Aircastle Limited
Aircastle LTD (Form: 10-Q, Received: 11/09/2009 16:16:49)
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
or
     
o   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   98-0444035
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)
     
c/o Aircastle Advisor LLC    
300 First Stamford Place, 5 th Floor, Stamford, CT   06902
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code (203) 504-1020
     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 þ    NO o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 o   NO o
     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. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). YES o    NO þ
     As of October 30, 2009, there were 79,234,663 outstanding shares of the registrant’s common shares, par value $0.01 per share.
 
 


 

Aircastle Limited and Subsidiaries
Form 10-Q
Table of Contents
                 
    Page          
    No.          
PART I. — FINANCIAL INFORMATION
 
               
               
 
               
    3          
 
               
    4          
 
               
    5          
 
               
    6          
 
               
    22          
 
               
    43          
 
               
    44          
 
               
PART II. — OTHER INFORMATION
 
               
    45          
 
               
    45          
 
               
    45          
 
               
    46          


 

PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
                 
    December 31,     September 30,  
    2008     2009  
            (Unaudited)  
ASSETS
               
Cash and cash equivalents
  $ 80,947     $ 132,408  
Accounts receivable
    3,161       4,065  
Debt investments
    14,349       7,136  
Restricted cash and cash equivalents
    182,623       218,079  
Restricted liquidity facility collateral
          81,000  
Flight equipment held for lease, net of accumulated depreciation of $371,591 and $521,251
    3,837,543       3,767,314  
Aircraft purchase deposits and progress payments
    68,923       109,454  
Leasehold improvements, furnishings and equipment, net of accumulated depreciation of $1,999 and $2,349
    1,174       907  
Other assets
    62,852       70,519  
 
           
Total assets
  $ 4,251,572     $ 4,390,882  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
LIABILITIES
               
Borrowings from securitizations and term debt financings
  $ 2,476,296     $ 2,435,593  
Accounts payable, accrued expenses and other liabilities
    60,789       59,205  
Dividends payable
    7,862       7,923  
Lease rentals received in advance
    28,463       27,758  
Liquidity facility
          81,000  
Security deposits
    65,307       73,131  
Maintenance payments
    224,288       250,018  
Fair value of derivative liabilities
    276,401       205,549  
 
           
Total liabilities
    3,139,406       3,140,177  
 
           
 
               
Commitments and Contingencies
               
 
               
SHAREHOLDERS’ EQUITY
               
Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and outstanding
           
Common shares, $.01 par value, 250,000,000 shares authorized, 78,620,320 shares issued and outstanding at December 31, 2008; and 79,234,663 shares issued and outstanding at September 30, 2009
    786       792  
Additional paid-in capital
    1,474,455       1,478,275  
Retained earnings (deficit)
    (473 )     55,256  
Accumulated other comprehensive loss
    (362,602 )     (283,618 )
 
           
Total shareholders’ equity
    1,112,166       1,250,705  
 
           
Total liabilities and shareholders’ equity
  $ 4,251,572     $ 4,390,882  
 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


 

Aircastle Limited and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Revenues:
                               
Lease rental revenue
  $ 136,578     $ 128,283     $ 405,206     $ 383,683  
Amortization of net lease discounts and lease incentives
    1,781       (3,992 )     6,929       (7,919 )
Maintenance revenue
    5,433       31,376       9,575       47,616  
 
                       
Total lease rentals
    143,792       155,667       421,710       423,380  
Interest income
    628       556       2,533       1,783  
Other revenue
    34       9,517       562       9,628  
 
                       
Total revenues
    144,454       165,740       424,805       434,791  
 
                       
 
                               
Expenses:
                               
Depreciation
    52,020       53,130       151,840       156,379  
Interest, net
    54,112       43,032       146,442       127,925  
Selling, general and administrative (including non-cash share based payment expense of $1,659 and $1,742 for the three months ended, and $4,872 and $5,129 for the nine months ended September 30, 2008 and 2009, respectively)
    11,641       11,074       34,484       33,291  
Impairment of aircraft
          18,211             18,211  
Maintenance and other costs
    891       4,836       2,133       15,114  
 
                       
Total expenses
    118,664       130,283       334,899       350,920  
 
                       
 
                               
Other income (expense):
                               
Gain on sale of aircraft
    772       162       5,898       162  
Other
    (1,673 )     (738 )     (590 )     855  
 
                       
Total other income (expense)
    (901 )     (576 )     5,308       1,017  
 
                       
 
                               
Income from continuing operations before income taxes
    24,889       34,881       95,214       84,888  
Income tax provision
    1,315       1,423       4,662       5,388  
 
                       
Net income
  $ 23,574     $ 33,458     $ 90,552     $ 79,500  
 
                       
 
                               
Earnings per common share — Basic
  $ 0.30     $ 0.42     $ 1.15     $ 1.00  
 
                       
 
                               
Earnings per common share — Diluted
  $ 0.30     $ 0.42     $ 1.15     $ 1.00  
 
                       
 
                               
Dividends declared per share
  $ 0.25     $ 0.10     $ 0.75     $ 0.30  
 
                       
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


 

Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
                 
    Nine Months Ended  
    September 30,  
    2008     2009  
Cash flows from operating activities:
               
Net income
  $ 90,552     $ 79,500  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    151,840       156,379  
Amortization of deferred financing costs
    9,773       8,808  
Amortization of net lease discounts and lease incentives
    (6,929 )     7,919  
Deferred income taxes
    3,344       4,560  
Accretion of purchase discounts on debt investments
    (419 )     (430 )
Non-cash share based payment expense
    4,872       5,129  
Cash flow hedges reclassified into earnings
    10,740       13,690  
Ineffective portion of cash flow hedges
    7,977       (2,874 )
Gain on sale of flight equipment
    (5,898 )     (162 )
Security deposits and maintenance payments included in earnings
    (9,171 )     (36,982 )
Loss on sale of investments
    245       131  
Impairment of aircraft
          18,211  
Other
    943       (556 )
Changes in certain assets and liabilities:
               
Accounts receivable
    903       (909 )
Restricted cash and cash equivalents
    (47,923 )     (35,456 )
Other assets
    1,797       (1,975 )
Accounts payable, accrued expenses and other liabilities
    3,911       (8,397 )
Payable to affiliates
    (200 )      
Lease rentals received in advance
    (2,796 )     (537 )
 
           
Net cash provided by operating activities
    213,561       206,049  
 
           
 
               
Cash flows from investing activities:
               
Acquisition and improvement of flight equipment and lease incentives
    (228,934 )     (124,082 )
Aircraft purchase deposits and progress payments, net of returned deposits
    (2,154 )     (41,912 )
Proceeds from sale of flight equipment
    48,882       10,601  
Restricted cash from disposition of flight equipment
    (12,294 )      
Proceeds from sale of debt investments
    65,335       5,423  
Principal repayments on debt investments
    11,674       3,787  
Collateral call payments on derivatives and repurchase agreements
    (349,123 )      
Collateral call receipts on derivatives and repurchase agreements
    375,066        
Leasehold improvements, furnishings and equipment
    (365 )     (82 )
 
           
Net cash used in investing activities
    (91,913 )     (146,265 )
 
           
 
               
Cash flows from financing activities:
               
Issuance, net of repurchases, of common shares to directors and employees
    (1,263 )     (247 )
Proceeds from term debt financings
    992,715       70,916  
Securitization and term debt financing repayments
    (85,055 )     (111,619 )
Restricted cash and cash equivalents related to unreleased term debt financing borrowings
    (87,462 )      
Deferred financing costs
    (23,346 )     (3,588 )
Credit facility borrowings
    482,723        
Credit facility repayments
    (1,167,578 )      
Restricted secured liquidity facility collateral
          (81,000 )
Secured liquidity facility collateral
          81,000  
Principal repayments on repurchase agreements
    (67,744 )      
Security deposits and maintenance payments received
    83,966       96,162  
Security deposits and maintenance payments returned
    (22,493 )     (33,479 )
Payments for terminated cash flow hedges
    (68,332 )     (2,758 )
Dividends paid
    (94,291 )     (23,710 )
 
           
Net cash (used in) provided by financing activities
    (58,160 )     (8,323 )
 
           
 
               
Net increase in cash and cash equivalents
    63,488       51,461  
Cash and cash equivalents at beginning of period
    13,546       80,947  
 
           
Cash and cash equivalents at end of period
  $ 77,034     $ 132,408  
 
           
 
               
Supplemental disclosures of cash flow information:
               
Cash paid for interest, net of capitalized interest
  $ 121,760     $ 109,525  
 
           
Cash paid for income taxes
  $ 5,765     $ 2,304  
 
           
 
               
Supplemental disclosures of non-cash investing activities:
               
Security deposits, maintenance payment liabilities and other liabilities settled in sale of flight equipment
  $     $ 2,556  
 
           
 
               
Supplemental disclosures of non-cash financing activities:
               
Security deposits converted to maintenance payment liabilities
  $     $ 11,110  
 
           

5


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
Note 1. Summary of Significant Accounting Policies
Organization
     Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 by Fortress Investment Group LLC and certain of its affiliates (together, the “Fortress Shareholders” or “Fortress”) under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is investing in aviation assets, including leasing, managing and selling commercial jet aircraft to airlines throughout the world and in aircraft related debt investments.
Basis of Presentation
     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 (“US GAAP”). We operate in a single segment.
     The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the ‘‘SEC’’) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with US GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of September 30, 2009 through November 9, 2009, the date on which the consolidated financial statements included in this Form 10-Q were issued.
     In June 2009, the Financial Accounting Standards Board (“FASB”) issued the Statement of Financial Accounting Standard (“SFAS”) No. 168, FASB Accounting Standards Codification TM (“ASC”). The ASC is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the ASC became the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. The Codification does not replace or affect guidance issued by the SEC or its staff for public companies in their filings with the SEC. Effective July 1, 2009, changes to the ASC are communicated through an Accounting Standards Update (“ASU”). The Company adopted the ASC during the third quarter of 2009, and as a result, all references to prior accounting and reporting standards which have been superseded by the ASC have been changed to reflect the new reference within the ASC. The ASC does not change or alter existing US GAAP and, therefore, it did not impact our financial position, results of operations and cash flows.
     Effective January 1, 2009, ASC 815 Derivatives and Hedging, required enhanced derivative and hedging disclosures, which is intended to improve financial reporting about derivative instruments and hedging activities to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. See Note 10 — Derivatives.
     Also effective January 1, 2009, ASC 260 Earnings Per Share, determined that unvested share-based payment awards that contain nonforfeitable rights to receive dividend or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation for the purpose of applying the two-class method when calculating earnings per share (“EPS”). The adoption requires us to present EPS using the two-class method for

6


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
our current period EPS computations and to retrospectively revise our comparative prior period EPS computations using the two-class method. The adoption did not have a material effect on EPS. See Note 6 — Earnings Per Share.
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.
Recent Accounting Pronouncements
     Effective the second quarter of 2009, ASC 820 Fair Value Measurements and Disclosures , provided additional guidelines for making fair value measurements identifying circumstances that indicate a transaction is not orderly. Also effective the second quarter of 2009, ASC 825 Financial Instruments , enhanced consistency in financial reporting by increasing the frequency of fair value disclosures to include interim as well as annual reports. The adoption of these ASC’s did not have a material impact on our consolidated financial statements.
     Effective the second quarter of 2009, ASC 320 Investments—Debt and Equity Securities , provided additional guidance designed to create greater clarity and consistency in accounting for, and presenting losses on, debt securities. This guidance included determining whether impairments on debt securities were other than temporary and it modified the presentation and disclosures surrounding such instruments. The adoption of this ASC did not have a material impact on our consolidated financial statements.
     Also effective the second quarter of 2009, ASC 855 Subsequent Events , established general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued, or were available to be issued. The adoption of this ASC did not have a material impact on our consolidated financial statements.
     In June 2009, the FASB issued “SFAS” No. 167, Amendments to FASB Interpretation (“FIN”) No. 46(R) (“SFAS No. 167”) , which amends FIN No. 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest, or interests, give it a controlling financial interest in a variable interest entity. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This Statement amends certain guidance in FIN No. 46(R) for determining whether an entity is a variable interest entity and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. SFAS No. 167 will be effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. The Company is currently evaluating the requirements of SFAS No. 167 and anticipates that the adoption will not have a material impact on the Company’s consolidated financial statements.
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:

7


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
    Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
 
    Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
 
    Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.
     The valuation techniques that may be used to measure fair value are as follows:
    Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
 
    Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.
 
    Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
     The following table sets forth our financial assets and liabilities as of September 30, 2009 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.
                                         
    Fair Value     Fair Value Measurements at September 30, 2009  
    as of     Using Fair Value Hierarchy  
    September 30,                             Valuation  
    2009     Level 1     Level 2     Level 3     Technique  
Assets:
                                       
Cash and cash equivalents
  $ 132,408     $ 132,408     $     $     Market
Restricted cash and cash equivalents
    218,079       218,079                 Market
Debt investments
    7,136                   7,136     Income
 
                               
Total
  $ 357,623     $ 350,487     $     $ 7,136          
 
                               
 
                                       
Liabilities:
                                       
Derivative liabilities
  $ 205,549     $     $ 158,823     $ 46,726     Income
 
                               
     Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as level 1 within our fair value hierarchy. Our interest rate derivatives included in level 2 consist of United States dollar denominated interest rate swaps, and their fair values are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.
     Our debt investment included in Level 3 consists of an available-for-sale United States corporate obligation consisting of an interest in pools of loans which are collateralized by interests in commercial aircraft. The fair value of our debt investment included within Level 3 is valued by using discounted cash flow methodologies, where the inputs to those models are based on unobservable market inputs. The Company used two sources of unobservable inputs; we obtained broker quotes which provided an indication of the market value and we obtained market values from a pricing service. We used the broker quotes and/or the pricing service market values to validate the discount rate used for our cash flow model for this debt investment.

8


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
     Our interest rate derivatives included in Level 3 consist of United States dollar denominated interest rate swaps with a guaranteed notional balance. The guaranteed notional balance has an upper notional band that matches the hedged debt and a lower notional band. The notional balance is guaranteed to match the hedged debt balance if the debt balances decreases within the upper and lower notional band. The fair value of the interest rate derivative is determined based on the upper notional band using cash flows discounted at the relevant market interest rates in effect at the period close and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities. The range of the guaranteed notional between the upper and lower band represents an option that may not be exercised independently of the debt notional and is therefore valued based on unobservable market inputs.
     The following tables reflect the activity for the major classes of our assets and liabilities measured at fair value using level 3 inputs for the three and nine months ended September 30, 2009:
                                 
    Three Months Ended     Nine Months Ended  
    September 30, 2009     September 30, 2009  
    Assets     Liabilities     Assets     Liabilities  
    Debt     Derivative     Debt     Derivative  
    Investments     Liabilities     Investments     Liabilities  
Balance at beginning of period
  $ 13,691     $ (38,840 )   $ 14,349     $ (66,321 )
Transfers in (out)
                       
Principal repayments
    (2,979 )           (3,787 )      
Sale of debt investments
    (5,554 )           (5,554 )      
Total gains/(losses), net:
                               
Included in interest income
    142             430        
Included in other income (expense)
          (144 )           (439 )
Included in interest expense
          148             25  
Included in other comprehensive income
    1,836       (7,890 )     1,698       20,009  
 
                       
Balance at end of period
  $ 7,136     $ (46,726 )   $ 7,136     $ (46,726 )
 
                       
     We also measure the fair value of certain assets and liabilities on a non-recurring basis, when US GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft. In the three and nine months ended September 30, 2009, we recognized an impairment of $18,211. The impairment related to two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft was triggered by the early termination of leases and the change to estimated future cash flows. The Company received $18,176, of which $8,382 represented lease termination payments and $9,794 related to maintenance revenue from the previous lessees of these aircraft. These lease termination payments were recorded as other revenue during the three and nine months ended September 30, 2009.
     Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, debt investments, 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 securitizations which contain third-party credit enhancements are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates of borrowings arrangements that do not contain third-party credit enhancements. The fair values of our term debt financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

9


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
     The carrying amounts and fair values of our financial instruments at December 31, 2008 and September 30, 2009 are as follows:
                                 
    December 31, 2008   September 30, 2009
    Carrying Amount   Fair Value   Carrying Amount   Fair Value
    of Asset   of Asset   of Asset   of Asset
    (Liability)   (Liability)   (Liability)   (Liability)
Debt investments
  $ 14,349     $ 14,349     $ 7,136     $ 7,136  
Securitizations and term debt financings
    (2,476,296 )     (2,328,574 )     (2,366,178 )     (2,062,713 )
ECA term financing
                (69,415 )     (70,857 )
Derivative liabilities
    (276,401 )     (276,401 )     (205,549 )     (205,549 )
Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
     The contracted minimum future lease rental payments to be received under our existing operating leases at September 30, 2009 were as follows:
         
Year Ending December 31,   Amount  
Remainder of 2009
  $ 126,293  
2010
    479,811  
2011
    433,389  
2012
    370,520  
2013
    274,877  
2014
    201,854  
Thereafter
    424,849  
 
     
Total
  $ 2,311,593  
 
     
     Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
Region   2008   2009   2008   2009
Europe
    45 %     47 %     45 %     46 %
Asia
    25 %     18 %     25 %     20 %
North America
    12 %     16 %     12 %     16 %
Latin America
    8 %     8 %     8 %     7 %
Middle East and Africa
    10 %     11 %     10 %     11 %
 
                               
Total
    100 %     100 %     100 %     100 %
 
                               
     The classification of regions in the tables above and the table and discussion below is determined based on the principal location of the lessee of each aircraft.
     For the three months ended September 30, 2008, one customer accounted for 8% of lease rental revenue and four additional customers accounted for a combined 20% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue. For the three months ended September 30, 2009, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 11% of lease rental revenue . The obligations of these companies under common control are not guaranteed by the controlling entity. Five additional customers accounted for a combined 28% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue.

10


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
     For the nine months ended September 30, 2008, one customer accounted for 8% of lease rental revenue and four additional customers accounted for a combined 19% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue. For the nine months ended September 30, 2009, one customer accounted for 7% of lease rental revenue or, if combined with two companies under common control with it, 11% of lease rental revenue . The obligations of these companies under common control are not guaranteed by the controlling entity. Five additional customers accounted for a combined 28% of lease rental revenue. No other customer accounted for more than 4% of lease rental revenue.
     Geographic concentration of net book value of flight equipment held for lease was as follows:
                                 
    December 31, 2008   September 30, 2009
    Number           Number    
    of   Net Book   of   Net Book
Region   Aircraft   Value %   Aircraft   Value %
Europe
    56       44 %     61       48 %
Asia
    32       23 %     30 (1)     21 %
North America
    14       12 %     14       12 %
Latin America
    8       5 %     9       7 %
Middle East and Africa
    12       11 %     13       12 %
Off-lease
    8 (2)     5 %     1 (3)     %
 
                               
Total
    130       100 %     128       100 %
 
                               
 
(1)   Includes four Boeing Model 737-400 aircraft which will be converted to freighter configuration and for which we have executed leases with a carrier in Asia post-conversion, two of which were delivered in the fourth quarter of 2009 and the remaining two of which we expect to deliver in the fourth quarter of 2009.
 
(2)   Includes one Boeing Model 737-300 aircraft which we delivered on lease to a carrier in the Middle East in the first quarter of 2009, three Boeing Model 737-700 aircraft which we delivered on lease to a carrier in Europe in the first quarter of 2009, two Boeing Model 737-700 aircraft which we delivered on lease to a carrier in Africa in the second quarter of 2009, one Boeing Model 737-700 aircraft which we delivered on lease to a carrier in Latin America in the second quarter of 2009 and one Boeing Model 737-700 aircraft which we delivered on lease to a carrier in Europe in the second quarter of 2009.
 
(3)   Represents one Boeing Model 737-300 aircraft which was returned to us on a consensual early lease termination in the third quarter of 2009 which we are actively marketing for sale or lease.
     At December 31, 2008 and September 30, 2009, lease acquisition costs included in other assets on the consolidated balance sheets were $293 and $417, respectively. Prepaid lease incentive costs included in other assets on the consolidated balance sheets were $5,127 and $11,884 at December 31, 2008 and September 30, 2009, respectively.

11


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
Note 4. Securitizations and Term Debt Financings
     The outstanding amounts of our securitizations and term debt financing facilities were as follows:
                                 
    At        
    December 31,        
    2008     At September 30, 2009  
    Outstanding     Outstanding             Final Stated  
Debt Obligation   Borrowings     Borrowings     Interest Rate (1)     Maturity (2)  
Securitizations and Term Debt Financings:
                               
Securitization No. 1
  $ 472,048     $ 446,633       0.51 %     6/20/31  
Securitization No. 2
    1,097,913       1,072,072       0.51 %     6/14/37  
Term Financing No. 1
    757,610       720,935       2.00 %     5/02/15  
Term Financing No. 2
    148,725       126,538       3.02 %     9/23/13  
ECA Term Financing
          69,415       4.48 %     5/27/21  
 
                           
Total
  $ 2,476,296     $ 2,435,593                  
 
                           
 
(1)   Reflects floating rate in effect at the applicable reset date except for the ECA Term Financing, which is fixed.
 
(2)   For Securitization No. 1, Securitization No. 2 and Term Financing No. 1, all cash flows available after expenses and interest will be applied to debt amortization, if the debt is not refinanced by June 2011, June 2012, and May 2013, respectively.
     In May 2009, we entered into a twelve-year $70,916 term loan with Citibank International Plc which is supported by a guarantee from Compagnie Francaise d’Assurance pour le Commerce Exterieur (“COFACE”), the French government sponsored export credit agency (“ECA”), which we refer to as “ECA Term Financing” for the financing of a new Airbus Model A330-200 aircraft. The borrowing under the ECA Term Financing bears a fixed rate of interest equal to 4.475%. The obligations outstanding under the ECA Term Financing are secured by, among other things, a mortgage over the aircraft and a pledge of our ownership interest in our subsidiary company that leases the aircraft to the operator. The ECA Term Financing documents contain a $500,000 minimum net worth covenant for Aircastle Limited, as well as a material adverse change default and cross default to any other recourse obligation of Aircastle Limited, and other terms and conditions customary for ECA-supported financings being completed at this time. In addition, Aircastle Limited has guaranteed the repayment of the ECA Term Financing.
     The following securitizations and term debt financing structures include liquidity facility commitments described in the table below:
                                 
        Available Liquidity        
        December 31,   September 30,   Unused   Interest Rate
Facility   Liquidity Facility Provider   2008   2009   Fee   on any Advances
Securitization No. 1
  Calyon   $ 42,000     $ 42,000       0.45 %   1M Libor + 1.00%
Securitization No. 2
  HSH Nordbank AG     82,343       80,405 1)     0.50 %   1M Libor + 0.75% (2)
Term Financing No. 1
  Calyon     15,152       14,419       0.60 %   1M Libor + 1.20%
 
(1)   Following a ratings downgrade with respect to the liquidity facility provider in May 2009, the liquidity facility was drawn and the proceeds, or permitted investments thereof, remain available to provide liquidity if required.
 
(2)   Amounts drawn following a ratings downgrade with respect to the liquidity facility provider do not bear interest; however, net investment earnings will be paid to the liquidity facility provider and the unused fee continues to apply.
The purpose of these facilities is to provide liquidity for the relevant securitization or term financing in the event that cash flow from lease contracts and other revenue sources is not sufficient to pay operating expenses with respect to the relevant aircraft portfolio and interest payments and interest rate hedging payments for the relevant securitization or term debt financings. These liquidity facilities are generally 364-day commitments of the liquidity provider and may be extended prior to expiry. If a facility is not extended, or in certain circumstances if the short-term credit rating of the liquidity provider is downgraded, the relevant securitization or term financing documents require that the liquidity facility is drawn and the proceeds of the drawing placed on deposit so that such amounts may be available, if needed, to

12


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
provide liquidity advances for the relevant securitization or term financing. Downgrade or non-extension drawings are generally not required to be repaid to the liquidity facility provider until 15 days after final maturity of the securitization or term financing debt. In the case of the liquidity facilities for Securitization No. 1 and Term Financing No. 1, the required amount of the facilities reduce over time as the principal balance of the debt amortizes, with the Securitization No. 2 liquidity facility having a minimum required amount of $65,000.
     In May 2009, we were notified of a short-term credit rating downgrade of the liquidity facility provider for Securitization No. 2, HSH Nordbank AG. This downgrade required a drawing of the liquidity facility in cash, which was deposited in a liquidity facility deposit account and held as cash collateral. HSH Nordbank AG directs the investment of this restricted cash into AAA-rated investments. Accordingly, the restricted cash is recorded as an asset on our consolidated balance sheet as Restricted liquidity facility collateral. In addition, the commitment to repay the Securitization No. 2 liquidity facility is recorded as a liability on our consolidated balance sheet as Liquidity facility. As of September 30, 2009, the liquidity facilities for Securitization No. 1 and Term Financing No. 1 remain undrawn.
Note 5. Dividends
     The table below is a summary of our dividend history for all periods presented. These dividends may not be indicative of the amount of any future dividends.
                         
    Dividend            
    per   Aggregate        
    Common   Dividend        
Declaration Date   Share   Amount   Record Date   Payment Date
December 11, 2007
  $ 0.70       55,004     December 31, 2007   January 15, 2008
March 24, 2008
  $ 0.25       19,640     March 31, 2008   April 15, 2008
June 11, 2008
  $ 0.25       19,647     June 30, 2008   July 15, 2008
September 11, 2008
  $ 0.25       19,655     September 30, 2008   October 15, 2008
December 22, 2008
  $ 0.10       7,862     December 31, 2008   January 15, 2009
March 13, 2009
  $ 0.10       7,923     March 31, 2009   April 15, 2009
June 10, 2009
  $ 0.10       7,923     June 30, 2009   July 15, 2009
September 10, 2009
  $ 0.10       7,925     September 30, 2009   October 15, 2009
Note 6. Earnings Per Share
     As described in Note 1 — Summary of Significant Accounting Policies, on January 1, 2009 ASC 260 Earnings Per Share , required us to include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.
     Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period as follows:

13


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2008   2009   2008   2009
Weighted-average shares:
                               
Common shares outstanding
    77,768,456       78,012,914       77,743,999       77,977,089  
Restricted common shares
    937,943       1,352,974       884,818       1,309,244  
 
                               
Total weighted-average shares
    78,706,399       79,365,888       78,628,817       79,286,333  
 
                               
 
                               
Percentage of weighted-average shares:
                               
Common shares outstanding
    98.8 %     98.3 %     98.9 %     98.3 %
Restricted common shares
    1.2 %     1.7 %     1.1 %     1.7 %
 
                               
Total
    100.0 %     100.0 %     100.0 %     100.0 %
 
                               
The calculations of both basic and diluted earnings per share are as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Earnings per share — Basic:
                               
Net income
  $ 23,574     $ 33,458     $ 90,552     $ 79,500  
Less: Distributed and undistributed earnings allocated to restricted common shares (a)
    (281 )     (570 )     (1,019 )     (1,313 )
 
                       
Earnings available to common shareholders — Basic
  $ 23,293     $ 32,888     $ 89,533     $ 78,187  
 
                       
 
                               
Weighted-average common shares outstanding — Basic
    77,768,456       78,012,914       77,743,999       77,977,089  
 
                       
 
                               
Earnings per common share — Basic
  $ 0.30     $ 0.42     $ 1.15     $ 1.00  
 
                       
 
                               
Earnings per share — Diluted:
                               
Net income
  $ 23,574     $ 33,458     $ 90,552     $ 79,500  
Less: Distributed and undistributed earnings allocated to restricted common shares
    (281 )     (570 )     (1,019 )     (1,313 )
 
                       
Earnings available to common shareholders — Diluted
  $ 23,293     $ 32,888     $ 89,533     $ 78,187  
 
                       
 
                               
Weighted-average common shares outstanding — Basic
    77,768,456       78,012,914       77,743,999       77,977,089  
Effect of dilutive shares
    (b)     (b)     (b)     (b)
 
                       
Weighted-average common shares outstanding — Diluted
    77,768,456       78,012,914       77,743,999       77,977,089  
 
                       
 
                               
Earnings per common share — Diluted
  $ 0.30     $ 0.42     $ 1.15     $ 1.00  
 
                       
 
(a)   For the three months ended September 30, 2008 and 2009, distributed and undistributed earnings to restricted shares is 1.2% and 1.7%, respectively, of net income. For the nine months ended September 30, 2008 and 2009, distributed and undistributed earnings to restricted shares is 1.1% and 1.7%, respectively, of net income.
 
(b)   For the three and nine months ended September 30, 2008 and 2009, we have no dilutive shares.

14


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
Note 7. 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 2016. 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.
     The sources of income from continuing operations before income taxes for the three and nine months ended September 30, 2008 and 2009 were as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
U.S. operations
  $ 652     $ 383     $ 1,640     $ 1,342  
Non-U.S. operations
    24,237       34,498       93,574       83,546  
 
                       
Total
  $ 24,889     $ 34,881     $ 95,214     $ 84,888  
 
                       
     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. We also 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, those subsidiaries that are resident in Ireland are subject to Irish tax.
     Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income consisted of the following:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Notional U.S. federal income tax expense at the statutory rate
  $ 8,711     $ 12,209     $ 33,325     $ 29,711  
U.S. state and local income tax, net
    (18 )     19       60       68  
Non-U.S. operations
    (7,462 )     (10,972 )     (28,823 )     (24,878 )
Non-deductible expenses in the U.S
    (5 )     6       16       21  
Other
    89       161       84       466  
 
                       
Provision for income taxes
  $ 1,315     $ 1,423     $ 4,662     $ 5,388  
 
                       

15


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
Note 8. Comprehensive Income (Loss)
     Total comprehensive income (loss) includes net income, the changes in the fair value and the reclassification into earnings of amounts previously deferred relating to our derivative financial instruments which qualify for hedge accounting and the change in unrealized fair value of debt securities classified as available-for-sale. Total comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2009 was as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Net income
  $ 23,574     $ 33,458     $ 90,552     $ 79,500  
Net change in fair value of derivatives, net of tax benefit of $501 and $571 for the three months ended and $695 and $204 for the nine months ended September 30, 2008 and 2009, respectively
    (39,125 )     (38,369 )     (68,432 )     (10,176 )
Derivative loss reclassified into earnings, net of tax expense of $260 and $436 for the three months ended and $643 and $1,272 for the nine months ended September 30, 2008 and 2009, respectively
    24,014       28,567       47,917       87,462  
Net change in unrealized fair value of debt investments
    (981 )     1,836       (2,995 )     1,698  
 
                       
Total comprehensive income (loss)
  $ 7,482     $ 25,492     $ 67,042     $ 158,484  
 
                       
     The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable, at December 31, 2008 and September 30, 2009:
                         
                    Accumulated  
            Fair Value of     Other  
    Fair Value of     Debt     Comprehensive  
    Derivatives     Securities     Income (Loss)  
December 31, 2008
  $ (365,138 ) (1)   $ 2,536     $ (362,602 )
Net change in fair value of derivatives, net of tax benefit of $204
    (10,176 )           (10,176 )
Derivative loss reclassified into earnings, net of tax expense of $1,272
    87,462             87,462  
Loss on debt investments reclassified into earnings
          131       131  
Net change in unrealized fair value of debt investments
          1,567       1,567  
 
                 
September 30, 2009
  $ (287,852 )   $ 4,234     $ (283,618 )
 
                 
 
(1)   Net of tax benefit of $4,530 at December 31, 2008.
Note 9. Commitments and Contingencies
     We have an acquisition agreement (the “Airbus A330 Agreement”) with Airbus S.A.S (“Airbus”) under which we agreed to acquire from Airbus twelve new A330-200 aircraft (the “New A330 Aircraft”). In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. On May 27, 2009, we advanced one of the New A330 Aircraft positions and took delivery of an Airbus Model A330-200 aircraft and placed it on lease with a customer. In July 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from 2010 to 2011.
     As of September 30, 2009, we had paid $89,480 in Airbus deposits and pre-delivery payments, in relation to the 11 New A330 Aircraft remaining to be delivered under the Airbus A330 Agreement, and recorded $5,401 in capitalized interest. Under certain circumstances, we have the right to change the delivery positions to alternative A330 aircraft models. Two of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining three are scheduled to be delivered in 2012.
     Committed amounts to acquire, convert and modify aircraft including, where applicable, our estimate of adjustments for configuration changes, engine acquisition costs, contractual price escalations and other adjustments, net

16


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
of amounts already paid, are approximately $128,780 in 2009, $217,374 in 2010, $377,089 in 2011 and $113,560 in 2012 which reflect the anticipated acceleration of one 2012 New A330 Aircraft position to the fourth quarter of 2009 for immediate lease placement with Aerovias del Continente Americano.
Note 10. Derivatives
     As described in Note 1 — Summary of Significant Accounting Policies, effective January 1, 2009, ASC 815 Derivatives and Hedging , required enhanced disclosures, intended to improve financial reporting about derivative instruments and hedging activities, to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows.
     In the normal course of business we utilize interest rate derivatives to manage our exposure to interest rate risks. Specifically, our interest rate derivatives are hedging variable rate interest payments on our various debt facilities. If certain conditions are met, an interest rate derivative may be specifically designated as a cash flow hedge. All of our designated interest rate derivatives are cash flow hedges. We have one interest rate derivative that is not designated for accounting purposes.
     On the date that we enter into an interest rate derivative, we formally document the intended use of the interest rate derivative and its designation as a cash flow hedge, if applicable. We also assess (both at inception and on an ongoing basis) whether the interest rate derivative has been highly effective in offsetting changes in the cash flows of the variable rate interest payments on our debt and whether the interest rate derivative is expected to remain highly effective in future periods. If it were to be determined that the interest rate derivative is not (or has ceased to be) highly effective as a cash flow hedge, we would discontinue cash flow hedge accounting prospectively.
     At inception of an interest rate derivative designated as a cash flow hedge, we establish the method we will use to assess effectiveness and the method we will use to measure any ineffectiveness. Historically, we have elected to use the “change in variable cash flows method” for both. This method involves a comparison of the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate derivative against the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. When the change in the interest rate derivative’s variable leg exceeds the change in the debt’s variable-rate interest cash flows, the calculated ineffectiveness is recorded in interest expense on our consolidated statement of income. Effectiveness is assessed by dividing the change in the interest rate derivative variable leg by the change in the debt’s variable-rate interest cash flows.
     We use the “hypothetical trade method” for interest rate derivatives designated as cash flow hedges subsequent to inception that did not qualify for the “change in variable cash flow method”. The calculation involves a comparison of the change in the fair value of the interest rate derivative to the change in the fair value of a hypothetical interest rate derivative with critical terms that reflect the hedged variable-rate debt. The effectiveness of these relationships is assessed by regressing historical changes in the interest rate derivative against historical changes in the hypothetical interest rate derivative. When the change in the interest rate derivative exceeds the change in the hypothetical interest rate derivative, the calculated ineffectiveness is recorded in interest expense on our consolidated statement of income.
     All interest rate derivatives are recognized on the balance sheet at their fair value. We determine fair value for our United States dollar denominated interest rate derivatives by calculating reset rates and discounting cash flows based on cash rates, futures rates and swap rates in effect at the period close. We determine the fair value of our United States dollar denominated guaranteed notional balance interest rate derivatives based on the upper notional band using cash flows discounted at relevant market interest rates in effect at the period close. See Note 2 — Fair Value Measurements for more information.
     For our interest rate derivatives designated as cash flow hedges, the effective portion of the interest rate derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the interest payments on the debt are recorded in earnings. The ineffective portion of the interest rate derivative is calculated and recorded in interest expense on our consolidated statement of income at

17


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
each quarter end. For any interest rate derivative not designated as a cash flow hedge, the gain or loss is recognized in other income (expense) on our consolidated statement of income.
     We may choose to terminate certain interest rate derivatives prior to their contracted maturities. Any related net gains or losses in accumulated other comprehensive income at the date of termination are not reclassified into earnings if it remains probable that the interest payments on the debt will occur. The amounts in accumulated other comprehensive income are reclassified into earnings as the interest payments on the debt affect earnings. Terminated interest rate derivatives are reviewed periodically to determine if the forecasted transactions remain probable of occurring. To the extent that the occurrence of the interest payments on the debt are deemed remote, the related portion of the accumulated other comprehensive income balance is reclassified into earnings immediately.
     Our interest rate derivatives involve counterparty credit risk. As of September 30, 2009, our interest rate derivatives are held with the following counterparties: JP Morgan Chase Bank NA, Citibank Canada NA, HSH Nordbank AG and DVB Bank SE. All of our counterparties or guarantors of these counterparties are considered investment grade (senior unsecured ratings of A3 or above by Moody’s Investors Service and long-term foreign issuer ratings of BBB+ or above by Standard and Poor’s). As a result, we do not anticipate that any of these counterparties will fail to meet their obligations.
     We held the following interest rate derivatives as of September 30, 2009:
                                                 
    Liability Derivatives  
                    Future                      
    Current             Maximum                      
    Notional     Effective   Maturity   Notional     Floating   Fixed     Balance Sheet      
Hedged Item   Amount     Date   Date   Amount     Rate   Rate     Location   Fair Value  
Interest rate derivatives designated as cash flow hedges :
                                               
Securitization No. 1
  $ 455,865     Jun-06   Jun-16   $ 455,865     1M LIBOR
+ 0.27%
    5.78 %   Fair value of
derivative liabilities
  $ 59,134  
Securitization No. 2
    1,063,481     Jun-07   Jun-12     1,063,481     1M LIBOR   5.25% to 5.36%   Fair value of
derivative liabilities
    96,104  
Term Financing No. 1 (1)
    654,555     Jun-08   May-13     654,555     1M LIBOR     4.04 %   Fair value of
derivative liabilities
    39,203  
Term Financing No. 1 (1)
        May-13   May-15     491,718     1M LIBOR     5.31 %   Fair value of derivative liabilities     7,522  
 
                                         
 
                                               
Total interest rate derivatives designated as cash flow hedges
    2,173,901               2,665,619                       201,963  
 
                                         
 
                                               
Interest rate derivatives not designated as cash flow hedges:
                                               
Term Financing No. 2 (2)
    113,255     Oct-08   Sep-13     113,255     3M LIBOR     3.17 %   Fair value of derivative liabilities     3,586  
 
                                         
Total interest rate derivatives not designated as cash flow hedges
    113,255               113,255                       3,586  
 
                                         
 
                                               
Total interest rate derivatives
  $ 2,287,156             $ 2,778,874                     $ 205,549  
 
                                         
 
(1)   The interest payments related to Term Financing No. 1 are being hedged by two consecutive interest rate derivatives. When the first matures in May 2013, the next becomes effective.
 
(2)   Although we entered into this interest rate derivative to hedge the variable rate interest payments in connection with Term Financing No. 2, it has not been designated as a hedge for accounting purposes.
     In addition to the derivative liability above, another component of the fair value of our interest rate derivatives is accrued interest. As of September 30, 2009, accrued interest payable included in accounts payable, accrued expenses,

18


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
and other liabilities on our consolidated balance sheet was $5,914 related to interest rate derivatives designated as cash flow hedges and $72 for interest rate derivatives not designated as cash flow hedges.
     The amount of loss expected to be reclassified from accumulated OCI into interest expense over the next 12 months consists of net interest settlements on active interest rate derivatives disclosed above, in the amount of $92,514 and the amortization of deferred net losses in the amount of $7,820. For the nine months ended September 30, 2009, the amount of loss reclassified from accumulated OCI into interest expense consisted of net interest settlements on active interest rate derivatives in the amount of $75,044, and the amortization of deferred net losses in the amount of $6,052 as disclosed below.
     Following is the effect of interest rate derivatives on the statement of financial performance for the nine months ended September 30, 2009:
                     
Effective Portion   Ineffective Portion
    Amount of       Amount of       Amount of
Derivatives in   Gain or (Loss)   Location of   Gain or (Loss)       Gain or (Loss)
Statement 133   Recognized in   Gain or (Loss)   Reclassified from   Location of   Recognized in
Cash Flow   OCI on   Reclassified from   Accumulated   Gain or (Loss)   Income on
Hedging   Derivative   Accumulated   OCI into Income   Recognized in   Derivative
Relationships   (a)   OCI into Income   (b)   Income on Derivative   (c)
Interest rate derivatives   $(10,176)   Interest expense   $(79,824)   Interest expense   $2,213 (1)
 
(a)   This represents the change in fair market value of our interest rate derivatives since year end, net of taxes, offset by the amount of actual cash paid related to the net settlements of the interest rate derivatives for each of the nine months ended September 30, 2009.
 
(b)   This represents the amount of actual cash paid, net of taxes, related to the net settlements of the interest rate derivatives for each month of the nine months ended September 30, 2009 plus any effective amortization of net deferred interest rate derivative losses.
 
(c)   This represents both realized and unrealized ineffectiveness incurred during the nine months ended September 30, 2009.
 
(1)   Excludes losses of $4,880 and $2,758 which were charged to interest expense during the nine months ended September 30, 2009 as a result of changes in projected future debt related to the New A330 Aircraft and partial termination of a Securitization No. 1 interest rate derivative, respectively. See the table below, which summarizes amounts charged to the consolidated statement of income related to our interest rate derivatives.
         
Derivatives Not   Location of Gain   Amount of Gain
Designated as   or (Loss)   or (Loss)
Hedging Instruments   Recognized in Income   Recognized in Income
under Statement 133   On Derivative   on Derivative
Interest rate derivatives   Other income (expense)   $556
     Generally, our interest rate derivatives are hedging current interest payments on debt and future interest payments on long-term debt. In the past, we have entered into forward-starting interest rate derivatives to hedge the anticipated interest payment on long-term financings. These interest rate derivatives were terminated and new, specifically tailored interest rate derivatives were entered into upon closing of the relevant long-term financing. We have also early terminated interest rate derivatives in an attempt to manage our exposure to collateral calls. We have no active interest rate derivatives in effect in relation to the anticipated interest payments on long-term financings required for our New A330 Aircraft.

19


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
     The following table summarizes the deferred (gains) and losses for our terminated interest rate derivatives and the related amortization into interest expense for the nine months ended September 30, 2008 and 2009:
                                                                     
                                                                Amount of  
                                                                Deferred  
                                                Amount of Deferred     (Gain)  
                                        Unamortized     (Gain) or Loss     or  
                                        Deferred     Amortized     Loss  
                                        (Gain)     (including Accelerated     expected  
                                        or     Amortization) into     to be  
    Original                         Deferred     Loss     Interest Expense for     amortized  
    Maximum             Fixed         (Gain) or     at     the Nine Months     over the  
    Notional     Effective   Maturity   Rate     Termination   Loss Upon     September 30,     Ended September 30,     next twelve  
Hedged Item   Amount     Date   Date   %     Date   Termination     2009     2008     2009     months  
Securitization No. 1
  $ 400,000     Dec-05   Aug-10     4.61     Jun-06   $ (13,397 )   $ (2,599 )   $ (2,431 )   $ (2,321 )   $ (2,599 )
Securitization No. 1
    200,000     Dec-05   Dec-10     5.03     Jun-06     (2,541 )     (358 )     (779 )     (369 )     (252 )
Securitization No. 1
    451,911     Jun-06   Jun-16     5.78     Partial — Apr-09     2,758                   2,758        
Securitization No. 2
    500,000     Mar-06   Mar-11     5.07     Jun-07     (2,687 )     (974 )     (563 )     (535 )     (687 )
Securitization No. 2
    200,000     Jan-07   Aug-12     5.06     Jun-07     (1,850 )     (964 )     (291 )     (277 )     (355 )
Securitization No. 2
    410,000     Feb-07   Apr-17     5.14     Jun-07     (3,119 )     (2,107 )     (384 )     (302 )     (363 )
Term Financing No. 1
    150,000     Jul-07   Dec-17     5.14     Mar-08     15,281       11,902       1,289       1,554       1,951  
Term Financing No. 1
    440,000     Jun-07   Feb-13     4.88     Partial — Mar-08
Full — Jun-08
    26,281       17,387       2,804       4,529       5,687  
Term Financing No. 1
    248,000     Aug-07   May-13     5.33     Jun-08     9,888       6,908       720       1,681       2,110  
Term Financing No. 2
    55,000     May-08   Mar-14     5.41     Jun-08     2,380             2,380              
Term Financing No. 2
    360,000     Jan-08   Feb-19     5.16     Partial — Jun-08
Full — Oct-08
    23,077       12,587       6,728       1,991       2,151  
 
                                                                   
Repurchase Agreement
    74,000     Feb-06   Jul-10     5.02     Feb-08     878             878              
 
                                                                   
Repurchase Agreement
    5,000     Dec-05   Sep-09     4.94     Mar-08     144             144              
 
                                                                   
Repurchase Agreement
    2,900     Jun-05   Mar-13     4.21     Jun-08     (19 )           (19 )            
 
                                                                   
ECA Term Financing and future debt
    238,000     Jan-11   Apr-16     5.23     Dec-08     19,430       18,490             940        
 
                                                                   
Future debt and securitization
    231,000     Apr-10   Oct-15     5.17     Partial — Jun-08
Full — Dec-08
    15,310       12,436       11       1,291       177  
 
                                                                   
Future debt and securitization
    203,000     Jun-07   Jan-12     4.89     Dec-08     2,728 (1)           253       1,465        
Future debt and securitization
    238,000     Jul-11   Sep-16     5.27     Dec-08     17,254       15,969             1,285        
 
                                                         
Total
                              $ 111,796     $ 88,677     $ 10,740     $ 13,690     $ 7,820  
 
                                                         
 
(1)   The deferred loss for this interest rate derivative is related to the period prior to de-designation.

20


 

Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
September 30, 2009
     The following table summarizes non-cash amounts charged directly to the consolidated statement of income for the three and nine months ended September 30, 2008 and 2009, respectively, related to our interest rate derivatives:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Interest Expense:
                               
Hedge ineffectiveness (gains) losses (unrealized)
  $ 2,072     $ 457     $ 7,977     $ (2,874 )
 
                       
Amortization:
                               
Accelerated amortization of deferred losses
    8,473       1,176       8,595       4,880  
Amortization of deferred (gains) losses
    1,737       1,960       1,142       6,052  
(Gains) Losses on termination of interest rate derivatives
                1,003       2,758  
 
                       
Total Amortization
    10,210       3,136       10,740       13,690  
 
                       
Total charged to interest expense
  $ 12,282     $ 3,593     $ 18,717     $ 10,816  
 
                       
 
                               
Other Income (Expense):
                               
Mark to market gains (losses) on undesignated interest rate derivatives
  $ (1,672 )   $ (608 )   $ (943 )   $ 556  
 
                       
Total charged to other income (expense)
  $ (1,672 )   $ (608 )   $ (943 )   $ 556  
 
                       
     The weighted average interest pay rates of these derivatives were 4.90% at December 31, 2008 and 4.91% at September 30, 2009.
     As of September 30, 2009, we did not have any cash collateral pledged under our interest rate derivatives, nor do we have any existing agreements that require cash collateral postings.
Note 11. Interest, Net
     The following table shows the components of interest, net:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
Interest on borrowings, interest rate derivatives and other liabilities
  $ 41,138     $ 36,779     $ 129,188     $ 110,191  
Hedge ineffectiveness (gains) losses (unrealized)
    2,072       457       7,977       (2,874 )
Amortization of interest rate derivatives related to deferred (gains) losses
    10,210       3,136       9,737       10,932  
(Gains) losses on termination of interest rate derivatives
                1,003       2,758  
Amortization of deferred financing fees
    2,986       3,077       9,773       8,808  
 
                       
Interest Expense
    56,406       43,449       157,678       129,815  
Less interest income
    (1,610 )     (57 )     (6,168 )     (914 )
Less capitalized interest
    (684 )     (360 )     (5,068 )     (976 )
 
                       
Interest, net
  $ 54,112     $ 43,032     $ 146,442     $ 127,925  
 
                       
Note 12. Shareholders’ Equity and Share Based Payment
     In January 2009, the Company granted restricted common shares to employees with a total fair value of $2,846. The 597,350 restricted common shares granted had grant prices which ranged between $4.42 and $5.36 per share. Of these restricted common shares, 347,350 vest over three years. The remaining 250,000 restricted common shares vest over five years. In February 2009, the Company granted 125,000 restricted common shares to certain directors with a total fair value of $351. The shares vest on January 1, 2010. The fair value of the restricted common shares granted is determined based upon the market price of the common shares at grant date.

21


 

ITEM 2.   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 our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under ‘‘Risk Factors’’ and included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the “SEC”). Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or “US GAAP”. All references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
     Certain items in this Quarterly Report on Form 10-Q (this “report”), and other information we provide from time to time, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell and lease aircraft, raise capital, pay dividends, and increase revenues, earnings and EBITDA 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 management’s current expectations and beliefs 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 Limited can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle Limited’s expectations include, but are not limited to, prolonged capital markets disruption and volatility, which may adversely affect our continued ability to obtain additional capital to finance our working capital needs, our pre-delivery payment obligations and other aircraft acquisition commitments, our ability to extend or replace our existing financings, and the demand for and value of aircraft; our exposure to increased bank and counterparty risk caused by credit and capital markets disruptions; general economic conditions and business conditions affecting demand for aircraft and lease rates; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay dividends; high or volatile fuel prices, lack of access to capital, reduced load factors and yields and other factors affecting the creditworthiness of our airline customers and their ability to continue to perform their obligations under our leases; termination payments on our interest rate hedges; and other risks detailed from time to time in Aircastle Limited’s filings with the SEC, including “Risk Factors” as previously disclosed in Aircastle’s 2008 Annual Report on Form 10-K, and elsewhere in this report. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
WEBSITE AND ACCESS TO COMPANY’S REPORTS
     The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Form 10-K, quarterly reports on Form 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.
     The information on the Company’s website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

22


 

OVERVIEW
     We are a global company that acquires, leases, and sells high-utility commercial jet aircraft to passenger and cargo airlines throughout the world. High-utility aircraft are generally modern, operationally efficient jets with a large operator base and long useful lives. As of September 30, 2009, our aircraft portfolio consisted of 128 aircraft and we had 60 lessees located in 34 countries. At September 30, 2009, the average age of the aircraft in our portfolio was 10.9 years and the average remaining lease term was 4.9 years, in each case weighted by net book value. Our revenues and income from continuing operations for the three and nine months ended September 30, 2009 were $165.7 million and $34.9 million and $434.8 million and $84.9 million, respectively.
     Although current market conditions have significantly reduced the availability of equity and debt capital, we plan to grow our business and profits over the long term by continuing to employ our fundamental business strategy which includes:
  (1)   selectively investing in additional commercial jet aircraft and other aviation assets when attractively priced opportunities and cost effective financing are available;
 
  (2)   maintaining an efficient capital structure by using varying long-term debt structures to obtain cost effective financing and leveraging the efficient operating platform we have established; and
 
  (3)   reinvesting a portion of the cash flows generated by our business and from selective asset dispositions in additional aviation assets and/or our own debt and equity securities.
     Extremely difficult financial market conditions and a weak global economy have reduced the supply of commercial financing available to airlines and aircraft leasing companies. This environment has also played a major role in changing the competitive landscape for aircraft lessors, with many large players undergoing restructuring and struggling with the financial and operational demands of large new aircraft deliveries. As a result, we believe there is considerable demand from airlines for sales and leasebacks while lessor market capacity for such transactions is quite limited.
     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. However, the financial markets continue to be very limited, which may constrain our ability to undertake new transactions. As such, during the near term, we intend to focus our efforts on investment opportunities that both tap commercial financial capacity where it accessible on reasonable terms and also where there is potential availability of debt that benefits from government guarantees either from the European Export Credit Agencies, or ECAs, or from the Export-Import Bank of the United States, or EXIM.
     In addition to the current financial markets turmoil, the global economic slowdown has reduced both passenger and cargo air traffic, as evidenced by the sharp drop in traffic levels during the past few months. The International Air Transport Association reported year on year declines in international passenger traffic for the first nine months in 2009 of more than 5% and declines in international freight traffic in excess of 16%. This has translated into increased financial pressures on airlines as well as reduced demand for aircraft. With an average remaining lease term of 4.9 years and relatively modest scheduled releasing requirements over the next year, we believe our portfolio is well positioned. Our management team has significant experience in the leasing and technical management of aviation assets, and extensive experience managing lease restructuring and aircraft repossessions, which we believe is critical to mitigate our customer default exposure. However, we expect the business environment will continue to be very challenging for the aircraft leasing industry throughout 2009 and perhaps beyond.
     We intend to pay regular quarterly dividends to our shareholders. On March 13, 2009, our board of directors declared a first quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended March 31, 2009, which was paid on April 15, 2009 to holders of record on March 31, 2009. On June 10, 2009, our board of directors declared a second quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended June 30, 2009, which was paid on July 15, 2009 to shareholders of record on June 30, 2009. On September 10, 2009, our board of directors declared a third quarter dividend of $0.10 per common share, or an aggregate of $7.9 million, for the three months ended September 30, 2009, which was paid on October 15, 2009 to shareholders of record on September 30, 2009. These dividends may not be indicative of the amount of any future dividends.

23


 

Revenues
     Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease. In addition, we recognize revenue from lease termination payments and retained maintenance payments related to lease expirations. We also earn interest income from our debt investments.
     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.
2009 Lease Expirations and Lease Placements
    Scheduled lease expirations — placements. For our 20 owned aircraft originally having lease expirations in 2009, we executed leases and lease renewals, or commitments to lease or renew, with respect to 19 aircraft, including one aircraft we have taken back earlier than originally scheduled in 2009 on a consensual basis from a lessee. We are actively marketing the remaining aircraft. For the 19 aircraft, the weighted average lease term for the new leases or renewals will be six years with monthly lease rates that are approximately five percent higher than the previous rentals. The relatively strong lease rate performance reflects a generally strong market at the time the new leases or renewals were executed, when our strategy was to lock in re-lease and renewal rates as far in advance of lease expiry as practicable and to seek longer lease terms.
 
    Aircraft acquisitions — placements. In May 2009, we took delivery of one new Airbus Model A330-200 aircraft and immediately placed it on lease with Aerovias del Continente Americano, or Avianca, a new customer. In the third quarter of 2009, we agreed to advance one of our New A330 Aircraft (as defined below) positions, and to acquire and lease another Airbus Model A330-200 aircraft to Avianca, and we expect to close that transaction in the fourth quarter of 2009. We currently have no other commitments to acquire aircraft in 2009.
 
    Repossessions and other lease transitions — placements. In 2009, we delivered on lease eight aircraft we repossessed in 2008. In addition to the early transition mentioned in “Scheduled lease expiration – placements” above, we completed consensual early lease terminations for eight aircraft in 2009:
    Two Airbus Model A320-200 aircraft, which were placed on lease with new customers in the first and second quarters, respectively, of 2009.
 
    One Boeing Model 767-300ER aircraft, which was placed on a short-term lease, and which is subject to a nonbinding letter of intent for an 18 month lease extension.
 
    Two Boeing Model 737-300 aircraft, which were returned to us in the third quarter of 2009, one of which we sold in the third quarter and the other is being marketed for sale or lease.
 
    One Airbus Model A330-300 aircraft with an originally scheduled lease expiry in 2011, which we leased to another customer upon return in the fourth quarter of 2009.
 
    Two Boeing Model 757-200 aircraft, which had scheduled lease expirations in 2010 but were returned to us in the fourth quarter of 2009 and which are contracted for sale to a buyer in the second quarter of 2010.

24


 

      As a consequence of the early return of two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft in the third quarter of 2009, we recognized $18.2 million in maintenance revenue and lease termination revenue. For these four aircraft, the early lease terminations, along with a change in the forecasted cash flows, triggered an impairment charge for such aircraft in an aggregate amount of $18.2 million for the third quarter 2009.
2010 Lease Expirations and Lease Placements
    Scheduled lease expirations — placements. For our 19 owned aircraft originally having lease expirations in 2010, we have executed lease renewals, or commitments to lease or renew, with respect to nine aircraft, we have signed sale agreements to sell two aircraft and we are actively remarketing the remaining eight aircraft. As mentioned above, one Boeing Model 767-300ER was delivered on a short-term lease in 2009, which is scheduled to expire in the first quarter of 2010, and for which we have a nonbinding letter of intent for an 18 month lease extension. We estimate that for these 19 aircraft, excluding the two we expect to sell, the weighted average lease term for the new leases or renewals will be between 3.5 and 4.5 years with monthly lease rates that are approximately 25% to 30% percent lower than the previous rentals. The drop in lease rates for these placements reflects more challenging current market conditions as well as a comparatively stronger lease placement environment (on average) when the current leases where put in place. Given weak current demand, we are generally seeking shorter lease terms for current placements so as to allow for the opportunity to benefit more quickly from possible market improvements.
 
    Aircraft acquisitions — placements. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012 and in July 2009 we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from 2010 to 2011. We are scheduled to take delivery of two of the New A330 Aircraft, both in the second half of 2010. We have executed lease agreements for both aircraft with a carrier in Asia. We currently have no other commitment to acquire aircraft in 2010.
2011-2014 Lease Expirations and Lease Placements
    Scheduled lease expirations — placements. We have 11 owned aircraft originally having lease expirations scheduled in 2011. We have executed lease renewals, or commitments to lease or renew, with respect to three of these aircraft, and we have a signed sale agreement to sell one aircraft. We are actively remarketing the remaining seven aircraft. We currently have 68 aircraft with lease expirations scheduled in the period 2012-2014.
 
    Aircraft acquisitions — placements. We are scheduled to take delivery of six of the New A330 Aircraft in 2011 and two in 2012, provided that we advance one of our 2012 positions in connection with the lease of one new Airbus Model A330-200 aircraft to Avianca in the fourth quarter of 2009 mentioned above. We have executed a lease agreement for one of the New A330 Aircraft scheduled for delivery in 2011 with a carrier in Asia and we are actively remarketing the remaining aircraft. We currently have no other commitment to acquire aircraft in the period 2011-2014.
Operating Expenses
     Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, or SG&A, 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 has been nominal; however, to the extent our customers failed to pay operating, maintenance, insurance or transition costs, our portion of these expenses for unscheduled lease terminations reflected in our income statement has increased significantly as compared to prior years.

25


 

Income Tax Provision
     We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, 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 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. We also 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, those subsidiaries that are resident in Ireland are subject to Irish tax.
Acquisitions and Dispositions
     We have an acquisition agreement, or the Airbus A330 Agreement, with Airbus S.A.S, or Airbus, under which we agreed to acquire from Airbus twelve new Airbus Model A330-200 aircraft, or the New A330 Aircraft. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. On May 27, 2009, we advanced one of the New A330 Aircraft positions and took delivery of one Airbus Model A330-200 aircraft and placed it on lease with Avianca, a new customer. In July 2009, we agreed with Airbus to defer one of the 2010 delivery positions to 2011. An additional 2012 delivery position is expected to be advanced in connection with the lease of one Airbus Model A330-200 Aircraft to Avianca in the fourth quarter of 2009. Two of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining two, providing we advance one position in the fourth quarter of 2009 as expected, are scheduled to be delivered in 2012.
     During the third quarter of 2009, we sold three Boeing Model 737-300 aircraft. The leases expired immediately prior to the sale of these aircraft. These sales resulted in a pre-tax gain of $0.2 million which is included in other income (expense) on our consolidated statement of income.

26


 

     The following table sets forth certain information with respect to the aircraft owned by us as of September 30, 2009:
AIRCASTLE AIRCRAFT INFORMATION
         
    Owned
    Aircraft as of
(Dollars in millions)   September 30, 2009 (1)
Flight Equipment Held for Lease
  $ 3,767  
Number of Aircraft
    128  
Number of Lessees
    60  
Number of Countries
    34  
Weighted Average Age – Passenger (years) (2)(5)
    11.2  
Weighted Average Age – Freighter (years) (2)(5)
    10.1  
Weighted Average Age – Combined (years) (2)(5)
    10.9  
Weighted Average Remaining Passenger Lease Term (years) (3)(5)
    3.7  
Weighted Average Remaining Cargo Lease Term (years) (3)(5)
    7.9  
Weighted Average Remaining Combined Lease Term (years) (3)(5)
    4.9  
Weighted Average Fleet Utilization during Third Quarter 2009 (4)
    100 %
Weighted Average Fleet Utilization for the nine months ended September 30, 2009 (4)
    98 %
 
(1)   Calculated using net book value as of September 30, 2009.
 
(2)   Weighted average age (years) by net book value.
 
(3)   Weighted average remaining lease term (years) by net book value.
 
(4)   Aircraft on-lease days as a percent of total days in period weighted by net book value, excluding aircraft in freighter conversion.
 
(5)   Four Boeing Model 737-400 aircraft which will be converted to freighter configuration are included as “Freighter” aircraft; the remaining lease terms for these aircraft, for which we have executed leases post-conversion, are measured based on the ten-year terms of the post-conversion leases.
PORTFOLIO DIVERSIFICATION
                 
    Owned Aircraft as of  
    September 30, 2009  
    Number of     % of Net  
    Aircraft     Book Value  
Aircraft Type
               
Passenger:
               
Narrowbody
    83       45 %
Midbody
    23       23 %
Widebody
    1       2 %
 
           
Total Passenger
    107       70 %
Freighter (1)
    21       30 %
 
           
Total
    128       100 %
 
           
 
               
Manufacturer
               
Boeing
    86       66 %
Airbus
    42       34 %
 
           
Total
    128       100 %
 
           
 
               
Regional Diversification
               
Europe
    61       48 %
Asia (1)
    30       21 %
North America
    14       12 %
Latin America
    9       7 %
Middle East and Africa
    13       12 %
Off-lease (2)
    1       %
 
           
Total
    128       100 %
 
           
 
(1)   Includes four Boeing Model 737-400 aircraft which will be converted to freighter configuration and for which we have executed leases with a carrier in Asia post-conversion, two of which were delivered in the fourth quarter of 2009 and the remaining two of which we expect to deliver in the fourth quarter of 2009.
 
(2)   One Boeing Model 737-300 aircraft which was returned to us on a consensual early lease termination in the third quarter of 2009 which we are actively marketing for sale or lease.

27


 

     Our largest customer represents less than 8% of the net book value of flight equipment held for lease at September 30, 2009. Our top 15 customers for aircraft we owned at September 30, 2009, representing 52 aircraft and 59% of the net book value of flight equipment held for lease, are as follows:
                 
            Number of
Percent of Net Book Value   Customer   Country   Aircraft
Greater than 6% per customer
  Martinair (1)   Netherlands     5  
 
  Emirates   United Arab Emirates     2  
 
  US Airways   USA     8  
 
               
3% to 6% per customer
  Iberia Airlines   Spain     6  
 
  GOL (2)   Brazil     6  
 
  Airbridge Cargo (3)   Russia     1  
 
  KLM (1)   Netherlands     1  
 
  World Airways   USA     2  
 
  Icelandair (4)   Iceland     5  
 
               
Less than 3% per customer
  Swiss International Air Lines   Switzerland     2  
 
  China Eastern Airlines (5)   China     4  
 
  Korean Air   South Korea     2  
 
  SriLankan Airlines   Sri Lanka     2  
 
  Cimber-Sterling   Denmark     4  
 
  Malaysia Airlines   Malaysia     2  
 
(1)   Martinair is a wholly owned subsidiary of KLM. Although KLM does not guarantee Martinair’s obligations under the relevant lease, if combined, the two together with another affiliated customer, represent 12% of flight equipment held for lease.
 
(2)   GOL has guaranteed the obligations of an affiliate, VRG Linhas Aereas, and accordingly, the two are shown combined in the above table.
 
(3)   Guaranteed by Volga-Dnepr.
 
(4)   Icelandair has guaranteed the obligations of an affiliate, SmartLynx, and accordingly, the two are shown combined in the above table.
 
(5)   China Eastern Airlines has announced that it will acquire Shanghai Airlines, a customer to which we lease four aircraft. If combined, the entity would be our 4 th largest customer, with over 4% of net book value of flight equipment held for lease.
     Our owned aircraft portfolio as of September 30, 2009 is listed in Exhibit 99.1 to this report. Approximately 88% of the total aircraft and 88% of the freighters we owned as of September 30, 2009 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 to this report.
Finance
     We have typically financed the initial purchase of aircraft using short-term credit arrangements and cash on hand. We then refinanced these short-term credit facilities on a long-term basis with the net proceeds from subsequent securitizations, bank debt and equity offerings. Our debt financing arrangements have been secured by the acquired aircraft and related leases and the financing parties have limited recourse to Aircastle Limited. While such financing has historically been available on reasonable terms given the loan to value profile we have used, the current financial markets turmoil has significantly reduced the availability of both debt and equity capital and the terms on which any such capital may be made available to us would not be as favorable to us. Though we expect the financing market to improve in time, we are presently taking a cautious approach to incremental financing and with respect to refinancing risk.
     To the extent that we acquire additional aircraft directly, we intend to fund such investments through medium to longer-term financings, including commercial and export credit agency supported debt, and cash on hand. 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.

28


 

RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2008 to the three months ended September 30, 2009
                 
    Three Months Ended  
    September 30,  
    2008     2009  
    (Dollars in thousands)  
Revenues:
               
Lease rental revenue
  $ 136,578     $ 128,283  
Amortization of net lease discounts and lease incentives
    1,781       (3,992 )
Maintenance revenue
    5,433       31,376  
 
           
Total lease rentals
    143,792       155,667  
Interest income
    628       556  
Other revenue
    34       9,517  
 
           
Total revenues
    144,454       165,740  
 
           
 
               
Expenses:
               
Depreciation
    52,020       53,130  
Interest, net
    54,112       43,032  
Selling, general and administrative (including non-cash share based payment expense of $1,659 and $1,742 for the three months ended September 30, 2008 and 2009, respectively)
    11,641       11,074  
Impairment of aircraft
          18,211  
Maintenance and other costs
    891       4,836  
 
           
Total operating expenses
    118,664       130,283  
 
           
 
               
Other income (expense):
               
Gain on sale of aircraft
    772       162  
Other
    (1,673 )     (738 )
 
           
Total other income (expense)
    (901 )     (576 )
 
           
 
               
Income from continuing operations before income taxes
    24,889       34,881  
Income tax provision
    1,315       1,423  
 
           
Net income
  $ 23,574     $ 33,458  
 
           
Revenues:
     Total revenues increased by 14.7% or $21.3 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008, primarily as a result of the following:
      Lease rental revenue . The decrease in lease rental revenue of $8.3 million for the three months ended September 30, 2009 as compared to the same period in 2008 was primarily the result of decreases of:
    $5.8 million of revenue as a result of aircraft sales during the third and fourth quarter of 2008;
 
    $2.8 million of revenue due to downtime in connection with aircraft in transition and freighter conversions;
 
    $4.2 million of revenue due to lower floating rate lease rentals and lease rate changes.
     These decreases were partially offset by $4.5 million in new lease rental revenue from the acquisition of new aircraft.
      Amortization of net lease discounts and lease incentives. The decrease in amortization of net lease discounts and lease incentives of $5.8 million for the three months ended September 30, 2009 as compared to the same period in 2008 results from the decrease in amortization of net lease discounts of $0.9 million and an increase in amortization of lease incentives of $4.9 million for aircraft transitions.
      Maintenance revenue . The increase in maintenance revenue of $25.9 million is the result of $4.2 million of maintenance revenue from scheduled lease terminations ($9.7 million in the three months ended September 30, 2009 as compared to $5.4 million in the three months ended September 30, 2008) and $21.7 million of maintenance revenue from early terminations of leases in the three months ended September 30, 2009.

29


 

      Other Revenue. The increase in other revenue of $9.5 million is primarily due to additional fees paid by lessees in connection with the early termination of four leases . The early termination of the four leases, along with a change in the forecasted cash flows, triggered an impairment for the related two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft in the amount of $18.2 million for the three months ended September 30, 2009. For the three months ended September 30, 2009, the Company received $18.2 million, of which $8.4 million represented lease termination payments included in other revenue and $9.8 million related to maintenance revenue from the previous lessees of these aircraft.
Operating Expenses:
     Total operating expenses increased by 9.8% or $11.6 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 primarily as a result of the following:
      Depreciation expense increased by $1.1 million for the three months ended September 30, 2009 over the same period in 2008 as a result of an increase in the aircraft book value due to the aircraft acquired in 2008, partially offset by the reduction in depreciation expense as a result of the sales of owned aircraft in 2008.
      Interest, net consisted of the following:
                 
    Three Months Ended  
    September 30,  
    2008     2009  
    (Dollars in thousands)  
Interest on borrowings and other liabilities
  $ 41,138     $ 36,779  
Hedge ineffectiveness (gains) losses (unrealized)
    2,072       457  
Amortization of interest rate derivatives related to deferred (gains) losses
    10,210       3,136  
(Gain) losses on termination of interest rate derivatives
           
Amortization of deferred financing fees
    2,986       3,077  
 
           
Interest Expense
    56,406       43,449  
Less interest income
    (1,610 )     (57 )
Less capitalized interest
    (684 )     (360 )
 
           
Interest, net
  $ 54,112     $ 43,032  
 
           
     Interest, net decreased by $11.1 million, or 20.5%, over the three months ended September 30, 2008. The net decrease is primarily a
result of:
    a $4.4 million decrease in interest expense on our borrowings primarily due to a lower average debt balance;
 
    a $1.6 million decrease resulting from changes in measured hedge ineffectiveness; and
 
    a $7.1 million decrease in amortization of deferred losses primarily due to accelerated amortization taken in the third quarter of 2008.
     These decreases were partially offset by:
    a $1.6 million decrease in interest income earned on our cash balances, reflecting significantly lower interest rates during the third quarter of 2009 compared to the same period in 2008; and
 
    a $0.3 million decrease in capitalized interest due to delivery of aircraft from freighter conversion and lower interest rates during the third quarter of 2009 compared to the same period in 2008.
      Selling, general and administrative expenses, or SG&A, for the three months ended September 30, 2009, decreased by $0.6 million, or 4.9% over the same period in 2008. This decrease was due mainly to a decrease in travel expenses and professional fees. Non-cash share based expense was $1.7 million for the three months ended September 30, 2008 and 2009, respectively.

30


 

      Impairment of aircraft was $18.2 million during the three months ended September 30, 2009 which related to two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft. The impairment was triggered by the early termination of the related leases and changes to estimated future cash flows. See Maintenance Revenue and Other Revenue for additional information.
      Maintenance and other costs increased $3.9 million primarily as a result of aircraft transition costs for four aircraft in freighter conversion, three aircraft with leases that terminated before scheduled expiry and six of the eight aircraft returned from bankrupt lessees.
Other income (expense):
     Total other income (expense) for the three months ended September 30, 2009 decreased by $0.3 million over the same period in 2008 primarily as a result of $1.1 million of lower mark-to-market adjustments on our undesignated interest rate derivatives, partially offset by a lower gain on sale of aircraft of $0.6 million as compared to the third quarter of 2008.
Income Tax Provision
     Our provision for income taxes for the three months ended September 30, 2008 and 2009 was $1.3 million and $1.4 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 and the United States. The increase in our income tax provision of approximately $0.1 million for the three months ended September 30, 2009 as compared to the same period in 2008 was attributable to the increase in our operating income subject to tax in Ireland and the United States, offset by United States and Irish tax return adjustments.
     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. We also 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, those subsidiaries that are resident in Ireland are subject to Irish tax.
     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 2016. 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.

31


 

Comparison of the nine months ended September 30, 2008 to the nine months ended September 30, 2009
                 
    Nine Months Ended  
    September 30,  
    2008     2009  
    (Dollars in thousands)  
Revenues:
               
Lease rental revenue
  $ 405,206     $ 383,683  
Amortization of net lease discounts and lease incentives
    6,929       (7,919 )
Maintenance revenue
    9,575       47,616  
 
           
Total lease rentals
    421,710       423,380  
Interest income
    2,533       1,783  
Other revenue
    562       9,628  
 
           
Total revenues
    424,805       434,791  
 
           
 
               
Expenses:
               
Depreciation
    151,840       156,379  
Interest, net
    146,442       127,925  
Selling, general and administrative (including non-cash share based payment expense of $4,872 and $5,129 for the nine months ended September 30, 2008 and 2009, respectively)
    34,484       33,291  
Impairment of aircraft
          18,211  
Maintenance and other costs
    2,133       15,114  
 
           
Total operating expenses
    334,899       350,920  
 
           
 
               
Other income (expense):
               
Gain on sale of aircraft
    5,898       162  
Other
    (590 )     855  
 
           
Total other income
    5,308       1,017  
 
           
 
               
Income from continuing operations before income taxes
    95,214       84,888  
Income tax provision
    4,662       5,388  
 
           
Net income
  $ 90,552     $ 79,500  
 
           
Revenues:
     Total revenues increased by 2.4% or $10.0 million for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, primarily as a result of the following:
      Lease rental revenue . The decrease in lease rental revenue of $21.5 million for the nine months ended September 30, 2009 as compared to the same period in 2008 was primarily the result of decreases of:
    $20.9 million of revenue as a result of aircraft sales during the third and fourth quarter of 2008;
 
    $4.7 million of revenue due to downtime in connection with aircraft in transition and freighter conversions; and
 
    $8.8 million of revenue due to lower floating rate lease rentals and lease rate changes.
     These decreases were partially offset by $12.9 million in new lease rental revenue from the acquisition of new aircraft.
      Amortization of net lease discounts and lease incentives. The decrease in amortization of net lease discounts and lease incentives of $14.8 million for the nine months ended September 30, 2009 as compared to the same period in 2008 results from the decrease in amortization of net lease discounts of $3.2 million and an increase in amortization of lease incentives of $11.6 million for aircraft transitions.
      Maintenance revenue . The increase in maintenance revenue of $38.0 million is the result of $8.8 million of maintenance revenue from scheduled lease terminations ($18.3 million in the nine months ended September 30, 2009 as compared to $9.6 million in the nine months ended September 30, 2008) and $29.3 million of maintenance revenue from early terminations of leases in the nine months ended September 30, 2009.

32


 

      Interest Income. The decrease in interest income of $0.7 million was primarily due to the sale of two of our debt investments in February 2008.
      Other Revenue. The increase in other revenue of $9.1 million is primarily due to additional fees paid by lessees in connection with the early termination of four leases. The early termination of the four leases along with a change in the forecasted cash flows triggered an impairment for the related two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft in the amount of $18.2 million for the nine months ended September 30, 2009. For the nine months ended September 30, 2009, the Company received $18.2 million, of which $8.4 million represented lease termination payments included in other revenue and $9.8 million related to maintenance revenue from the previous lessees of these aircraft.
Operating Expenses:
     Total operating expenses increased by 4.8% or $16.0 million for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 primarily as a result of the following:
      Depreciation expense increased by $4.5 million for the nine months ended September 30, 2009 over the same period in 2008 as a result of an increase in the aircraft book value due to the aircraft acquired in 2008, partially offset by the reduction in depreciation expense as a result of the sales of owned aircraft in 2008.
      Interest, net consisted of the following:
                 
    Nine Months Ended  
    September 30,  
    2008     2009  
    (Dollars in thousands)  
Interest on borrowings and other liabilities
  $ 129,188     $ 110,191  
Hedge ineffectiveness (gains) losses (unrealized)
    7,977       (2,874 )
Amortization of interest rate derivatives related to deferred (gains) losses
    9,737       10,932  
Losses on termination of interest rate derivatives
    1,003       2,758  
Amortization of deferred financing fees
    9,773       8,808  
 
           
Interest Expense
    157,678       129,815  
Less interest income
    (6,168 )     (914 )
Less capitalized interest
    (5,068 )     (976 )
 
           
Interest, net
  $ 146,442     $ 127,925  
 
           
     Interest, net decreased by $18.5 million, or 12.6%, over the nine months ended September 30, 2008. The net decrease is primarily a
result of:
    a $19.0 million decrease in interest expense on our borrowings primarily due to a lower average debt balance;
 
    a $10.9 million decrease resulting from changes in measured hedge ineffectiveness; and
 
    a $1.0 million decrease in amortization of deferred financing fees resulting primarily from the write-off of fees during the second quarter of 2008.
     These decreases were partially offset by:
    a $1.2 million increase in amortization of deferred losses primarily due to the termination of several interest rate derivative contracts during the fourth quarter of 2008;
 
    a $1.8 million increase in hedge termination charges;
 
    a $5.3 million decrease in interest income earned on our cash balances, resulting from significantly lower interest rates during the nine months ended September 30, 2009 compared to the same period in 2008; and
 
    a $4.1 million decrease in capitalized interest due to lower interest rates during nine months ended September 30, 2009 compared to the same period in 2008 and the delivery of aircraft from freighter conversion and the manufacturer.

33


 

      Selling, general and administrative expenses, or SG&A, for the nine months ended September 30, 2009 decreased by $1.2 million, or 3.5% over the same period in 2008. This decrease was due mainly to a decrease in personnel costs, travel expenses and professional fees. Non-cash share based expense was $4.9 million in 2008 and $5.1 million in 2009, respectively.
      Impairment of aircraft was $18.2 million during the nine months ended September 30, 2009 which related to two Boeing Model 737-300 aircraft and two Boeing Model 757-200 aircraft. The impairment was triggered by the early termination of the related leases and changes to estimated future cash flows. See Maintenance Revenue and Other Revenue for additional information.
      Maintenance and other costs increased $13.0 million primarily as a result of aircraft transition costs for four aircraft in freighter conversion, three aircraft with leases that terminated before scheduled expiry and six of the eight aircraft returned from bankrupt lessees.
Other income:
     Total other income for the nine months ended September 30, 2009 decreased by $4.3 million over the same period in 2008 primarily as a result of a lower gain on sale of aircraft of $5.7 million as compared to the same period in 2008 and partially offset by $1.5 million of lower mark-to-market adjustments on our undesignated interest rate derivatives.
Income Tax Provision
     Our provision for income taxes for the nine months ended September 30, 2008 and 2009 was $4.7 million and $5.4 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 and the United States. The increase in our income tax provision of approximately $0.7 million for the nine months ended September 30, 2009 as compared to the same period in 2008 was attributable to the increase in our operating income subject to tax in Ireland and the United States, offset by United States and Irish tax return adjustments.
     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. We also 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, those subsidiaries that are resident in Ireland are subject to Irish tax.
     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 2016. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
     In June 2009, the Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standard (“SFAS”) No. 168, FASB Accounting Standards Codification TM (“ASC”). The ASC is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the ASC became the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. The Codification does not replace or affect guidance issued by the SEC or its staff for public companies in their filings with the SEC. Effective July 1, 2009, changes to the ASC are communicated through an Accounting Standards Update (“ASU”). The

34


 

Company adopted the ASC during the third quarter of 2009, and as a result, all references to prior accounting and reporting standards which have been superseded by the ASC have been changed to reflect the new reference within the ASC. The ASC does not change or alter existing US GAAP and, therefore, it did not impact our financial position, results of operations and cash flows.
     Effective January 1, 2009, ASC 815 Derivatives and Hedging , required enhanced derivative and hedging disclosures, which is intended to improve financial reporting about derivative instruments and hedging activities, to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows.
     Also effective January 1, 2009, ASC 260 Earnings Per Share , determined that unvested share-based payment awards that contain nonforfeitable rights to receive dividend or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation for the purpose of applying the two-class method when calculating earnings per share (“EPS”). The adoption requires us to present EPS using the two-class method for our current period EPS computations and to retrospectively revise our comparative prior period EPS computations using the two-class method. The adoption did not have a material effect on EPS.
     Effective the second quarter of 2009, ASC 820 Fair Value Measurements and Disclosures , provided additional guidelines for making fair value measurements and identifying circumstances that indicate a transaction is not orderly. Also effective the second quarter of 2009, ASC 825 Financial Instruments , enhanced consistency in financial reporting by increasing the frequency of fair value disclosures to include interim as well as annual reports. The adoption of these ASC’s did not have a material impact on our consolidated financial statements.
     Effective the second quarter of 2009, ASC 320 Investments—Debt and Equity Securities , provided additional guidance designed to create greater clarity and consistency in accounting for, and presenting losses on, debt securities. This guidance included determining whether impairments on debt securities were other than temporary and it modified the presentation and disclosures surrounding such instruments. The adoption of this ASC did not have a material impact on our consolidated financial statements.
     Also effective the second quarter of 2009, ASC 855 Subsequent Events , established general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued, or were available to be issued. The adoption of this ASC did not have a material impact on our consolidated financial statements.
     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation (“FIN”) No. 46(R) (“SFAS No. 167”) , which amends FIN No. 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest, or interests, give it a controlling financial interest in a variable interest entity. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This Statement amends certain guidance in FIN No. 46(R) for determining whether an entity is a variable interest entity and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. SFAS No. 167 will be effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. The Company is currently evaluating the requirements of SFAS No. 167 and anticipates that the adoption will not have a material impact on the Company’s consolidated financial statements.

35


 

LIQUIDITY AND CAPITAL RESOURCES
     We have been able to meet our liquidity and capital resource requirements by utilizing several sources, including:
    lines of credit, our securitizations, term financings, and other secured borrowings;
 
    our public offerings of common shares;
 
    prior to our initial public offering, equity contributions from funds managed by affiliates of Fortress;
 
    aircraft lease revenues and maintenance payments;
 
    principal and interest payments from our debt investments; and
 
    asset sales.
     During the nine months ended September 30, 2009, we acquired one aircraft and made capital expenditures (including lease incentives) to our aircraft portfolio totaling $124.1 million. We expect to fund approximately $250.6 million of purchase obligations for aircraft delivery, pre-delivery and conversion payments during the next twelve months. In addition, at September 30, 2009, we expect capital expenditures and lessee maintenance payment draws on our owned and committed aircraft portfolio to be approximately $80.0 million to $90.0 million, excluding freighter conversion payments (see Purchase Obligations in “Contractual Obligations” below), and we expect maintenance payment collections from lessees on our owned aircraft portfolio to be approximately equal to the expected expenditures and draws over the next twelve months. There can be no assurance that the capital expenditures, our contributions to maintenance events and lessee maintenance payment draws described above will not be greater than expected or that our expected maintenance payment collections or disbursements will equal our current estimates.
     We believe that cash on hand and funds generated from operations will be sufficient to satisfy our liquidity needs, including our pre-delivery payments, required debt amortization, expected capital expenditures and lessor contributions over the next twelve months. In addition, potential asset sales and a potential future financing facility to fund a portion of the Airbus pre-delivery payments may provide additional sources of liquidity over that time frame.
Cash Flows
                 
    Nine Months Ended
    September 30,
    2008   2009
    (Dollars in thousands)
Net cash flow provided by operating activities
  $ 213,561     $ 206,049  
Net cash flow used in investing activities
    (91,913 )     (146,265 )
Net cash flow (used in) provided by financing activities
    (58,160 )     (8,323 )
     Operating activities provided net cash flow of $213.6 million and $206.0 million for the nine months ended September 30, 2008 and September 30, 2009, respectively. Net cash from operations decreased $7.6 million for the nine months ended September 30, 2009 versus the same period in 2008 primarily as a result of:
    $3.0 million decrease in cash flow from working capital (changes in certain assets and liabilities);
 
    $21.5 million decrease in cash flow from lease rental revenues; and
 
    $13.0 million cash paid for aircraft transition costs in 2009.
     These decreases were partially offset by:
    $12.2 million decrease in cash payments for interest; and
 
    $20.4 million increase in cash received for maintenance revenue.

36


 

     Net cash flow used in investing activities was $91.9 million and $146.3 million for the nine months ended September 30, 2008 and September 30, 2009, respectively. Net cash used in investing activities for the nine months ended September 30, 2009 consisted primarily of:
    $124.1 million of cash used for aircraft acquisitions and capital expenditures (including lease incentives); and
 
    $41.9 million of cash used for aircraft pre-delivery payments and progress payments on conversions of aircraft.
     These were partially offset by:
    $10.6 million of cash of cash received from the sale of flight equipment; and
 
    $5.5 million of cash received from the sale of debt investments.
     Net cash flow used in financing activities totaled $58.2 million for the nine months ended September 30, 2008 and $8.3 million for the nine months ended September 30, 2009. The net decrease in cash flow used in financing activities of $49.9 million versus the same period in 2008 was a result of:
    $87.5 million of lower restricted cash related to unreleased securitizations and term financings;
 
    $67.7 million of lower principal repayments on our repurchase agreements;
 
    $65.6 million of lower payments for terminated cash flow hedges;
 
    $70.6 million of lower dividend payments;
 
    $19.8 million of lower deferred financings costs; and
 
    $1.2 million of security deposits and maintenance payments received (net of payments).
          These decreases were partially offset by:
    $263.5 million of lower borrowings (net of repayments) on our credit facilities, term debt financings and securitizations.
Debt Obligations
     The following table provides a summary of our securitizations and term financing facilities at September 30, 2009:
                                     
                                Final  
        Outstanding     Number of     Interest     Stated  
Debt Obligation   Collateral   Borrowing (1)     Aircraft     Rate (2)     Maturity (3)  
                                  (Dollars in thousands)  
Securitization No. 1  
Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
  $ 446,633       33       0.51 %     6/20/31  
   
 
                               
Securitization No. 2  
Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    1,072,072       57       0.51 %     6/14/37  
   
 
                               
Term Financing No. 1  
Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    720,935       28       2.00 %     5/02/15  
   
 
                               
Term Financing No. 2  
Interests in aircraft leases, beneficial interests in aircraft owning entities and related interests
    126.538       8       3.02 %     9/23/13  
   
 
                               
ECA Term Financing  
Interests in aircraft leases, beneficial interests in aircraft leasing entities and related interests
    69,415       1       4.48 %     5/27/21  
   
 
                             
Total  
 
  $ 2,435,593                          
   
 
                             
 
(1)   Outstanding borrowing amount equals committed borrowing amount at September 30, 2009.
 
(2)   Reflects floating rate in effect at the most recent applicable reset date.
 
(3)   For Securitization No. 1, Securitization No. 2 and Term Financing No. 1, all cash flows available after expenses and interest will be applied to debt amortization, if the debt is not refinanced by June 2011, June 2012, and May 2013, respectively.

37


 

     Our debt obligations contain various loan covenants which are customary for financings of the relevant type. Such covenants do not, in management’s opinion, materially restrict our investment strategy or our ability to raise capital. We are in compliance with all of our loan covenants as of September 30, 2009.
     In May 2009, we entered into a twelve-year $70.9 million term loan with Citibank International Plc which is supported by a guarantee from Compagnie Francaise d’Assurance pour le Commerce Exterieur, or COFACE, the French government sponsored export credit agency, or ECA, which we refer to as “ECA Term Financing” for the financing of a new Airbus Model A330-200 aircraft. The borrowing under the ECA Term Financing bears a fixed rate of interest equal to 4.475%. The obligations outstanding under the ECA Term Financing are secured by, among other things, a mortgage over the aircraft and a pledge of our ownership interest in our subsidiary company that leases the aircraft to the operator. The ECA Term Financing documents contain a $500 million minimum net worth covenant for Aircastle Limited, as well as a material adverse change default and cross default to any other recourse obligation of Aircastle Limited, and other terms and conditions customary for ECA-supported financings being completed at this time. In addition, Aircastle Limited has guaranteed the repayment of the ECA Term Financing.
     The following securitizations and term debt financing structures include liquidity facility commitments described in the table below:
                                         
            Available Liquidity        
            December 31,   September 30,   Unused   Interest Rate
Facility   Liquidity Facility Provider   2008   2009   Fee   on any Advances
            (Dollars in thousands)                
Securitization No. 1
  Calyon   $ 42,000     $ 42,000       0.45 %   1M Libor + 1.00%
Securitization No. 2
  HSH Nordbank AG     82,343       80,405 (1)     0.50 %   1M Libor + 0.75% (2)
Term Financing No. 1
  Calyon     15,152       14,419       0.60 %   1M Libor + 1.20%
 
(1)   Following a ratings downgrade with respect to the liquidity facility provider in May 2009, the liquidity facility was drawn and the proceeds, or permitted investments thereof, remain available to provide liquidity if required.
 
(2)   Amounts drawn following a ratings downgrade with respect to the liquidity facility provider do not bear interest; however, net investment earnings will be paid to the liquidity facility provider and the unused fee continues to apply.
     The purpose of these facilities is to provide liquidity for the relevant securitization or term financing in the event that cash flow from lease contracts and other revenue sources is not sufficient to pay operating expenses with respect to the relevant aircraft portfolio and interest payments and interest rate hedging payments for the relevant securitization or term debt financings. These liquidity facilities are generally 364-day commitments of the liquidity provider and may be extended prior to expiry. If a facility is not extended, or in certain circumstances if the short-term credit rating of the liquidity provider is downgraded, the relevant securitization or term financing documents require that the liquidity facility is drawn and the proceeds of the drawing placed on deposit so that such amounts may be available, if needed, to provide liquidity advances for the relevant securitization or term financing. Downgrade or non-extension drawings are generally not required to be repaid to the liquidity facility provider until 15 days after final maturity of the securitization or term financing debt. In the case of the liquidity facilities for Securitization No. 2 and Term Financing No. 1, the required amount of the facilities reduce over time as the principal balance of the debt amortizes, with the Securitization No. 2 liquidity facility having a minimum required amount of $65 million.
     In May 2009, we were notified of a short-term credit rating downgrade of the liquidity facility provider for Securitization No. 2, HSH Nordbank AG. This downgrade required a drawing of the liquidity facility in cash, which was deposited in a liquidity facility deposit account and held as cash collateral. HSH Nordbank AG directs the investment of this restricted cash into AAA-rated investments. Accordingly, the restricted cash is recorded as an asset on our consolidated balance sheet as Restricted liquidity facility collateral. In addition, the commitment to repay the Securitization No. 2 liquidity facility is recorded as a liability on our consolidated balance sheet as Liquidity facility. As of September 30, 2009, the liquidity facilities for Securitization No. 1 and Term Financing No. 1 remain undrawn.

38


 

Contractual Obligations
     Our contractual obligations consist of principal and interest payments on variable rate liabilities, obligations under the Airbus A330 Agreement, obligations under our freighter conversion contracts and rent payments pursuant to our office leases. Total contractual obligations decreased from $3.75 billion at December 31, 2008 to approximately $3.41 billion at September 30, 2009 due primarily to principal and interest payments made under our securitizations and term financings, lower variable interest rates and payments made under our purchase obligations.
     The following table presents our actual contractual obligations and their payment due dates as of September 30, 2009:
                                         
    Payments Due By Period as of September 30, 2009  
            Less than                     More than  
Contractual Obligations   Total     1 year     2-3 years     4-5 years     5 years  
    (Dollars in thousands)  
 
                                       
Securitization No. 1 (1)
  $ 455,218     $ 28,439     $ 133,100     $ 186,982     $ 106,697  
Securitization No. 2 (2)
    1,099,527       63,829       144,938       346,351       544,409  
Term Financing No. 1 (3)
    785,634       63,063       123,185       201,469       397,917  
Term Financing No. 2 (4)
    134,770       34,025       70,091       30,654        
ECA Term Financing (5)
    89,232       7,648       15,297       15,297       50,990  
Office leases (6)
    4,335       1,116       2,250       622       347  
Purchase obligations (7)
    836,803       250,594       586,209              
 
                             
Total
  $ 3,405,519     $ 448,714     $ 1,075,070     $ 781,375     $ 1,100,360  
 
                             
 
(1)   Includes interest on variable rate, LIBOR-based instruments at the September 30, 2009 rate and principal payments based on amortization schedules through October 2015 that require the securitization cash flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values are held constant through June 2011, after which all excess cash flow is required to reduce the principal balances of the indebtedness.
 
(2)   Includes interest on variable rate, LIBOR-based instruments at the September 30, 2009 rate and principal payments based on amortization schedules through February 2018 that require the securitization cash flows be applied to the outstanding principal balance of the indebtedness so that the loan to assumed aircraft values are held constant through June 2012, after which all excess cash flow is required to reduce the principal balances of the indebtedness. The Less than 1 year commitments include repayment of $16.1 million and the 2-3 years commitments include repayments of $7.4 million related to contracted sales for two aircraft in 2010 and one aircraft in 2011.
 
(3)   Includes interest on variable rate, LIBOR-based instruments at the September 30, 2009 rate and scheduled principal payments through May 2013, after which all excess cash flow is required to reduce the principal balances of the indebtedness until maturity in May 2015.
 
(4)   Includes interest on variable rate, LIBOR-based instruments at the September 30, 2009 rate and principal payments equal to 85% of the cash flow remaining after the payment of expenses, fees, interest and amounts owing to interest rate hedge providers.
 
(5)   Includes scheduled principal and interest payments based upon a fixed rate, 12 year, fully amortizing loan.
 
(6)   Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.
 
(7)   At September 30, 2009, we had aircraft purchase agreements and freighter conversion agreements, including the acquisition of 11 New A330 Aircraft from Airbus. Reflects anticipated acceleration of one 2012 New A330 Aircraft position to the fourth quarter of 2009 for immediate lease placement with Avianca.
Capital Expenditures
     We make capital expenditures from time to time in connection with improvements made to our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the nine months ended September 30, 2008 and 2009, we incurred a total of $25.6 million and $43.2 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.
     As of September 30, 2009, the weighted average age (by net book value) of our aircraft was approximately 10.9 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Under our leases, the lessee is primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft or a lessee fails to meet its maintenance obligations under the lease agreement. At September 30, 2009, we had $250.0 million of

39


 

maintenance reserves as a liability on our balance sheet. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.
     Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age.
Off-Balance Sheet Arrangements
     We did not have any off-balance sheet arrangements as of September 30, 2009.
Foreign Currency Risk and Foreign Operations
     At September 30, 2009, 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 subsidiary in Ireland and branch office in Singapore. As of September 30, 2009, 11 of our 75 employees were based in Ireland and four employees were based in Singapore. For the nine months ended September 30, 2009, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately $5.2 million in U.S. dollar equivalents and represented approximately 16% of total selling, general and administrative expenses. Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, it is likely that our international operations and our exposure to foreign currency risk will increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases we may enter into hedging transactions in the future to mitigate this risk. For the nine months ended September 30, 2008 and 2009, we incurred insignificant net gains and losses on foreign currency transactions.
Hedging
     In the normal course of business we utilize interest rate derivatives to manage our exposure to interest rate risks. Specifically, our interest rate derivatives are hedging variable rate interest payments on our various debt facilities. . If certain conditions are met, an interest rate derivative may be specifically designated as a cash flow hedge. All of our designated interest rate derivatives are cash flow hedges. We have one interest rate derivative that is not designated for accounting purposes.

40


 

     We held the following derivative contracts as of September 30, 2009:
                                                 
    Liability Derivatives
                    Future                      
    Current             Maximum                    
    Notional     Effective   Maturity   Notional     Floating   Fixed     Balance Sheet      
Hedged Item   Amount     Date   Date   Amount     Rate   Rate     Location   Fair Value  
    (Dollars in thousands)
Interest rate derivatives designated
as cash flow hedges:
                                               
Securitization No. 1
  $ 455,865     Jun-06   Jun-16   $ 455,865     1M LIBOR + 0.27%     5.78 %   Fair value of derivative liabilities   $ 59,134  
Securitization No. 2
    1,063,481     Jun-07   Jun-12     1,063,481     1M LIBOR   5.25% to 5.36%   Fair value of derivative liabilities     96,104  
Term Financing No. 1 (1)
    654,555     Jun-08   May-13     654,555     1M LIBOR     4.04 %   Fair value of derivative liabilities     39,203  
Term Financing No. 1 (1)
        May-13   May-15     491,718     1M LIBOR     5.31 %   Fair value of derivative liabilities     7,522  
 
                                         
 
                                               
Total interest rate derivatives designated as cash flow hedges
    2,173,901               2,665,619                       201,963  
 
                                         
 
                                               
Interest rate derivatives not designated as cash flow hedges:
                                               
Term Financing No. 2 (2)
    113,255     Oct-08   Sep-13     113,255     3M LIBOR     3.17 %   Fair value of derivative liabilities     3,586  
 
                                         
Total interest rate derivatives not designated as cash flow hedges
    113,255               113,255                       3,586  
 
                                         
 
                                               
Total interest rate derivatives.
  $ 2,287,156             $ 2,778,874                     $ 205,549  
 
                                         
 
(1)   The interest payments related to Term Financing No. 1 are being hedged by two consecutive interest rate derivatives. When the first matures in May 2013, the next becomes effective.
 
(2)   Although we entered into this interest rate derivative to hedge the variable rate interest payments in connection with Term Financing No. 2, it has not been designated as a hedge for accounting purposes.
     As of September 30, 2009, accrued interest payable included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheet was $5.9 million related to interest rate derivatives designated as cash flow hedges and $72 thousand for interest rate derivatives not designated as cash flow hedges.
     The amount of loss expected to be reclassified from accumulated OCI into interest expense over the next 12 months consists of net interest settlements on active interest rate derivatives disclosed above in the amount of $92.5 million and the amortization of deferred net losses in the amount of $7.8 million. For the nine months ended September 30, 2009, the amount of loss reclassified from accumulated OCI into interest expense consisted of net interest settlements on active interest rate derivatives in the amount of $75.0 million and the amortization of deferred net losses in the amount of $6.1 million as disclosed below.

41


 

     The following table summarizes non-cash amounts charged directly to the consolidated statement of income for the three and nine months ended September 30, 2008 and 2009, respectively, related to our interest rate derivatives:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    (Dollars in thousands)  
    2008     2009     2008     2009  
Interest Expense:
                               
Hedge ineffectiveness (gains) losses (unrealized)
  $ 2,072     $ 457     $ 7,977     $ (2,874 )
 
                       
Amortization:
                               
Accelerated amortization of deferred losses
    8,473       1,176       8,595       4,880  
Amortization of deferred (gains) losses
    1,737       1,960       1,142       6,052  
(Gains) Losses on termination of interest rate derivatives
                1,003       2,758  
 
                       
Total Amortization
    10,210       3,136       10,740       13,690  
 
                       
Total charged to interest expense
  $ 12,282     $ 3,593     $ 18,717     $ 10,816  
 
                       
 
                               
Other Income (Expense):
                               
Mark to market gains (losses) on undesignated interest rate derivatives
  $ (1,672 )   $ (608 )   $ (943 )   $ 556  
 
                       
Total charged to other income (expense)
  $ (1,672 )   $ (608 )   $ (943 )   $ 556  
 
                       
     The weighted average interest pay rates of these derivatives were 4.90% at December 31, 2008 and 4.91% at September 30, 2009.
     As of September 30, 2009, we did not have any cash collateral pledged under our interest rate derivatives, nor do we have any existing agreements that require cash collateral postings.
Management’s Use of 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-US 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.
Limitations of EBITDA
     EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for US GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate EBITDA, and using this non-US GAAP financial measure as compared to US GAAP net income (loss), 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; and
 
    the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results.

42


 

     An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-US GAAP financial measures to supplement our US GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
     EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with US GAAP. You should not rely on EBITDA as a substitute for any such US GAAP financial measure. We strongly urge you to review the reconciliation of EBITDA to US GAAP net income (loss), along with our consolidated financial statements included elsewhere in this quarterly report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA is not a measure of financial performance under US GAAP and is susceptible to varying calculations, the EBITDA measure, as presented in this quarterly report, may differ from, and may not be comparable to, similarly titled measures used by other companies. The table below shows the reconciliation of net income (loss) to EBITDA for the three and nine months ended September 30, 2008 and 2009.
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2009     2008     2009  
    (Dollars in thousands)  
Net income
  $ 23,574     $ 33,458     $ 90,552     $ 79,500  
Depreciation
    52,020       53,130       151,840       156,379  
Amortization of net lease discounts and lease incentives
    (1,781 )     3,992       (6,929 )     7,919  
Interest, net
    54,112       43,032       146,442       127,925  
Income tax provision
    1,315       1,423       4,662       5,388  
 
                       
EBITDA
  $ 129,240     $ 135,035     $ 386,567     $ 377,111  
 
                       
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate 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, debt investments, 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. Similarly, our debt investments are predominately collateralized by fixed rate aircraft leases, and provide for a fixed coupon interest rate. 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 and debt investments are periodically marked-to-market through stockholders’ 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. Also, as interest rates increase, the value of our fixed rate debt investments generally decreases. The magnitude of the decrease is a function of the difference between the coupon rate and the current market rate of interest, the average life of the securities and the face amount of the securities.
     The relationship between spreads on debt investments and 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.

43


 

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. We changed our interest rate risk disclosure to an alternative that provides a more meaningful analysis of our interest rate risk. 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 minimum contracted rental and interest expense impacts on our financial instruments and our four variable rate leases 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 September 30, 2009 by $1.2 million and $0.9 million, respectively, over the next twelve months. As of September 30, 2009, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/decrease of $0.7 million and $0.4 million, respectively, net of amounts received from our interest rate derivatives, over the next twelve months.
Item 4. 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, or 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, or CEO, and Chief Financial Officer, or 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 September 30, 2009. 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 September 30, 2009.
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 September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

44


 

PART II. — OTHER INFORMATION
Item 1. Legal Proceedings
     The Company is not a party to any material legal or adverse regulatory proceedings.
Item 1A. Risk Factors
     There have been no material changes to the disclosure related to the risk factors described in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2008.
Item 6. Exhibits
     
Exhibit No.   Description of Exhibit
3.1
  Memorandum of Association†
 
   
3.2
  Bye-laws†
 
   
4.1
  Specimen Share Certificate†
 
   
4.2
  Amended and Restated Shareholders Agreement among Aircastle Limited and Fortress Investment Fund III LP, Fortress Investment Fund III (Fund B) LP, Fortress Investment Fund III (Fund C) LP, Fortress Investment Fund III (Fund D) L.P., Fortress Investment Fund III (Fund E) LP, Fortress Investment Fund III (Coinvestment Fund A) LP, Fortress Investment Fund III (Coinvestment Fund B) LP, Fortress Investment Fund III (Coinvestment Fund C) LP, Fortress Investment Fund III (Coinvestment Fund D) L.P., Drawbridge Special Opportunities Fund LP, Drawbridge Special Opportunities Fund Ltd. and Drawbridge Global Macro Master Fund Ltd.†
 
   
31.1
  Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
   
31.2
  Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  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
 
   
99.1
  Owned Aircraft Portfolio at September 30, 2009
 
  Incorporated by reference to the Company’s registration statement on Form S-1, filed with the SEC on June 2, 2006, as amended on July 10, 2006, July 25, 2006 and August 2, 2006.

45


 

SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 9, 2009
         
  AIRCASTLE LIMITED
(Registrant)
 
 
  By:   /s/ Aaron Dahlke    
    Aaron Dahlke   
    Chief Accounting Officer and Authorized Officer   
 

46

Exhibit 31.1
CERTIFICATION
I, Ron Wainshal, certify that:
  1.   I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2009 of Aircastle Limited;
 
  2.   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;
 
  3.   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;
 
  4.   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.   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;
 
  b.   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;
 
  c.   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
 
  d.   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.   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
 
  b.   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: November 9, 2009
/s/ Ron Wainshal
 
Ron Wainshal
Chief Executive Officer

 

Exhibit 31.2
CERTIFICATION
I, Michael Inglese, certify that:
  1.   I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2009 of Aircastle Limited;
 
  2.   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;
 
  3.   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;
 
  4.   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.   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;
 
  b.   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;
 
  c.   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
 
  d.   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.   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
 
  b.   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: November 9, 2009
/s/ Michael Inglese
 
Michael Inglese
Chief Financial Officer

 

Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Quarterly Report on Form 10-Q of Aircastle Limited (the ''Company’’) for the three months ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the ''Report’’), I, Ron Wainshal, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Ron Wainshal
 
Name: Ron Wainshal
Title: Chief Executive Officer
Date: November 9, 2009

 

Exhibit 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Quarterly Report on Form 10-Q of Aircastle Limited (the ''Company’’) for the three months ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the ''Report’’), I, Michael Inglese, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Michael Inglese
 
Name: Michael Inglese
Title: Chief Financial Officer
Date: November 9, 2009

 

Exhibit 99.1
Owned Aircraft Portfolio at September 30, 2009 is as follows:
                     
            Manufacturer   Date of
Aircraft Group   Aircraft Type   Engine Type   Serial Number   Manufacture
Latest Generation Narrowbody Aircraft
  A319-100   CFM56-5B6/2P     1048     Jul-99
 
  A319-100   CFM56-5B6/2P     1086     Sep-99
 
  A319-100   CFM56-5B6/2P     1124     Nov-99
 
  A319-100   CFM56-5B6/2P     1160     Jan-00
 
  A319-100   CFM56-5B6/2P     1336     Oct-00
 
  A319-100   CFM56-5B6/2P     1388     Dec-00
 
  A320-200   V2527-A5     667     Apr-97
 
  A320-200   V2527-A5     739     Nov-97
 
  A320-200   V2527-A5     743     Nov-97
 
  A320-200   V2527-A5     758     Jan-98
 
  A320-200   CFM56-5B4/P     967     Apr-99
 
  A320-200   V2527-A5     990     May-99
 
  A320-200   CFM56-5B4/P     1041     Jul-99
 
  A320-200   CFM56-5B4/P     1047     Aug-99
 
  A320-200   CFM56-5B4/2P     1054     Sep-99
 
  A320-200   CFM56-5B4/P     1059     Aug-99
 
  A320-200   CFM56-5B4/P     1067     Sep-99
 
  A320-200   CFM56-5B4/2P     1081     Oct-99
 
  A320-200   CFM56-5B4/P     1099     Oct-99
 
  A320-200   CFM56-5B4/P     1101     Nov-99
 
  A320-200   CFM56-5B4/P     1119     Dec-99
 
  A320-200   CFM56-5B4/P     1316     Oct-00
 
  A320-200   CFM56-5B4/P     1345     Nov-00
 
  A320-200   CFM56-5B4/2P     1370     Jan-01
 
  A320-200   V2527-A5     2524     Sep-05
 
  A320-200   V2527-A5     2564     Oct-05
 
  A321-200   CFM56-5B3/P     1006     Apr-99
 
  A321-200   CFM56-5B3/2P     1012     Apr-99
 
  737-700   CFM56-7B22     28008     Feb-99
 
  737-700   CFM56-7B22     28009     Mar-99
 
  737-700   CFM56-7B22     28010     Oct-99
 
  737-700   CFM56-7B22     28013     Oct-00
 
  737-700   CFM56-7B22     28014     Feb-01
 
  737-700   CFM56-7B22     28015     Feb-01
 
  737-700   CFM56-7B22     29045     Dec-98
 
  737-700   CFM56-7B22     29046     Jan-99
 
  737-700   CFM56-7B22     29078     Apr-99
 
  737-800   CFM56-7B26     28056     May-99
 
  737-800   CFM56-7B26     28213     Jun-98
 
  737-800   CFM56-7B26     28220     Feb-99
 
  737-800   CFM56-7B27     28227     Jan-00
 
  737-800   CFM56-7B27     28231     May-00
 
  737-800   CFM56-7B26     28381     May-99
 
  737-800   CFM56-7B26     28384     Nov-99
 
  737-800   CFM56-7B24     29036     Dec-98
 
  737-800   CFM56-7B24     29037     Jan-99
 
  737-800   CFM56-7B26     29329     Mar-99
 
  737-800   CFM56-7B27     29345     May-02
 
  737-800   CFM56-7B24     29916     Mar-99
 
  737-800   CFM56-7B24     29917     Jun-99
 
  737-800   CFM56-7B24     29918     May-99
 
  737-800   CFM56-7B24     29919     Jul-99
 
  737-800   CFM56-7B24     29920     Sep-99
 
  737-800   CFM56-7B24     30230     Jan-00
 
  737-800   CFM56-7B27     30296     Feb-05


 

                     
            Manufacturer   Date of
Aircraft Group   Aircraft Type   Engine Type   Serial Number   Manufacture
Classic Narrowbody Aircraft
  A320-200   CFM56-5A1/F     138     Jan-91
 
  A320-200   CFM56-5A1/F     148     Feb-91
 
  737-300   CFM56-3B1     23173     Apr-85
 
  737-300   CFM56-3B2     24570     Jan-90
 
  737-300   CFM56-3C1     24669     Aug-90
 
  737-300   CFM56-3C1     24672     Sep-90
 
  737-400   CFM56-3C1     24644     Oct-90
 
  737-400   CFM56-3C1     25147     May-91
 
  737-400   CFM56-3C1     26280     Mar-92
 
  737-400   CFM56-3C1     27001     Jul-92
 
  737-400   CFM56-3C1     27003     Jul-92
 
  737-400   CFM56-3C1     27094     Feb-93
 
  737-400   CFM56-3C1     27826     Feb-95
 
  737-400   CFM56-3C1     28038     May-96
 
  737-400   CFM56-3C1     28867     Apr-97
 
  737-500   CFM56-3C1     27425     Sep-95
 
  757-200   PW2040     24738     Apr-90
 
  757-200   PW2040     24747     Apr-90
 
  757-200   PW2040     24748     May-90
 
  757-200   RB211-535E4     24838     Aug-90
 
  757-200   PW2037     27152     Jun-93
 
  757-200   PW2037     27183     Sep-93
 
  757-200   RB211-535E4     27201     Mar-94
 
  757-200   PW2037     27203     Nov-94
 
  757-200   RB211-535E4     27244     Mar-94
 
  757-200   RB211-535E4     27245     Jul-94
 
  757-200   PW2037     27342     Jun-94
 
  757-200   PW2037     27681     Jul-95
 
                   
Latest Generation Midbody Aircraft
  A330-200   Trent 772B     313     Jan-00
 
  A330-200   PW4168A     324     Feb-00
 
  A330-200   PW4168A     343     Jun-00
 
  A330-200   Trent 772B     1016     May-09
 
  A330-300   CF6-80E1A2     86     Jul-95
 
  A330-300   PW4168A     171     Apr-97
 
  A330-300   PW4168A     337     May-00
 
  A330-300   PW4168A     342     Jun-00
 
  A330-300   PW4168A     368     Nov-00
 
  A330-300   PW4168A     370     Dec-00
 
  A330-300   PW4168A     375     Jan-01
 
  767-200ER   CF6-80C2B2     24894     Nov-90
 
  767-300ER   CF6-80C2B6     24084     May-88
 
  767-300ER   PW4060     24541     Aug-89
 
  767-300ER   CF6-80C2B6F     24844     Aug-90
 
  767-300ER   PW4062-3     24849     Sep-90
 
  767-300ER   PW4060     24952     Mar-91
 
  767-300ER   PW4060     25000     Aug-91
 
  767-300ER   CF6-80C2B6F     25076     May-91
 
  767-300ER   CF6-80C2B6F     25117     May-91
 
  767-300ER   PW4060     25365     Oct-91
 
  767-300ER   PW4060-3     25587     Feb-96
 
  767-300ER   CF6-80C2B6     28656     May-97
 
                   
Latest Generation Widebody Aircraft
  777-200ER   Trent 892B-17     28414     May-98
 
                   
Latest Generation Widebody Freighter Aircraft
  747-400BCF   PW4056-3     24061     Mar-89


 

                     
            Manufacturer   Date of
Aircraft Group   Aircraft Type   Engine Type   Serial Number   Manufacture
 
  747-400BCF   PW4056-3     24066     Jun-90
 
  747-400BCF   PW4056-3     24226     Jul-90
 
  747-400BCF   PW4056-3     24975     Feb-91
 
  747-400BDSF   PW4056-1C     25700     May-93
 
  747-400BDSF   PW4056-1C     25702     Nov-93
 
  747-400BCF   PW4056-3     27137     Aug-93
 
  747-400ERF   CF6-80C2B5F     35233     Jan-07
 
  747-400ERF   CF6-80C2B5F     35235     Jul-07
 
  747-400ERF   CF6-80C2B5F     35236     Feb-08
 
  747-400ERF   CF6-80C2B5F     35237     Apr-08
 
                   
Classic Freighter Aircraft
  A310-300F   CF6-80C2A2     502     Aug-89
 
  737-300QC   CFM56-3C1     23835     Nov-87
 
  737-300QC   CFM56-3C1     23836     Feb-88
 
  737-300QC   CFM56-3C1     23837     Mar-88
 
  737-300QC   CFM56-3C1     24283     Feb-89
 
  737-400BDSF   CFM56-3C1     29032     Nov-97
 
  737-400BDSF   CFM56-3C1     29033     Dec-97
 
  737-400BDSF   CFM56-3C1     29034     Mar-98
 
  737-400BDSF   CFM56-3C1     29035     Jun-98
 
  MD11-SF   PW4462-3     48445     Apr-91