A N N U A L R E P O R T 2 0 17
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DEAR SHAREHOLDERS:
Aircastle enjoyed a profitable and highly successful 2017. Our
strong results were underpinned by the steady execution
of our business plan and continuous improvements to the
Company’s core earnings base which we strengthened
considerably over the past year. While market fundamentals
and yields increased the competition for aircraft, Aircastle’s
expertise, along with our nimble and flexible approach,
allowed us to successfully navigate rapidly changing markets.
We executed transactions which enhanced our portfolio,
generated significant gains on sales, and substantially
reduced the Company’s residual value risk.
The aircraft leasing business presents enormous growth
opportunities in a market that has significant capital needs in
both the near term and over the long run. Air traffic growth
was 7.6% in 2017, more than double the 3.6% global GDP
growth estimated by the International Monetary Fund.
Over the past few years, we have achieved considerable
success while navigating multiple challenges. The foundation
for this success has been, and continues to be, the platform
at the heart of our company. This platform strength emanates
from the quality, experience, and expertise of our people
across our core competencies of finance, legal, operational,
technical, and risk management.
The long-term investment thesis for Aircastle continues to
be strong: air travel demand is positively correlated to GDP
growth, which is currently expanding on a synchronized
global basis. Economic growth will drive increased aircraft
demand and our capital allocation approach is sensible and
balanced. We remain focused on growing in a disciplined
and profitable manner and have generated strong historical
returns for our shareholders.
The Year in Review
Our accomplishments in 2017 were significant as we worked
our way through a major and unexpected leadership
transition throughout which we continued to be laser-
focused on growing and streamlining the Company’s fleet
of aircraft, de-risking the portfolio and positioning Aircastle
for profitable growth in the coming years. Our financial
and operating results for the year underscore the top-to-
bottom strength of our organization and our ability to drive
significant change through the portfolio and generate strong
earnings in a competitive market. For the year, we reported
net income of $148 million or $1.87 per share, adjusted
net income of $170 million or $2.15 per share and adjusted
EBITDA of $802 million. Cash ROE was 15.0% and our
aircraft utilization averaged a very high 99.3%.
As an astute investor in commercial aircraft, our success
comes from focusing on more complex transactions that
require structuring agility, creativity, speed and executional
cer taint y for our market counterpar t s. Our deeply
experienced and talented team of professionals work hard
to create and maintain exceptionally close relationships
with airlines, aircraft lessors and other buyers and sellers
of commercial aircraft. Since the Company’s formation in
2004, we’ve acquired 430 aircraft for more than $14 billion,
while selling 206 aircraft for $4.9 billion and generating $286
million in gains on sale.
The depth of our team’s expertise and the reach of our
platform is truly unique. Investing in aircraft is a long-term
proposition, what we buy and sell is fluid, and our actions
reflect not only our current view of market conditions, but
also a highly developed understanding of the supply and
demand characteristics for select aircraft types many years
into the future.
In this year’s very competitive market, we acquired a record
68 current generation aircraft for $1.6 billion, and sold 37
aircraft, generating more than $55 million in gains during the
year. Our acquisition activity was highlighted by a transaction
with SMBC Leasing for 20 current generation narrow body
aircraft on lease with 13 geographically diverse airlines. This
transaction, along with our second 10 aircraft deal with
easyJet, resulted in our fleet count reaching a historic high
of 224 at year-end, 236 including managed aircraft. We now
have aircraft on lease with 81 lessees located in 43 countries
around the globe.
We also continue to substantially reduce risk across the fleet.
Our 2017 aircraft sales included four freighters, three wide-
bodies and our last six classics. We made great progress on
the lease placement side by selling or transitioning all but
four narrow-body aircraft that are scheduled to come off
lease in 2018. I am particularly pleased with our success in
placing seven wide-body aircraft, with leases which were
scheduled to expire in 2018 and 2019, on long-term leases
with good credits.
These moves, along with the steady and dramatic reduction
of our freighter exposure over the past several years, have
significantly strengthened our long-term earnings profile and
concurrently improved the overall quality of our fleet revenue
stream. That has made it possible for us to once again
increase our dividend by 8% in 2017, to $0.28 per share per
quarter. Since we became a public company in August 2006,
we have generated about $4.5 billion in operating cash flow
and have paid out approximately $790 million of dividends
to our shareholders.
Equally important is that we continued to maintain a
conservative capital structure in 2017 while improving our
balance sheet strength. In the first quarter, we issued $500
million of seven-year notes at a rate of 4.125%, our lowest
coupon ever. We finished the year with $212 million of
unrestricted cash, $635 million in available credit facilities
and a 2.2x net debt to equity ratio, all strong elements that
we believe are conducive to our quest to improve upon our
BB+ / Ba1 long-term credit ratings.
The Future
Looking ahead, we are very optimistic about the long-term
prospects for our business. We are very well positioned to
capitalize on the many opportunities that we will create
going forward. Air travel demand continues to grow at a
significant multiple to global GDP. There continues to be
robust demand for modern current-generation aircraft and
the global aircraft lessor community will continue to play a
major role in supporting the future growth of global aviation.
With modest forward capital commitments, a strong,
conservative balance sheet and steady access to capital,
Aircastle is well positioned to grow profitably. We improved
our portfolio and proactively manage the various facets
of risk in our business. We have the capabilities to act on
the many opportunities that will arise in the future. As we
grow profitably and increase our sustainable cash flow, it
remains our intention to share a portion of this growth with
our investors.
The key to our success is having the right people and the
right relationships. We have developed a deep pool of talent
at Aircastle and we are extremely fortunate to have a world-
class Board of Directors providing insight and guidance.
We’re optimistic about the future and would like to thank all
of our shareholders and funding providers for the trust and
confidence you have in us. We look forward to creating the
greatest possible value in Aircastle in the years ahead.
Sincerely,
Michael Inglese
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, 2017
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.)
c/o Aircastle Advisor LLC
201 Tresser Boulevard, Suite 400, Stamford, CT 06901
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (203) 504-1020
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Shares, par value $0.01 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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on June 30, 2017 (the last business
day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was approximately $1.04 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 8, 2018, there were 78,676,917 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
Proxy Statement for Aircastle Limited
2018 Annual General Meeting of Shareholders
Parts of Form 10-K into Which Portion
Of Documents Are Incorporated
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
Item 16. Form 10-K Summary
SIGNATURES
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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 “Annual 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 Annual 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 Annual
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, 201 Tresser Boulevard,
Suite 400, Stamford, Connecticut 06901.
The information on the Company’s website is not part of, or incorporated by reference, into this Annual 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 Annual Report to “Aircastle,” the “Company,” “we,” “us,”
or “our” refer to Aircastle Limited and its subsidiaries. References in this Annual Report to “Aircastle Bermuda” refer to
Aircastle Holding Corporation Limited and its subsidiaries. Throughout this Annual 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 Annual 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”).
Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. As of December 31, 2017,
we owned and managed on behalf of our joint ventures 236 aircraft leased to 81 lessees located in 43 countries. Our aircraft
are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are subject to net leases
whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance
costs. In many cases, however, we are obligated to pay a portion of specified maintenance or modification costs. As of
December 31, 2017, the net book value of our flight equipment (including flight equipment held for lease and net investment
in finance and sales-type leases, or “net book value”) was $6.73 billion compared to $6.51 billion at the end of 2016. Our
revenues and net income for the year ended December 31, 2017 were $796.6 million and $147.9 million, respectively, and
for the fourth quarter of 2017 were $177.4 million and $55.1 million, respectively.
Growth in commercial air traffic is broadly correlated with world economic activity. In recent years, commercial air
traffic growth has expanded at a rate 1.5 to 2 times that of global GDP growth. The expansion of air travel has driven a rise
in the world aircraft fleet. There are currently approximately 21,000 commercial mainline passenger and freighter aircraft
in operation worldwide. This fleet is expected to continue expanding at a three to four percent average annual rate over the
next twenty years. Aircraft leasing companies own approximately 42% of the world’s commercial jet aircraft.
Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject
to economic variability due to changes in macroeconomic variables, such as fuel price levels and foreign exchange rates.
The aviation industry is also 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 to 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 2017, global passenger traffic increased 7.6% compared to 2016. During 2017, air cargo
traffic increased 9.0% compared to 2016.
Demand for air travel varies considerably by region. Emerging market economies have generally been experiencing
greater increases in air traffic, driven by rising levels of per capita income. Air traffic growth is also being driven by the
proliferation of low cost carriers, which have stimulated demand through lower prices. Mature markets, such as North
America and Western Europe, are likely to grow more slowly in tandem with their economies. Airlines operating in areas
with political instability or weakening economies are under pressure, 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.
Fuel prices and interest rates have had a substantial effect on our industry. The price of oil dropped by $67 to $36 per
barrel in the four years prior to December 2015. This allowed airlines to reduce ticket prices and stimulate aircraft traffic
while retaining enough of this benefit to achieve record profit levels. A low interest rate environment and the strong overall
performance of the aircraft financing sector attracted significant new capital, increasing competition for new investments.
The downward trend in fuel prices and interest rates appears to have ended as fuel prices started rising in 2016. In 2017,
the price of fuel has averaged approximately $52 per barrel. Likewise, interest rates have started to rise in the U.S., with
Federal Reserve guidance suggesting multiple future rate hikes in the Federal Funds rate in 2018.
Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our
business. If pursued properly, this represents an important source of opportunity. Strong U.S. debt capital market conditions
benefit borrowers by permitting access to financing at historic lows while export credit agency (“ECA”) availability has
1
been curtailed, both in the U.S. and in Europe, due to political issues. Commercial bank debt continues to play a critical
role for aircraft finance, although we believe regulatory pressures may limit its role over time.
While financial market conditions remain attractive, geopolitical issues may increase capital costs and limit availability
going forward. We believe these market forces should generate attractive additional investment and trading opportunities
for which we are well placed to capitalize given our access to different financing sources, our limited capital commitments
and our reputation as a reliable trading partner. 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, so our acquisition targets and
growth rates will vary with market conditions. We prefer to have capital resources available to capture investment
opportunities that arise in the context of changing market circumstances. As such, we limit large, long-term capital
commitments and are therefore much less reliant on orders for new aircraft from aircraft manufacturers as a source of new
investments.
Competitive Strengths
We believe that the following competitive strengths will allow us to capitalize on future growth opportunities in the
global aviation industry:
• 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, 2017, our aircraft portfolio
consisted of 236 aircraft, comprising a variety of aircraft types leased to 81 lessees located in 43 countries and
lease expirations for our owned aircraft are well dispersed, with a weighted-average remaining lease term of
5.0 years. 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.
•
• Flexible, disciplined acquisition approach and broad investment sourcing network. Since our formation, we
have acquired 430 aircraft for approximately $14.0 billion. 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. 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 155 transactions with 88 counterparties.
Significant experience in successfully selling aircraft throughout their life cycle. Since our formation, we sold
206 aircraft for approximately $4.9 billion. These sales produced net gains of $286 million and involved a wide
range of aircraft types and buyers. Our team is adept at managing and executing the sale of aircraft. We sold
140 aircraft that were over fourteen years old at the time of sale; many of these being sold on a part-out disposition
basis, where the airframe and engines may be sold to various buyers. We believe our competence in selling older
aircraft is an essential portfolio management skill and one of the capabilities that sets us apart from many of our
larger competitors.
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 (“NYSE”) since 2006. Since our
inception in late 2004, we raised approximately $1.7 billion in equity capital from private and public investors.
Our largest shareholder is Marubeni Corporation (“Marubeni”), with whom we maintain a strong, strategic
relationship. We also obtained $13.4 billion in debt capital from a variety of sources including the unsecured
bond market, commercial banks, export credit agency-backed debt, and the aircraft securitization 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 business is currently financed under
debt financings with a weighted-average debt maturity of 3.5 years. We also have $635 million available from
unsecured revolving credit facilities that expire in 2019 and 2020, thereby limiting our near-term financial markets
exposure. Given our relatively limited future capital commitments, we have the resources to take advantage of
future investment opportunities. Our access to the unsecured bond market and our unsecured revolving lines of
credit, due to our large unencumbered asset base, allow us to pursue a flexible and opportunistic investment
2
strategy.
• Experienced management team with significant expertise. Each member of our management team has more
than twenty years of industry experience and we have expertise in the acquisition, leasing, financing, technical
management, restructuring/repossession and/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.
• 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
Aircraft owners have benefited from the low interest rate environment in recent years. Particularly strong conditions
in the debt capital markets have provided select borrowers, including Aircastle, access to attractively priced, flexible
financing. This provides us a competitive advantage over many airlines and lessors that lack similar access. Geopolitical
and macroeconomic events may increase the cost of capital and limit its availability in the future, which may provide more
attractive investment opportunities for Aircastle.
We plan to grow our business and profits over the long-term while maintaining a countercyclical orientation, a bias
towards limiting long-dated capital commitments and maintaining a conservative and flexible capital structure. Our business
strategy entails the following elements:
• Pursuing a disciplined and differentiated investment strategy. In our view, aircraft values change in different
ways over time. We carefully evaluate investments across different aircraft models, ages, lessees and acquisition
sources and re-evaluate these choices 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 provides us with a competitive advantage. We view orders from equipment manufacturers to be part of our
investment opportunity set, but choose to keep our long term capital commitments limited.
• Originating investments from many different sources across the globe. Our strategy is to seek out worthwhile
investments by leveraging our team’s wide range of contacts. 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
88 different sellers.
Selling assets when attractive opportunities arise. We sell assets with the aim of realizing profits and reinvesting
proceeds when a sale generates the greatest expected cash flow or when 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.
•
• Maintaining efficient access to capital from a wide set of sources while targeting an investment grade credit
rating. We believe the aircraft investment market is influenced by the business cycle. 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 important to maintain access to a wide variety of financing sources.
Our objective 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.
• Leveraging our strategic relationships. We intend to capture the benefits provided through the extensive global
contacts and relationships maintained by Marubeni, which is our biggest shareholder and one of the largest
Japanese trading companies. Marubeni has enabled greater access to Japanese-based financing and helped source
and develop our joint venture with the leasing arm of the Industrial Bank of Japan, Limited (“IBJL”). We also
have a joint venture (“Lancaster”) with Ontario Teachers' Pension Plan (“Teachers'”), currently our second largest
shareholder.
• 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 places us in a favorable position to source and manage
3
•
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 31, 2017, our
Board of Directors declared a regular quarterly dividend of $0.28 per common share, or an aggregate of $22.0
million for the three months ended December 31, 2017, which was paid on December 15, 2017 to holders of
record on November 30, 2017. 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 Annual Report.
Declaration Date
Dividend
per Common
Share
Aggregate
Dividend
Amount
(Dollars in thousands)
Record Date
Payment Date
October 31, 2017
August 4, 2017
May 2, 2017
February 9, 2017
October 28, 2016
August 2, 2016
May 2, 2016
February 9, 2016
October 30, 2015
August 4, 2015
May 4, 2015
February 17, 2015
$
$
$
$
$
$
$
$
$
$
$
$
0.28
0.26
0.26
0.26
0.26
0.24
0.24
0.24
0.24
0.22
0.22
0.22
$
$
$
$
$
$
$
$
$
$
$
$
22,039
20,464
20,482
20,466
20,434
18,872
18,915
18,915
19,377
17,860
17,863
17,860
November 30, 2017
December 15, 2017
August 31, 2017
September 15, 2017
May 31, 2017
June 15, 2017
February 28, 2017
March 15, 2017
November 29, 2016
December 15, 2016
August 26, 2016
September 15, 2016
May 31, 2016
June 15, 2016
February 29, 2016
March 15, 2016
November 30, 2015
December 15, 2015
August 31, 2015
September 15, 2015
May 29, 2015
March 6, 2015
June 15, 2015
March 13, 2015
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 globally through multiple
channels provides for a broad and relatively consistent set of opportunities.
Our objective is to develop and maintain a diverse operating lease portfolio. We review our operating lease portfolio
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 acquisition 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, finance
and legal professionals. These teams consider a variety of aspects before we commit to purchase or sell an aircraft, including
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. We believe
that utilizing a cross-functional team of experts to consider investment parameters helps us assess more completely the
4
overall risk and return profile of potential acquisitions and helps us move forward expeditiously on letters of intent and
acquisition documentation.
Finance
We believe that cash on hand, payments received from lessees and other funds generated from operations, unsecured
borrowings, borrowings from our revolving credit facilities, secured borrowings for aircraft, 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. 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 “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 an airline's fleet flexibility, requires lower capital
commitments, and significantly reduces aircraft residual value risks for the airline. Under an operating lease, 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, 2017, our four largest customers, Lion Air, Avianca Brazil, LATAM Airlines Group and
South African Airways, accounted for 7%, 7%, 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 8, 2018:
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Sale
Agreement
A319/A320/A321
A330-200/300
737-700/800/900ER
2
—
2
10
2
10
17
1
10
23
5
7
10
1
16
17
17
1
6
3
5
777-200ER/300ER
— — — — —
1 —
1
2
4
2
2
2
2
2
2
2 —
4 — —
3 —
3
1 — —
E195
Freighters
Total
— — — — —
— — — — —
3
1
2 — — — — —
1 — — —
1 —
4
22
28
35
27
29
28
9
8
10
3
3
14
—
2
1
—
1
18
Total
117
21
70
7
5
4
224
2018 Lease Expirations and Lease Placements
We began 2018 with eight aircraft having scheduled lease expirations in 2018 and one off-lease aircraft. As of February
8, 2018, we have agreements to lease four and to sell one of these aircraft. The remaining four aircraft, which account for
1.3% of our net book value at December 31, 2017, represent our best estimate for the aircraft which we will need to place
on lease or sell this year.
5
2019-2022 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 2019-2022, representing the percentage of our net book value at December 31, 2017,
specified below:
• 2019: 22 aircraft, representing 8%;
• 2020: 28 aircraft, representing 9%;
• 2021: 35 aircraft, representing 13%; and
• 2022: 27 aircraft, representing 10%.
Lease Payments and Security. Each of our leases requires the lessee to pay periodic rentals during the lease term. As
of December 31, 2017, rentals on more than 93% 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. Virtually all lease rentals are payable monthly 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
normally include maintenance, overhaul, fuel, crew, landing, airport and navigation charges, certain taxes, licenses, consents
and approvals, aircraft registration and insurance premiums. Typically, 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 a single maintenance
payment at the end of the lease term, or 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 following completion of the relevant work. If a lease requires an
end of lease term maintenance payment, typically the lessee would be required to pay us for its utilization of the aircraft
during the lease. In some cases, however, we may owe a net payment to the lessee in the event heavy maintenance is
performed 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
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 a 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;
6
•
•
•
aircraft type concentrations;
portfolio credit quality distribution; and
lease maturity distribution.
We have a risk management team which undertakes detailed 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 deployment, sale or part-out, 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 may 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
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 source and service investments for Lancaster and IBJ Air and provide marketing, asset management and
administrative services to them. We are paid market based fees for these services, which are recorded in Other revenue in
our Consolidated Statements of Income.
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 many sources, ranging from large established aircraft leasing
companies to smaller players and new entrants. Competition has increased across most asset types and has drawn many new
investors to our business.
Larger lessors are generally more focused on acquiring new aircraft via purchase and lease-back transactions with
airlines and through direct orders with the original equipment manufacturers. These larger lessors include GE Capital
Aviation Services, AerCap Holdings, Air Lease Corporation, Aviation Capital Group, SMBC Aviation Capital, BOC Aviation
and Avolon Holdings/Bohai Leasing. In addition, several major Asian financial institutions' leasing subsidiaries are
aggressively pursuing business, including Industrial and Commercial Bank of China (“ICBC”) and China Development
Bank (“CDB”). In August 2017, Dubai Aerospace Enterprise completed its acquisition of AWAS and in December 2017,
Tokyo Century Corporation, part of the Mizuho Group, acquired a 20% interest in Aviation Capital Group.
Competition for mid-aged and older aircraft typically comes from other competitors 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 other 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, user base, 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
7
and aircraft types.
Some of our competitors have, or may obtain, greater financial resources 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 to unsecured debt
provides us with a competitive advantage in pursuing investments quickly and reliably and in acquiring aircraft in situations
where it may be more difficult to finance on a secured, non-recourse basis.
Employees
As of December 31, 2017, we had 111 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
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. In July 2016, the U.S. Environmental Protection Agency (“EPA”) determined that Greenhouse Gas (“GHG”)
emissions from certain aircraft engines contribute to the pollution that causes climate change and endangers the public's
health and the environment. The findings are for carbon dioxide (“CO2”), methane, nitrous oxide, hydrofluorocarbons,
perfluorocarbons, and sulfur hexafluoride. At that time, the EPA indicated its intention to promulgate new rules to adopt
GHG standards promulgated by the International Civil Aviation Organization (“ICAO”). In October 2016, ICAO adopted
a global market-based measure to control CO2 emissions from international aviation. The pilot phase of this measure will
begin in 2021, and the mandatory phase begins in 2027. In June 2017, the United States indicated that it is reviewing whether
it will remain fully committed to the ICAO rules. No firm date for conclusion of this review has been announced. In
addition, European countries generally have strict environmental regulations, and, in particular, the European Union (“E.U.”)
8
has included flights originating or landing in the E.U. in the European Emissions Trading Scheme (“ETS”). 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.
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, 2017 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 Annual 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
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, including pilot shortages;
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;
changing political conditions, including risk of rising protectionism, restrictions on immigration or imposition of
new trade barriers;
cyber risk, including information hacking, viruses and malware; 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.
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 availability and pricing of capital in the commercial bank market and in the unsecured bond market remain
susceptible to global events, including, for example, political changes in the U.S. and abroad, rising interest rates, a fluctuating
dollar, the rate of international economic growth and implications from changes 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.
10
We bear the risk of re-leasing and selling our aircraft.
We bear the risk of re-leasing and selling or otherwise disposing of our aircraft in order to continue to generate income.
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 fully realize our investment in our aircraft and that may increase the likelihood
of impairment charges include credit deterioration of a lessee, declines in rental rates, residual value risk, higher fuel prices
which may reduce demand for older, less fuel efficient aircraft, additional environmental regulations, age restrictions,
customer preferences and other factors that may effectively shorten the useful life of older aircraft.
We own and lease long-lived assets and have written down the value of some of our assets in prior years, and if market
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 a fleet-wide recoverability
assessment annually. 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 from information received from third party sources.
If anticipated aircraft lease cash flows or sales values worsen due to a decline in market conditions, or if a lessee
defaults, we may have to reassess the carrying value of one or more of our aircraft. 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. We monitor our fleet for aircraft that are
more susceptible to failing our recoverability assessments within one year due to their sensitivity to changes in contractual
cash flows, future cash flow estimates and aircraft residual or scrap values. As of December 31, 2017, no aircraft were on
our monitoring list.
Our financial reporting for lease revenue may be significantly impacted by a proposed new model for lease accounting.
On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification
(“ASC”) 842, Leases (“ASC 842”), which replaced the existing guidance in ASC 840, Leases (“ASC 840”). The accounting
for leases by lessors basically remained unchanged from the concepts that existed in ASC 840 accounting. The FASB 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. The standard will be effective for reporting periods
beginning after December 15, 2018. The standard is to be applied on a “modified retrospective” basis with a proposed
practical expedient. We plan to adopt the standard on its required effective date of January 1, 2019 and are evaluating the
transition method to use. We are also evaluating the impact that ASC 842 will have on our consolidated financial statements
and related disclosures. Although we do not believe that the adoption of the standard will significantly impact our existing
or potential lessees' economic decisions to lease aircraft, the ultimate impact on our potential lessees remains uncertain.
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.
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 make it more
difficult or costly for us to raise debt financing in the unsecured bond market, or may result in higher pricing or less favorable
terms under other financings. Credit rating downgrades may make it more difficult and/or more costly to satisfy our funding
requirements. In addition, any future tightening or regulation of financial institutions (such as BASEL 4), including increasing
capital reserves, could impact our ability to raise funds in the commercial bank loan market in the future.
11
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.
The Company seeks to retain a pipeline of senior management personnel with superior talent to provide continuity of
succession, including for the Chief Executive Officer position and other senior positions. In addition, our Board of Directors
is involved in succession planning, including review of short- and long-term succession plans for the Chief Executive Officer
and other senior positions. Our future success depends, to a significant extent, upon the continued service of our senior
management personnel, including the Chief Executive Officer and his potential successors, 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 31, 2017, our Board of Directors declared a regular quarterly dividend of $0.28 per common share, or an
aggregate of approximately $22.0 million, which was paid on December 15, 2017 to holders of record on November 30,
2017. 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 choose to not 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.
As of December 31, 2017, our total indebtedness was approximately $4.3 billion, representing approximately 69.3%
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:
•
21% of our net book value serves 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;
12
•
•
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.
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.
•
Senior Notes. Our senior notes indentures impose 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.
• ECA Financings. Our ECA 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 secured bank financings contain, among other customary provisions, a $500 million
minimum net worth covenant, a cross-default to certain other financings of the Company, and for one portfolio
financing, a minimum debt service coverage ratio of 1.15.
• Unsecured Revolving Credit Facilities and Loan. Our unsecured revolving credit facilities/loan contain $750
million minimum net worth covenants, minimum unencumbered asset ratios, minimum interest coverage ratios
and cross-defaults 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.
General Data Protection Regulation (“GDPR”) takes effect on May 25, 2018, requiring us to protect the privacy of
certain personal data of EU citizens. While we expect to implement processes and controls to timely comply with GDPR
requirements, the manner in which the EU will interpret and enforce certain provisions remains unclear and we could incur
significant fines of up to 4% of worldwide revenue, individual damages and reputational risks if our controls and processes
are ineffective and we fail to comply.
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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, suppliers 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 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, our resources and technical sophistication may not be adequate
to prevent all types of cyber-attacks that could lead to the payment of fraudulent claims, loss of sensitive information,
including our own proprietary information or that of our customers, suppliers 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. 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;
tariffs and other restrictions on trade;
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.
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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:
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, the Airbus
A350, the Bombardier C Series 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. The first variant of the Airbus A350 entered
service in December 2014. The Airbus A320neo and the Bombardier C Series entered service in 2016. The Boeing 737
MAX family of aircraft entered service in 2017. The first deliveries for the Airbus A330neo and Embraer’s second generation
of E-Jets, the E2 family, are expected to begin in 2018. Further, Commercial Aircraft Corporation of China Ltd., Mitsubishi
and Russia's United Aircraft Corporation 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, our ability to lease or sell our aircraft on favorable terms, or at all, or
result in us recording future impairment charges.
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. 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 noise restrictions, the U.S. and other jurisdictions have imposed limits on aircraft engine emissions, such
as NOx, CO and CO2, consistent with current ICAO standards. European countries have relatively strict environmental
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regulations that can restrict operational flexibility and decrease aircraft productivity. The E.U. has included the aviation
sector in its emissions trading scheme (“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. suspended the ETS for flights from or to non-
European countries in 2013, and in December 2017 further extended that suspension until December 2023. Finally, ICAO
has also adopted a resolution developing a global market-based measure to control CO2 emission from international aviation,
which begins in 2021. As noted above, the U.S. EPA announced in 2016 its intent to promulgate and adopt a rule to incorporate
these new standards into domestic law, although that decision is now under review.
Additionally, in 2015, over 190 countries, including the United States, reached an agreement to reduce global GHG
emissions at the United Nations Framework Convention on Climate. The agreement does not expressly reference aviation,
but if the agreement is implemented in the United States and other countries there could be an adverse direct or indirect
effect on the aviation industry as a whole. On June 1, 2017 the United States announced that it intends to withdraw from
the 2015 agreement. That withdrawal cannot be given officially until November 4, 2019 and would be effective November
4, 2020.
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 older 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.
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, lower investment return expectations or different
risk or residual value assessments, which could allow them to consider a wider variety of investments, establish more
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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 continue to see lessors and airlines starting to manage the transition from current to
newer technology and younger aircraft. 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.
Risks Related to our Order of New Embraer E-Jet E2 Aircraft
We have lease commitments for three of the 25 Embraer E-Jet E2 aircraft that we contracted to purchase from Embraer
and are scheduled for delivery between the second quarter of 2019 and 2021. We do not yet have lease commitments for
the remaining deliveries nor have we put financing in place for any of the Embraer E-Jet E2 aircraft deliveries. 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 commitments for the remaining deliveries or
the necessary financing, if needed, 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 contractual 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 not yet certified; however, it is now
in production. Embraer expects to certify the aircraft in time for the first anticipated delivery in 2018. The Embraer E-Jet
E2 aircraft will incorporate a modified version of the recently introduced Pratt & Whitney geared turbofan engine, which
is now 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. In November 2017, Airbus and Bombardier announced a
partnership for the C-series aircraft, which competes with the E-Jet E2, and Boeing and Embraer entered into discussions
about a possible combination. 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.
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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
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. 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.
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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 more vulnerable to economic and
political problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil
disturbances, 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, 2017, 51 of our lessees, which operated 143 aircraft and generated
70% 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. A
default, delay or deferral of payments from a lessee where we have a significant exposure or concentration risk could have
a materially adverse impact on our revenue and cash flows. 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.
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 requests for payment restructuring or rescheduling are made
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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
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, particularly involving lessees where we have
significant exposure or concentration risk, 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. A default and exercise of remedies involving a lessee
where we have a significant exposure or concentration risk could have a materially adverse impact on our future revenue
and cash flows.
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. Currency volatility,
particularly in 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.
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
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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.
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, 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.
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
Thirty-three lessees in Europe accounted for 92 aircraft, totaling 32% of the net book value of our aircraft at
December 31, 2017. Commercial airlines in Europe continue to face increased competitive pressures due to the expansion
of low cost carriers, industry consolidation and airlines in the Middle East.
Asian Concentration
Twenty-three lessees in Asia accounted for 59 aircraft totaling, 30% of the net book value of our aircraft at December 31,
2017. 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. Eight lessees in southeast Asia accounted for 25
aircraft, totaling 15% of the net book value of our aircraft at December 31, 2017.
North American Concentration
Ten lessees in North America accounted for 32 aircraft, totaling 10% of the net book value of our aircraft at December 31,
2017. Consolidation among major airlines in the U.S. has helped drive capacity discipline and pricing power.
South American Concentration
Seven lessees in South America accounted for 25 aircraft, totaling 19% of the net book value of our aircraft at
December 31, 2017. Two lessees in Brazil accounted for fourteen aircraft, totaling 8% of the net book value of our aircraft
at December 31, 2017.
Middle East and African Concentration
Eight lessees in the Middle East and Africa accounted for fifteen aircraft totaling 9% of the net book value of our
aircraft at December 31, 2017. Middle Eastern lessees, particularly Gulf-based carriers, have a large number of aircraft on
order to capitalize on the region’s favorable geographic position as an East-West transfer hub.
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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.
Due to the competitive nature of the airline industry, airlines may 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.
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. Terrorist incidents, the situations in the Middle East and other international tensions,
such as with North Korea, 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.
Economic conditions and regulatory changes resulting from the United Kingdom’s (“U.K.”) possible exit from the E.U.
could have an adverse effect on our business.
In June 2016, voters in the U.K. approved a referendum to exit from the E.U., known as Brexit. The effects of Brexit
on us will depend on the resulting agreements regarding trade and travel made between the U.K. and the E.U.
Brexit could result in adverse consequences, such as instability in financial markets, deterioration in economic
conditions, volatility in currency exchange rates or adverse impact to air travel and the air freight market. These impacts
may negatively impact the airline and finance industries and may have an adverse effect on our ability to borrow, the financial
condition 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.
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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.
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, passengers may voluntarily choose to reduce
travel. There have been several outbreaks of epidemic diseases which have spread to other parts of the world, 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 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 8, 2018, Marubeni owns 21,605,347 shares, or 27.5% 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
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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.
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
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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).
Our joint ventures may have an adverse effect on our business.
Our joint ventures involve 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 ventures may divert management’s attention
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from our business;
our joint venture partners could have investment goals that are not consistent with our investment objectives,
including the timing, terms and strategies for any investments;
our joint venture partners might fail to fund their share of required capital contributions or fail to fulfill their
obligations as a joint venture partner; and
our joint venture partners may have competing interests in our markets that could create conflict of interest issues,
particularly if aircraft owned by the joint ventures 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 8, 2018, 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;
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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.
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 additional 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 8, 2018, there were 78,676,917 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 37.5% 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 27.5% of our outstanding common shares. Beginning in July 2016, pursuant
to 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. We cannot assure you if or when any such registration or offering may occur.
The issuance of additional common shares in connection with acquisitions or otherwise will dilute all other shareholdings.
As of February 8, 2018, we had an aggregate of 149,656,905 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.
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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% for taxable years ending on or prior to December 31, 2017 and 21% for taxable years
beginning after December 31, 2017 (such rate, the “Federal Rate”). Such reduction in the Federal Rate occurred as a result
of the recent passage of The Tax Cuts and Jobs Act on December 22, 2017 (the “Tax Act”). In addition, Aircastle 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.
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 the Federal Rate 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
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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 non-trading income activities of our Irish subsidiaries and affiliates
would be subject to tax at the rate of 25% and capital gains would be taxed at the rate of 35%, which would adversely
affect our business and would result in decreased earnings available for distribution to our shareholders.
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. Our Singapore subsidiaries had obtained a reduced rate of tax from the Singapore authorities through June 30,
2017. Beginning on July 1, 2017 and effective to June 30, 2022, the Singapore authorities renewed the reduced rate of tax
to our Singapore subsidiaries, provided we satisfy certain conditions and requirements. If we cannot meet such conditions
and requirements, or if the award is not renewed after June 30, 2022, 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.
In addition, the Organization for Economic Co-operation and Development has undertaken the Base Erosion and Profit
Shifting (“BEPS”) project, which aims to restructure the taxation scheme currently affecting multinational entities. If the
proposals recommended under BEPS are implemented, the tax rules to which we are subject may increase our liability for
non-U.S. taxes.
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.
28
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.
Impact of U.S. Tax Reform
We have evaluated the effect that the Tax Act will have on our operations and cash flows. As a non-U.S. company
that earns a majority of its income outside of the United States, the Tax Act reduced our U.S. deferred taxes by $2.8 million.
We also do not expect to incur income taxes on future distributions of undistributed earnings on non-U.S. subsidiaries
and accordingly, no deferred income taxes have been provided for the distributions of such earnings. The Tax Act's
Participation exemption and Transition tax are not applicable to us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
During the fourth quarter of 2017, we moved to a new corporate location in Stamford, Connecticut. The lease for this
new location expires in August 2028. We continue to lease our previous Stamford location and this lease expires in December
2019. We also lease office space in Dublin, Ireland and in Singapore for our operations in Europe and Asia. The lease for
our Irish office expires in June 2026 and the lease for our Singapore office expires in July 2019.
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 8, 2018:
Michael Inglese, 56, became our Chief Executive Officer and a member of our Board in June 2017, having served as
our Acting Chief Executive Officer from January 2017. He was previously our Chief Financial Officer from 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 B.S. in Mechanical Engineering from
Rutgers University College of Engineering and his MBA from Rutgers Graduate School of Business Management.
29
Aaron Dahlke, 49, became our Chief Financial Officer in June 2017. Prior to that, he was our Chief Accounting Officer
from June 2005. Prior to joining the Company, 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.
Michael Kriedberg, 56, 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 B.S. in
Economics from SUNY Albany and a Master’s degree in Accounting from Pace University.
Christopher L. Beers, 53, became our General Counsel in November 2014. Prior to joining the Company, 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 B.S. in Economics from Arizona State University and a J.D. from Pace Law School.
Joseph Schreiner, 60, became our Executive Vice President, Technical in October 2004. Prior to joining the Company,
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 nineteen years at Boeing (McDonnell-Douglas)
in various technical management positions. Mr. Schreiner received a B.S. from the University of Illinois and an MBA from
Pepperdine University.
Roy Chandran, 54, became our Executive Vice President, Corporate Finance and Strategy in June 2017. He previously
served as Executive Vice President of Capital Markets from May 2008. Prior to joining the Company, Mr. Chandran was a
Director at Citi in the Global Structured Solutions Group, having originally joined Salomon Brothers in 1997. Mr. Chandran
is responsible for all of the Company’s fundraising activities and strategy and has extensive experience in US and international
capital markets. Before 1997, Mr. Chandran spent eight years in Hong Kong focusing on tax-based cross border leasing of
transportation equipment for clients in the Asia Pacific region. Mr. Chandran holds a B.S. in Chemical Engineering from
the Royal Melbourne Institute of Technology, Australia and obtained his MBA from the International Institute of Management
Development (“IMD”), Switzerland.
Jose Maronilla, Jr., 54, became our Chief Accounting Officer in September 2017. Prior to joining the Company, Mr.
Maronilla served as SVP Finance and Assistant Global Controller at Convergex, a global brokerage and trading-related
services provider, and previously held senior treasury and controllership positions at GE Capital for nearly a decade. Mr.
Maronilla holds a B.S. in Economics from the University of Pennsylvania's Wharton Business School and an MBA from
the University of Michigan Business School.
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 NYSE under the symbol “AYR.” As of January 16, 2018, there were
27,442 record holders of our common shares.
The following table sets forth the quarterly high and low prices of our common shares on the NYSE for the periods
indicated since our initial public offering and dividends during such periods:
Year Ended December 31, 2017:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Dividends
Declared
per
Share ($)
$
$
$
$
$
$
$
$
25.98
24.24
24.75
24.99
22.49
22.74
22.95
22.99
$
$
$
$
$
$
$
$
20.71
20.86
20.84
22.05
15.06
18.82
18.56
18.26
$
$
$
$
$
$
$
$
0.260
0.260
0.260
0.280
0.240
0.240
0.240
0.260
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 senior notes and 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
In February 2016, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common
shares. During the fourth quarter of 2017, 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(1)
(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(1)
— $
—
—
— $
—
—
—
—
— $
—
—
— $
95,888
95,888
95,888
95,888
Period
October 1 through 31
November 1 through 30
December 1 through 31
Total
______________
(1) Under our current repurchase program, we have purchased an aggregate of 217,574 common shares at an aggregate cost of $4.1 million, including commissions.
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 Midcap 400 Index and a customized peer group over the five year period ended
December 31, 2017. 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 Midcap 400 Index and in the peer group on December 31, 2012, and the
relative performance of each is tracked through December 31, 2017. 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 and as such, we utilize the S&P Midcap 400 Index as one of
the metrics for our performance share-based compensation as part of our long-term incentive plan.
32
* $100 invested on December 31, 2012 in stock or index, including reinvestment of dividends.
Aircastle Limited
S&P Midcap 400
Peer Group
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
$ 100.00
$ 159.59
$ 185.80
$ 189.18
$ 197.74
$ 232.20
100.00
100.00
133.50
196.72
146.54
204.27
143.35
219.39
173.08
215.70
201.20
279.64
33
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial, operating and other data as of December 31, 2017 and 2016 and for
each of the three years in the period ended December 31, 2017 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, 2014 and 2013 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 per share
Earnings per common share — Diluted:
Net income per share
Cash dividends declared per share
Other Operating Data:
EBITDA
Adjusted EBITDA
Adjusted net income
Year Ended December 31,
2017
2016
2015
2014
2013
(Dollars in thousands, except share data)
$ 721,302
$ 725,220
$ 733,417
$
714,654
$
644,929
796,620
73,604
298,664
241,231
147,874
772,958
61,872
305,216
255,660
151,453
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
$
$
$
1.88
1.87
1.06
$
$
$
1.92
1.92
0.98
$
$
$
1.50
1.50
0.90
$
$
$
1.25
1.25
0.82
$
$
$
0.40
0.40
0.695
$ 705,525
$ 734,989
$ 707,524
$
658,606
$
600,088
801,584
169,566
767,953
168,527
832,105
142,271
792,283
167,642
717,209
59,260
Consolidated Statements of Cash Flows:
Cash flows provided by operations
Cash flows used in investing activities
Cash flows provided by (used in) financing activities
Consolidated Balance Sheet Data:
Cash and cash equivalents
Flight equipment held for lease, net of accumulated
depreciation
$ 490,871
$ 468,092
$ 526,285
$
458,786
$
424,037
(517,107)
(248,724)
(663,155)
(847,662)
449,839
306,878
(861,602)
(106,030)
(682,933)
306,123
$ 211,922
$ 455,579
$ 155,904
$
169,656
$
654,613
6,188,469
6,247,585
5,867,062
5,579,718
5,044,410
Net investment in finance and sales-type leases
545,750
260,853
201,211
106,651
145,173
Total assets
7,199,083
7,244,665
6,569,964
6,175,146
6,199,429
Borrowings from secured and unsecured financings, net of
debt issuance costs
Shareholders’ equity
Other Data:
4,313,606
4,506,245
1,907,564
1,834,314
4,041,156
1,779,500
3,744,587
1,720,335
3,684,897
1,645,407
Number of aircraft owned and managed on behalf of our
joint ventures (at the end of period)
Total debt to total capitalization
Total unencumbered assets
236
69.3%
206
71.1%
167
69.4%
152
68.5%
162
69.1%
$ 5,558,294
$5,069,955
$ 4,084,134
$ 3,510,588
$ 3,309,821
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, 2017, 2016, 2015, 2014 and 2013.
Net income
Depreciation
Amortization of lease premiums, discounts and incentives
Interest, net
Income tax provision
EBITDA
Adjustments:
Impairment of aircraft
Loss on extinguishment of debt
Non-cash share-based payment expense
(Gain) loss on mark-to-market of interest rate derivative contracts
Year Ended December 31,
2017
2016
2015
2014
2013
(Dollars in thousands)
$ 147,874
$ 151,453
$ 121,729
$ 100,828
$
29,781
298,664
11,714
241,231
6,042
305,216
10,353
255,660
12,307
318,783
10,664
243,577
12,771
299,365
6,172
238,378
13,863
284,924
32,411
243,757
9,215
705,525
$ 734,989
$ 707,524
$ 658,606
$ 600,088
80,430
28,585
119,835
—
13,148
2,481
—
7,901
(3,522)
—
5,537
(791)
93,993
36,570
4,244
(1,130)
117,306
—
4,569
(4,754)
Adjusted EBITDA
$ 801,584
$ 767,953
$ 832,105
$ 792,283
$ 717,209
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, changes related to
refinancing activity and non-cash share-based payment expense.
For additional information regarding the limitations of these non-GAAP measures, see “Limitations of EBITDA,
Adjusted EBITDA and ANI” below.
35
The table below shows the reconciliation of net income to ANI for the years ended December 31, 2017, 2016, 2015,
2014 and 2013.
Year Ended December 31,
2017
2016
2015
2014
2013
(Dollars in thousands)
Net income
$ 147,874
$ 151,453
$ 121,729
$ 100,828
$
29,781
Loss on extinguishment of debt(2)
Ineffective portion and termination of cash flow hedges(1)
(Gain) loss 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)
—
—
2,481
2,058
4,005
13,148
—
—
—
—
—
455
36,570
660
(3,522)
(791)
(1,130)
4,960
2,880
7,901
—
4,855
—
—
5,537
4,401
10,940
—
—
4,244
14,854
11,616
—
2,393
(4,754)
2,954
3,975
4,569
17,843
2,499
Adjusted net income
_____________
(1)
(2)
(3)
Included in Interest, net.
Included in Other income (expense).
Included in Selling, general and administrative expenses.
$ 169,566
$ 168,527
$ 142,271
$ 167,642
$
59,260
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 Annual 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 Annual 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 Annual Report has also been prepared in accordance with U.S. GAAP. Unless
otherwise indicated, all references to “dollars” and “$” in this Annual Report are to, and all monetary amounts in this Annual
Report are presented in, U.S. dollars.
OVERVIEW
Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. As of December 31, 2017,
we owned and managed on behalf of our joint ventures 236 aircraft that were leased to 81 lessees located in 43 countries.
Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are subject
to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance
and insurance costs, although in certain cases, we are obligated to pay a portion of specified maintenance or modification
costs. As of December 31, 2017, the net book value was $6.73 billion compared to $6.51 billion at the end of 2016. Our
revenues and net income for the year ended December 31, 2017 were $796.6 million and $147.9 million respectively, and
for the fourth quarter 2017 were $177.4 million and $55.1 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 creditworthiness of our lessees and the occurrence of 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
37
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.
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, SG&A 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 obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection
Act 1966 that, in the event 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.
Acquisitions and Sales
During 2017, we acquired 68 aircraft for $1.56 billion. As of February 8, 2018, we have not acquired any aircraft.
At December 31, 2017, we had commitments to acquire 37 aircraft for $1.45 billion, including 25 new Embraer E-Jet E2
aircraft from Embraer, with delivery beginning in 2019. These amounts include estimated amounts for pre-delivery deposits,
contractual price escalations and other adjustments. As of February 8, 2018, we have commitments to acquire 41 aircraft
for $1.59 billion.
During 2017, we sold 37 aircraft and other flight equipment for $833.6 million, which resulted in a net gain of $55.2
million. As of February 8, 2018, we have sold two aircraft.
38
The following table sets forth certain information with respect to the aircraft owned and managed on behalf of our
joint ventures by us as of December 31, 2017, 2016 and 2015:
AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)
Owned Aircraft
Flight Equipment Held for Lease
Unencumbered Flight Equipment included in Flight Equipment Held for Lease
Number of Aircraft
Number of Unencumbered Aircraft
Number of Lessees
Number of Countries
Weighted Average Age (years)(2)
Weighted Average Remaining Lease Term (years)(2)
Weighted Average Fleet Utilization during the Fourth Quarter(3)
Weighted Average Fleet Utilization for the Year Ended(3)
Portfolio Yield for the Fourth Quarter(4)
Portfolio Yield for the Year Ended(4)
Managed Aircraft on behalf of Joint Ventures
Flight Equipment
Number of Aircraft
____________
As of
December 31,
2017(1)
As of
December 31,
2016(1)
As of
December 31,
2015(1)
$
$
6,734
5,346
$
$
6,508
4,614
$
$
6,068
3,928
224
195
81
43
9.1
5.0
99.5%
99.3%
12.0%
12.2%
193
156
71
36
7.9
5.1
99.0%
98.9%
12.4%
12.4%
162
118
53
34
7.5
5.9
99.7%
99.3%
12.6%
12.7%
$
$
641
12
$
689
13
484
5
(1) Calculated using net book value at period end.
(2) Weighted by net book value.
(3) Aircraft on-lease days as a percent of total days in period weighted by net book value.
(4) Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average
net book value for the period; quarterly information is annualized.
Our owned aircraft portfolio as of December 31, 2017 is listed in Exhibit 99.1 to this Annual Report.
39
PORTFOLIO DIVERSIFICATION
Aircraft Type
Passenger:
Narrow-body
Wide-body
Total Passenger
Freighter
Total
Manufacturer
Airbus
Boeing
Embraer
Total
Regional Diversification
Asia and Pacific
Europe
Middle East and Africa
North America
South America
Off-lease
Total
_______________
Owned Aircraft as of
December 31, 2017
Owned Aircraft as of
December 31, 2016
Number of
Aircraft
% of Net
Book Value(1)
Number of
Aircraft
% of Net
Book Value(1)
192
28
220
4
224
138
81
5
224
59
92
15
32
25
1 (2)
224
66%
29%
95%
5%
100%
57%
41%
2%
100%
30%
32%
9%
10%
19%
—%
100%
155
30
185
8
193
103
85
5
193
61
66
14
26
23
3 (3)
193
56%
36%
92%
8%
100%
51%
47%
2%
100%
38%
23%
11%
8%
18%
2%
100%
(1) Calculated using net book value at year end.
(2) Consisted of one Airbus A321-200 aircraft, which is subject to a commitment to lease.
(3) Consisted of one Airbus A330-200 aircraft, which was delivered on lease to a customer in February 2017, and two Airbus A321-200 aircraft that were delivered
to a customer in Europe in the second quarter of 2017.
40
Our largest single customer represents over 6% of the net book value at December 31, 2017. Our top fifteen customers
for aircraft we owned at December 31, 2017, representing 110 aircraft and 55% of the net book value, 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
TAP Portugal(1)
South African Airways
easyJet
Iberia
Aerolineas Argentina
AirBridge Cargo(2)
Ural
Interjet
Air Asia X
Jet Airways
IndiGo
Asiana Airlines
Total top 15 customers
All other customers
Total all customers
Country
Brazil
Chile
Indonesia
Portugal
South Africa
United Kingdom
Spain
Argentina
Russia
Russia
Mexico
Malaysia
India
India
South Korea
Number
of
Aircraft
11
3
10
8
4
20
13
5
2
6
9
2
7
6
4
110
114
224
(1) Combined with an affiliate.
(2) Guaranteed by Volga-Dnepr Airlines. We have one additional aircraft on lease with an affiliate.
Finance
Aircastle Limited is a publicly-listed company, and our shares have been trading on the NYSE 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 $13.4 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 facilities 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, 2017 to the year ended December 31, 2016:
Revenues:
Lease rental revenue
Finance and sales-type lease revenue
Amortization of lease premiums, discounts and 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
Other
Total other income
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,
2017
2016
(Dollars in thousands)
$
721,302
$
725,220
25,716
(11,714)
56,128
791,432
5,188
796,620
298,664
241,231
73,604
80,430
9,077
17,190
(10,353)
33,590
765,647
7,311
772,958
305,216
255,660
61,872
28,585
7,773
703,006
659,106
55,167
(2,476)
52,691
39,126
3,527
42,653
146,305
156,505
6,042
7,611
12,307
7,255
$
147,874
$
151,453
Total revenues increased by $23.7 million, for the year ended December 31, 2017 as compared to the year ended
December 31, 2016, primarily as a result of the following:
Lease rental revenue decreased by $3.9 million for the year ended December 31, 2017 primarily as a result of:
• a $108.7 million decrease due to the sale of 60 aircraft during 2017 and 2016; and
• a $25.5 million decrease due to lease extensions, amendments, transitions and other changes.
These decreases were offset by a $130.3 million increase in revenue, reflecting the partial year impact of 47 aircraft
purchased in 2017 and the full year impact of 50 aircraft purchased in 2016.
Finance and sales-type lease revenue. For the year ended December 31, 2017, $25.7 million of interest income from
finance and sales-type leases was recognized as compared to $17.2 million for the same period in 2016, due to the net
addition of fifteen aircraft subject to finance and sales-type leases.
42
Amortization of lease premiums, discounts and incentives.
Amortization of lease incentives
Amortization of lease premiums
Amortization of lease discounts
Amortization of lease premiums, discounts and incentives
Year Ended December 31,
2017
2016
(Dollars in thousands)
$
(9,779) $
(6,223)
(10,022)
(13,744)
8,087
9,614
$
(11,714) $
(10,353)
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 $3.6 million for the year ended December 31, 2017 as compared to the same
period in 2016 was primarily attributable to the reversal of lease incentives associated with two freighter aircraft due to
changes in estimate and the reclassification of one aircraft from an operating lease to a finance lease during 2016.
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 decrease in amortization of lease premiums of $3.7 million
for the year ended December 31, 2017 as compared to the same period in 2016 resulted primarily from the reversal of $2.3
million of lease premiums related to two aircraft in 2017 returned from a new lessee and a net decrease in amortization
resulting from net aircraft sales.
Maintenance revenue. For the year ended December 31, 2017, we recorded $56.1 million of maintenance revenue
primarily due to the transition of four narrow-body aircraft, four wide-body aircraft and one freighter aircraft for $50.6
million. For 2016, we recorded $33.6 million due to the transition of one narrow-body and two wide-body aircraft for $18.1
million and maintenance reserves taken into income from three freighter, three narrow-body and one wide-body aircraft
totaling $15.3 million.
Other revenue was $5.2 million during the year ended December 31, 2017, primarily from $2.9 million in fees earned
in connection with the early termination of two leases and $2.1 million in administrative fees from the Lancaster and IBJ
Air joint ventures. For the year ended December 31, 2016, other revenue was $7.3 million, which was primarily due to $5.1
million recognized in additional fees paid by lessees in connection with early termination and amendment of leases and $2.1
million in administrative fees from the Lancaster and IBJ Air joint ventures.
Operating Expenses:
Total operating expenses increased by $43.9 million, for the year ended December 31, 2017 as compared to the year
ended December 31, 2016, primarily as a result of the following:
Depreciation expense decreased by $6.6 million for the year ended December 31, 2017 over the same period in 2016.
The decrease was primarily the result of lower depreciation of $62.1 million due to 60 aircraft sold during 2017 and 2016.
This decrease was partially offset by increases of:
•
•
$52.1 million due to 97 aircraft acquisitions during 2017 and 2016; and
$3.3 million due to changes to asset lives, residual values and other changes.
43
Interest, net consisted of the following:
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities(1)
$
223,260
$
228,774
Year Ended December 31,
2017
2016
(Dollars in thousands)
Amortization of deferred losses related to interest rate derivatives
Amortization of deferred financing fees and debt discount(2)
Interest expense
Less: Interest income
Less: Capitalized interest
Interest, net
______________
2,202
19,435
244,897
(3,411)
(255)
$
241,231
$
9,662
18,508
256,944
(1,140)
(144)
255,660
(1)
(2)
Includes $2.1 million and $5.0 million of loan prepayment fees related to the sale of aircraft during the years ended December 31, 2017 and 2016, respectively.
Includes $4.0 million and $2.9 million in deferred financing fees written off related to the sale of aircraft during the years ended December 31, 2017 and
2016, respectively.
Interest, net decreased by $14.4 million over the year ended December 31, 2016. The net decrease was primarily a
result of:
•
•
•
a $5.5 million decrease in interest on borrowings due primarily to lower weighted average debt cost and lower
net termination charges compared to 2016;
lower amortization of deferred losses on terminated interest rate derivatives of $7.5 million; and
higher interest income of $2.3 million.
Selling, general and administrative expenses for the year ended December 31, 2017 increased by $11.7 million over
the same period in 2016, primarily as a result of $5.1 million of separation and disability compensation expense related to
our former Chief Executive Officer under the terms of his employment and share-based award agreements and higher
personnel costs.
Impairment of aircraft was $80.4 million during the year ended December 31, 2017 and $28.6 million during the year
ended December 31, 2016. See “Summary of Recoverability Assessment and Other Impairments” below for a detailed
discussion of the related impairment charges for these aircraft.
Maintenance and other costs were $9.1 million for the year ended December 31, 2017, an increase of $1.3 million
over the same period in 2016. The net increase was primarily related to higher maintenance costs of $1.2 million related to
terminations and transitions during the year ended December 31, 2017 as compared to the year ended December 31, 2016.
Other Income:
Total other income for the year ended December 31, 2017 was $52.7 million of income as compared to $42.7 million
of expense versus the same period in 2016. The increase of $10.0 million is primarily a result of:
Gain on sale of flight equipment increased by $16.0 million, to $55.2 million for the year ended 2017, as compared
to gains of $39.1 million for the same period in 2016. During 2017, we recorded gains totaling $55.2 million related to the
sale of 37 aircraft. During 2016, we recorded gains totaling $39.1 million related to the sale of 30 aircraft.
Other decreased by $6.0 million, to an expense of $2.5 million for the year ended December 31, 2017, as compared
to income of $3.5 million versus the same period in 2016 relating to the mark-to-market of the fair value of our interest rate
cap.
Income Tax Provision:
Our provision for income taxes for the years ended December 31, 2017 and 2016 was $6.0 million and $12.3 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. For the year ended
44
December 31, 2017, our income tax provision decreased by $6.3 million as a result of a decrease in our deferred tax provision
of $15.1 million, partially offset by an increase in our current tax provision of $8.8 million as compared to the same period
in 2016.
The net change in our income tax provision was primarily attributable to changes in operating income subject to tax
in Ireland, Singapore, the United States and other jurisdictions, including the net tax effect effect from the sale and transfer
of aircraft in Ireland and Singapore. In addition, we also recorded a deferred tax benefit of $4.1 million relating to the
transfer of aircraft from Singapore to other to other jurisdictions and a deferred tax benefit of $2.8 million for the effect of
the reduction in the U.S. federal tax rate from the passage of the Tax Act.
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 $0 for both periods presented
Derivative loss reclassified into earnings
Total comprehensive income
Year Ended December 31,
2017
2016
(Dollars in thousands)
$
147,874
$
151,453
—
2,202
(1)
9,662
$
150,076
$
161,114
Other comprehensive income was $150.1 million for the year ended December 31, 2017, a decrease of $11.0 million
from the $161.1 million of other comprehensive income for the year ended December 31, 2016. Other comprehensive
income for the year ended December 31, 2017 primarily consisted of:
•
•
$147.9 million of net income; and
$2.2 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, 2016 primarily consisted of:
•
•
$151.5 million of net income; and
$9.7 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest
rate derivatives.
Summary of Recoverability Assessment and Other Impairments
Transactional Impairments
During 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at the end of their
respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in impairment charges
totaling $79.2 million, partially offset by maintenance revenue of $13.5 million. During 2017, we sold one of the production
45
freighters and the one converted freighter. We have an agreement to sell the other production freighter in the first quarter
of 2018.
In 2016, we reduced forecasted cash flows for three Boeing 747-400 converted freighter aircraft due to a change in
planned engine maintenance events. These three aircraft were nearing the end of their economic lives and leases. As a
result, we recorded impairment charges totaling $5.5 million, maintenance revenue of $5.6 million and reversed lease
incentives of $2.4 million. These aircraft were sold in 2017. We also impaired one Airbus A321-200 and two Boeing
747-400 converted freighter aircraft for which we had sales agreements, resulting in impairment charges of $6.8 million.
These aircraft were sold in the second half of 2016.
Annual Recoverability Assessment
We completed our annual recoverability assessment of our aircraft in the second quarter this year. We also performed
aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations. Other than
the transactional impairments discussed above, no other impairments were recorded as a result of our annual recoverability
assessment.
The 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.
Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted
cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our
annual 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 annual
recoverability assessment are appropriate, actual results could differ from those estimates.
In our 2016 assessment, we reduced economic lives and residuals for all six older Boeing 757-200 aircraft. As a result,
we recorded impairment charges totaling $2.2 million relating to two of these aircraft held as operating leases and impairment
losses totaling $2.6 million relating to three of these aircraft held as finance leases. We sold these six aircraft during 2017
at the end of their respective leases. We also reduced forecasted cash flows for older Airbus A330 aircraft to reflect lower
rental expectations given weak demand and increased competition from newer units. As a result, we recorded impairment
charges totaling $11.7 million and maintenance revenue of $4.0 million relating to one sixteen year old Airbus A330-200
approaching lease expiry.
Aircraft Monitoring List
At December 31, 2017, no aircraft were on our monitoring list. We monitor our fleet for aircraft that are more susceptible
to failing our recoverability assessments within one year due to their sensitivity to changes in contractual cash flows, future
cash flow estimates and aircraft residual or scrap values.
46
Comparison of the year ended December 31, 2016 to the year ended December 31, 2015:
Revenues:
Lease rental revenue
Finance and sales-type lease revenue
Amortization of lease premiums, discounts and 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:
Gain on sale of flight equipment
Other
Total other income
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,
2016
2015
(Dollars in thousands)
$
725,220
$
733,417
17,190
(10,353)
33,590
765,647
7,311
772,958
305,216
255,660
61,872
28,585
7,773
659,106
39,126
3,527
42,653
156,505
12,307
7,255
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
$
151,453
$
121,729
Total revenues decreased by $46.2 million, for the year ended December 31, 2016 as compared to the year ended
December 31, 2015, primarily as a result of the following:
Lease rental revenue decreased by $8.2 million for the year ended December 31, 2016 primarily as the result of:
• a $100.3 million decrease due to sales of 56 aircraft during 2016 and 2015; and
• a $14.8 million decrease due to lease extensions, amendments, transitions and other changes.
These decreases were partially offset by a $106.9 million increase in revenue, reflecting the partial year impact of 52
aircraft purchased in 2016 and the full year impact of 34 aircraft purchased in 2015.
Finance and sales-type lease revenue. For the year ended December 31, 2016, $17.2 million of interest income from
finance and sales-type leases was recognized as compared to $7.7 million versus the same period in 2015, due to the net
addition of aircraft subject to finance and sales-type leases.
47
Amortization of lease premiums, discounts and incentives.
Amortization of lease incentives
Amortization of lease premiums
Amortization of lease discounts
Amortization of lease premiums, discounts and incentives
Year Ended December 31,
2016
2015
(Dollars in thousands)
$
(6,223) $
(9,897)
(13,744)
9,614
(10,922)
10,155
$
(10,353) $
(10,664)
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 $3.7 million for the year ended December 31, 2016 as compared to the same
period in 2015 was primarily attributable to changes in estimates related to engines for three freighter aircraft of $9.3 million
and the sale of nine aircraft for $2.1 million, partially offset by $7.7 million in reversals related to the transition of thirteen
aircraft and the sale of one aircraft.
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 $2.8 million
for the year ended December 31, 2016 as compared to the same period in 2015 resulted primarily from sixteen aircraft
purchased during 2015 and 2016.
Maintenance revenue. For the year ended 2016, we recorded $33.6 million of maintenance revenue due to the transition
of one narrow-body and two wide-body aircraft for $18.1 million and maintenance reserves taken into income from three
freighter, three narrow-body and one wide-body aircraft totaling $15.3 million. For the year ended 2015, we recorded $71.0
million of maintenance revenue due to the transitions of six narrow-body and one freighter aircraft for $29.3 million,
maintenance reserves taken into income for one narrow-body and two wide-body aircraft for $23.4 million and return
compensation for one narrow-body and two freighter aircraft for $18.2 million.
Other revenue was $7.3 million during the year ended December 31, 2016, comprised of $5.1 million recognized in
additional fees paid by lessees in connection with early termination and amendment of leases and $2.1 million in
administrative fees from the Lancaster and IBJ Air joint ventures. For the year ended December 31, 2015, other revenue
was $17.7 million, 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 Lancaster joint venture.
Operating Expenses:
Total operating expenses decreased by $90.8 million, for the year ended December 31, 2016 as compared to the year
ended December 31, 2015 primarily as a result of the following:
Depreciation expense decreased by $13.6 million for the year ended December 31, 2016 over the same period in 2015.
The net decrease was primarily the result of a $59.9 million decrease in depreciation for aircraft sales. This decrease was
offset by:
•
•
•
a $41.3 million increase in depreciation for aircraft acquired;
a $3.8 million increase due to capitalized aircraft improvements; and
a $1.2 million increase due to changes to asset lives and residual values.
48
Interest, net consisted of the following:
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities(1)
$
228,774
$
204,326
Year Ended December 31,
2016
2015
(Dollars in thousands)
Hedge ineffectiveness losses
Amortization of deferred losses related to interest rate derivatives
Amortization of deferred financing fees and debt discount(2)
Interest expense
Less: Interest income
Less: Capitalized interest
Interest, net
______________
—
9,662
18,508
256,944
(1,140)
(144)
$
255,660
$
455
24,023
14,878
243,682
(105)
—
243,577
(1)
(2)
Includes $5.0 million in loan termination fees related to the sale of two aircraft during the year ended December 31, 2016.
Includes $2.9 million in deferred financing fees written off related to the sale of two aircraft during the year ended December 31, 2016.
Interest, net increased by $12.1 million over the year ended December 31, 2015. The net increase was primarily a
result of:
•
•
higher interest on borrowings of $24.4 million, driven by an increase from higher weighted average debt
outstanding; and
a $3.6 million increase in amortization of deferred financing fees, including $2.9 million written off due to the
sale of two aircraft, and $5.0 million in loan termination fees related to the sale of two aircraft during the year
ended December 31, 2016 as compared to the year ended December 31, 2015.
These increases were partially offset by a $14.4 million decrease in amortization of interest rate derivatives related to
deferred losses.
Selling, general and administrative expenses for the year ended December 31, 2016 increased by $5.7 million over
the same period in 2015 due primarily to higher personnel and rent costs. Non-cash share-based payment expense was
$7.9 million and $5.5 million for the years ended December 31, 2016 and 2015, respectively.
Impairment of aircraft was $28.6 million during the year ended December 31, 2016. Impairment of aircraft was $119.8
million during the year ended December 31, 2015.
Maintenance and other costs were $7.8 million for the year ended December 31, 2016, a decrease of $3.7 million over
the same period in 2015. The net decrease was primarily related to lower maintenance costs related to unscheduled
terminations and transitions.
Other Income:
Total other income for the year ended December 31, 2016 was $42.7 million of income as compared to $58.9 million
of expense versus the same period in 2015. The decrease of $16.3 million was primarily a result of:
Gain on sale of flight equipment decreased by $18.9 million, to $39.1 million for the year ended 2016, as compared
to gains of $58.0 million for the same period in 2015. During 2016, we recorded gains totaling $39.1 million related to the
sale of 30 aircraft. During 2015, we recorded gains totaling $58.0 million related to the sale of 31 aircraft.
Income Tax Provision:
Our provision for income taxes for the years ended December 31, 2016 and 2015 was $12.3 million and $12.8 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 $0.5 million for the year ended December 31, 2016 as compared to the same period
49
in 2015 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 $0 and $35, respectively
Derivative loss reclassified into earnings
Total comprehensive income
Year Ended December 31,
2016
2015
(Dollars in thousands)
$
151,453
$
121,729
(1)
9,662
1,224
24,023
$
161,114
$
146,976
Other comprehensive income was $161.1 million for the year ended December 31, 2016, an increase of $14.1 million
from the $147.0 million of other comprehensive income for the year ended December 31, 2015. Other comprehensive
income for the year ended December 31, 2016 primarily consisted of:
•
•
$151.5 million of net income; and
$9.7 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, 2015 primarily consisted of:
•
•
•
$121.7 million of net income;
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.
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
50
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 back on accrual status when we are reasonably assured that
payments will be received in a timely manner. 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.
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
51
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
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 assets or 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.
For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the
consideration paid based on the fair value of the aircraft and lease. The fair value of the lease may include a maintenance
premium and a lease premium or discount.
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
52
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 other risk factors discussed in Item 1A. “Risk
Factors.” See further discussion of our aircraft more susceptible to failing our recoverability assessment under “Summary
of Recoverability Assessment and Other Impairments” 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
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, 2017,
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 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 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.
53
RECENTLY PROPOSED ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies - Proposed Accounting Pronouncements in the Notes to
Consolidated Financial Statements below.
54
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 ECA-backed financings for new aircraft acquisitions;
unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;
asset sales; and
sales of common shares.
Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and
conditions we consider satisfactory.
During 2017, we met our liquidity and capital resource needs with $490.9 million of cash flow from operations, $500.0
million in gross proceeds from the issuance of our Senior Notes due 2024 and $833.6 million of cash from aircraft sales.
As of December 31, 2017, the weighted average maturity of our secured and unsecured debt financings was 3.5 years
and we are in compliance with all applicable covenants in our financings. We have also determined that as of December 31,
2017, 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, unsecured
bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities 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 (used in) provided by financing activities
Operating Activities:
Year Ended December 31,
2017
2016
2015
(Dollars in thousands)
$
490,871
$
468,092
$
526,285
(517,107)
(248,724)
(663,155)
(847,662)
449,839
306,878
Cash flow provided by operations was $490.9 million and $468.1 million for the years ended December 31, 2017 and
2016, respectively. The increase in cash flow provided by operations of $22.8 million for the year ended December 31,
2017 versus the same period in 2016 was primarily a result of:
• a $22.7 million increase in cash from maintenance revenue;
• a $12.1 million decrease in cash paid for taxes; and
• a $4.3 million decrease in cash used for working capital.
These inflows were offset by:
• a $6.5 million increase in cash paid for SG&A;
• a $3.4 million increase in cash paid for interest; and
• a $1.3 million increase in cash paid for maintenance.
55
Cash flow provided by operations was $468.1 million and $526.3 million for the years ended December 31, 2016 and
2015, respectively. The decrease in cash flow provided by operations of $58.2 million for the year ended December 31,
2016 was primarily a result of:
• a $29.7 million increase in cash paid for interest;
• a $21.5 million decrease in cash from maintenance revenue;
• a $10.7 million decrease in cash from lease rentals, net of finance and sales-type leases; and
• a $4.0 million increase in cash paid for taxes.
These outflows were offset partially by decreases of $3.2 million in cash used for working capital and $3.7 million in
cash paid for maintenance.
Investing Activities:
Cash flow used in investing activities was $517.1 million and $663.2 million for the years ended December 31, 2017
and 2016, respectively. The decrease in cash flow used in investing activities of $146.0 million for the year ended
December 31, 2017 was primarily a result of:
• a net $52.7 million decrease in the acquisition and improvement of flight equipment and net investment in and
collections on finance and sales-type leases;
• a $77.7 million increase in proceeds from the sale of flight equipment; and
• an $18.0 million decrease in unconsolidated equity method investments.
Cash flow used in investing activities was $663.2 million and $847.7 million for the years ended December 31, 2016
and 2015, respectively. The decrease in cash flow used in investing activities of $184.5 million for the year ended December
31, 2016 was primarily a result of:
• a $193.4 million increase in proceeds from the sale of flight equipment; and
• a $22.6 million decrease in net investments in finance and sales-type leases.
These outflows were offset by:
• an $18.0 million increase in unconsolidated equity method investment in 2016;
• a $10.4 million increase in the acquisition and improvement of flight equipment; and
• a $2.8 million net increase in aircraft purchase deposits paid.
Financing Activities:
Cash flow used in financing activities was $248.7 million for the year ended December 31, 2017 as compared to cash
flow provided by financing activities of $449.8 million for the year ended December 31, 2016. The net increase in cash
flow used in financing activities of $698.6 million for the year ended December 31, 2017 was primarily a result of:
• a $379.3 million decrease in proceeds from secured and unsecured financings;
• a $289.8 million increase in securitization and term debt financing repayments; and
• a $68.4 million increase in maintenance and security deposits returned, net of deposits received.
These outflows were partially offset by a $32.5 million decrease in shares repurchased and a $10.4 million decrease
in deferred financing costs.
Cash flow provided by financing activities was $449.8 million and $306.9 million for the years ended December 31,
2016 and 2015, respectively. The net increase in cash flow provided by financing activities of $143.0 million for the year
ended December 31, 2016 was primarily a result of:
•
•
a $92.6 million decrease in securitization and term debt financing repayments; and
a $79.3 million increase in proceeds from secured and unsecured financings.
These inflows were offset partially by:
• a $16.5 million increase in shares repurchased;
56
• a $7.0 million increase in deferred financing costs; and
• a $4.2 million increase in dividends paid.
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 $6.61 billion at December 31, 2017 from $6.50 billion at December 31, 2016 due
to an increase in purchase obligations for aircraft to be acquired, partially offset by a decrease in borrowings.
The following table presents our actual contractual obligations and their payment due dates as of December 31, 2017.
Contractual Obligations
Principal payments:
Senior Notes due 2018-2024
DBJ Term Loan
Revolving Credit Facilities
ECA Financings
Bank Financings
Payments Due by Period as of December 31, 2017
Total
1 year
or less
2-3 years
4-5 years
More than
5 years
(Dollars in thousands)
$ 3,200,000
$
400,000
$ 800,000
$ 1,000,000
$ 1,000,000
120,000
175,000
227,490
635,443
—
—
38,411
82,966
120,000
175,000
81,039
—
—
—
—
79,280
28,760
125,575
122,839
304,063
Total principal payments
4,357,933
521,377
1,301,614
1,202,119
1,332,823
Interest payments on debt obligations(1)
Office leases(2)
Purchase obligations(3)
Total
_____________
774,782
18,785
215,806
324,972
178,019
1,716
4,149
3,330
1,453,625
466,693
845,289
141,643
55,985
9,590
—
$ 6,605,125
$ 1,205,592
$ 2,476,024
$ 1,525,111
$ 1,398,398
(1) Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at December 31, 2017.
(2) Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.
(3) At December 31, 2017, we had commitments to acquire 37 aircraft for $1.45 billion, including 25 new E-Jet E2 aircraft from Embraer S.A. These amounts
include estimates for pre-delivery deposits, contractual price escalation and other adjustments. As of February 8, 2018, we have commitments to acquire
41 aircraft for $1.59 billion.
Capital Expenditures
From time to time, we make capital expenditures to maintain or improve 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, 2017, 2016 and 2015, we incurred a total of $12.9 million, $31.5 million and $36.5 million,
respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.
As of December 31, 2017, the weighted average age (by net book value) of our aircraft was approximately 9.1 years.
In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Our
lease agreements call for the lessee to be 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
57
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
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 entered into two joint venture arrangements in order to help expand our base of new business opportunities. Neither
of these joint ventures qualifies for consolidated accounting treatment. The assets and liabilities of these entities are not
included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting. See
Note 5 - “Unconsolidated Equity Method Investment” in the Notes to Unaudited Consolidated Financial Statements below.
We hold a 30% equity interest in our Lancaster joint venture and a 25% equity interest in our joint venture with IBJ
Air. At December 31, 2017, the net book value of both joint ventures’ twelve aircraft was approximately $641 million.
Foreign Currency Risk and Foreign Operations
At December 31, 2017 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,
2017, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated
approximately $19.4 million in U.S. dollar equivalents and represented approximately 26% of total SG&A 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, 2017, 2016 and 2015,
we incurred insignificant net gains and losses on foreign currency transactions.
Hedging
For complete information on our derivative instruments, please refer to Note 14 “Other Assets” and 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 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.
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.
58
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 for the years ended December 31, 2017, 2016 and
2015, respectively.
Net income
Depreciation
Amortization of lease premiums, discounts and incentives
Interest, net
Income tax provision
EBITDA
Adjustments:
Impairment of aircraft
Non-cash share-based payment expense
(Gain) loss on mark-to-market of interest rate derivative contracts
Adjusted EBITDA
Management’s Use of Adjusted Net Income (“ANI”)
Year Ended December 31,
2017
2016
2015
(Dollars in thousands)
$ 147,874
$ 151,453
$ 121,729
298,664
305,216
318,783
11,714
10,353
10,664
241,231
255,660
243,577
6,042
12,307
12,771
$ 705,525
$ 734,989
$ 707,524
80,430
13,148
2,481
28,585
7,901
(3,522)
119,835
5,537
(791)
$ 801,584
$ 767,953
$ 832,105
Management believes that 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, changes related to refinancing activity and non-
cash share-based payment expense.
The table below shows the reconciliation of net income to ANI for the years ended December 31, 2017, 2016 and
2015, respectively.
Net income
Ineffective portion and termination of cash flow hedges(1)
(Gain) loss on mark-to-market of interest rate derivative contracts(2)
Loan termination fee(1)
Write-off of deferred financing fees(1)
Non-cash share-based payment expense(3)
Term Financing No. 1 hedge loss amortization charges(1)
Securitization No. 1 hedge loss amortization charges(1)
Year Ended December 31,
2017
2016
2015
(Dollars in thousands)
$
147,874
$
151,453
$
121,729
—
2,481
2,058
4,005
13,148
—
—
—
(3,522)
4,960
2,880
7,901
—
4,855
455
(791)
—
—
5,537
4,401
10,940
Adjusted net income
$
169,566
$
168,527
$
142,271
59
______________
(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(1)
Total
Weighted-average common shares outstanding — Basic
Effect of dilutive shares(2)
Weighted-average common shares outstanding — Diluted
Adjusted net income allocation:
Adjusted net income
Less: Distributed and undistributed earnings allocated to restricted common shares(1)
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,
2017
2016
2015
78,219,458
78,161,494
80,489,391
556,592
653,944
615,611
78,776,050
78,815,438
81,105,002
Year Ended December 31,
2017
2016
2015
99.29%
0.71%
99.17%
0.83%
99.24%
0.76%
100.00%
100.00%
100.00%
Year Ended December 31,
2017
2016
2015
78,219,458
78,161,494
80,489,391
153,983
42,785
—
78,373,441
78,204,279
80,489,391
Year Ended December 31,
2017
2016
2015
(Dollars in thousands, except per share amounts)
$
$
$
$
169,566
(1,198)
168,368
2.15
2.15
$
$
$
$
168,527
(1,398)
167,129
2.14
2.14
$
$
$
$
142,271
(1,080)
141,191
1.75
1.75
(1) For the years ended December 31, 2017, 2016 and 2015, distributed and undistributed earnings to restricted shares was 0.71%, 0.83% and 0.76%, respectively,
of net income. The amount of restricted share forfeitures for all periods presented was immaterial to the allocation of distributed and undistributed earnings.
(2) For the years ended December 31, 2017 and 2016, dilutive shares represented contingently issuable shares related to the Company's Performance Share
Units (“PSUs”). For the year ended December 31, 2015, we had 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 (loss). Material limitations in making the adjustments to our earnings (loss)
to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-U.S. GAAP measures as compared to U.S. GAAP
net income (loss), income (loss) 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;
60
•
•
•
•
the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly
affect our financial results;
elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;
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 (loss), income (loss) 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 (loss), 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, 2017 by $4.0 million and $4.0 million, respectively, over the next
twelve months. As of December 31, 2017, a hypothetical 100-basis point increase/decrease in our variable interest rate on
our borrowings would result in an interest expense increase/decrease of $2.2 million and $2.2 million, respectively, net of
amounts received from our interest rate derivatives, over the next twelve months. In September 2016, we purchased an
interest rate cap for $2.3 million to hedge approximately 70% of our floating rate interest exposure. The interest rate cap
61
is set at 2% and has a current notional balance of $400.0 million and reduces over time to $215.0 million. The cap matures
in September 2021.
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 Annual 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, 2017. 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, 2017.
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, 2017. The assessment
was based on criteria established in the Internal Control — Integrated Framework (2013), issued by the Committee of
Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on this assessment, management concluded that
our internal control over financial reporting was effective as of December 31, 2017.
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, 2017. 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, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
62
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Aircastle Limited
Opinion on Internal Control over Financial Reporting
We have audited Aircastle Limited and subsidiaries’ internal control over financial reporting as of December 31, 2017, 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). In our opinion, Aircastle Limited and subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, 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, 2017 and the related notes (collectively referred to as the "financial statements") of the
Company and our report dated February 13, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 the accompanying 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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Stamford, CT
February 13, 2018
63
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 2018 Annual General Meeting of Shareholders (“2018 Proxy
Statement”). The identification of our Audit Committee and our Audit Committee financial experts will be contained in our
2018 Proxy Statement 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 2018 Proxy Statement 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 Annual Report.
Information on compliance with Section 16(a) of the Exchange Act will be contained in our 2018 Proxy Statement
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 2018 Proxy
Statement 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 2018 Proxy Statement 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 2018 Proxy
Statement 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 2018 Proxy Statement 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 2017 and by Ernst &
Young LLP, for services rendered to Aircastle is set forth under the caption “INDEPENDENT AUDITOR FEES” in the
64
2018 Proxy Statement 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 2018 Proxy Statement 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, 2017 and December 31, 2016.
Consolidated Statements of Income for the years ended December 31, 2017, December 31, 2016 and
December 31, 2015.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, December 31,
2016 and December 31, 2015.
Consolidated Statements of Cash Flows for the years ended December 31, 2017, December 31, 2016 and
December 31, 2015.
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017,
December 31, 2016 and December 31, 2015.
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 Annual Report on Form 10-K.
65
(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
4.9
4.10
4.11
10.1
10.2
10.3
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).
Amendment Agreement No. 1 to the Amended and Restated Shareholder Agreement, dated as of September
23, 2016, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit
4.1 to the Company’s Current Report on Form 8-K filed on September 26, 2016).
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).
Fourth Supplemental Indenture, dated as of March 24, 2016, 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 24, 2016).
Fifth Supplemental Indenture, dated as of March 20, 2017, 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 20, 2017).
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). #
E - 1
Exhibit No.
Description of Exhibit
10.4
10.5
10.6
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
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). #
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 Employment Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed on September 8, 2017). #
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).
Third Amended and Restated Credit Agreement, dated as of March 28, 2016, 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
4, 2016).
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). #
Form of Non-Officer Director Restricted Share Agreement Under the Aircastle Limited 2014 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
filed on November 4, 2014). #
Form of Performance Share Unit Agreement for Certain Executive Officers under the Aircastle Limited 2014
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q filed on May 4, 2016). #
Form of Restricted Share Unit Agreement Under the Aircastle Limited 2014 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May
4, 2017). #
E - 2
Exhibit No.
Description of Exhibit
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
12.1
21.1
23.1
31.1
31.2
32.1
32.2
99.1
Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K/A filed on May 25, 2017). #
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
Amendment No. 1 to Purchase Agreement COM0270-15, dated as of June 22, 2016, by and between Aircastle
Holding Corporation and Embraer S. A. (incorporated by reference to Exhibit 10.20 to the Company’s Annual
Report on Form 10-K filed on February 14, 2017). *Ø
Amendment No. 2 to Purchase Agreement COM0270-15, dated as of November 11, 2016, by and between
Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.21 to the Company’s
Annual Report on Form 10-K filed on February 14, 2017). *Ø
Amendment No. 3 to Purchase Agreement COM0270-15, dated as of January 13, 2017, by and between
Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.22 to the Company’s
Annual Report on Form 10-K filed on February 14, 2017). *Ø
Amendment No. 4 to Purchase Agreement COM0270-15, dated as of August 11, 2017, by and between
Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q filed on November 2, 2017). *Ø
Amendment No. 1 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15, dated as of
November 11, 2016, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by
reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on February 14, 2017). *Ø
Amendment No. 2 to Letter Agreement COM0271-15 in Purchase Agreement COM0270-15, dated as of
August 11, 2017, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference
to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017). *Ø
Letter Agreement, dated as of October 4, 2016, by and between Aircastle Advisor LLC and Aaron Dahlke
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October
7, 2016). #
Separation Agreement, dated June 30, 2017, between Aircastle Advisor LLC and Ron Wainshal (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2017). #
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, 2017 *
E - 3
Exhibit No.
Description of Exhibit
101
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31,
2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of
December 31, 2017 and December 31, 2016; (ii) Consolidated Statements of Income for the years ended
December 31, 2017, December 31, 2016 and December 31, 2015; (iii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2017, December 31, 2016 and December 31, 2015;
(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, December 31, 2016 and
December 31, 2015; (v) Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive
Income for the years ended December 31, 2017, December 31, 2016 and December 31, 2015; 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 - 4
ITEM 16. FORM 10-K SUMMARY
None.
E - 5
Index to Financial Statements
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017,
2016, and 2015
Notes to Consolidated Financial Statements
Page No.
F - 2
F - 3
F - 4
F - 5
F - 6
F - 8
F - 9
F - 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Aircastle Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Aircastle Limited and subsidiaries (the Company) as of
December 31, 2017 and 2016, 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, 2017, and the related notes
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2017 and 2016 and the consolidated results
of its operations and its cash flows for each of the three years in the period ended December 31, 2017, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 13, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2004.
Stamford, CT
February 13, 2018
F - 2
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
ASSETS
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable
Flight equipment held for lease, net of accumulated depreciation of $1,125,594 and
$1,224,899, 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
Security deposits
Maintenance payments
Total liabilities
Commitments and Contingencies
December 31,
2017
2016
$
$
211,922
21,935
12,815
455,579
53,238
6,035
6,188,469
545,750
76,982
141,210
$ 7,199,083
6,247,585
260,853
72,977
148,398
$ 7,244,665
$
849,874
3,463,732
140,221
57,630
130,628
649,434
5,291,519
$ 1,219,034
3,287,211
127,527
62,225
122,597
591,757
5,410,351
SHAREHOLDERS’ EQUITY
Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and
outstanding
Common shares, $0.01 par value, 250,000,000 shares authorized, 78,707,963 shares issued
and outstanding at December 31, 2017; and 78,593,133 shares issued and outstanding at
December 31, 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
—
—
787
1,527,796
380,331
(1,350)
1,907,564
$ 7,199,083
786
1,521,190
315,890
(3,552)
1,834,314
$ 7,244,665
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 lease premiums, discounts and 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 $13,148, $7,901 and $5,537, respectively)
Impairment of aircraft
Maintenance and other costs
Total expenses
Other income (expense):
Gain on sale of flight equipment
Other
Total other income
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,
2017
2016
2015
$
$
721,302
25,716
(11,714)
56,128
791,432
5,188
796,620
$
725,220
17,190
(10,353)
33,590
765,647
7,311
772,958
733,417
7,658
(10,664)
71,049
801,460
17,742
819,202
298,664
241,231
73,604
80,430
9,077
703,006
55,167
(2,476)
52,691
305,216
255,660
61,872
28,585
7,773
659,106
39,126
3,527
42,653
318,783
243,577
56,198
119,835
11,502
749,895
58,017
919
58,936
146,305
6,042
7,611
147,874
$
156,505
12,307
7,255
151,453
$
128,243
12,771
6,257
121,729
1.88
$
1.92
$
1.50
1.87
1.06
$
$
1.92
0.98
$
$
1.50
0.90
$
$
$
$
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 $0, $0 and
$35, respectively
Net derivative loss reclassified into earnings
Other comprehensive income
Total comprehensive income
Year Ended December 31,
2017
2016
2015
$
147,874
$
151,453
$
121,729
—
2,202
2,202
150,076
$
(1)
9,662
9,661
161,114
$
1,224
24,023
25,247
146,976
$
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
Depreciation
Amortization of deferred financing costs
Amortization of lease premiums, discounts and 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
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 and restricted cash provided by operating activities
Cash flows from investing activities:
Acquisition and improvement of flight equipment
Proceeds from sale of flight equipment
Net investment in finance and sales-type leases
Collections on finance and sales-type leases
Aircraft purchase deposits and progress payments, net of returned deposits
and aircraft sales deposits
Unconsolidated equity method investment and associated costs
Other
Net cash and restricted cash used in investing activities
Cash flows from financing activities:
Repurchase of shares
Proceeds from secured and unsecured debt financings
Repayments of secured and unsecured debt financings
Deferred financing costs
Restricted secured liquidity facility collateral
Liquidity facility
Security deposits and maintenance payments received
Security deposits and maintenance payments returned
Dividends paid
Other
Net cash and restricted cash (used in) provided by financing activities
Net (decrease) increase in cash and restricted cash
Cash and restricted cash at beginning of year
Cash and restricted cash at end of year
Year Ended December 31,
2017
2016
2015
$
147,874
$
151,453
$
121,729
298,664
19,435
11,714
(8,948)
13,148
2,202
(17,947)
(55,167)
80,430
1,476
(6,734)
(7,655)
13,857
(1,478)
490,871
305,216
18,508
10,353
6,156
7,901
9,662
(23,123)
(39,126)
28,585
(6,867)
832
(1,089)
(4,014)
3,645
468,092
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
(1,038,343)
833,576
(331,721)
32,184
(1,331,059)
755,898
(78,892)
19,413
(1,320,669)
562,518
(91,648)
9,559
(7,681)
—
(5,122)
(517,107)
(4,862)
675,000
(878,534)
(8,540)
—
—
192,830
(141,185)
(83,433)
—
(248,724)
(274,960)
508,817
233,857
(9,628)
(18,048)
(839)
(663,155)
(37,337)
1,054,250
(588,778)
(18,890)
65,000
(65,000)
171,672
(51,658)
(77,137)
(2,283)
449,839
254,776
254,041
508,817
$
$
(6,812)
—
(610)
(847,662)
(20,881)
975,000
(681,393)
(11,881)
—
—
152,391
(33,398)
(72,960)
—
306,878
(14,499)
268,540
254,041
$
F - 6
Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
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:
Advance lease rentals, security deposits, maintenance payments, other
liabilities and other assets settled in sale of flight equipment
Advance lease rentals, security deposits and maintenance payments 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,
2017
2016
2015
$
$
$
$
$
228,125
4,576
132,585
149,100
154,213
$
$
$
$
$
224,705
16,693
75,335
202,808
142,950
$
$
$
$
$
195,162
12,716
93,601
13,307
40,327
The accompanying notes are an integral part of these consolidated financial statements.
F - 7
Aircastle Limited and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except share amounts)
Balance, December 31, 2014
80,983,249
$
810
$ 1,565,180
$
192,805
Common Shares
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
$
(38,460) $
Total
Shareholders’
Equity
Issuance of common shares to directors and employees
306,593
3
(3)
Repurchase of common shares from stockholders, directors
and employees
(1,057,582)
(11)
(20,870)
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
—
—
—
—
—
—
—
—
—
—
—
—
5,537
493
—
—
—
—
—
—
—
—
(72,960)
121,729
—
—
—
—
—
—
—
—
1,224
24,023
1,720,335
—
(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
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 $0 tax expense
Net derivative loss reclassified into earnings
317,501
3
(3)
(1,956,628)
(19)
(37,318)
—
—
—
—
—
—
—
—
—
—
—
—
7,901
273
—
—
—
—
—
—
—
—
(77,137)
151,453
—
—
Balance, December 31, 2016
78,593,133
786
1,521,190
315,890
Issuance of common shares to stockholders, directors and
employees
Repurchase of common shares from stockholders, directors
and employees
344,017
(229,187)
Amortization of share-based payments
Dividends declared
Net income
Net derivative loss reclassified into earnings
—
—
—
—
3
(2)
—
—
—
—
(3)
(4,860)
11,469
—
—
—
—
—
—
(83,433)
147,874
—
—
—
—
—
—
—
(1)
9,662
(3,552)
—
—
—
—
—
2,202
—
(37,337)
7,901
273
(77,137)
151,453
(1)
9,662
1,834,314
—
(4,862)
11,469
(83,433)
147,874
2,202
Balance, December 31, 2017
78,707,963
$
787
$ 1,527,796
$
380,331
$
(1,350) $
1,907,564
The accompanying notes are an integral part of these consolidated financial statements.
F - 8
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, 2017 through the date on which the consolidated financial statements
included in this Form 10-K were issued.
Effective January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting
Standards Update (“ASU”) No. 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt
Instruments. This update clarifies the requirements for assessing whether contingent call (put) options that can accelerate
the payment of principal on debt instruments are clearly and closely related to their debt hosts. The update is applied on a
modified retrospective approach to existing debt instruments as of the beginning of the fiscal year for which the amendments
are effective. The standard did not have a material impact on our consolidated financial statements and related disclosures.
Effective January 1, 2017, the Company adopted FASB ASU No. 2016-07, Investments - Equity Method and Joint
Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting. This update affects all entities that
have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of
ownership interest or degree of influence. The update is applied prospectively upon the effective date of increases in the
level of ownership interest or degree of influence that result in the adoption of the equity method. The standard did not have
a material impact on our consolidated financial statements and related disclosures.
Effective January 1, 2017, the Company adopted FASB ASU No. 2016-09, Compensation - Stock Compensation (Topic
718). The update amends the guidelines for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard did
not have a material impact on our consolidated financial statements and related disclosures.
Effective January 1, 2017, the Company adopted FASB ASU No. 2016-18, Statement of Cash Flows (Topic 230),
Restricted Cash. For the year ended December 31, 2017, the Company revised the presentation in our Consolidated
Statements of Cash Flows to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash
equivalents. The amounts included for prior years have been reclassified to conform to the current period presentation.
Effective January 1, 2017, the Company adopted FASB ASU No. 2017-01, Business Combinations (Topic 805),
Clarifying the Definition of a Business. The update provides guidance to assist entities with evaluating when a set of
transferred assets and activities is a business. The update is applied prospectively and requires no disclosures at transition.
The standard did not have a material impact on our consolidated financial statements and related disclosures.
Principles of Consolidation
The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates
four 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
F - 9
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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 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.
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.
Virtually all of our cash and cash equivalents and restricted cash and cash equivalents are held or managed 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 manufacturer’s 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.
F - 10
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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 assets or 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.
For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the
consideration paid based on the fair value of the aircraft and lease. The fair value of the lease may include a maintenance
premium and a lease premium or discount.
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.
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.
F - 11
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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, 2017,
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
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 they may also 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 than 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.
F - 12
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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
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.
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.
Recent Accounting Pronouncements
On February 25, 2016, the FASB issued Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) which
replaced the existing guidance in ASC 840, Leases (“ASC 840”). The accounting for leases by lessors basically remained
unchanged from the concepts that existed in ASC 840 accounting. The FASB 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
F - 13
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred
from the customer’s perspective. The standard will be effective for reporting periods beginning after December 15, 2018.
The standard is to be applied on a “modified retrospective” basis with a proposed practical expedient. We plan to adopt the
standard on its required effective date of January 1, 2019 and are evaluating the transition method to use. We are also
evaluating the impact that ASC 842 will have on our consolidated financial statements and related disclosures. We do not
believe that the adoption of the standard will significantly impact our existing or potential lessees' economic decisions to
lease aircraft.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments. The standard affects entities holding financial assets and net investment in leases
that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables,
net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not
excluded from the scope that have the contractual right to receive cash. The standard is applied on a modified retrospective
approach. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within
those fiscal years. Early adoption is permitted as early as the fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. We are in the process of determining the impact the standard will have on our
consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain
Cash Receipts and Cash Payments. The standard clarifies how entities should classify certain cash receipts and cash payments
on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash
receipts and cash payments have aspects of more than one class of cash flows. The update should be applied using a
retrospective transition method to each period presented. The standard is effective for annual periods beginning after
December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard will not
have a material impact on our consolidated financial statements and related disclosures.
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) and related updates. 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 reporting periods 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 plan to adopt the
standard on its required effective date of January 1, 2018, using the modified retrospective approach. We do not expect the
impact of this standard to be material to our consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718), Scope of
Modification Accounting. The standard clarifies when changes to the terms or conditions of a share-based payment award
must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting
conditions or classification of the award changes. In addition, when applicable, disclosure is required to indicate that
compensation expense has not changed. The update should be applied using a prospective transition method to each period
presented. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within
those fiscal years. Early adoption is permitted. 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.
F - 14
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
• 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, 2017 and 2016 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
Derivative assets
Total
Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Derivative assets
Total
Fair Value
as of
December 31,
2017
Fair Value Measurements at December 31, 2017
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
Valuation
Technique
$
211,922
$ 211,922
$
— $
21,935
3,254
21,935
—
—
3,254
—
—
Market
Market
— Market
$
237,111
$ 233,857
$
3,254
$
—
Fair Value
as of
December 31,
2016
Fair Value Measurements at December 31, 2016
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
Valuation
Technique
$
455,579
$ 455,579
$
— $
53,238
5,735
53,238
—
—
5,735
—
—
Market
Market
— Market
$
514,552
$ 508,817
$
5,735
$
—
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 derivative included in Level 2 consists of United States dollar-denominated interest rate cap, and its fair value is based
on the market comparisons for similar instruments. We also considered the credit rating and risk of the counterparty providing
the interest rate cap based on quantitative and qualitative factors.
For the years ended December 31, 2017 and 2016, 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 unconsolidated joint ventures and
aircraft. We account for our investment in unconsolidated joint ventures 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.
F - 15
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Aircraft Valuation
Transactional Impairments
During 2017, we entered into agreements to sell two Boeing 747-400 production freighter aircraft at the end of their
respective leases and one older Boeing 747-400 converted freighter aircraft to its lessee, resulting in impairment charges
totaling $79,234, partially offset by maintenance revenue of $13,520. During 2017, we sold one of the production freighters
and the one converted freighter. We have an agreement to sell the other production freighter in the first quarter of 2018.
In 2016, we reduced forecasted cash flows for three Boeing 747-400 converted freighter aircraft due to a change in
planned engine maintenance events. These three aircraft were nearing the end of their economic lives and leases. As a
result, we recorded impairment charges totaling $5,450, maintenance revenue of $5,596 and reversed lease incentives of
$2,361. These aircraft were sold in 2017. We also impaired one Airbus A321-200 and two Boeing 747-400 converted
freighter aircraft for which we had sales agreements, resulting in impairment charges of $6,765. These aircraft were sold
in the second half of 2016.
Annual Recoverability Assessment
We completed our annual recoverability assessment of our aircraft in the second quarter of 2017. We also performed
aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations. Other than the
transactional impairments discussed above, no other impairments were recorded as a result of our annual recoverability
assessment.
The 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.
Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted
cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our
annual 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 annual
recoverability assessment are appropriate, actual results could differ from those estimates.
In our 2016 assessment, we reduced economic lives and residuals for all six older Boeing 757-200 aircraft. As a result,
we recorded impairment charges totaling $2,167 relating to two of these aircraft held as operating leases and impairment
losses totaling $2,618 relating to three of these aircraft held as finance leases. We sold these six aircraft during 2017 at the
end of their respective leases. We also reduced forecasted cash flows for older Airbus A330 aircraft to reflect lower rental
expectations given weak demand and increased competition from newer units. As a result, we recorded impairment charges
totaling $11,670 and maintenance revenue of $4,000 relating to one sixteen year old Airbus A330-200 approaching lease
expiry.
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 values of our ECA Financings (as described in Note 6 - Variable Interest Entities below) and other secured
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 - 16
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, 2017 and 2016 are as follows:
Credit Facilities
Unsecured Term Loan
ECA Financings
Bank Financings
Senior Notes
December 31, 2017
December 31, 2016
Carrying
Amount
of Liability
Fair Value
of Liability
Carrying
Amount
of Liability
Fair Value
of Liability
$
175,000
$
175,000
$
— $
120,000
227,491
634,898
120,000
232,030
634,132
120,000
305,276
933,541
—
120,000
316,285
925,783
3,200,000
3,367,245
3,200,000
3,387,125
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, 2017 were as follows:
Year Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Amount
$
722,081
634,922
519,345
406,349
317,708
664,430
$
3,264,835
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
Asia and Pacific
Europe
Middle East and Africa
North America
South America
Total
Year Ended December 31,
2017
2016
2015
37%
24%
12%
8%
19%
40%
23%
12%
6%
19%
100%
100%
42%
28%
9%
5%
16%
100%
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 Ended December 31,
2017
2016
2015
Combined
% of
Lease
Rental
Revenue
Number
of Lessees
Number
of Lessees
Combined
% of
Lease
Rental
Revenue
Combined
% of
Lease
Rental
Revenue
Number
of Lessees
Largest lessees by lease rental revenue
4
24%
4
25%
3
17%
F - 17
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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 Ended December 31,
2017
2016
2015
Country
Indonesia(1)
______________
Revenue
$
—
% of
Total
Revenue
% of
Total
Revenue
% of
Total
Revenue
Revenue
Revenue
—% $ 83,087
11% $
—
—%
(1) Total revenue attributable to Indonesia was less than 10% for the years ended December 31, 2017 and 2015.
Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net
investment in finance and sales-type leases, or “net book value”) was as follows:
Region
Asia and Pacific
Europe
Middle East and Africa
North America
South America
Off-lease
Total
______________
December 31, 2017
December 31, 2016
Number of
Aircraft
Net Book
Value %
Number of
Aircraft
Net Book
Value %
59
92
15
32
25
1 (1)
30%
32%
9%
10%
19%
—%
61
66
14
26
23
3 (2)
38%
23%
11%
8%
18%
2%
224
100%
193
100%
(1) Consisted of one Airbus A321-200 aircraft, which is subject to a commitment to lease.
(2) Consisted of one Airbus A330-200 aircraft, which was delivered on lease to a customer in February 2017, and two Airbus A321-200 aircraft that were
delivered to a customer in Europe in the second quarter of 2017.
At December 31, 2017 and 2016, 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, 2017 and 2016, the amounts of lease incentive liabilities recorded in maintenance payments on the
Consolidated Balance Sheets were $11,496 and $14,931, respectively.
Note 4. Net Investment in Finance and Sales-Type Leases
At December 31, 2017, our net investment in finance and sales-type leases consisted of 31 aircraft. The following
table lists the components of our net investment in finance and sales-type leases at December 31, 2017:
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
328,398
(173,030)
390,382
545,750
$
$
F - 18
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
At December 31, 2017, minimum future lease payments on finance and sales-type leases are as follows:
Year Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total lease payments to be received
$
Amount
66,820
66,675
64,455
52,662
41,020
36,766
$
328,398
Note 5. Unconsolidated Equity Method Investment
We have joint ventures with an affiliate of Ontario Teachers' Pension Plan (“Teachers'”) and with the leasing arm of
the Industrial Bank of Japan, limited (“IBJL”).
At December 31, 2017, the net book value of both joint ventures’ twelve aircraft was approximately $640,747.
Investment in joint venture at December 31, 2015
Investment in joint venture
Earnings from joint venture, net of tax
Distributions
Investment in joint venture at December 31, 2016
Investment in joint venture
Earnings from joint venture, net of tax
Distributions
Investment in joint venture at December 31, 2017
Amount
50,377
20,818
7,255
(5,473)
72,977
2,994
7,611
(6,600)
76,982
$
$
The Company has recorded in its Consolidated Balance Sheet $12,844 guarantee liability in Maintenance payments
and a $5,100 guarantee liability in Security deposits representing its share of the respective exposures.
Note 6. Variable Interest Entities
Aircastle consolidates four 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 six aircraft
discussed below.
ECA Financings
Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the
“Air Knight VIEs”), has entered into six different twelve-year term loans, which are supported by guarantees from Compagnie
Francaise d’ Assurance pour le Commerce Extérieur (“COFACE”), the French government sponsored export credit agency
(“ECA”). We refer to these COFACE-supported financings as “ECA 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.
F - 19
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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, 2017 of $412,904, 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, 2017 is $221,974.
Note 7. Borrowings from Secured and Unsecured Debt Financings
The outstanding amounts of our secured and unsecured term debt financings were as follows:
Debt Obligation
Secured Debt Financings:
ECA Financings(1)
Bank Financings(2)
Less: Debt Issuance Costs
Total secured debt financings, net of debt
issuance costs
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
Senior Notes due 2023
Senior Notes due 2024
Unsecured Term Loan
Revolving Credit Facilities
Less: Debt Issuance Costs
Total unsecured debt financings, net of
debt issuance costs
Total secured and unsecured debt
financings, net of debt issuance costs
_______________
At December 31, 2017
At
December 31, 2016
Outstanding
Borrowings
Number of
Aircraft
Interest Rate
Final Stated
Maturity
Outstanding
Borrowings
$
227,491
634,898
(12,515)
849,874
—
400,000
500,000
300,000
500,000
500,000
500,000
500,000
120,000
175,000
(31,268)
3,463,732
$
4,313,606
3.02% to 3.96% 12/03/21 to 11/30/24
$
2.22% to 4.45% 09/11/18 to 01/19/26
6
23
29
6.750%
4.625%
6.250%
7.625%
5.125%
5.500%
5.000%
4.125%
3.589%
3.680%
04/15/17
12/15/18
12/01/19
04/15/20
03/15/21
02/15/22
04/01/23
05/01/24
04/28/19
11/21/19 to 05/13/20
305,276
933,541
(19,783)
1,219,034
500,000
400,000
500,000
300,000
500,000
500,000
500,000
—
120,000
—
(32,789)
3,287,211
$
4,506,245
(1) The borrowings under these financings at December 31, 2017 have a weighted-average rate of interest of 3.59%.
(2) The borrowings under these financings at December 31, 2017 have a weighted-average fixed rate of interest of 3.68%.
Unsecured Debt Financings:
Senior Notes due 2024
On March 6, 2017, Aircastle issued $500,000 aggregate principal amount of Senior Notes due 2024 (the “Senior Notes
due 2024”) at par. The Senior Notes due 2024 will mature on May 1, 2024 and bear interest at the rate of 4.125% per annum,
payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2017. Interest accrues on the
Senior Notes due 2024 from March 20, 2017.
Prior to February 1, 2024, we may redeem the Senior Notes due 2024 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
F - 20
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Rate (as defined in the indenture governing the notes) as of such redemption date plus 0.5%). In addition, prior to May 1,
2020, we may redeem up to 40% of the aggregate principal amount of the notes issued under the indenture at a redemption
price equal to 104.125% plus accrued and unpaid interest thereon to, but not including, the redemption date, 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 2024 at 101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2024 are not
guaranteed by any of the Company’s subsidiaries or any third party.
On April 17, 2017, we paid off our Senior Notes due 2017.
Revolving Credit Facilities
At December 31, 2017, we had $175,000 outstanding under our revolving credit facilities.
Maturities of the secured and unsecured debt financings over the next five years and thereafter are as follows:
Year Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Amount
521,377
828,047
473,567
617,680
584,439
1,332,823
4,357,933
$
$
As of December 31, 2017, we were in compliance with all applicable covenants in our financings.
Note 8. Shareholders’ Equity and Share-Based Payment
On March 21, 2017, the Board of Directors adopted the Aircastle Limited Amended and Restated 2014 Omnibus
Incentive Plan (the “Amended and Restated 2014 Plan”). The Amended and Restated 2014 Plan was approved by shareholders
at the Company’s 2017 Annual General Meeting of Shareholders on May 19, 2017.
The maximum number of Common Shares reserved for issuance under the Amended and Restated 2014 Plan is 6,750,000
Common Shares. Restricted common shares outstanding under prior plans in the amount of 518,427 shares will continue
to vest subject to the terms and conditions of the prior plans and the applicable awards agreements which are included in
the below table.
The purposes of the Amended and Restated 2014 Plan are to provide an 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 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
Amended and Restated 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.
F - 21
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
A summary of the fair value of non-vested restricted common shares for the years ended December 31, 2017, 2016
and 2015 is as follows:
Non-vested Shares
Non-vested at December 31, 2014
Granted
Canceled
Vested
Non-vested at December 31, 2015
Granted
Canceled
Vested
Non-vested at December 31, 2016
Granted
Canceled
Vested
Non-vested at December 31, 2017
Shares
(in 000’s)
Weighted
Average
Grant Date
Fair Value
$
621.3
308.8
(10.6)
(268.1)
651.4
336.7
(9.0)
(302.4)
676.7
315.5
(4.2)
(469.6)
518.4
$
16.15
21.58
19.22
15.82
18.81
16.58
18.21
18.50
17.84
22.41
20.36
18.60
19.92
The fair value of the restricted common shares granted in 2017, 2016 and 2015 were determined based upon the market
price of the shares at the grant date.
Performance Share Units
During 2017, the Company issued performance share units (“PSUs”) to certain employees. These awards were made
under the Amended and Restated 2014 Plan and a prior plan. The PSUs are denominated in share units without dividend
rights, each of which is equivalent to one common share, and are subject to market and performance conditions and time
vesting.
The PSUs granted in 2017 vest at the end of a three-year performance period which ends on December 31, 2019. Half
of the PSUs vest on achieving relative total stockholder return goals (the “TSR PSUs”) while the other half vest on attaining
annual Adjusted Return on Equity goals (the “AROE PSUs”). The table below shows the PSU awards granted during 2017,
including the number of common shares underlying the awards at the time of grant:
TSR PSUs
AROE PSUs
Total
Minimum
Target
Maximum
—
—
—
107,426
107,421
214,847
214,852
214,842
429,694
The fair value of the time-based TSR PSUs was determined at the grant date using a Monte Carlo simulation model.
Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective
variables, such as expected volatility, risk-free interest rate and dividend yield. To appropriately value the award, the risk-
free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities
were estimated based on a historical time frame equal to the time from the valuation date until the end date of the performance
period. The number of TSR PSUs that will ultimately vest is based on the percentile ranking of the Company’s TSR among
the S&P Midcap 400 Index. The number of shares that will ultimately vest will range from 0% to 200% of the target TSR
PSUs.
The number of shares vesting from the AROE PSUs at the end of the three-year performance period will depend on
the Company’s Adjusted Return on Equity as measured against the targets set by the Compensation Committee annually
during the performance period, consistent with the business plan approved by the Board. The maximum number of AROE
PSUs for 2017 is 71,614. The fair value of the 2017 AROE PSUs was determined based on the closing market price of the
F - 22
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Company’s common shares on the date of grant reduced by the present value of expected dividends to be paid. The number
of shares that will ultimately vest will range from 0% to 200% of the target AROE PSUs.
During 2017, the Company granted a target of 143,233 PSUs of which 107,426 are TSR PSUs and 35,807 are AROE
PSUs. The remaining 71,614 of target AROE PSUs will be considered granted upon the Compensation Committee’s setting
the target AROE for the respective period. As of December 31, 2017, the remaining 2016 AROE target grant is 30,804 PSUs
and will be considered granted upon the Compensation Committee's setting the target AROE for the respective period. The
following table summarizes the activities for our unvested PSUs for 2017:
Unvested Performance Stock Units
Number of
Units of TSR
PSUs
Number of
Units of
AROE PSUs
TSR PSUs
Weighted Fair
Value at Grant
Date Using a Monte
Carlo Simulation
Model ($)
AROE PSUs
Weighted Fair
Value Equal to
Adjusted Closing
Stock Price on Date
of Grant ($)
Unvested at December 31, 2015
Granted
Unvested at December 31, 2016
Granted
Vested
Canceled
Unvested as of December 31, 2017
—
143,414
143,414
107,426
(50,899)
—
199,941
— $
— $
47,802
47,802
116,721
(57,637)
(1,697)
105,189
25.07
25.07
25.00
24.83
—
25.09
25.09
$
$
$
$
—
19.18
19.18
20.37
20.02
20.55
20.02
20.02
Expected to vest after December 31, 2017
199,941
105,189
During 2017, the Company incurred share-based compensation expense of $8,843 related to restricted common shares
and $4,305 related to PSUs, of which $1,611 and $1,581, respectively, pertains to accelerated share-based compensation
expense in regards to the separation and disability of our former Chief Executive Officer under the terms of his employment
and share-based award agreements.
As of December 31, 2017, the Company has unrecognized compensation cost, adjusted for actual forfeitures, of $4,067
related to non-vested restricted common shares and $3,974 related to PSUs, which is expected to be recognized over a
weighted average period of 1.62 years.
Under the repurchase program approved by the Company’s Board of Directors on February 8, 2016, the Company may
purchase its common shares from time to time in the open market or in privately negotiated transactions. During 2017, we
did not repurchase any common shares. As of December 31, 2017, the remaining dollar value of common shares that may
be purchased under the current repurchase program is $95,888. We also repurchased 224,972 shares totaling $4,858 from
our employees and directors to settle tax obligations related to share vesting.
F - 23
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 9. Dividends
The following table sets forth the quarterly dividends declared by our Board of Directors for the three years ended
December 31, 2017:
Declaration Date
October 31, 2017
August 4, 2017
May 2, 2017
February 9, 2017
October 28, 2016
August 2, 2016
May 2, 2016
February 9, 2016
October 30, 2015
August 4, 2015
May 4, 2015
February 17, 2015
Dividend
per
Common
Share
Aggregate
Dividend
Amount
Record Date
Payment Date
$
$
$
$
$
$
$
$
$
$
$
$
0.28
$ 22,039
November 30, 2017
December 15, 2017
0.26
$ 20,464
August 31, 2017
September 15, 2017
0.26
$ 20,482
May 31, 2017
June 15, 2017
0.26
$ 20,466
February 28, 2017
March 15, 2017
0.26
$ 20,434
November 29, 2016
December 15, 2016
0.24
$ 18,872
August 26, 2016
September 15, 2016
0.24
$ 18,915
May 31, 2016
June 15, 2016
0.24
$ 18,915
February 29, 2016
March 15, 2016
0.24
$ 19,377
November 30, 2015
December 15, 2015
0.22
$ 17,860
August 31, 2015
September 15, 2015
0.22
$ 17,863
May 29, 2015
June 15, 2015
0.22
$ 17,860
March 6, 2015
March 13, 2015
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. Our PSUs are contingently issuable
shares which are included in our diluted earnings per share calculations which do not include voting or dividend rights.
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,
2017
2016
2015
78,219,458
78,161,494
80,489,391
556,592
653,944
615,611
78,776,050
78,815,438
81,105,002
99.29%
0.71%
99.17%
0.83%
99.24%
0.76%
100.00%
100.00%
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, 2017, 2016 and 2015
are as follows:
Earnings per common share — Basic:
Income from continuing operations
Less: Distributed and undistributed earnings allocated to restricted common shares(1)
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(1)
Income from continuing operations available to common shareholders — Diluted
Weighted-average common shares outstanding — Basic
Effect of diluted shares(2)
Weighted-average common shares outstanding — Diluted
$
$
$
$
$
Year Ended December 31,
2017
2016
2015
147,874
(1,045)
146,829
$
$
151,453
(1,257)
150,196
$
$
121,729
(924)
120,805
78,219,458
78,161,494
80,489,391
1.88
$
1.92
$
1.50
147,874
(1,045)
146,829
$
$
151,453
(1,257)
150,196
$
$
121,729
(924)
120,805
78,219,458
78,161,494
80,489,391
153,983
42,785
—
78,373,441
78,204,279
80,489,391
Net income per common share — Diluted
$
1.87
$
1.92
$
1.50
_____________
(1) For the years ended December 31, 2017, 2016 and 2015, distributed and undistributed earnings to restricted shares was 0.71%, 0.83% and 0.76%, respectively,
of net income. The amount of restricted share forfeitures for all periods present was immaterial to the allocation of distributed and undistributed earnings.
(2) For the years ended December 31, 2017 and 2016, dilutive shares represented contingently issuable shares related to the Company's PSUs. For the year
ended December 31, 2015, we had 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 the United States and Ireland.
The sources of income from continuing operations before income taxes and earnings of unconsolidated equity method
investment for the years ended December 31, 2017, 2016 and 2015 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,
2017
2016
2015
2,801
$
2,230
$
2,433
143,504
154,275
125,810
146,305
$
156,505
$
128,243
$
$
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, 2017, 2016
and 2015 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,
2017
2016
2015
$
6,503
$
2,004
$
1,913
6,574
14,990
(5,474)
(1,161)
(2,313)
(8,948)
587
3,560
6,151
1,350
(157)
4,963
6,156
4,167
994
14,499
19,660
829
57
(7,775)
(6,889)
$
6,042
$
12,307
$
12,771
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017, 2016 and 2015
consisted of the following:
Deferred tax assets:
Non-cash share-based payments
Net operating loss carry forwards
Other
Total deferred tax assets
Deferred tax liabilities:
Accelerated depreciation
Other
Total deferred tax liabilities
Net deferred tax liabilities
Year Ended December 31,
2017
2016
2015
$
1,899
$
2,183
$
22,804
1,272
25,975
(62,379)
354
(62,025)
47,538
1,902
51,623
(92,734)
(1,227)
(93,961)
1,483
52,007
761
54,251
(87,716)
(442)
(88,158)
$
(36,050) $
(42,338) $
(33,907)
The Company had approximately $33,424 of net operating loss (“NOL”) carry forwards available at December 31,
2017 to offset future taxable income subject to U.S. graduated tax rates. If not utilized, these carry forwards will expire
between 2032 through 2037. The Company also had NOL carry forwards of $247,053 with no expiration date to offset
future Irish and Mauritius taxable income. In 2017, NOLs of $223,758 were utilized as a result of gains from sale and
transfer of aircraft in Singapore. We have a five-year Singapore corporate tax rate reduction from the statutory rate of 17%
to 8% through June 30, 2022. 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, 2017
we have elected to permanently reinvest our accumulated undistributed U.S. earnings of $11,404. Accordingly, no U.S.
withholding taxes have been provided. Withholding tax of $3,421 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, 2017, 2016 and 2015 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,
2017
2016
2015
$
51,207
$
54,777
$
44,885
168
182
221
(21,517)
(2,348)
(15,839)
(5,581)
(236)
188
(31,250)
(20,789)
(276)
(7,519)
(3,877)
525
(255)
(3,073)
(5,650)
(3,395)
737
(165)
$
6,042
$
12,307
$
12,771
The provision for income taxes includes the net deferred tax benefit of $4,063 relating to the transfer of aircraft from
Singapore and the Singapore rate reduction from 10% to 8%. The income tax provision was also reduced by $2,779 for the
reduction in the Federal Rate resulting from the passage of the Tax Act.
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.
F - 27
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 12. Interest, Net
The following table shows the components of interest, net for the years ended December 31, 2017, 2016 and 2015:
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities(1)
Hedge ineffectiveness losses
Amortization of deferred losses related to interest rate derivatives
Amortization of deferred financing fees and debt discount(2)
Interest expense
Less: Interest income
Less: Capitalized interest
Interest, net
______________
Year Ended December 31,
2017
2016
2015
$
223,260
$
228,774
$
204,326
—
2,202
19,435
244,897
(3,411)
(255)
—
9,662
18,508
256,944
(1,140)
(144)
455
24,023
14,878
243,682
(105)
—
$
241,231
$
255,660
$
243,577
(1)
(2)
Includes $2,058 and $4,960 of loan prepayment fees related to the sale of aircraft during the years ended December 31, 2017 and 2016, respectively.
Includes $4,005 and $2,880 in deferred financing fees written off related to the sale of aircraft during the years ended December 31, 2017 and 2016, respectively.
Note 13. Commitments and Contingencies
Rent expense, primarily for the corporate office and sales and marketing facilities, was approximately $2,143, $1,951
and $1,163 for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017, 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,
2018
2019
2020
2021
2022
Thereafter
Total
$
Amount
1,716
2,531
1,618
1,649
1,681
9,590
$
18,785
At December 31, 2017, we had commitments to acquire 37 aircraft for $1,453,625, including 25 Embraer E2 aircraft.
Remaining commitments, including $129,218 of progress payments, contractual price escalations and other adjustments
for these aircraft at December 31, 2017, net of amounts already paid, are as follows:
Year Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
As of February 8, 2018, we have commitments to acquire 41 aircraft for $1,587,925.
F - 28
$
Amount
466,693
470,073
375,216
141,643
—
—
$
1,453,625
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note 14. Other Assets
The following table describes the principal components of Other assets on our Consolidated Balance Sheets as of:
December 31,
2017
2016
Deferred income tax asset
$
497
$
Lease incentives and premiums, net of amortization of $41,246 and $39,638, respectively
Flight equipment held for sale
Aircraft purchase deposits and progress payments
Fair value of interest rate cap
Note receivable(1)
Other assets
Total other assets
______________
(1) Related to the sale of aircraft during the year ended December 31, 2017.
Note 15. Accounts Payable, Accrued Expenses and Other Liabilities
74,515
707
23,704
3,254
10,000
28,533
1,902
96,587
3,834
12,923
5,735
—
27,417
$
141,210
$
148,398
The following table describes the principal components of Accounts payable, accrued expenses and other liabilities
recorded on our Consolidated Balance Sheets as of:
December 31,
2017
2016
Accounts payable and accrued expenses
Deferred income tax liability
Accrued interest payable
Lease discounts, net of amortization of $36,111 and $29,016, respectively
$
50,948
$
36,547
38,129
14,597
Total accounts payable, accrued expenses and other liabilities
$
140,221
$
24,337
44,241
43,107
15,842
127,527
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(1)
Beginning balance
Year Ended December 31,
2017
2016
$
(3,552)
$
(13,213)
Amount recognized in other comprehensive loss on derivatives, net of tax expense of $0 for all periods
presented
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense
of $0 for all periods presented
Net current period other comprehensive income
—
2,202
2,202
(690)
10,351
9,661
Ending balance
$
(1,350)
$
(3,552)
(1) All amounts are net of tax. Amounts in parentheses indicate debits.
F - 29
Aircastle Limited and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Reclassifications from accumulated other comprehensive loss(1)
Year Ended December 31,
2017
2016
Losses on cash flow hedges
Amount of effective amortization of net deferred interest rate derivative losses(2)
Effective amount of net settlements of interest rate derivatives, net of tax expense of $0 for all periods
presented
Amount of loss reclassified from accumulated other comprehensive loss into income
$
$
2,202
$
9,662
—
689
2,202
$
10,351
(1) All amounts are net of tax.
(2) Included in interest expense.
At December 31, 2017, 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 $1,166.
Note 17. Quarterly Financial Data (Unaudited)
Quarterly results of our operations for the years ended December 31, 2017 and 2016 are summarized below:
2017
Revenues
Net income (loss)
Basic earnings (loss) per share:
Net income (loss)
Diluted earnings (loss) per share:
Net income (loss)
2016
Revenues
Net income
Basic earnings per share:
Net income
Diluted earnings per share:
Net income
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
$
$
$
$
$
177,402
55,120
0.70
0.70
204,653
67,724
0.86
0.86
$
$
$
$
$
$
$
$
191,411
57,431
0.73
0.73
194,652
27,437
0.35
0.35
$
$
$
$
$
$
$
$
223,534
(7,116)
$
$
204,273
42,439
(0.09)
$
0.54
(0.09)
$
0.54
189,988
20,030
0.25
0.25
$
$
$
$
183,665
36,262
0.46
0.46
The sum of the quarterly earnings (loss) 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 13, 2018
Aircastle Limited
By:
/s/ Michael Inglese
Michael Inglese
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/ Michael Inglese
Michael Inglese
/s/ Aaron Dahlke
Aaron Dahlke
/s/ Jose Maronilla, Jr.
Jose Maronilla, Jr.
/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/ Yukihiko Matsumura
Yukihiko Matsumura
/s/ Ronald L. Merriman
Ronald L. Merriman
/s/ Agnes Mura
Agnes Mura
/s/ Charles W. Pollard
Charles W. Pollard
/s/ Takayuki Sakakida
Takayuki Sakakida
/s/ Gentaro Toya
Gentaro Toya
TITLE
DATE
Chief Executive Officer and Director
February 13, 2018
Chief Financial Officer
February 13, 2018
Chief Accounting Officer
February 13, 2018
Chairman of the Board
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
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
Capitalized interest
Portion of rent expense representative of interest
Total fixed charges
Earnings:
Income from continuing operations before income taxes
Fixed charges from above
Less capitalized interest from above
Amortization of capitalized interest
Earnings (as defined)
Ratio of earnings to fixed charges
Year Ended December 31,
2017
2016
2015
$
241,231 $
255,660 $
243,577
255
701
144
638
—
376
$
242,187 $
256,442 $
243,953
$
146,305 $
156,505 $
128,243
242,187
256,442
243,952
(255)
381
(144)
532
—
800
$
388,618 $
413,335 $
372,995
1.60 x
1.61 x
1.53 x
Subsidiaries of Aircastle Limited
As of December 31, 2017
Name of Subsidiary
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
45
ACS 2007-1 Limited
ACS 2008-1 Limited
ACS 2016 Funding (Bermuda) Limited
ACS 2016 Funding (Ireland) Limited
ACS Aircraft Finance Bermuda Limited
ACS Aircraft Finance Ireland 2 Limited
ACS Aircraft Finance Ireland 3 Limited
ACS Aircraft Leasing (Ireland) Limited
AHCL Two Limited
AHCL Luxembourg Finance Company
AYR Bermuda Limited
AYR Delaware LLC
AYR Freighter LLC
Aircastle Advisor Asia Pacific Limited
Aircastle Advisor (International) Limited
Aircastle Advisor (Ireland) Limited
Aircastle Advisor LLC
Aircastle Bermuda Securities Limited
Aircastle Holding Corporation Limited
Aircastle Investment Holdings 2 Limited
Aircastle Investment Holdings 3 Limited
Aircastle Singapore Pte. Limited
Aircraft MSN 313 LLC
Aircraft MSN 997 LLC
Aircraft MSN 1006 LLC
Aircraft MSN 1012 LLC
Aircraft MSN 1055 LLC
Aircraft MSN 1132 LLC
Aircraft MSN 1162 LLC
Aircraft MSN 1177 LLC
Aircraft MSN 1179 LLC
Aircraft MSN 1244 LLC
Aircraft MSN 1258 LLC
Aircraft MSN 1259 LLC
Aircraft MSN 1261 LLC
Aircraft MSN 1279 LLC
Aircraft MSN 1295 LLC
Aircraft MSN 1308 LLC
Aircraft MSN 1322 LLC
Aircraft MSN 1329 LLC
Aircraft MSN 1364 LLC
Aircraft MSN 1411 LLC
Aircraft MSN 1481 LLC
Aircraft MSN 1673 LLC
Aircraft MSN 1742 LLC
Exhibit 21.1
Jurisdiction
Bermuda
Bermuda
Bermuda
Ireland
Bermuda
Ireland
Ireland
Ireland
Bermuda
Grand Duchy of Luxembourg
Bermuda
Delaware
Delaware
Bermuda
Bermuda
Ireland
Delaware
Bermuda
Bermuda
Bermuda
Bermuda
Singapore
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 1780 LLC
Aircraft MSN 1809 LLC
Aircraft MSN 1989 LLC
Aircraft MSN 1913 LLC
Aircraft MSN 2002 LLC
Aircraft MSN 2004 LLC
Aircraft MSN 2098 LLC
Aircraft MSN 2104 LLC
Aircraft MSN 2220 LLC
Aircraft MSN 2248 LLC
Aircraft MSN 2254 LLC
Aircraft MSN 2310 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 2495 LLC
Aircraft MSN 2563 LLC
Aircraft MSN 2565 LLC
Aircraft MSN 2578 LLC
Aircraft MSN 2605 LLC
Aircraft MSN 2636 LLC
Aircraft MSN 2646 LLC
Aircraft MSN 2677 LLC
Aircraft MSN 2691 LLC
Aircraft MSN 2715 LLC
Aircraft MSN 2742 LLC
Aircraft MSN 2744 LLC
Aircraft MSN 2754 LLC
Aircraft MSN 2756 LLC
Aircraft MSN 2765 LLC
Aircraft MSN 2769 LLC
Aircraft MSN 2777 LLC
Aircraft MSN 2779 LLC
Aircraft MSN 2782 LLC
Aircraft MSN 2792 LLC
Aircraft MSN 2795 LLC
Aircraft MSN 2803 LLC
Aircraft MSN 2818 LLC
Aircraft MSN 2822 LLC
Aircraft MSN 2956 LLC
Aircraft MSN 3045 LLC
Aircraft MSN 3157 LLC
Aircraft MSN 3209 LLC
Aircraft MSN 3277 LLC
Aircraft MSN 3278 LLC
Aircraft MSN 3338 LLC
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
94
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 3421 LLC
Aircraft MSN 3443 LLC
Aircraft MSN 3450 LLC
Aircraft MSN 3458 LLC
Aircraft MSN 3524 LLC
Aircraft MSN 3543 LLC
Aircraft MSN 3637 LLC
Aircraft MSN 3673 LLC
Aircraft MSN 3911 LLC
Aircraft MSN 4070 LLC
Aircraft MSN 4077 LLC
Aircraft MSN 4088 LLC
Aircraft MSN 6201 LLC
Aircraft MSN 6253 LLC
Aircraft MSN 7160 LLC
Aircraft MSN 7375 LLC
Aircraft MSN 25702-2 LLC
Aircraft MSN 27137 LLC
Aircraft MSN 28231 LLC
Aircraft MSN 28623 LLC
Aircraft MSN 29345 LLC
Aircraft MSN 29346 LLC
Aircraft MSN 29347 LLC
Aircraft MSN 29368 LLC
Aircraft MSN 29918 LLC
Aircraft MSN 29920 LLC
Aircraft MSN 29927 LLC
Aircraft MSN 29930 LLC
Aircraft MSN 30295 LLC
Aircraft MSN 30652 LLC
Aircraft MSN 30673 LLC
Aircraft MSN 30687 LLC
Aircraft MSN 30695 LLC
Aircraft MSN 30702 LLC
Aircraft MSN 30710 LLC
Aircraft MSN 30877 LLC
Aircraft MSN 32457 LLC
Aircraft MSN 32704 LLC
Aircraft MSN 32705 LLC
Aircraft MSN 33030 LLC
Aircraft MSN 34690 LLC
Aircraft MSN 35022 LLC
Aircraft MSN 35082 LLC
Aircraft MSN 35083 LLC
Aircraft MSN 35093 LLC
Aircraft MSN 35134 LLC
Aircraft MSN 35233 LLC
Aircraft MSN 35235 LLC
Aircraft MSN 35236 LLC
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
143
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 37742 LLC
Aircraft MSN 38494 LLC
Aircraft MSN 38683 LLC
Aircraft MSN 38686 LLC
Aircraft MSN 40713 LLC
Aircraft MSN 41522 LLC
Aircraft MSN 19000484 LLC
Aircraft MSN 19000575 LLC
Aircraft MSN 19000588 LLC
Aircraft MSN 19000609
Aircraft MSN 19000628
ALC B377 33103, LLC
ALC B378 33104, LLC
ALC B378 34242, 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) 10 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
Haneda Aircraft Leasing (Norway) AS
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
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
Jurisdiction
Delaware
Delaware
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
Ireland
Bermuda
Ireland
Ireland
Ireland
Sweden
Sweden
Sweden
France
France
Cayman Islands
Norway
France
Ireland
France
Ireland
Ireland
Ireland
Ireland
Labuan
Name of Subsidiary
Macstay Aircraft Leasing Limited
Marrow Aircraft Leasing (Ireland) Limited
Medan Aircraft Leasing (Ireland) Limited
Melbourne Aircraft Leasing (UK) Limited
Merdeka Aircraft Leasing (Labuan) Limited
Momo Aircraft Leasing Limited
Orchard Aviation (41521) Pte. Ltd.
Orchard Aviation (A330) Pte. Ltd.
Orchard Aviation 41522 (UK) Limited
Penguin Leasing (Ireland) Limited
Perdana Aircraft Leasing (Labuan) Limited
Platypus Aircraft Leasing (Ireland) Limited
Salmon Aircraft Leasing (Ireland) Limited
Sulaco Aircraft Leasing (Ireland) Limited
Sumatra Aircraft Leasing (France) Sarl
Tempelhof Aircraft Leasing (Ireland) Limited
Thunderbird 1 Leasing Limited
Thunderbird 2 Leasing Limited
Thunderbird 3 Leasing Limited
Thunderbird 4 Leasing Limited
Trojan Aircraft Leasing (France) SARL
Zebra Aircraft Leasing Limited
Zephyr Aircraft Leasing B.V.
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
Jurisdiction
Bermuda
Ireland
Ireland
United Kingdom
Labuan
Bermuda
Singapore
Singapore
United Kingdom
Ireland
Labuan
Ireland
Ireland
Ireland
France
Ireland
Mauritius
Mauritius
Mauritius
Mauritius
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 Amended and
Restated 2014 Omnibus Incentive Plan of Aircastle Limited of our reports dated February 13, 2018, 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, 2017.
Exhibit 23.1
/s/ Ernst & Young LLP
Stamford, Connecticut
February 13, 2018
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE 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 13, 2018
/s/ Michael Inglese
Michael Inglese
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Aaron Dahlke, 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 13, 2018
/s/ Aaron Dahlke
Aaron Dahlke
Chief Financial Officer
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
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Aircastle Limited (the “Company”) for the fiscal year ended
December 31, 2017, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I,
Michael Inglese, 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 ("Section 906"), 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 the Company and will be
retained by the Company and furnished to the SEC or its staff upon request.
/s/ Michael Inglese
Michael Inglese
Chief Executive Officer
Date: February 13, 2018
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, 2017, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I,
Aaron Dahlke, 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 the Company and will be
retained by the Company and furnished to the SEC or its staff upon request.
/s/ Aaron Dahlke
Aaron Dahlke
Chief Financial Officer
Date: February 13, 2018
Owned Aircraft Portfolio at December 31, 2017 is as follows:
Exhibit 99.1
Aircraft Group
Narrow-body Aircraft
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Financing
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 V2500
A319-100 V2500
A319-100 V2500
A319-100 V2500
A319-100 V2500
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 V2500
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 CFM56-5B
A319-100 V2500
A319-100 CFM56-5B
A319-100 V2500
A319-100 CFM56-5B
A319-100 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
1136
1155
1258
1261
1279
1295
1329
1673
1742
2098
2311
2495
2565
2578
2605
2636
2646
2677
2691
2715
2742
2744
2754
2765
2769
2777
2779
2782
2795
2803
2818
3045
3209
3421
3443
3450
1041
1054
1132
1162
1177
1179
1244
Dec-99
Unencumbered
Jan-00
Jun-00
Jul-00
Aug-00
Aug-00
Oct-00
Feb-02
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-02
Unencumbered
Feb-04
Feb-05
Unencumbered
Unencumbered
May-05
Unencumbered
Sep-05
Sep-05
Nov-05
Dec-05
Jan-06
Jan-06
Feb-06
Mar-06
Apr-06
Apr-06
Apr-06
Apr-06
Apr-06
May-06
May-06
May-06
May-06
Jun-06
Jun-06
Mar-07
Jul-07
Mar-08
Mar-08
Mar-08
Jul-99
Aug-99
Dec-99
Feb-00
Mar-00
Mar-00
Jun-00
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
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
Financing
Narrow-body Aircraft (Continued)
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 V2500
A320-200 V2500
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 V2500
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 V2500
A320-200 CFM56-5B
A320-200 V2500
A320-200 CFM56-5B
A320-200 V2500
A320-200 V2500
A320-200 V2500
A320-200 V2500
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
1259
1308
1322
1757
1780
1809
1913
2048
2104
2248
2254
2310
2347
2391
2397
2401
2524
2564
2792
2822
2956
2982
2998
3157
3189
3230
3277
3338
3383
3437
3524
3543
3750
3840
4008
4070
4077
4088
4113
4156
4216
4312
4694
6139
6173
6528
6536
6561
Jul-00
Oct-00
Nov-00
May-02
May-02
Mar-04
Jan-03
Jul-03
Apr-05
Apr-05
Sep-04
Nov-04
Apr-05
Apr-05
Mar-05
Mar-05
Sep-05
Oct-05
Jun-06
Jul-06
Nov-06
Dec-06
Jan-07
Jun-07
Jul-07
Sep-07
Oct-07
Dec-07
Jan-08
Mar-08
Jun-08
Jul-08
Jan-09
Apr-09
Aug-09
Oct-09
Nov-09
Nov-09
Nov-09
Dec-09
Feb-10
May-10
May-11
Oct-14
Oct-14
Mar-15
Mar-15
Apr-15
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Bank Financing
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Financing
Narrow-body Aircraft (Continued)
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A320-200 CFM56-5B
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 V2500
A321-200 V2500
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 CFM56-5B
A321-200 V2500
A321-200 CFM56-5B
A321-200 V2500
A321-200 V2500
A321-200 V2500
A321-200 V2500
A321-200 V2500
A321-200 V2500
A321-200 V2500
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-700 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
6598
6634
6800
6806
6813
7050
7223
775
815
1199
1734
2208
2220
2357
2381
2488
2563
2687
2756
3458
3637
3673
6201
6253
7206
7375
28008
28009
28010
28013
28015
29346
29347
29356
30687
30710
32881
33103
28231
28381
28623
29037
29345
29368
29918
29920
29927
29930
May-15
Unencumbered
Jun-15
Oct-15
Nov-15
Nov-15
Apr-16
Jul-16
Feb-98
May-98
Apr-00
May-02
Apr-04
May-04
Dec-04
Feb-05
Jun-05
Oct-05
Feb-06
May-06
Apr-08
Jan-09
Jan-09
Jul-14
Sep-14
Jul-16
Oct-16
Feb-99
Unencumbered
Bank Financing
Bank Financing
Bank Financing
Bank Financing
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Mar-99
Unencumbered
Oct-99
Oct-00
Feb-01
Jan-03
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-03
Unencumbered
Oct-04
Apr-07
Feb-07
Jun-02
Jun-02
May-00
May-99
May-00
Jan-99
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-02
Unencumbered
Mar-06
Jun-99
Sep-99
Dec-00
Jan-01
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Manufacturer
Serial Number
Date of
Manufacture
Narrow-body Aircraft (Continued)
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-800 CFM56-7B
737-900 CFM56-7B
737-900ER CFM56-7B
737-900ER CFM56-7B
30296
30410
30640
30652
30673
30695
30824
30877
32796
33030
33104
33453
33597
34000
34242
34690
34799
34800
35022
35082
35093
35099
35103
35106
35134
36826
36829
37742
38494
38686
39859
39864
40713
40744
40745
40910
40998
41179
41398
60499
60500
60501
30412
35679
35680
Feb-05
Oct-02
Dec-01
Dec-01
Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-04
Unencumbered
Mar-06
Mar-05
Mar-01
Feb-03
Jun-06
Jun-03
Jul-05
Sep-06
Aug-05
Mar-05
Feb-07
Sep-06
Oct-06
Jan-10
Mar-08
Feb-07
Nov-07
Nov-06
Mar-08
Jan-07
Sep-11
Oct-11
Feb-09
Jan-10
Jan-13
Jul-15
Sep-15
Dec-10
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Bank Financing
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
May-16
Unencumbered
Aug-16
Dec-10
Nov-11
Feb-16
Unencumbered
Unencumbered
Unencumbered
Unencumbered
May-14
Unencumbered
Jul-17
Unencumbered
Aug-17
Unencumbered
Sep-17
Unencumbered
May-03
Unencumbered
Apr-07
Unencumbered
May-07
Unencumbered
Aircraft Group
Aircraft Type
Engine Type
Narrow-body Aircraft (Continued)
737-900ER CFM56-7B
737-900ER CFM56-7B
737-900ER CFM56-7B
E195 CF34-10
E195 CF34-10
E195 CF34-10
E195 CF34-10
E195 CF34-10
A330-200 Trent 700
A330-200 PW4000
A330-200 PW4000
A330-200 Trent 700
A330-200 CF6-80E1
A330-200 CF6-80E1
A330-200 CF6-80E1
A330-200 Trent 700
A330-200 Trent 700
A330-200 Trent 700
A330-200 Trent 700
A330-200 Trent 700
A330-200 Trent 700
A330-200 Trent 700
A330-300 Trent 700
A330-300 Trent 700
A330-300 Trent 700
A330-300 Trent 700
A330-300 PW4000
A330-300 Trent 700
A330-300 Trent 700
777-200ER GE90
777-300ER GE90
777-300ER GE90
777-300ER GE90
777-300ER GE90
777-300ER GE90
777-300ER GE90
747-400F CF6-80C2
747-400ERF CF6-80C2
747-400ERF CF6-80C2
747-400ERF CF6-80C2
Wide-body Aircraft
Freighter Aircraft
Manufacturer
Serial Number
Date of
Manufacture
Financing
35720
35721
38683
Dec-08
Feb-09
Unencumbered
Unencumbered
Nov-12
Unencumbered
484
575
588
609
628
313
324
343
526
587
634
811
1073
1191
1210
1223
1236
1364
1492
997
1006
1012
1015
1055
1411
1481
32705
35256
35299
38886
38888
38889
41522
33749
35233
35236
35237
Oct-11
Sep-12
Dec-12
Mar-13
Jun-13
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Jan-00
Unencumbered
May-00
Unencumbered
Jun-00
Apr-03
Apr-04
Unencumbered
Unencumbered
Unencumbered
Nov-04
Unencumbered
Feb-07
Dec-09
Feb-11
Mar-11
Unencumbered
ECA Financing
ECA Financing
ECA Financing
May-11
ECA Financing
Jul-11
Nov-12
Oct-14
Mar-09
Apr-09
May-09
May-09
Oct-09
Apr-13
Jan-14
Oct-04
Mar-07
Oct-07
Aug-12
Oct-12
Nov-12
Mar-13
Oct-04
Jan-07
Feb-08
Apr-08
ECA Financing
ECA Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Bank Financing
Bank Financing
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
Bank Financing
Unencumbered
Unencumbered
Unencumbered
Unencumbered
CORPORATE INFORMATION
BOARD OF DIRECTORS
MANAGEMENT TEAM
CORPORATE OFFICES
LEGAL COUNSEL
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
Michael J. Inglese
Director;
Chief Executive Officer
Aircastle Limited
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.
Takayuki Sakakida
Director;
Vice President and General
Manager of Marubeni America
Corporation
Gentaro Toya
Director;
Executive Vice President of
Marubeni America Corporation
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Michael J. Inglese
Chief Executive Officer
Aaron A. Dahlke
Chief Financial Officer
Michael L. Kriedberg
Chief Commercial Officer
Jose Maronilla, Jr.
Chief Accounting Officer
Christopher L. Beers
General Counsel
Roy Chandran
Executive Vice President,
Corporate Finance & Strategy
Joseph S. Schreiner
Executive Vice President,
Technical
1 Audit Committee
2 Compensation Committee
3 Nominating and Corporate
Governance Committee
c/o Aircastle Advisor LLC
201 Tresser Boulevard,
Suite 400
Stamford, CT 06901
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
4 Times Square
New York, NY 10036
212 735 3000
INVESTOR RELATIONS
CONTACTS
Frank Constantinople
Senior Vice President
Aircastle Advisor LLC
201 Tresser Boulevard,
Suite 400
Stamford, CT 06901
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 18, 2018, 10:00 a.m. EDT
Aircastle Limited
201 Tresser Boulevard
Stamford, CT 06901
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 “Annual
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 Annual 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 Annual Report.
Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to
reflect future events or circumstances.
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AIRCASTLE LIMITED : C/O AIRCASTLE ADVISOR LLC
201 TRESSER BOULEVARD, SUITE 400, STAMFORD, CT 06901
203-504-1020 : www.aircastle.com