,349
73,652,996
615,611
588,077
593,616
81,105,002
80,977,426
74,246,612
Year Ended December 31,
2015
2014
2013
99.24%
0.76%
99.27%
0.73%
99.20%
0.80%
100.00%
100.00%
100.00%
Year Ended December 31,
2015
2014
2013
80,489,391
80,389,349
73,652,996
Year Ended December 31,
2015
2014
2013
(Dollars in thousands, except per share amounts)
$
$
$
$
142,271
$
167,642
$
59,260
(1,080)
141,191
1.75
1.75
$
$
$
(1,217)
166,425
2.07
2.07
$
$
$
(474)
58,786
0.80
0.80
(a) For the years ended December 31, 2015, 2014 and 2013, distributed and undistributed earnings to restricted shares is 0.76%, 0.73% and 0.80%, respectively,
of net income. The amount of restricted share forfeitures for all periods presented is immaterial to the allocation of distributed and undistributed earnings.
(b) For the years ended December 31, 2015, 2014 and 2013, we have no dilutive shares.
Limitations of EBITDA, Adjusted EBITDA and ANI
An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI important measures in evaluating
our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our
U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
EBITDA, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as
substitutes for U.S. GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate
EBITDA, Adjusted EBITDA and ANI, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income,
income from continuing operations and cash flows provided by or used in operations, include:
•
•
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear
and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of
future needs for capital expenditures;
the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly
affect our financial results;
62
•
•
•
•
elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;
loss on the extinguishment of debt related to our 9.75% Senior Notes due 2018;
hedge loss amortization charges related to Term Financing No. 1 and Securitization No. 1; and
adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture
governing our senior unsecured notes.
EBITDA, Adjusted EBITDA and ANI are not alternatives to net income, income from operations or cash flows provided
by or used in operations as calculated and presented in accordance with U.S. GAAP. You should not rely on these non-U.S.
GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations
to U.S. GAAP net income, along with our consolidated financial statements included elsewhere in this Annual Report. We
also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA,
Adjusted EBITDA and ANI are not measures of financial performance under U.S. GAAP and are susceptible to varying
calculations, EBITDA, Adjusted EBITDA and ANI as presented in this Annual Report, may differ from and may not be
comparable to, similarly titled measures used by other companies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between
different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and
international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates
and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease
agreements, floating rate debt obligations and interest rate derivatives. Rent payments under our aircraft lease agreements
typically do not vary during the term of the lease according to changes in interest rates. However, our borrowing agreements
generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing
costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any
corresponding increase in rents or cash flow from our securities.
Changes in interest rates may also impact our net book value as our interest rate derivatives are periodically marked-
to-market through shareholders’ equity. Generally, we are exposed to loss on our fixed pay interest rate derivatives to the
extent interest rates decrease below their contractual fixed rate.
The relationship between spreads on derivative instruments may vary from time to time, resulting in a net aggregate
book value increase or decrease. Changes in the general level of interest rates can also affect our ability to acquire new
investments and our ability to realize gains from the settlement of such assets.
Sensitivity Analysis
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which
models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we
believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is
constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the
inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled.
Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark,
they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the
potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact
on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as
a result of changes in interest rates.
A hypothetical 100-basis point increase/decrease in our variable interest rates would increase/decrease the minimum
contracted rentals on our portfolio as of December 31, 2015 by $3.4 million and $2.8 million, respectively, over the next
twelve months. As of December 31, 2015, a hypothetical 100-basis point increase/decrease in our variable interest rate on
our borrowings would result in an interest expense increase/decrease of $3.8 million and $3.2 million, respectively, net of
amounts received from our interest rate derivatives, over the next twelve months.
63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and notes thereto, referred to in Item 15(A)(1) of this Form 10-K, are filed as
part of this report and appear in this Form 10-K beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated
and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed
under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the
effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015. Based on that evaluation, the
Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2015.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015. The assessment
was based on criteria established in the framework Internal Control — Integrated Framework, issued by the Committee of
Sponsoring Organizations (“COSO”) of the Treadway Commission (2013 framework) (the COSO criteria). Based on this
assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2015.
Ernst & Young LLP, the independent registered public accounting firm that audited our Consolidated Financial
Statements included in this Annual Report on Form 10-K, audited the effectiveness of our controls over financial reporting
as of December 31, 2015. Ernst & Young LLP has issued its report which is included below.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter
ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
64
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Aircastle Limited
We have audited Aircastle Limited and subsidiaries’ internal control over financial reporting as of December 31, 2015, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). Aircastle Limited and subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Aircastle Limited and subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Aircastle Limited and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2015 of Aircastle Limited and subsidiaries and our report dated February 11,
2016 expressed an unqualified opinion thereon.
Stamford, Connecticut
February 11, 2016
/s/ Ernst & Young LLP
65
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The name, age and background of each of our directors nominated for election will be contained under the caption
“Election of Directors” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders. The identification
of our Audit Committee and our Audit Committee financial experts will be contained in our Proxy Statement for our 2016
Annual General Meeting of Shareholders under the captions “CORPORATE GOVERNANCE — Committees of the Board
of Directors — The Audit Committee.” Information regarding our Code of Business Ethics and Conduct, any material
amendments thereto and any related waivers will be contained in our Proxy Statement for our 2016 Annual General Meeting
of Shareholders under the captions “CORPORATE GOVERNANCE — Code of Business Conduct and Ethics.” All of the
foregoing information is incorporated herein by reference. The Code of Business Conduct and Ethics is posted on Aircastle’s
Website at www.aircastle.com under Investors — Corporate Governance. Pursuant to Item 401(b) of Regulation S-K, the
requisite information pertaining to our executive officers is reported immediately following Item 4 of Part I of this report.
Information on compliance with Section 16(a) of the Exchange Act will be contained in our Proxy Statement for our
2016 Annual General Meeting of Shareholders under the captions “OWNERSHIP OF AYR COMMON SHARES —
Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation of our directors and certain named executive officers will be contained in our Proxy
Statement for our 2016 Annual General Meeting of Shareholders under the captions “Directors’ Compensation” and
“EXECUTIVE COMPENSATION,” respectively, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information on the number of shares of Aircastle’s common shares beneficially owned by each director, each named
executive officer and by all directors and executive officers as a group will be contained under the captions “OWNERSHIP
OF THE COMPANY’S COMMON SHARES — Security Ownership by Management” and information on each beneficial
owner of more than 5% of Aircastle’s common shares is contained under the captions “OWNERSHIP OF THE COMPANY’S
COMMON SHARES — Security Ownership of Certain Beneficial Owners” in our Proxy Statement for our 2016 Annual
General Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information relating to certain transactions between Aircastle and its affiliates and certain other persons will be set
forth under the caption “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” in our Proxy Statement
for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference.
Information relating to director independence will be set forth under the caption “PROPOSAL NUMBER ONE —
ELECTION OF DIRECTORS — Director Independence” in our Proxy Statement for our 2016 Annual General Meeting of
Shareholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to audit fees, audit-related fees, tax fees and all other fees billed in fiscal 2015 and by Ernst &
Young LLP, for services rendered to Aircastle is set forth under the caption “INDEPENDENT AUDITOR FEES” in the
66
Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference. In addition,
information relating to the pre-approval policies and procedures of the Audit Committee is set forth under the caption
“INDEPENDENT AUDITOR FEES — Pre-Approval Policies and Procedures” in our Proxy Statement for our 2016 Annual
General Meeting of Shareholders and is incorporated herein by reference.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(A) 1.
2.
3.
Consolidated Financial Statements.
The following is a list of the “Consolidated Financial Statements” of Aircastle Limited and its subsidiaries
included in this Annual Report on Form 10-K, which are filed herewith pursuant to Item 8:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014.
Consolidated Statements of Income for the years ended December 31, 2015, December 31, 2014 and
December 31, 2013.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, December 31,
2014 and December 31, 2013.
Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31, 2014 and
December 31, 2013.
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015,
December 31, 2014 and December 31, 2013.
Notes to Consolidated Financial Statements.
Financial Statement Schedules.
There are no Financial Statement Schedules filed as part of this Annual Report, since the required information
is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring
inclusion of such schedules are not present.
Exhibits.
The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form 10-K.
67
(B) EXHIBIT INDEX
Exhibit No.
Description of Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration
Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).
Amended Bye-laws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on
Form S-3 (No. 333-182242) filed on June 20, 2012).
Specimen Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement
on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).
Indenture, dated as of April 4, 2012, by and between Aircastle Limited and Wells Fargo Bank, National
Association as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K filed on April 5, 2012).
Indenture, dated as of November 30, 2012, by and between Aircastle Limited and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K filed on November 30, 2012).
Amended and Restated Shareholder Agreement, dated as of February 18, 2015, by and between Aircastle
Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly
Report on Form 10-Q filed on May 6, 2015).
Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National
Association, as trustee Citigroup Global Markets, Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC
and RBC Capital Markets, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on December 6, 2013).
First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s
current report on Form 8-K filed on December 6, 2013).
Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on March 26, 2014).
Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on January 15, 2015).
Form of Restricted Share Purchase Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-1 (No. 333-134669) filed on June 2, 2006). #
Form of Amended Restricted Share Grant Letter under the Amended and Restated Aircastle Limited 2005
Equity and Incentive Plan(incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on form
10-K filed on March 5, 2010). #
Form of Amended Restricted Share Agreement for Certain Executive Officers under the Amended and
Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Company’s Annual Report on Form 10-K filed on March 10, 2011). #
Form of Amended International Employee Restricted Share Unit Agreement under the Amended and Restated
Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s
Annual Report on form 10-K filed on March 5, 2010). #
Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit
10.28 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on
July 25 2006). #
Letter Agreement, dated as of February 24, 2006, by and between Aircastle Advisor LLC and Joseph Schreiner
(incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (No.
333-134669) filed on June 2, 2006). #
E - 1
Exhibit No.
Description of Exhibit
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Trust Indenture, dated as of June 8, 2007, by and among ACS 2007-1 Limited, as Issuer, ACS Aircraft Finance
Ireland 2 Limited, as Guarantor, Deutsche Bank Trust Company Americas, in its capacity as the Cash Manager,
Deutsche Bank Trust Company Americas, in its capacity as the person accepting appointment as the Trustee
under the Indenture, HSH Nordbank AG, New York Branch, Financial Guaranty Insurance Company and
Deutsche Bank Trust Company Americas, in its capacity as the Drawing Agent (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 12, 2007).
Trust Indenture, dated as of June 8, 2007, by and among ACS Aircraft Finance Ireland 2 Limited, as Issuer,
ACS 2007-1 Limited, as Guarantor, Deutsche Bank Trust Company Americas, in its capacity as the Cash
Manager, Deutsche Bank Trust Company Americas, in its capacity as the person accepting appointment as
the Trustee under the Indenture, HSH Nordbank AG, New York Branch, Financial Guaranty Insurance
Company and Deutsche Bank Trust Company Americas, in its capacity as the Drawing Agent (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 12, 2007).
Letter Agreement, dated as of July 13, 2010, by and between Aircastle Advisor LLC and Ron Wainshal
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15,
2010). #
Form of Senior Executive Employment Agreement (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on December 8, 2010). #
Form of Amended and Restated Indemnification Agreement with directors and officers (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2011).
Registration Rights Agreement, dated as of April 4, 2012, by and among Aircastle Limited and Goldman,
Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several
Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on April 5, 2012).
Share Purchase Agreement, dated as of August 7, 2012, by and among Aircastle Limited and the Fortress
Shareholders named therein (incorporated by reference to Exhibit 1.2 to the Company’s Current Report on
Form 8-K filed on August 13, 2012).
Registration Rights Letter Agreement dated as of August 10, 2012, by and between Aircastle Limited and
Ontario Teachers’ Pension Plan Board (incorporated by reference to Exhibit 1.3 of the Company’s Current
Report on Form 8-K filed on August 13, 2012).
Registration Rights Agreement, dated as of November 30, 2012, by and among Aircastle Limited and J.P.
Morgan Securities LLC, Citigroup Global Markets Inc., Goldman, Sachs & Co and RBC Capital Markets,
LLC, as representatives of the several Initial Purchasers named therein (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on November 30, 2012).
Second Amended and Restated Credit Agreement, dated as of March 31, 2014, by and among Aircastle
Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for
the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed
on May 7, 2014).
Amendment Agreement No.1 to the Second Amended and Restated Credit Agreement, dated as of January
26, 2015, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank
N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q filed on May 26, 2015).
Amendment Agreement No.2 to the Second Amended and Restated Credit Agreement, dated as of May 13,
2015, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank
N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q filed on August 6, 2015).
Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on May 23, 2014).#
Form of Restricted Share Agreement for Certain Executive Officers Under the Aircastle Limited 2014
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q filed on November 4, 2014). #
E - 2
Exhibit No.
Description of Exhibit
10.21
10.22
12.1
21.1
23.1
31.1
31.2
32.1
32.2
99.1
101
Form of Non-Officer Director Restricted Share Agreement Under the Aircastle Limited 2014 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed on November 4, 2014).#
Purchase Agreement COM0270-15, dated as of June 12, 2015, by and between Aircastle Holding Corporation
and Embraer S.A. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q filed on August 6, 2015).Ø
Computation of Ratio of Earnings to Fixed Charges *
Subsidiaries of the Registrant *
Consent of Ernst & Young LLP *
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
Owned Aircraft Portfolio at December 31, 2015 *
The following materials from the Company’s Annual Report on Form 10-K for the year ended December
31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets
as of December 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the years
ended December 31, 2015, December 31, 2014 and December 31, 2013; (iii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2015, December 31, 2014 and December 31,
2013; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31,
2014 and December 31, 2013; (v) Consolidated Statements of Changes in Shareholders’ Equity and
Comprehensive Income (Loss) for the years ended December 31, 2015, December 31, 2014 and December
31, 2013; and (vi) Notes to Consolidated Financial Statements *
_____________
#
*
Ø
Management contract or compensatory plan or arrangement.
Filed herewith.
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
E - 3
Index to Financial Statements
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and
2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015,
2014, and 2013
Notes to Consolidated Financial Statements
Page No.
F - 2
F - 3
F - 4
F - 5
F - 6
F - 7
F - 8
F - 1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Aircastle Limited
We have audited the accompanying consolidated balance sheets of Aircastle Limited and subsidiaries as of December 31,
2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity
and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Aircastle Limited and subsidiaries at December 31, 2015 and 2014 and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Aircastle Limited and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 11, 2016 expressed an unqualified opinion thereon.
Stamford, Connecticut
February 11, 2016
/s/ Ernst & Young LLP
F - 2
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
ASSETS
Cash and cash equivalents
Accounts receivable
Restricted cash and cash equivalents
Restricted liquidity facility collateral
Flight equipment held for lease, net of accumulated depreciation of $1,306,024 and
$1,294,063, respectively
Net investment in finance and sales-type leases
Unconsolidated equity method investment
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured financings, net of debt issuance costs
Borrowings from unsecured financings, net of debt issuance costs
Accounts payable, accrued expenses and other liabilities
Lease rentals received in advance
Liquidity facility
Security deposits
Maintenance payments
Total liabilities
Commitments and Contingencies
December 31,
2015
2014
$
$
155,904
8,566
98,137
65,000
169,656
3,334
98,884
65,000
5,867,062
201,211
50,377
123,707
$ 6,569,964
5,579,718
106,651
46,453
105,450
$ 6,175,146
$ 1,146,238
2,894,918
131,058
67,327
65,000
115,642
370,281
4,790,464
$ 1,373,131
2,371,456
140,863
53,216
65,000
117,689
333,456
4,454,811
SHAREHOLDERS’ EQUITY
Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and
outstanding
Common shares, $.01 par value, 250,000,000 shares authorized, 80,232,260 shares issued
and outstanding at December 31, 2015; and 80,983,249 shares issued and outstanding at
December 31, 2014
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
—
—
802
1,550,337
241,574
(13,213)
1,779,500
$ 6,569,964
810
1,565,180
192,805
(38,460)
1,720,335
$ 6,175,146
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
Aircastle Limited and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Revenues:
Lease rental revenue
Finance and sales-type lease revenue
Amortization of net lease discounts and lease incentives
Maintenance revenue
Total lease rentals
Other revenue
Total revenues
Expenses:
Depreciation
Interest, net
Selling, general and administrative (including non-cash share based
payment expense of $5,537, $4,244 and $4,569, respectively)
Impairment of aircraft
Maintenance and other costs
Total expenses
Other income (expense):
Gain on sale of flight equipment
Loss on extinguishment of debt
Other
Total other income (expense)
Income from continuing operations before income taxes and earnings of
unconsolidated equity method investment
Income tax provision
Earnings of unconsolidated equity method investment, net of tax
Net income
Earnings per common share — Basic:
Net income per share
Earnings per common share — Diluted:
Net income per share
Dividends declared per share
Year Ended December 31,
2015
2014
2013
$
$
733,417
7,658
(10,664)
71,049
801,460
17,742
819,202
$
714,654
10,906
(6,172)
88,006
807,394
11,208
818,602
644,929
16,165
(32,411)
68,342
697,025
11,620
708,645
318,783
243,577
56,198
119,835
11,502
749,895
58,017
—
919
58,936
299,365
238,378
55,773
93,993
7,239
694,748
23,146
(36,570)
1,207
(12,217)
128,243
12,771
6,257
121,729
$
111,637
13,863
3,054
100,828
$
284,924
243,757
53,436
117,306
13,631
713,054
37,220
—
6,132
43,352
38,943
9,215
53
29,781
1.50
$
1.25
$
0.40
1.50
0.900
$
$
1.25
0.820
$
$
0.40
0.695
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
Aircastle Limited and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income, net of tax:
Net change in fair value of derivatives, net of tax expense of $35, $828
and $482, respectively
Net derivative loss reclassified into earnings
Other comprehensive income
Total comprehensive income
Year Ended December 31,
2015
121,729
$
2014
100,828
$
2013
$
29,781
1,224
24,023
25,247
146,976
$
2,466
34,979
37,445
138,273
$
17,120
33,265
50,385
80,166
$
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization of deferred financing costs
Amortization of net lease discounts and lease incentives
Deferred income taxes
Non-cash share based payment expense
Cash flow hedges reclassified into earnings
Security deposits and maintenance payments included in earnings
Gain on the sale of flight equipment
Loss on extinguishment of debt
Impairment of aircraft
Other
Changes on certain assets and liabilities:
Accounts receivable
Other assets
Accounts payable, accrued expenses and other liabilities
Lease rentals received in advance
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition and improvement of flight equipment
Proceeds from sale of flight equipment
Restricted cash and cash equivalents related to sale of flight equipment
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits
Net investment in finance leases
Collections on finance and sales-type leases
Unconsolidated equity method investment and associated costs
Distributions from unconsolidated equity method investment in excess of earnings
Principal repayments on debt investment
Other
Net cash used in investing activities
Cash flows from financing activities:
Issuance of shares net of repurchases
Proceeds from secured and unsecured debt financings
Repayments of secured and unsecured debt financings
Deferred financing costs
Restricted secured liquidity facility collateral
Liquidity facility
Restricted cash and cash equivalents related to financing activities
Debt extinguishment costs
Security deposits and maintenance payments received
Security deposits and maintenance payments returned
Payments for terminated cash flow hedges
Dividends paid
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for interest
Cash paid during the year for income taxes
Supplemental disclosures of non-cash investing activities:
Security deposits, maintenance liabilities and other liabilities settled in sale of flight equipment
Advance lease rentals, security deposits and maintenance reserves assumed in asset acquisitions
Term debt financings assumed in asset acquisitions
Transfers from Flight equipment held for lease to net investment in finance and sales-type leases and other assets
$
$
$
$
$
$
$
Year Ended December 31,
2014
2013
2015
$
121,729
$
100,828
$
29,781
318,783
14,878
10,664
(6,889)
5,537
24,023
(35,843)
(58,017)
—
119,835
(896)
(5,406)
(5,033)
7,255
15,665
526,285
(1,320,669)
562,518
(17,000)
(6,812)
(91,648)
9,559
—
—
—
(610)
(864,662)
(20,881)
975,000
(681,393)
(11,881)
—
—
17,747
—
152,391
(33,398)
—
(72,960)
324,625
(13,752)
169,656
155,904
195,162
12,716
$
$
$
107,396
13,307
$
$
— $
40,327
$
299,365
13,961
6,172
2,863
4,244
34,979
(107,031)
(23,146)
36,570
93,993
(878)
(509)
(11,146)
1,345
7,176
458,786
(1,672,460)
832,961
—
—
(14,258)
10,312
(18,255)
667
—
(569)
(861,602)
(2,092)
1,003,200
(984,517)
(15,843)
42,000
(42,000)
23,889
(32,835)
178,805
(152,900)
(33,427)
(66,421)
(82,141)
(484,957)
654,613
169,656
201,611
5,144
84,215
56,298
39,061
66,146
$
$
$
$
$
$
$
284,924
14,719
32,411
4,416
4,569
33,265
(60,112)
(37,220)
—
117,306
(5,323)
3,397
1,164
3,016
(2,276)
424,037
(1,263,706)
568,045
—
(6,094)
(11,595)
9,508
(20,189)
—
42,001
(903)
(682,933)
197,437
563,230
(510,162)
(10,865)
—
—
(10,831)
—
200,678
(82,137)
—
(52,058)
295,292
36,396
618,217
654,613
195,350
487
58,862
88,882
84,721
53,510
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
Aircastle Limited and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except share amounts)
Common Shares
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Balance, December 31, 2012
68,639,729
$
Issuance of common shares to directors and employees
12,796,051
686
128
Repurchase of common shares from directors and
employees
Amortization of share based payments
Excess tax benefit from stock based compensation
Dividends declared
Net income
Net change in fair value of derivatives, net of $482 tax
expense
Net derivative loss reclassified into earnings
Balance, December 31, 2013
Issuance of common shares to directors and employees
(628,805)
(6)
—
—
—
—
—
—
80,806,975
354,547
—
—
—
—
—
—
808
4
Repurchase of common shares from stockholders, directors
and employees
(178,273)
(2)
Amortization of share based payments
Excess tax benefit from stock based compensation
Dividends declared
Net income
Net change in fair value of derivatives, net of $828 tax
expense
Net derivative loss reclassified into earnings
—
—
—
—
—
—
—
—
—
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
$
(126,290) $
Total
Shareholders’
Equity
—
—
—
—
—
—
17,120
33,265
1,415,626
205,258
(7,821)
4,569
(333)
(52,058)
29,781
17,120
33,265
$ 1,360,555
$
180,675
205,130
(7,815)
4,569
(333)
—
—
—
—
—
—
—
—
(52,058)
29,781
—
—
1,562,106
158,398
(75,905)
1,645,407
(4)
(2,090)
4,244
924
—
—
—
—
—
—
—
—
(66,421)
100,828
—
—
—
—
—
—
—
—
2,466
34,979
—
(2,092)
4,244
924
(66,421)
100,828
2,466
34,979
Balance, December 31, 2014
80,983,249
810
1,565,180
192,805
(38,460)
1,720,335
Issuance of common shares to stockholders, directors and
employees
Repurchase of common shares from stockholders, directors
and employees
Amortization of share based payments
Excess tax benefit from stock based compensation
Dividends declared
Net income
Net change in fair value of derivatives, net of $35 tax
expense
Net derivative loss reclassified into earnings
306,593
3
(3)
(1,057,582)
(11)
(20,870)
—
—
—
—
—
—
—
—
—
—
—
—
5,537
493
—
—
—
—
—
—
—
—
(72,960)
121,729
—
—
—
—
—
—
—
—
1,224
24,023
—
(20,881)
5,537
493
(72,960)
121,729
1,224
24,023
Balance, December 31, 2015
80,232,260
$
802
$ 1,550,337
$
241,574
$
(13,213) $
1,779,500
The accompanying notes are an integral part of these consolidated financial statements.
F - 7
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was
incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s
business is investing in aviation assets, including acquiring, leasing, managing and selling high-utility commercial jet aircraft.
Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns
all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and
reports on its business and results of operations on the basis of 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 since the balance sheet date of December 31, 2015 through the date on which the consolidated financial statements
included in this Form 10-K were issued.
Effective July 1, 2015, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards
Update (“ASU”) 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance
Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt
liability. The guidance in the new standard is limited to the presentation of debt issuance costs and does not affect the
recognition and measurement of debt issuance costs. The standard is effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial
statements that have not been previously issued. The new guidance is applied on a retrospective basis. The adoption of this
standard did not have a material impact on the Company’s consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates
seven Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and
balances have been eliminated in consolidation.
We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding
(a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential expected
losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary.
When determining which enterprise is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which
variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance,
and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be
significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do
not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity.
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. Market risk reflects the change in the value
of derivatives and financings due to changes in interest rate spreads or other market factors, including the value of collateral
underlying derivatives and 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 unscheduled 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 our business or to refinance existing debt facilities.
F - 8
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While
Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements
are appropriate, actual results could differ from those estimates.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Aircastle considers all highly liquid investments with maturities of three months or less when purchased to be cash
equivalents.
Restricted cash and cash equivalents consists primarily of rent collections, maintenance payments and security deposits
received from lessees pursuant to the terms of various lease agreements held in lockbox accounts in accordance with our
financings. Changes in restricted cash and cash equivalents related to rent collections are reflected within operating activities
of our Consolidated Statements of Cash Flows for non-cash trapped financings. Changes in restricted cash and cash
equivalents related to rent collections are reflected within financing activities of our Consolidated Statements of Cash Flows
for cash trapped financings. Changes in restricted cash related to the sale of flight equipment are reflected within investing
activities of our Consolidated Statements of Cash Flows. Changes in restricted cash and cash equivalents related to
maintenance payments and security deposits are reflected within financing activities of our Consolidated Statements of Cash
Flows.
Virtually all of our cash and cash equivalents and restricted cash and cash equivalents are held by three major financial
institutions.
Flight Equipment Held for Lease and Depreciation
Flight equipment held for lease is stated at cost and depreciated using the straight-line method, typically over a 25-
year life from the date of manufacture for passenger aircraft and over a 30 to 35-year life for freighter aircraft, depending
on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are
generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when
new and 5% to 10% for freighter aircraft when new. Management may make exceptions to this policy on a case-by-case
basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations
of value. Examples of situations where exceptions may arise include but are not limited to:
•
•
•
flight equipment where estimates of the manufacturer’s realized sales prices are not relevant (e.g., freighter
conversions);
flight equipment where estimates of the manufacturers’ realized sales prices are not readily available; and
flight equipment which may have a shorter useful life due to obsolescence.
Major improvements and modifications incurred in connection with the acquisition of aircraft that are required to get
the aircraft ready for initial service are capitalized and depreciated over the remaining life of the flight equipment.
For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs
by applying the deferral method. Under the deferral method, we capitalize the actual cost of major maintenance events,
which are depreciated on a straight-line basis over the period until the next maintenance event is required.
In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of
attached leases, acquired maintenance liabilities and the estimated residual values. In making these estimates, we rely upon
actual industry experience with the same or similar aircraft types and our anticipated lessee’s utilization of the aircraft.
When we acquire an aircraft with a lease, determining the fair value of attached leases requires us to make assumptions
regarding the current fair values of leases for specific aircraft. We estimate a range of current lease rates of like aircraft in
order to determine if the attached lease is within a fair value range. If a lease is below or above the range of current lease
rates, we present value the estimated amount below or above the fair value range over the remaining term of the lease. The
resulting lease discount or premium is amortized into lease rental income over the remaining term of the lease.
F - 9
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Impairment of Flight Equipment
We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the
third quarter. In addition, a recoverability assessment is 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 aircraft model’s storage
levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant
airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future
undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows
consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates, transition
costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors. In the
event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment
charge. See Note 2 — Fair Value Measurements.
Management develops the assumptions used in the recoverability analysis based on current and future expectations of
the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry,
as well as information received from third party industry sources. The factors considered in estimating the undiscounted
cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments,
residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors.
In monitoring the aircraft in our fleet for impairment charges, we identify those aircraft that are most susceptible to
failing the recoverability assessment and monitor those aircraft more closely, which may result in more frequent recoverability
assessments. The recoverability in the value of these aircraft is more sensitive to changes in contractual cash flows, future
cash flow estimates and residual values or scrap values for each aircraft. These are typically older aircraft for which lessee
demand is declining.
Net Investment in Finance and Sales-Type Leases
If a lease meets specific criteria at the inception or at any lease modification date, we recognize the lease as a Net
investment in finance and sales-type leases on our Consolidated Balance Sheets. For sales-type leases, we recognize the
difference between the net book value of the aircraft and the Net investment in finance and sales-type leases as a gain or
loss on sale of fight equipment, less any initial direct costs and lease incentives. The Net investment in finance and sales-
type leases consists of lease receivables, less the unearned income, plus the estimated unguaranteed residual value of the
leased flight equipment at the lease end date. The unearned income is recognized as Finance and sales-type lease revenue
in our Consolidated Statements of Income over the lease term in a manner that produces a constant rate of return on the Net
investment in finance and sales-type leases.
Collectability of finance and sales-type leases is evaluated periodically on an individual customer level. The evaluation
of the collectability of the finance and sales-type leases considers the credit of the lessee and the value of the underlying
aircraft. An allowance for credit losses is established if there is evidence that we will be unable to collect all amounts due
according to the original contractual terms of the Net investment in finance and sales-type leases. At December 31, 2015,
we had no allowance for credit losses for our Net investment in finance and sales-type leases. When collectability is not
reasonably assured, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.
Unconsolidated Equity Method Investment
Aircastle accounts for its interest in an unconsolidated joint venture using the equity method as we do not control the
joint venture entity. Under the equity method, the investment is initially recorded at cost and the carrying amount is affected
by its share of the unconsolidated joint venture’s undistributed earnings and losses, and distributions of dividends and capital.
Security Deposits
Most of our operating leases require the lessee to pay Aircastle a security deposit or provide a letter of credit. Security
deposits represent cash received from the lessee that is held on deposit until lease expiration. Aircastle’s operating leases
F - 10
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
also obligate the lessees to maintain flight equipment and comply with all governmental requirements applicable to the flight
equipment, including without limitation, operational, maintenance, registration requirements and airworthiness directives.
Maintenance Payments
Typically, under an operating lease, the lessee is responsible for performing all maintenance but might be required to
make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft.
These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component,
and are required to be made monthly in arrears or at the end of the lease term. Whether to permit a lessee to make maintenance
payments at the end of the lease term, rather than requiring such payments to be made monthly, depends on a variety of
factors, including the creditworthiness of the lessee, the level of security deposit which may be provided by the lessee and
market conditions at the time we enter into the lease. If a lease requires monthly maintenance payments, we would typically
be obligated to reimburse the lessee for costs they incur for heavy maintenance, overhaul or replacement of certain high-
value components to the extent of maintenance payments received in respect of the specific maintenance event, usually
shortly following completion of the relevant work. If a lease requires end of lease term maintenance payments, typically
the lessee would be required to pay us for its utilization of the aircraft during the lease; however, in some cases, we may
owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease
term and the aircraft is returned to us in better condition that at lease inception.
We record monthly maintenance payments by the lessee as accrued maintenance payments liabilities in recognition
of our contractual commitment to refund such receipts. In these contracts, we do not recognize such maintenance payments
as maintenance revenue during the lease. Reimbursements to the lessee upon the receipt of evidence of qualifying maintenance
work are charged against the existing accrued maintenance payments liability. We currently defer maintenance revenue
recognition of all monthly maintenance payments collected until the end of the lease, when we are able to determine the
amount, if any, by which the monthly maintenance payments received from a lessee exceed costs to be incurred by that
lessee in performing heavy maintenance. End of lease term maintenance payments made to us are recognized as maintenance
revenue, and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance revenue.
Lease Incentives and Amortization
Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance,
overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives,
which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such
costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units,
expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated amount of
the maintenance event cost and the estimated amounts the lessee is responsible to pay.
This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize
the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being
recorded as a lease incentive liability which is included in maintenance payments on the balance sheet. The payment to the
lessee for the lease incentive liability is first recorded against the lease incentive liability, and any excess above the lease
incentive liability is recorded as a prepaid lease incentive asset, which is included in other assets on the balance sheet and
continues to amortize over the remaining life of the lease.
Lease acquisition costs related to reconfiguration of the aircraft cabin, other lessee specific modifications and other
direct costs are capitalized and amortized into revenue over the initial life of the lease, assuming no lease renewals, and are
included in other assets.
Income Taxes
Aircastle uses an asset and liability based approach in accounting for income taxes. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributed to differences between the financial statement and tax
basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to
affect taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount
estimated by us to be realizable. The Company recognizes the tax benefit from an uncertain tax position only if it is more
F - 11
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any
unrecognized tax benefits.
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. Operating lease rentals that adjust based on
a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the period the rentals are
fixed and accruable. Revenue is not recognized when collection is not reasonably assured. When collectability is not
reasonably assured, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.
Comprehensive Income
Comprehensive income consists of net income and other gains and losses, net of income taxes, if any, affecting
shareholders’ equity that, under U.S. GAAP, are excluded from net income. At December 31, 2015 and 2014, such amount
consists of the effective portion of fluctuations in the fair value of derivatives designated as cash flow hedges.
Share Based Compensation
Aircastle recognizes compensation cost relating to share-based payment transactions in the financial statements based
on the fair value of the equity instruments issued. Aircastle uses the straight-line method of accounting for compensation
cost on share-based payment awards that contain pro-rata vesting provisions.
Deferred Financing Costs
Deferred financing costs, which are included in borrowings from secured and unsecured financings, net of debt issuance
costs, in the Consolidated Balance Sheets, are amortized using the interest method for amortizing loans over the lives of the
relevant related debt.
Proposed Accounting Pronouncements
We anticipate the FASB will issue Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which
will replace the existing guidance in ASC 840, Leases, in early 2016. Based on the FASB’s tentative decisions, the accounting
for leases by lessors would basically remain unchanged from the concepts existing in current ASC 840 accounting. The
FASB tentatively decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement
for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement
aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the forthcoming revenue recognition
standard, which evaluates whether a sale has occurred from the customer’s perspective. We anticipate that the standard will
be effective for public entities beginning after December 15, 2018. Based on the original Leases re-exposure draft and the
FASB’s tentative decisions, we believe the standard will not have a material impact on our consolidated financial statements.
We do not believe that the adoption of the standard will significantly impact our existing or potential lessees' economic
decisions to lease aircraft.
On May 28, 2014, the FASB and the International Accounting Standards Board (the “IASB”) (collectively, the Boards),
jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Lease contracts within the scope of
ASC 840, Leases, are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which a company expects to be entitled in exchange for those goods or services. The standard is effective for public entities
beginning after December 15, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is
applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the
most current period presented in the financial statements. We are in the process of determining the impact the standard will
have on our consolidated financial statements and related disclosures.
F - 12
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern
(Subtopic 205-40). The standard requires management of public companies to evaluate whether there is substantial doubt
about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management should evaluate whether
there are conditions or events, considered in the aggregate, that raises substantial doubt about the entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued (or available to be issued, when
applicable). The standard is effective for annual periods ending after December 15, 2016 and interim periods thereafter, and
early adoption is permitted. We believe the standard will not have a material impact on our consolidated financial statements
and related disclosures.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation - Amendments to the Consolidation Analysis
(Topic 810). The update amends the guidelines for determining whether certain legal entities should be consolidated and
reduces the number of consolidation models. This new standard affects reporting entities that are required to evaluate whether
they should consolidate certain legal entities. This standard will be effective for interim and annual reporting periods beginning
on January 1, 2016. The standard may be applied retrospectively or through a cumulative effect adjustment to equity as of
the beginning of the year of adoption. We adopted the standard on its required effective date of January 1, 2016. The standard
will not have a material impact on our consolidated financial statements and related disclosures.
Note 2. Fair Value Measurements
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize
the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:
• Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities or market corroborated inputs.
• Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own
assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
• The market approach uses prices and other relevant information generated by market transactions involving
identical or comparable assets or liabilities.
• The income approach uses valuation techniques to convert future amounts to a single present amount based on
current market expectation about those future amounts.
• The cost approach is based on the amount that currently would be required to replace the service capacity of an
asset (replacement cost).
The following tables set forth our financial assets and liabilities as of December 31, 2015 and 2014 that we measured
at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are
classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Total
Liabilities:
Derivative liabilities
Fair Value
as of
December 31,
2015
Fair Value Measurements at December 31, 2015
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
$
$
155,904
$ 155,904
$
— $
98,137
98,137
—
254,041
$ 254,041
$
— $
—
—
—
Valuation
Technique
Market
Market
$
1,283
$
— $
1,283
$
— Income
F - 13
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Total
Liabilities:
Derivative liabilities
Fair Value
as of
December 31,
2014
Fair Value Measurements at December 31, 2014
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
$
$
169,656
$ 169,656
$
— $
98,884
98,884
—
268,540
$ 268,540
$
— $
—
—
—
Valuation
Technique
Market
Market
$
2,879
$
— $
2,879
$
— Income
Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money
market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable
in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest
rate derivatives included in Level 2 consist of United States dollar-denominated interest rate derivatives, and their fair values
are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash
rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates
an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an
evaluation of the Company’s credit risk in valuing derivative liabilities.
For the years ended December 31, 2015 and 2014, 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 that the carrying amounts of assets may
not be recoverable. Assets subject to these measurements include our investment in an unconsolidated joint venture and
aircraft. We account for our investment in an unconsolidated joint venture under the equity method of accounting and record
impairment when its fair value is less than its carrying value. We record aircraft at fair value when we determine the carrying
value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on an income approach
which uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from
leasing and selling aircraft.
Aircraft Valuation
Annual Fleet-Wide Review
We perform our annual fleet-wide recoverability assessment during the third quarter. This recoverability assessment
is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the
assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft
type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party
sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future
expected lease rates, residual values, expected scrap values, economic conditions and other factors.
In our 2015 assessment, we reduced forecasted future cash flows for our six Boeing 747-400 converted freighter aircraft
not subject to sales agreements, all of which are more than twenty years old. Our new forecast reflects the persisting glut
of supply in the air cargo market resulting from weak growth in demand combined with the growth in capacity arising from
new production air freighters and higher belly capacity in latest generation wide-body passenger aircraft. In addition to
these market-wide impacts, our older freighters were affected specifically by the imposition of age limits in certain countries
and by lower utilization levels.
As a result, we determined that each of our older converted freighter aircraft was on its last lease, and we reduced our
residual value assumptions for these aircraft and expect to scrap them following lease expiry. During the third quarter of
2015, we therefore impaired four of these aircraft, which had an aggregate net book value as of August 31, 2015 of $115,888,
F - 14
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
writing down their book values by a total of $34,575, with a fair value date of September 1, 2015. For one of these aircraft,
we recorded maintenance revenue of $5,858, as we no longer plan to reinvest these funds.
In the 2014 assessment, we determined that the cash flows expected to be generated by two of our McDonnell Douglas
MD-11 freighter aircraft did not support their carrying values. As a result, during the third quarter of 2014, we impaired
these two aircraft, which had an aggregate net book value as of June 30, 2014 of $53,777, writing down their book values
by a total of $19,515. We also shortened their expected lives from 25 to 21 years and reduced their residual values.
Other Impairments
In December 2015, one of our Airbus A330-300 aircraft was returned to us early as a result of a lease termination. We
elected not to reinvest in certain major maintenance needed to release this aircraft and instead have classified it as held for
sale. As a result, we recorded an impairment of $16,896 for this aircraft, partially offset by maintenance revenue of $9,055,
reversed lease incentives of $4,487 and other revenue of $1,778.
In September 2015, MAS informed us that it was effectively rejecting the lease on our Boeing 777-200ER aircraft as
part of its restructuring. This aircraft, which was manufactured in 1998, was the only aircraft we had on lease to MAS. We
repossessed it in October 2015. We reduced the carrying value of this aircraft to our best estimate of scrap value. While
we had not decided to dispose of the aircraft, this write-down was driven by weak overall demand tor older wide-body
aircraft, an increase in the supply of competing aircraft and the difficulty of recovering high redeployment costs given the
proliferation of aircraft age limits across the world. This write-down resulted in an impairment of $37,770, partially offset
by $1,200 of other revenue from a letter of credit we drew following the lease rejection.
Also in September 2015, we modified the lease agreement with respect to one Airbus A321-200 aircraft. We elected
not to reinvest in certain major maintenance events during the lease term, and the lessee agreed to release its rights to certain
maintenance payments. As a result, we recorded an impairment of $6,058 and maintenance revenue of $7,109 for this
aircraft.
In the second quarter of 2015, we impaired two McDonnell Douglas MD-11 freighter aircraft and one Boeing 737-800
aircraft and recorded impairment charges totaling $23,955 and maintenance revenue of $18,234.
During 2014, we impaired three Boeing 747-400 converted freighter aircraft, two Boeing 737-400 aircraft, two Airbus
A320-200 aircraft and one Boeing 757-200 aircraft and recorded impairment charges totaling $73,557. For these aircraft,
we recorded maintenance revenue of $51,627 and other revenue of $698 and reversed lease incentives of $4,081.
Other than the aircraft discussed above, management believes that the net book value of each of our aircraft is currently
supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no
other aircraft were impaired as a consequence of this recoverability assessment. However, if our estimates or assumptions
change, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates
and related assumptions used in the recoverability assessment 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, amounts borrowed under financings and interest rate derivatives. The fair value of
cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the
carrying value of these financial instruments because of their short-term nature.
The fair value of our Securitization No. 2, which contains a third party credit enhancement, is estimated using a
discounted cash flow analysis, based on our current incremental borrowing rates of borrowing arrangements that do not
contain third party credit enhancements. The fair values of our ECA term financings and bank financings are estimated
using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing
arrangements. The fair value of our Senior Notes is estimated using quoted market prices.
F - 15
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The carrying amounts and fair values of our financial instruments at December 31, 2015 and 2014 are as follows:
Securitizations
Credit Facilities
ECA term financings
Bank financings
Senior Notes
December 31, 2015
December 31, 2014
Carrying
Amount
of Liability
Fair Value
of Liability
Carrying
Amount
of Liability
Fair Value
of Liability
$
125,366
$
123,696
$
391,680
$
225,000
404,491
636,970
225,000
422,640
653,699
200,000
449,886
554,888
376,752
200,000
471,918
560,285
2,700,000
2,832,125
2,200,000
2,300,615
All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified
as Level 1.
Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment
at December 31, 2015 were as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Amount
$
706,122
625,842
553,790
484,976
414,926
1,173,535
$
3,959,191
The classification of regions in the tables below is determined based on the principal location of the lessee of each
aircraft.
Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:
Region
Europe
Asia and Pacific
North America
Middle East and Africa
South America
Total
Year Ended December 31,
2015
2014
2013
28%
42%
5%
9%
16%
100%
29%
40%
9%
9%
13%
100%
33%
38%
10%
10%
9%
100%
F - 16
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The following table shows the number of lessees with lease rental revenue of at least 5% and their combined total
percentage of lease rental revenue for the years indicated:
Year Ending December 31,
2015
2014
2013
Combined
% of
Lease
Rental
Revenue
Number
of Lessees
Combined
% of
Lease
Rental
Revenue
Number
of Lessees
Combined
% of
Lease
Rental
Revenue
Number
of Lessees
Largest lessees by lease rental revenue
3
17.00%
3
17.00%
4
24.00%
The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue
(including maintenance revenue) in any year based on each lessee’s principal place of business for the years indicated:
Year Ending December 31,
2015
2014
2013
Country
Russia(1)
United States(2)
______________
Revenue
$
—
—
% of
Total
Revenue
% of
Total
Revenue
Revenue
Revenue
—% $ 86,512
11% $
—
—%
—
—%
74,274
% of
Total
Revenue
—%
10%
(1) Total revenue attributable to Russia was less than 10% for the twelve months ended December 31, 2015 and 2013. For the twelve months ended December
31, 2014, includes $29,867 of maintenance revenue related to early lease terminations.
(2) Total revenue attributable to the United States was less than 10% for the twelve months ended December 31, 2015 and 2014.
Geographic concentration of net book value of flight equipment held for lease was as follows:
Region
Asia and Pacific
Europe
South America
Middle East and Africa
North America
Off-lease
Total
______________
December 31, 2015
December 31, 2014
Number of
Aircraft
Net Book
Value %
Number of
Aircraft
Net Book
Value %
49
64
22
9
17
1 (1)
39%
26%
19%
10%
6%
—%
46
65
13
6
17
1 (2)
40%
29%
14%
10%
7%
—%
162
100%
148
100%
(1) Consisted of one Boeing 777-200ER aircraft that was being marketed for lease at December 31, 2015.
(2) Consisted of one Airbus A320-200 aircraft, which was subject to a commitment to lease and was delivered to our customer in February 2015.
At December 31, 2015, three lessees in Indonesia represented 11%, or $661,178, of net book value of flight equipment
based on each lessee’s principal place of business. At December 31, 2014, no country represented at least 10% of net book
value of flight equipment based on each lessee’s principal place of business.
At December 31, 2015 and 2014, the amounts of lease incentive liabilities recorded in maintenance payments on the
Consolidated Balance Sheets were $21,432 and $22,833, respectively.
F - 17
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 4. Net Investment in Finance and Sales-Type Leases
At December 31, 2015, our net investment in finance and sales-type leases represents seven aircraft leased to two
customers in the United States, one aircraft leased to a customer in the Netherlands and three aircraft leased to two customers
in Germany. The following table lists the components of our net investment in finance and sales-type leases at December 31,
2015:
Total lease payments to be received
Less: Unearned income
Estimated residual values of leased flight equipment (unguaranteed)
Net investment in finance and sales-type leases
Amount
156,364
(69,175)
114,022
201,211
$
$
At December 31, 2015, minimum future lease payments on finance and sales-type leases are as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total lease payments to be received
$
Amount
26,075
24,247
18,625
18,545
17,690
51,182
$
156,364
Note 5. Unconsolidated Equity Method Investment
On December 19, 2013, the Company and an affiliate of Teachers’ formed a joint venture (the “JV”), in which we have
a 30% equity interest, to invest in leased aircraft. Teachers’ currently holds 10.0% of our outstanding common shares.
We source and service investments in this joint venture and provide marketing, asset management and administrative
services to it and are paid market-based fees for those services, which are recorded in Other revenue in our Consolidated
Statements of Income. The Company has recorded in its Consolidated Balance Sheet a $6,670 guarantee liability in
Maintenance payments and a $5,400 guarantee liability in Security deposits representing its share of the respective exposures.
Investment in joint venture at December 31, 2013
Investment in joint venture
Earnings from joint venture, net of tax
Distributions
Investment in joint venture at December 31, 2014
Investment in joint venture
Earnings from joint venture, net of tax
Distributions
Investment in joint venture at December 31, 2015
F - 18
Amount
21,123
26,050
3,054
(3,774)
46,453
3,394
6,257
(5,727)
50,377
$
$
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 6. Variable Interest Entities
Aircastle consolidates seven VIEs of which it is the primary beneficiary. The operating activities of these VIEs are
limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the 12 aircraft
discussed below.
Securitizations
In connection with Securitization No. 2, two of our subsidiaries, ACS Aircraft Finance Ireland 2 Limited (“ACS Ireland
2”) and ACS 2007-1 Limited (“ACS Bermuda 2”) issued Class A-1 notes and each has fully and unconditionally guaranteed
the other’s obligations under the notes.
Aircastle is the primary beneficiary of ACS Ireland 2, as we have both the power to direct the activities of the VIE that
most significantly impact the economic performance of such VIE and we bear the significant risk of loss and participate in
gains through Class E-1 Securities. Although Aircastle has not guaranteed the ACS Ireland 2 debt, Aircastle wholly owns
the ACS Bermuda 2 which has fully and unconditionally guaranteed the ACS Ireland 2 VIE obligations. The activity that
most significantly impacts the economic performance is the leasing of aircraft. Aircastle Advisor (Ireland) Limited
(Aircastle’s wholly owned subsidiary) is the remarketing servicer and is responsible for the leasing of the aircraft. An Irish
charitable trust owns 95% of the common shares of ACS Ireland 2. The Irish charitable trust’s risk is limited to its annual
dividend of $2. At December 31, 2015, the assets of ACS Ireland 2 include four aircraft transferred into the VIEs at historical
cost basis in connection with Securitization No. 2.
The assets of ACS Ireland 2, net of intercompany receivables, as of December 31, 2015 are $65,952. The liabilities
of ACS Ireland 2, net of $40,351 Class E-1 Securities held by the Company and intercompany payables, which are eliminated
in consolidation, as of December 31, 2015 are $42,140.
ECA Term Financings
Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the
“Air Knight VIEs”), has entered into eight different twelve-year term loans, which are supported by guarantees from
Compagnie Francaise d’ Assurance pour le Commerce Exterieur (“COFACE”), the French government sponsored export
credit agency (“ECA”). We refer to these COFACE-supported financings as “ECA Term Financings.”
Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs
that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate
in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of
aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft. There
is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air
Knight VIEs.
The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated
financial statements. The related aircraft, with a net book value as of December 31, 2015 of $619,530, were included in our
flight equipment held for lease. The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of
December 31, 2015 is $390,712.
F - 19
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 7. Borrowings from Secured and Unsecured Debt Financings
The outstanding amounts of our secured and unsecured term debt financings were as follows:
391,680
449,886
554,888
(23,323)
1,373,131
500,000
400,000
500,000
300,000
500,000
—
200,000
(28,544)
Debt Obligation
Secured Debt Financings:
Securitization No. 2(2)
ECA Term Financings
Bank Financings
Less: Debt Issuance Costs
At December 31, 2015
Outstanding
Borrowings
Number of
Aircraft
Interest Rate(1)
Final Stated
Maturity
At
December 31,
2014
Outstanding
Borrowings
$
125,366
404,491
636,970
(20,589)
0.59%
06/14/37
$
3.02% to 3.96% 12/03/21 to 11/30/24
1.32% to 5.09% 10/26/17 to 01/19/26
23
8
13
44
Total secured debt financings, net of debt
issuance costs
1,146,238
Unsecured Debt Financings:
Senior Notes due 2017
Senior Notes due 2018
Senior Notes due 2019
Senior Notes due 2020
Senior Notes due 2021
Senior Notes due 2022
Revolving Credit Facility
Less: Debt Issuance Costs
500,000
400,000
500,000
300,000
500,000
500,000
225,000
(30,082)
6.750%
4.625%
6.250%
7.625%
5.125%
5.500%
2.672%
04/15/17
12/05/18
12/01/19
04/15/20
03/15/21
02/15/22
05/13/19
Total unsecured debt financings, net of debt
issuance costs
2,894,918
Total secured and unsecured debt financings,
net of debt issuance costs
$
4,041,156
_______________
2,371,456
$
3,744,587
(1) Reflects the floating rate in effect at the applicable reset date plus the margin for Securitization No. 2, three of our Bank Financings and our Revolving Credit
Facility. All other financings have a fixed rate.
(2) For Securitization No. 2, all cash flows available after expenses and interest are applied to debt amortization.
The following securitization structure includes liquidity facility commitments described in the table below:
Facility
Securitization No. 2
Liquidity
Facility Provider
December 31,
2015
December 31,
2014
Unused
Fee
Interest Rate
on any Advances
HSH Nordbank AG
$
65,000
$
65,000
0.50%
1 M Libor + 0.75
Available Liquidity
The purpose of this facility is to provide liquidity for Securitization No. 2 in the event that cash flow from lease contracts
and other revenue sources is not sufficient to pay operating expenses with respect to the aircraft portfolio, interest payments
and interest rate hedging payments for Securitization No. 2.
Secured Debt Financings:
ECA Term Financings
As described in Note 6 - Variable Interest Entities, we refer to our COFACE-supported financings as “ECA Term
Financings.” In addition, Aircastle has guaranteed the repayment of the ECA Term Financings. The borrowings under these
financings at December 31, 2015 have a weighted average rate of interest of 3.57%.
F - 20
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Bank Financings
In May 2015, we entered into two floating rate loans with The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Development
Bank of Japan Inc. These loans, which total $150,000, are secured by two A330-300 aircraft that we acquired in the fourth
quarter of 2014.
Our Bank Financings contain, among other customary provisions, a $500,000 minimum net worth covenant and, in
some cases, a cross-default to other financings with the same lender. In addition, Aircastle has guaranteed the repayment
of the Bank Financings. The borrowings under these financings at December 31, 2015 have a weighted average rate of
interest of 3.23%.
Unsecured Debt Financings:
Senior Notes due 2022
On January 15, 2015, Aircastle Limited issued $500,000 aggregate principal amount of Senior Notes due 2022 (the
“2022 Senior Notes”). The 2022 Senior Notes will mature on February 15, 2022 and bear interest at the rate of 5.50% per
annum, payable semi-annually on February 15 and August 15 of each year, commencing on August 15, 2015. Interest will
accrue on the 2022 Senior Notes from January 15, 2015.
The Company may redeem the Senior Notes due 2022 at any time at a redemption price equal to (a) 100% of the
principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date
and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes from the
redemption date through the maturity date of the notes (computed using a discount rate equal to the Treasury Rate as of such
redemption date plus 50 basis points), plus accrued and unpaid interest to, but not including, the redemption date. In addition,
on or before February 15, 2018, we may redeem up to 35% of the aggregate principal amount of the notes issued under the
indenture at a redemption price equal to 105.50% plus accrued and unpaid interest thereon, with the net proceeds of certain
equity offerings. If the Company undergoes a change of control, it must offer to repurchase the Senior Notes due 2021 at
101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2021 are not guaranteed by any of
the Company’s subsidiaries or any third party.
Proceeds from the issuance were used to pay-off our Revolving Credit Facility and for general corporate purposes.
Revolving Credit Facility
In January 26, 2015, we increased the size of our Revolving Credit Facility from $450,000 to $600,000. On May 13,
2015, we extended the maturity of our Revolving Credit Facility to May 13, 2019. At December 31, 2015, we had $225,000
drawn on the facility.
Maturities of the secured and unsecured debt financings over the next five years and thereafter are as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
____________
Amount
221,936
672,027
521,864
834,661
412,240
1,433,268
4,095,996
$
$
As of December 31, 2015, we are in compliance with all applicable covenants in our financings.
F - 21
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 8. Shareholders’ Equity and Share Based Payment
In January 2006, the Board of Directors (the “Board”) and shareholders managed by affiliates of Fortress Investment
Group LLC (the “Fortress Shareholders”) adopted the Aircastle Investment Limited 2005 Equity and Incentive Plan, and
the Board and the Fortress Shareholders approved an amendment to and restatement thereof on July 20, 2006 (as so amended
and restated, the “2005 Plan”).
On March 14, 2014, the Board of Directors adopted the Aircastle Limited 2014 Omnibus Incentive Plan (the “2014
Plan”). The 2014 Plan was approved by shareholders at the Company’s 2014 Annual General Meeting of Shareholders on
May 22, 2014. The 2014 Plan replaced the 2005 Plan.
The purposes of the 2014 Plan are to provide an additional incentive to selected officers, employees, non-employee
directors, independent contractors, and consultants of the Company or its affiliates whose contributions are essential to the
growth and success of the business of the Company and its affiliates, to strengthen the commitment of such persons to the
Company and its affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and
retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company
and its affiliates. To accomplish such purposes, the 2014 Plan provides that the Company may grant options, share appreciation
rights, restricted shares, restricted share units, share bonuses, other share-based awards, cash awards or any combination of
the foregoing. The 2014 Plan provides that grantees of restricted common shares will have all of the rights of shareholders,
including the right to receive dividends, other than the right to sell, transfer, assign or otherwise dispose of the shares until
the lapse of the restricted period. Generally, the restricted common shares vest over three to five year periods based on
continued service and are being expensed on a straight-line basis over the requisite service period of the awards. The terms
of the grants provide for accelerated vesting under certain circumstances, including termination without cause following a
change of control.
The maximum number of Common Shares reserved for issuance under the 2014 Plan is 2,500,000 Common Shares,
which includes 713,540 Common Shares remaining under the 2005 Plan that became available for reuse following the
adoption of the 2014 Plan. Awards outstanding under the 2005 Plan in the amount of 302,942 shares will continue to vest
subject to the terms and conditions of the 2005 Plan and the applicable awards agreements which are included in the below
table.
A summary of the fair value of non-vested shares for the years ended December 31, 2015, 2014 and 2013 is as follows:
Non-vested Shares
Non-vested at January 1, 2013
Granted
Canceled
Vested
Non-vested at December 31, 2013
Granted
Canceled
Vested
Non-vested at December 31, 2014
Granted
Canceled
Vested
Non-vested at December 31, 2015
Shares
(in 000’s)
Weighted
Average
Grant Date
Fair Value
$
561.2
457.5
(1.5)
(322.5)
694.7
341.1
(69.1)
(345.4)
621.3
308.8
(10.6)
(268.1)
651.4
$
12.21
13.98
13.11
11.96
13.49
18.80
15.89
13.47
16.15
21.58
19.22
15.82
18.81
The fair value of the restricted common shares granted in 2015, 2014 and 2013 were determined based upon the market
price of the shares at the grant date.
F - 22
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The total unrecognized compensation cost, adjusted for estimated forfeitures, related to all non-vested shares as of
December 31, 2015, in the amount of $6,957, is expected to be recognized over a weighted average period of 2.06 years.
On October 31, 2014, our Board of Directors authorized the repurchase of $100,000 of the Company’s common shares.
Under the program, the Company may purchase its common shares from time to time in the open market or in privately
negotiated transactions. During the fourth quarter of 2015, we repurchased 955,235 common shares at a total cost of $18,921,
including commissions, under the repurchase program.
In addition, as of February 5, 2016, we repurchased an additional 1,650,778 common shares at an aggregate cost of
$31,079, including commissions, during 2016. Accordingly, as of February 5, 2016, under this program we have repurchased
a total of 2,606,013 common shares at a total cost of $50,000, including commissions, at an average price per share of $19.19.
The remaining dollar value of common shares that may be purchased under the program is $50,000.
On February 18, 2015, the Company, Marubeni and a subsidiary of Marubeni entered into an amendment and restatement
of the Shareholder Agreement, which (1) modified the terms of the Shareholder Agreement to immediately permit acquisitions
by Marubeni and its affiliates of voting securities of the Company in the secondary market pursuant to a Rule 10b5-1 plan
that would result in Marubeni and its affiliates collectively holding more than 21.0% but no more than 27.5% of the voting
power of the Company and (2) extended the term of the standstill provision of the Shareholder Agreement by 18 months to
January 2025. As of February 5, 2016, Marubeni held 27.0%% of our voting securities.
Note 9. Dividends
The following table sets forth the quarterly dividends declared by our Board of Directors for the three years ended
December 31, 2015:
Declaration Date
October 30, 2015
August 4, 2015
May 4, 2015
February 17, 2015
October 31, 2014
July 28, 2014
May 5, 2014
February 21, 2014
October 29, 2013
August 2, 2013
May 1, 2013
February 18, 2013
Dividend
per
Common
Share
Aggregate
Dividend
Amount
Record Date
Payment Date
$ 0.240
$ 19,377
November 30, 2015
December 15, 2015
$ 0.220
$ 17,860
August 31, 2015
September 15, 2015
$ 0.220
$ 17,863
May 29, 2015
June 15, 2015
$ 0.220
$ 17,860
March 6, 2015
March 13, 2015
$ 0.220
$ 17,817
November 28, 2014
December 15, 2014
$ 0.200
$ 16,201
August 29, 2014
September 12, 2014
$ 0.200
$ 16,202
May 30, 2014
June 13, 2014
$ 0.200
$ 16,201
March 7, 2014
March 14, 2014
$ 0.200
$ 16,163
November 29, 2013
December 13, 2013
$ 0.165
$ 13,330
August 30, 2013
September 13, 2013
$ 0.165
$ 11,297
May 31, 2013
June 14, 2013
$ 0.165
$ 11,268
March 4, 2013
March 15, 2013
F - 23
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 10. Earnings Per Share
We include all common shares granted under our incentive compensation plan which remain unvested (“restricted
common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid
(“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-
class method. All of our restricted common shares are currently participating securities.
Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings
allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average
number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed
earnings are allocated to both common shares and restricted common shares based on the total weighted average shares
outstanding during the period as follows:
Weighted-average shares:
Common shares outstanding
Restricted common shares
Total weighted-average shares
Percentage of weighted-average shares:
Common shares outstanding
Restricted common shares
Total
Year Ended December 31,
2015
2014
2013
80,489,391
80,389,349
73,652,996
615,611
588,077
593,616
81,105,002
80,977,426
74,246,612
Year Ended December 31,
2015
2014
2013
99.24%
0.76%
100.00%
99.27%
0.73%
100.00%
99.20%
0.80%
100.00%
F - 24
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The calculations of both basic and diluted earnings per share for the years ended December 31, 2015, 2014 and 2013
are as follows:
Earnings per common share — Basic:
Income from continuing operations
Less: Distributed and undistributed earnings allocated to restricted common shares(a)
Income from continuing operations available to common shareholders — Basic
Weighted-average common shares outstanding — Basic
Net income per common share — Basic
Earnings per common share — Diluted:
Income from continuing operations
Less: Distributed and undistributed earnings allocated to restricted common shares(a)
Income from continuing operations available to common shareholders — Diluted
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
121,729 $
100,828 $
29,781
(924)
(732)
(238)
120,805
$
100,096
$
29,543
80,489,391
80,389,349
73,652,996
1.50
$
1.25
121,729
$
100,828
(924)
(732)
120,805 $
100,096
$
$
$
0.40
29,781
(238)
29,543
Weighted-average common shares outstanding — Basic
Effect of diluted shares
80,489,391
— (b)
80,389,349
— (b)
73,652,996
— (b)
Weighted-average common shares outstanding — Diluted
80,489,391
80,389,349
73,652,996
Net income per common share — Diluted
$
1.50 $
1.25 $
0.40
_____________
(a)
For the years ended December 31, 2015, 2014 and 2013, distributed and undistributed earnings to restricted shares is 0.76%, 0.73% and 0.80%, respectively,
of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.
(b)
For the years ended December 31, 2015, 2014 and 2013, we have no dilutive shares.
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 an assurance from the Bermuda Minister of Finance that it would
be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for
income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in,
jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.
The sources of income from continuing operations before income taxes and earnings of unconsolidated equity method
investment for the years ended December 31, 2015, 2014 and 2013 were as follows:
U.S. operations
Non-U.S. operations
Income from continuing operations before income taxes and earnings of unconsolidated
equity method investment
Year Ended December 31,
2015
2014
2013
2,433
$
2,047
$
125,810
109,590
2,730
36,213
128,243
$
111,637
$
38,943
$
$
F - 25
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The components of the income tax provision from continuing operations for the year ended December 31, 2015, 2014
and 2013 consisted of the following:
Current:
United States:
Federal
State
Non-U.S
Current income tax provision
Deferred:
United States:
Federal
State
Non-U.S
Deferred income tax provision (benefit)
Total
Year Ended December 31,
2015
2014
2013
$
4,167
$
1,571
$
994
14,499
19,660
829
57
(7,775)
(6,889)
390
9,040
11,001
2,335
932
(405)
2,862
$
12,771
$
13,863
$
1,742
515
2,542
4,799
963
386
3,067
4,416
9,215
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015, 2014 and 2013
consisted of the following:
Deferred tax assets:
Non-cash share based payments
Net operating loss carry forwards
Interest rate derivatives
Other
Total deferred tax assets
Deferred tax liabilities:
Accelerated depreciation
Other
Total deferred tax liabilities
Net deferred tax liabilities
Year Ended December 31,
2015
2014
2013
$
1,483
$
1,106
$
52,007
42,900
—
761
35
340
1,139
23,137
863
356
54,251
44,381
25,495
(87,716)
(442)
(88,158)
(79,360)
(1,795)
(81,155)
(56,312)
(1,143)
(57,455)
$
(33,907) $
(36,774) $
(31,960)
The Company had approximately $27,631 of net operating loss (“NOL”) carry forwards available at December 31,
2015 to offset future taxable income subject to U.S. graduated tax rates. If not utilized, these carry forwards expire between
2030 through 2035. The Company also had NOL carry forwards of $520,177 with no expiration date to offset future Irish,
Mauritius and Singapore taxable income. Deferred tax assets and liabilities are included in other assets and accounts payable
and accrued liabilities, respectively, in the accompanying Consolidated Balance Sheets.
We do not expect to incur income taxes on future distributions of undistributed earnings of non-U.S. subsidiaries and
accordingly, no deferred income taxes have been provided for the distributions of such earnings. As of December 31, 2015
we have elected to permanently reinvest our accumulated undistributed U.S. earnings of $10,603. Accordingly, no
U.S. withholding taxes have been provided. Withholding tax of $3,181 would be due if such earnings were remitted.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-
U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically
are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be
F - 26
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore
are subject to tax in those respective jurisdictions.
We have a U.S-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to
U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management
services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income from
continuing operations at December 31, 2015, 2014 and 2013 consisted of the following:
Notional U.S. federal income tax expense at the statutory rate:
U.S. state and local income tax, net
Non-U.S. operations:
Bermuda
Ireland
Singapore
Other low tax jurisdictions
Non-deductible expenses in the U.S.
Other
Provision for income taxes
Year Ended December 31,
2015
2014
2013
$
44,885
$
39,073
$
13,630
221
189
195
(20,789)
(12,424)
(3,073)
(5,650)
(3,395)
737
(165)
(4,732)
(5,529)
(2,890)
644
(468)
4,749
(5,514)
(597)
(3,608)
447
(87)
$
12,771
$
13,863
$
9,215
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits.
We conduct business globally and, as a result, the Company and its subsidiaries or branches are subject to foreign,
U.S. federal and various state and local income taxes, as well as withholding taxes. In the normal course of business the
Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Ireland
and the United States. With few exceptions, the Company and its subsidiaries or branches remain subject to examination
for all periods since inception.
Our policy is that we will recognize interest and penalties accrued on any unrecognized tax benefits as a component
of income tax expense. We did not accrue interest or penalties associated with any unrecognized tax benefits, nor was any
interest expense or penalty recognized during the year.
Note 12. Interest, Net
The following table shows the components of interest, net for the years ended December 31, 2015, 2014 and 2013:
Year Ended December 31,
2015
2014
2013
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
$
204,326
$
189,135
$
196,176
Hedge ineffectiveness losses
Amortization of interest rate derivatives related to deferred losses
Amortization of deferred financing fees and debt discount
Interest Expense
Less: Interest income
Interest, net
455
24,023
14,878
738
34,979
13,961
371
33,265
14,719
243,682
238,813
244,531
(105)
(435)
(774)
$
243,577
$
238,378
$
243,757
F - 27
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 13. Commitments and Contingencies
Rent expense, primarily for the corporate office and sales and marketing facilities, was approximately $1,163, $1,150
and $1,236 for the years ended December 31, 2015, 2014 and 2013, respectively.
As of December 31, 2015, Aircastle is obligated under non-cancelable operating leases relating principally to office
facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Amount
921
736
751
765
779
1,602
5,554
$
$
On June 12, 2015, Aircastle entered into a purchase agreement with Embraer S.A. (“Embraer”) under which we agreed
to acquire 25 new E-Jet E2 aircraft with purchase rights for an additional 25 E-Jet E2 aircraft. Deliveries of the 25 aircraft
are scheduled to begin in 2018 for the E190-E2 aircraft and 2019 for the E195-E2 aircraft with the last delivery scheduled
in March 2021. At December 31, 2015, the table below includes $142,170 of progress payments, which begin in May 2016.
At December 31, 2015, we had commitments to acquire 35 aircraft, including the above referenced 25 Embraer E-2
aircraft, for $1,347,836.
Commitments, including contractual price escalations and other adjustments, for these aircraft at December 31, 2015,
net of amounts already paid are as follows:
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
$
Amount
273,508
170,252
258,130
293,267
214,401
138,278
$
1,347,836
As of February 5, 2016, we have commitments to acquire 37 aircraft for $1,423,836.
Note 14. Other Assets
The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:
Deferred federal income tax asset
Lease incentives and lease premiums, net of amortization of $31,623 and $26,477, respectively
Flight equipment held for sale
Other assets
Total other assets
F - 28
December 31,
2015
2014
$
1,362
$
86,874
12,901
22,570
567
75,587
7,455
21,841
$
123,707
$
105,450
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 15. Accounts Payable, Accrued Expenses and Other Liabilities
The following table describes the principal components of accounts payable, accrued expenses and other liabilities
recorded on our Consolidated Balance Sheets as of:
Accounts payable and accrued expenses
Deferred federal income tax liability
Accrued interest payable
Lease discounts, net of amortization of $19,403 and $9,247, respectively
Fair value of derivative liabilities
$
34,457
$
35,269
37,606
22,443
1,283
Total accounts payable, accrued expenses and other liabilities
$
131,058
$
40,765
37,340
27,795
32,084
2,879
140,863
December 31,
2015
2014
Note 16. Accumulated Other Comprehensive Loss
The following table describes the principal components of accumulated other comprehensive loss recorded on our
Consolidated Balance Sheets as of:
Changes in accumulated other comprehensive loss by component(a)
Beginning balance
Amount recognized in other comprehensive loss on derivatives, net of tax expense of $14 and $718,
respectively
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense of $21
and $110, respectively
Net current period other comprehensive income
Ending balance
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
Reclassifications from accumulated other comprehensive loss(a)
Losses on cash flow hedges
Twelve Months Ended
December 31,
2015
2014
$
(38,460) $
(75,905)
(2,113)
(3,683)
27,360
25,247
41,128
37,445
$
(13,213) $
(38,460)
Twelve Months Ended
December 31,
2015
2014
Amount of effective amortization of net deferred interest rate derivative losses(b)
Effective amount of net settlements of interest rate derivatives, net of tax expense of $21 and $110,
respectively(b)
Amount of loss reclassified from accumulated other comprehensive loss into income
$
$
24,023
$
34,979
3,337
6,149
27,360
$
41,128
(a) All amounts are net of tax.
(b) Included in interest expense.
At December 31, 2015, the amount of deferred net loss expected to be reclassified from OCI into interest expense over
the next twelve months related to our terminated interest rate derivatives is $9,056, of which $1,118 relates to Senior Notes
due 2017 and 2020 interest rate derivatives, $4,855 relates to Senior Notes due 2018 interest rate derivatives, $1,749 relates
to ECA Term Financings and $1,334 relates to other financings.
F - 29
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 17. Quarterly Financial Data (Unaudited)
Quarterly results of our operations for the years ended December 31, 2015 and 2014 are summarized below:
2015
Revenues
Net income (loss)
Basic earnings (loss) per share:
Net income (loss)
Diluted earnings (loss) per share:
Net income (loss)
2014
Revenues
Net income
Basic earnings per share:
Net income
Diluted earnings per share:
Net income
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
$
$
$
$
$
208,267
50,641
0.63
0.63
238,257
72,764
0.90
0.90
$
$
$
$
$
$
$
$
212,074
$
204,565
(13,989) $
41,808
(0.17) $
0.51
(0.17) $
0.51
177,596
19,151
0.24
0.24
$
$
$
$
226,146
3,136
0.04
0.04
$
$
$
$
$
$
$
$
194,296
43,269
0.53
0.53
176,603
5,777
0.07
0.07
The sum of the quarterly earnings per share amounts may not equal the annual amount reported since per share amounts
are computed independently for each period presented.
F - 30
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Aircastle Limited has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 11, 2016
Aircastle Limited
By:
/s/ Ron Wainshal
Ron Wainshal
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of Aircastle Limited and in the capacities and on the date indicated.
SIGNATURE
/s/ Ron Wainshal
Ron Wainshal
/s/ Michael Inglese
Michael Inglese
/s/ Aaron Dahlke
Aaron Dahlke
/s/ Peter V. Ueberroth
Peter V. Ueberroth
/s/ Ronald W. Allen
Ronald W. Allen
/s/ Giovanni Bisignani
Giovanni Bisignani
/s/ Michael J. Cave
Michael J. Cave
/s/ Douglas A. Hacker
Douglas A. Hacker
/s/ Masumi Kakinoki
Masumi Kakinoki
/s/ Ryusuke Konto
Ryusuke Konto
/s/ Ronald L. Merriman
Ronald L. Merriman
/s/ Agnes Mura
Agnes Mura
/s/ Charles W. Pollard
Charles W. Pollard
/s/ Gentaro Toya
Gentaro Toya
TITLE
DATE
Chief Executive Officer and Director
February 11, 2016
Chief Financial Officer
February 11, 2016
Chief Accounting Officer
February 11, 2016
Chairman of the Board
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
S - 1
AIRCASTLE LIMITED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Exhibit 12.1
Fixed Charges:
Interest expense
Portion of rent expense representative of interest
Total fixed charges
Earnings:
Income from continuing operations before income taxes
Fixed charges from above
Amortization of capitalized interest
Earnings (as defined)
Ratio of earnings to fixed charges
Year Ended December 31,
2015
2014
2013
$
$
243,576
376
243,952
$
$
238,378
372
238,750
$
$
243,757
404
244,161
$
128,243
$
111,637
$
38,943
243,952
238,750
244,161
800
800
800
$
372,995
$
351,187
$
283,904
1.53 x
1.47 x
1.16
x
Subsidiaries of Aircastle Limited
As of December 31, 2015
Name of Subsidiary
ACS 2007-1 Limited
ACS 2007-1 Luxembourg S.à.r.l.
ACS 2008-1 Limited
ACS 2008-2 Limited
ACS Aircraft Finance Bermuda Limited
ACS Aircraft Finance Ireland 2 Limited
ACS Aircraft Finance Ireland 3 Limited
ACS Aircraft Leasing (Ireland) Limited
AHCL Securities Limited
AHCL Two Limited
AHCL Luxembourg Finance Company
AYR Bermuda Limited
AYR Delaware LLC
AYR E Note Limited
AYR Freighter LLC
Aircastle Advisor Asia Pacific Limited
Aircastle Advisor (International) Limited
Aircastle Advisor (Ireland) Limited
Aircastle Advisor LLC
Aircastle Bermuda Securities Limited
Aircastle Delaware Holdings LLC
Aircastle Delaware Holdings 2 LLC
Aircastle Holding Corporation Limited
Aircastle Investment Holdings 2 Limited
Aircastle Investment Holdings 3 Limited
Aircastle Investment Holdings Limited
Aircastle Singapore Pte. Limited
Aircraft MSN 313 LLC
Aircraft MSN 1006 LLC
Aircraft MSN 1012 LLC
Aircraft MSN 1015 LLC
Aircraft MSN 1047 LLC
Aircraft MSN 1054 LLC
Aircraft MSN 1055 LLC
Aircraft MSN 1059 LLC
Aircraft MSN 1067 LLC
Aircraft MSN 1099 LLC
Aircraft MSN 1101 LLC
Aircraft MSN 1119 LLC
Aircraft MSN 1364 LLC
Aircraft MSN 1411 LLC
Aircraft MSN 1481 LLC
Aircraft MSN 1596 LLC
Aircraft MSN 1742 LLC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Exhibit 21.1
Jurisdiction
Bermuda
Grand Duchy of Luxembourg
Bermuda
Bermuda
Bermuda
Ireland
Ireland
Ireland
Bermuda
Bermuda
Grand Duchy of Luxembourg
Bermuda
Delaware
Bermuda
Delaware
Bermuda
Bermuda
Ireland
Delaware
Bermuda
Delaware
Delaware
Bermuda
Bermuda
Bermuda
Bermuda
Singapore
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Name of Subsidiary
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
Aircraft MSN 1793 LLC
Aircraft MSN 1809 LLC
Aircraft MSN 2104 LLC
Aircraft MSN 2220 LLC
Aircraft MSN 2248 LLC
Aircraft MSN 2311 LLC
Aircraft MSN 2357 LLC
Aircraft MSN 2381 LLC
Aircraft MSN 2391 LLC
Aircraft MSN 2472 LLC
Aircraft MSN 2488 LLC
Aircraft MSN 2563 LLC
Aircraft MSN 2956 LLC
Aircraft MSN 3277 LLC
Aircraft MSN 3338 LLC
Aircraft MSN 3729 LLC
Aircraft MSN 4019 LLC
Aircraft MSN 4070 LLC
Aircraft MSN 4077 LLC
Aircraft MSN 4088 LLC
Aircraft MSN 4126 LLC
Aircraft MSN 24061 LLC
Aircraft MSN 24066 LLC
Aircraft MSN 24226 LLC
Aircraft MSN 24975 LLC
Aircraft MSN 25702-2 LLC
Aircraft MSN 27137 LLC
Aircraft MSN 28213 LLC
Aircraft MSN 28231 LLC
Aircraft MSN 28414 LLC
Aircraft MSN 28626 LLC
Aircraft MSN 29250 LLC
Aircraft MSN 29345 LLC
Aircraft MSN 29375 LLC
Aircraft MSN 29918 LLC
Aircraft MSN 29920 LLC
Aircraft MSN 29927 LLC
Aircraft MSN 29930 LLC
Aircraft MSN 30295 LLC
Aircraft MSN 30702 LLC
Aircraft MSN 30710 LLC
Aircraft MSN 30877 LLC
Aircraft MSN 32704 LLC
Aircraft MSN 35082 LLC
Aircraft MSN 35083 LLC
Aircraft MSN 35093 LLC
Aircraft MSN 35233 LLC
Aircraft MSN 35235 LLC
Aircraft MSN 35236 LLC
Jurisdiction
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Name of Subsidiary
Aircraft MSN 35237 LLC
Aircraft MSN 35256 LLC
Aircraft MSN 35299 LLC
Aircraft MSN 35679 LLC
Aircraft MSN 35680 LLC
Aircraft MSN 36826 LLC
Aircraft MSN 36829 LLC
Aircraft MSN 38683 LLC
Aircraft MSN 38686 LLC
Aircraft MSN 41522 LLC
Aircraft MSN 48445 LLC
Aircraft MSN 48778 LLC
Aircraft MSN 19000449 LLC
Aircraft MSN 19000458 LLC
Aircraft MSN 19000484 LLC
Aircraft MSN 19000575 LLC
Aircraft MSN 19000588 LLC
ALC B377 33103, LLC
ALC B378 33104, LLC
Anfield Funding Limited
Brisbane Aircraft Leasing (UK) Limited
Constellation Aircraft Leasing (France) SARL
Constitution Aircraft Leasing (Ireland) 3 Limited
Constitution Aircraft Leasing (Ireland) 4 Limited
Constitution Aircraft Leasing (Ireland) 5 Limited
Constitution Aircraft Leasing (Ireland) 9 Limited
Constitution Aircraft Leasing (Ireland) 1086 Limited
Delphie Aircraft Leasing Limited
Dolphin Leasing (Ireland) Limited
Dunvegan Aircraft Leasing (Ireland) Limited
Emer Aircraft Leasing (Ireland) Limited
Endeavor Aircraft Leasing (Sweden) AB
Endeavor Aircraft Leasing (Sweden) 2 AB
Endeavor Aircraft Leasing (Sweden) 3 AB
Enterprise Aircraft Leasing (France) SARL
Gold Coast Aircraft Leasing (France) Sarl
Grayston Aircraft Leasing Limited
Intrepid Aircraft Leasing (France) SARL
Jakarta Aircraft Leasing (Ireland) Limited
Java Aircraft Leasing (France) SARL
Kale Aircraft Leasing (Ireland) Limited
Kelsterbach Aircraft Leasing (Ireland) Limited
Klaatu Aircraft Leasing (Ireland) Limited
Koala Aircraft Leasing (Ireland) Limited
Macleod Aircraft Leasing (Labuan) Limited
Macstay Aircraft Leasing Limited
Marrow Aircraft Leasing (Ireland) Limited
Medan Aircraft Leasing (Ireland) Limited
Merdeka Aircraft Leasing (Labuan) Limited
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
Jurisdiction
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Bermuda
United Kingdom
France
Ireland
Ireland
Ireland
Ireland
Ireland
Bermuda
Ireland
Ireland
Ireland
Sweden
Sweden
Sweden
France
France
Cayman Islands
France
Ireland
France
Ireland
Ireland
Ireland
Ireland
Labuan
Bermuda
Ireland
Ireland
Labuan
Name of Subsidiary
Mohawk Aircraft Leasing Limited
Momo Aircraft Leasing Limited
Orchard Aviation (41521) Pte. Ltd.
Orchard Aviation (A330) Pte. Ltd.
Orchard Aviation 41522 (UK) Limited
Perth Aircraft Leasing (UK) Limited
Penguin Leasing (Ireland) Limited
Perdana Aircraft Leasing (Labuan) Limited
Salmon Aircraft Leasing (Ireland) Limited
Sulaco Aircraft Leasing (Ireland) Limited
Sumatra Aircraft Leasing (France) Sarl
Templehof Aircraft Leasing (Ireland) Limited
Thunderbird 1 Leasing Limited
Thunderbird 2 Leasing Limited
Thunderbird 3 Leasing Limited
Thunderbird 4 Leasing Limited
Tormina Holding Limited
Trojan Aircraft Leasing (France) SARL
Zebra Aircraft Leasing Limited
Zephyr Aircraft Leasing B.V.
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
Jurisdiction
Bermuda
Bermuda
Singapore
Singapore
United Kingdom
United Kingdom
Ireland
Labuan
Ireland
Ireland
France
Ireland
Mauritius
Mauritius
Mauritius
Mauritius
Ireland
France
Cayman Islands
The Netherlands
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-203910) of Aircastle Limited
and in the related Prospectus and the Registration Statement (Form S-8 No. 333-196234) pertaining to the 2014 Omnibus
Incentive Plan of Aircastle Limited of our reports dated February 11, 2016, with respect to the consolidated financial
statements of Aircastle Limited and the effectiveness of internal control over financial reporting of Aircastle Limited, included
in this Annual Report (Form 10-K) for the year ended December 31, 2015.
EXHIBIT 23.1
/s/ Ernst & Young LLP
Stamford, Connecticut
February 11, 2016
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ron Wainshal, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Aircastle Limited;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 11, 2016
/s/ Ron Wainshal
Ron Wainshal
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Inglese, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Aircastle Limited;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 11, 2016
/s/ Michael Inglese
Michael Inglese
Chief Financial Officer
Exhibit 32.1
CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Aircastle Limited (the “Company”) for the fiscal year ended
December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ron Wainshal,
as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be
retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Ron Wainshal
Ron Wainshal
Chief Executive Officer
Date: February 11, 2016
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Aircastle Limited (the “Company”) for the fiscal year ended
December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael
Inglese, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be
retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Michael Inglese
Michael Inglese
Chief Financial Officer
Date: February 11, 2016
Owned Aircraft Portfolio at December 31, 2015 is as follows:
Exhibit 99.1
Aircraft Group
Narrowbody Aircraft
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Financing
A319-100 CFM56-5B5/P
A319-100 CFM56-5B5/P
A319-100 CFM56-5B5/P
A319-100 CFM56-5B5/P
A320-200 CFM56-5B4/P
A320-200 V2527-A5
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 V2527-A5
A320-200 V2527-A5
A320-200 V2527-A5
A320-200 CFM56-5B6/P
A320-200 CFM56-5B6/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B4/P
A320-200 CFM56-5B6/P
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B6/3
A320-200 CFM56-5B4/3
1136
1155
1742
2311
967
990
1041
1047
1054
1059
1067
1099
1101
1119
1370
1757
1793
1809
2104
2248
2391
2401
2524
2564
2956
3080
3093
3121
3178
3213
3277
3295
3328
3338
3464
3482
3502
3515
3532
3729
4019
4070
4088
4126
6139
Dec-99
Jan-00
Unencumbered
Unencumbered
May-02
Unencumbered
Feb-05
Apr-99
Unencumbered
Unencumbered
May-99
Securitization No. 2
Jul-99
Aug-99
Aug-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-01
Securitization No. 2
Unencumbered
Securitization No. 2
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Securitization No. 2
May-02
Unencumbered
Mar-04
Mar-04
Apr-05
Apr-05
Apr-05
Mar-05
Sep-05
Oct-05
Nov-06
Apr-07
Apr-07
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Securitization No. 2
Securitization No. 2
Unencumbered
Unencumbered
Bank Financing
May-07
Bank Financing
Jul-07
Sep-07
Oct-07
Unencumbered
Unencumbered
Unencumbered
Nov-07
Unencumbered
Dec-07
Dec-07
Apr-08
Apr-08
Jun-08
Jun-08
Jun-08
Dec-08
Sep-09
Oct-09
Nov-09
Dec-09
Oct-14
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Narrowbody Aircraft (Continued)
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A320-200 CFM56-5B4/3
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/2P
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/P
A321-200 CFM56-5B3/P
737-700 CFM56-7B22
737-700 CFM56-7B22
737-700 CFM56-7B22
737-700 CFM56-7B22
737-700 CFM56-7B22
737-700 CFM56-7B26
737-700 CFM56-7B24
737-800 CFM56-7B27
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B27
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B24
737-800 CFM56-7B24
737-800 CFM56-7B26
737-800 CFM56-7B27
737-800 CFM56-7B26
737-800 CFM56-7B27
737-800 CFM56-7B27
737-800 CFM56-7B27
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B26
737-800 CFM56-7B24
737-800 CFM56-7B24
6173
6528
6536
6561
6598
6634
6722
6800
6806
6813
1006
1012
2220
2357
2381
2472
2488
2563
28008
28009
28010
28013
28015
30710
33103
28231
28381
28384
28626
29036
29037
29345
29918
29920
29927
29930
30295
30296
30702
30824
30877
32796
33104
33453
34000
34803
34804
Oct-14
Mar-15
Mar-15
Apr-15
Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-15
Unencumbered
Jun-15
Sep-15
Oct-15
Nov-15
Nov-15
Apr-99
Apr-99
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Securitization No. 2
Securitization No. 2
May-04
Unencumbered
Dec-04
Feb-05
Unencumbered
Unencumbered
May-05
Unencumbered
Jun-05
Oct-05
Feb-99
Unencumbered
Unencumbered
Securitization No. 2
Mar-99
Securitization No. 2
Oct-99
Oct-00
Feb-01
Feb-07
Jun-02
May-00
May-99
Nov-99
Jul-00
Dec-98
Jan-99
Securitization No. 2
Unencumbered
Securitization No. 2
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Securitization No. 2
Securitization No. 2
May-02
Unencumbered
Jun-99
Sep-99
Dec-00
Jan-01
Nov-04
Feb-05
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-06
Unencumbered
Mar-05
Mar-01
Feb-03
Jun-03
Jul-05
Aug-05
Mar-07
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Bank Financing
Unencumbered
Jun-07
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Narrowbody Aircraft (Continued)
737-800 CFM56-7B26/3
737-800 CFM56-7B26/3
737-800 CFM56-7B26
737-800 CFM56-7B27
737-800 CFM56-7B26/3
737-800 CFM56-7B24E
737-800 CFM56-7B24E
737-800 CFM56-7B24E
737-900ER CFM56-7B26/3
737-900ER CFM56-7B26/3
737-900ER CFM56-7B26/3
737-900ER CFM56-7B26/3
737-900ER CFM56-7B26E
737-900ER CFM56-7B26E
737-900ER CFM56-7B26E
E195 CF34-10E6
E195 CF34-10E6
E195 CF34-10E6
E195 CF34-10E7
E195 CF34-10E7
757-200 RB211-535E4
757-200 RB211-535E4
757-200 RB211-535E4
757-200 RB211-535E4
757-200 RB211-535E4
757-200 RB211-535E4
A330-200 Trent 772B-60
A330-200 PW4168A
A330-200 PW4168A
A330-200 CF6-80E1A3
A330-200 CF6-80E1A3
A330-200 CF6-80E1A3
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-200 Trent 772B-60
A330-300 Trent 772B-60
A330-300 Trent 772B-60
Classic Narrowbody Aircraft
Widebody Aircraft
Manufacturer
Serial Number
Date of
Manufacture
Financing
35082
35083
35093
35103
35106
38686
39859
39864
35679
35680
35720
35721
37286
38302
38683
449
458
484
575
588
27201
27244
27245
27805
27806
27807
313
324
343
448
587
634
1073
1191
1210
1223
1236
1293
1364
1407
1474
1492
997
1006
Mar-08
Mar-08
Feb-07
Nov-06
Mar-08
Jan-13
Jul-15
Sep-15
Apr-07
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-07
Unencumbered
Dec-08
Unencumbered
Feb-09
Oct-11
Aug-11
Nov-12
Jul-11
Jul-11
Oct-11
Sep-12
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Dec-12
Unencumbered
Mar-94
Mar-94
Jul-94
Jan-95
Jan-95
Feb-95
Securitization No. 2
Securitization No. 2
Securitization No. 2
Unencumbered
Unencumbered
Unencumbered
Jan-00
Securitization No. 2
May-00
Unencumbered
Jun-00
Jan-02
Apr-04
Nov-04
Dec-09
Feb-11
Mar-11
Unencumbered
Unencumbered
Unencumbered
Unencumbered
ECA Term Financing
ECA Term Financing
ECA Term Financing
May-11
ECA Term Financing
Jul-11
Apr-12
Nov-12
Apr-13
Dec-13
Oct-14
Mar-09
Apr-09
ECA Term Financing
ECA Term Financing
ECA Term Financing
Bank Financing
ECA Term Financing
Unencumbered
Unencumbered
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Widebody Aircraft (Continued)
Freighter Aircraft
A330-300 Trent 772B-60
A330-300 Trent 772B-60
A330-300 PW4168A
A330-300 Trent 772B-60
A330-300 Trent 772B-60
A330-300 Trent 772B-60
777-200ER Trent 892B-17
777-200ER GE90-948
777-300ER GE90-115B
777-300ER GE90-115B
777-300ER GE90-115B
777-300ER GE90-115B
777-300ER GE90-115B
777-300ER GE90-115B
777-300ER GE90-115B
747-400BCF
PW4056-3
747-400BCF
PW4056-3
747-400BCF
PW4056-3
747-400BCF
PW4056-3
747-400BDSF
PW4056-1C/3
747-400BDSF
PW4056-3
747-400F CF6-80C2B1F
747-400ERF CF6-80C2B5F
747-400ERF CF6-80C2B5F
747-400ERF CF6-80C2B5F
747-400ERF CF6-80C2B5F
1012
1015
1055
1411
1481
1596
28414
32704
35256
35299
38886
38888
38889
41521
41522
24061
24066
24226
24975
25700
27044
33749
35233
35235
35236
35237
May-09
May-09
Oct-09
Apr-13
Jan-14
Jan-15
Financing
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Bank Financing
Unencumbered
May-98
Securitization No. 2
Apr-04
Mar-07
Oct-07
Unencumbered
Bank Financing
Bank Financing
Aug-12
Unencumbered
Oct-12
Unencumbered
Nov-12
Unencumbered
Oct-12
Bank Financing
Mar-13
Bank Financing
Mar-89
Securitization No. 2
Jun-90
Sep-90
Feb-91
Unencumbered
Unencumbered
Securitization No. 2
May-93
Unencumbered
Sep-94
Oct-04
Jan-07
Jul-07
Feb-08
Apr-08
Unencumbered
Unencumbered
Securitization No. 2
Securitization No. 2
Unencumbered
Unencumbered
CORPORATE INFORMATION
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
CORPORATE OFFICES
LEGAL COUNSEL
Ron Wainshal
Chief Executive Officer
Michael Inglese
Chief Financial Officer
Michael Kriedberg
Chief Commercial Officer
Aaron Dahlke
Chief Accounting Officer
Christopher Beers
General Counsel
1 Audit Committee
2 Compensation Committee
3 Nominating and Corporate
Governance Committee
c/o Aircastle Advisor LLC
300 First Stamford Place,
5th Floor
Stamford, CT 06902
203 504 1020
www.aircastle.com
TRANSFER AGENT
American Stock Transfer &
Trust Company
59 Maiden Lane
New York, NY 10038
800 937 5449
STOCK LISTING
NYSE: AYR
INDEPENDENT AUDITORS
Ernst & Young LLP
300 First Stamford Place
Stamford, CT 06902
Skadden, Arps, Slate,
Meagher & Flom LLP
Four Times Square
New York, NY 10036
212 735 3000
INVESTOR RELATIONS
CONTACTS
Frank Constantinople
Senior Vice President
Aircastle Advisor LLC
300 First Stamford Place,
5th Floor
Stamford, CT 06902
203 504 1063
ir@aircastle.com
The IGB Group
45 Broadway,
Suite 1150
New York, NY 10006
212 477 8438
NOTICE OF ANNUAL
MEETING
May 26, 2016, 10:00 a.m. EDT
Hyatt Regency Hotel
1800 East Putnam Avenue
Old Greenwich, CT 06870
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements included or incorporated by reference in this Annual Report on Form 10-K (this “report”), other than
characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws,
including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include,
but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise
capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA and Adjusted Net Income and
the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,”
“projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these
words and similar expressions are intended to identify such forward-looking statements. These statements are based
on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations
and are subject to a number of factors that could lead to actual results materially different from those described in
the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly,
you should not place undue reliance on any such forward-looking statements which are subject to certain risks and
uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.
These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with
the Securities and Exchange Commission (“SEC”), including as described in Item 1A, and elsewhere in this report. In
addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess
the impact of every factor that may cause its actual results to differ from those contained in any forward-looking
statements. Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims
any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
Peter V. Ueberroth 3
Chairman of the Board;
Chairman
Contrarian Group, Inc.
Ronald W. Allen 1
Director;
Former Chairman of
the Board, President and
Chief Executive Officer
Delta Air Lines, Inc.
Giovanni Bisignani 3
Director;
Former Director General and
CEO of the International Air
Transport Association
Michael J. Cave 1
Director;
Former Senior Vice President of
The Boeing Company
Douglas A. Hacker 1,2
Director;
Former Executive Vice President of
Strategy for UAL Corporation
Ryusuke Konto
Director;
Chairman of Marubeni
Aerospace Corporation
Yukihiko Matsumura
Director;
President and CEO of
Marubeni America Corporation
Ronald L. Merriman 1,2
Director;
Former Vice Chairman of KPMG
Agnes Mura 2,3
Director;
President
Agnes Mura, Inc.
Charles W. Pollard 2,3
Director;
Former Vice Chairman of
Omni Air International, Inc.
Gentaro Toya
Director;
Executive Vice President of
Marubeni America Corporation
Ron Wainshal
Director;
Chief Executive Officer
Aircastle Limited
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AIRCASTLE LIMITED : C/O AIRCASTLE ADVISOR LLC
300 First Stamford Place, 5th Floor, Stamford, CT 06902
203-504-1020 : www.aircastle.com